<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
HEALTHEON CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 94-3236644
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4600 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 876-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
W. MICHAEL LONG
CHIEF EXECUTIVE OFFICER
HEALTHEON CORPORATION
4600 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 876-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C> <C>
LARRY W. SONSINI JACK DENNISON GORDON K. DAVIDSON
STEVEN E. BOCHNER VICE PRESIDENT AND LAIRD H. SIMONS III
MARK L. REINSTRA GENERAL COUNSEL JEFFREY R. VETTER
Wilson Sonsini Goodrich & Rosati HEALTHEON CORPORATION CRAIG A. MENDEN
Professional Corporation 4600 Patrick Henry Drive Fenwick & West LLP
650 Page Mill Road Santa Clara, CA 95054 Two Palo Alto Square
Palo Alto, CA 94304-1050 (408) 876-5000 Palo Alto, CA 94306
(650) 493-9300 (650) 494-0600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
- ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
- ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
- ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE
TO BE REGISTERED OFFERING PRICE(1)
<S> <C>
Common Stock, $.0001 par value $35,000,000
<CAPTION>
TITLE OF SECURITIES AMOUNT OF
TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, $.0001 par value $9,730
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) of the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (1) one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and (2) the other to be used in connection with a concurrent
offering outside of the United States and Canada (the "International Prospectus"
and, together with the U.S. Prospectus, the "Prospectuses"). The U.S. Prospectus
and the International Prospectus are identical in all respects except for the
front cover page. The front cover page of the International Prospectus is
included herein after the final page of the U. S. Prospectus and is labeled
"Alternate Page for International Prospectus." Final forms of each of the
Prospectuses will be filed with the Commission pursuant to Rule 424(b)
promulgated under the Securities Act of 1933, as amended.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
SHARES
[LOGO]
COMMON STOCK
-----------------
HEALTHEON CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR
SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $ AND $ PER SHARE.
-------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "HLTH."
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------------
PRICE $ A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
--------- ------------- -----------
<S> <C> <C> <C>
PER SHARE.................................................................. $ $ $
TOTAL...................................................................... $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HEALTHEON HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999.
-------------------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or of any sale of the common stock. In this prospectus, unless the
context indicates otherwise, the "Company," "Healtheon," "we," "us" and "our"
refer to Healtheon Corporation and its consolidated subsidiaries.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 4
Healtheon Corporation.......................... 14
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 31
Management..................................... 46
<CAPTION>
PAGE
-----------
<S> <C>
Certain Transactions........................... 58
Principal Stockholders......................... 62
Description of Capital Stock................... 64
Shares Eligible for Future Sale................ 68
Certain United States Tax Consequences to
Non-U.S. Holders of Common Stock............. 70
Underwriters................................... 73
Legal Matters.................................. 76
Experts........................................ 76
Where You Can Find More Information............ 77
Index to Consolidated Financial Statements..... F-1
</TABLE>
Our executive offices are located at 4600 Patrick Henry Drive, Santa Clara,
California 95054. Our telephone number is (408) 876-5000. Information contained
on our website is not a part of this prospectus.
-------------------
Until , 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
-------------------
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.
Healtheon, Healtheon's logo, Virtual Healthcare Network, VHN, Healtheon
ProviderWorks and ProviderLink are some of our trademarks. SBCL SCAN is a
trademark of SmithKline Beecham Clinical Laboratories, Inc. Each other
trademark, trade name or service mark of any other company appearing in this
prospectus is the property of its holder.
The consolidated financial data in this prospectus reflect our acquisition
of ActaMed Corporation, or "ActaMed," on May 19, 1998, which was accounted for
as a pooling of interests. This means that for accounting and financial
reporting purposes, we treat the two companies as if they had always been
combined. The consolidated statement of operations and statement of cash flows
data for the year ended December 31, 1995 are derived solely from the ActaMed
statement of operations for such period because Healtheon did not commence
operations until January 1996. See Notes 1 and 2 of Notes to Consolidated
Financial Statements for a discussion of how we accounted for the acquisition of
ActaMed.
2
<PAGE>
DESCRIPTION OF ARTWORK
At the top of the page there is a colored band with the Healtheon name and
logo on the left and the text "Pioneering the use of the Internet to simplify
workflows, decrease costs, and improve the quality of patient care throughout
the healthcare industry."
On the middle left is the heading "Healtheon's Virtual Healthcare Networks"
over a cloud labeled "Internet" with the Healtheon logo superimposed. The cloud
has pictures of a telephone, a handheld computing device, a television with
internet access, and a computer monitor. The cloud is connected to four
photographs by lightning bolts. The upper left picture shows images from a
laboratory and has the heading "Suppliers" with the subheadings "Laboratories,
Pharmacies, Mail Order Drug and Pharmacy Benefit Managers." The upper right
picture is of doctors and has the heading "Providers" with the subheadings
"Physicians, Hospitals, Integrated Delivery Networks, Independent Practice
Associations and Practice Management Companies." The lower left picture shows
patients and has the heading "Consumers" with the subheadings "Employers",
"Government Agencies, Individuals and Benefit Brokers." The lower right picture
shows business people and has the heading "payers" with the subheadings
"Government Agencies, Insurance Companies, Managed Care Companies, and Preferred
Provider Organizations."
On the middle right are two layers of plugs which connect the Healtheon logo
identified as the "Healtheon Platform." This section has the heading "The
Healtheon Platform" and is connected by a colored band to the cloud on the left.
The upper level of plugs is identified as applications and has plugs for
"Claims, Transcription, Authorizing, Workflow Engine, M.D. Search, Referrals,
Reporting, Rules Engine, Registration, Eligibility, Person Index, Enrollment,
Lab Orders and Prescriptions." There is a plug called "New Applications" over an
arrow coming from three sources--"Healtheon Applications, 3rd Party Applications
and Legacy Applications." The lower level of plugs is identified as "Data
Objects." One plug, labeled "Data", is over an arrow coming from two
sources--"Legacy Databases" and "Private Networks." The large Healtheon logo is
surrounded by an inner band labeled "Security" and an outer band labeled
"Flexibility," "Usability," "Scalability," "Availability," "Extensibility,"
"Manageability," "Performance" and "Fault Tolerance."
The bottom of the page has a large arrow going from left to right with the
heading "Enabling a New Model for Managing Healthcare Information and
Transactions." To the left of the arrow is the term "Fragmented Legacy
Software", and to the right is the term "Network Services Model." Inside the
arrow is the following text: "HEALTHEON'S VIRTUAL HEALTHCARE NETWORKS connect
providers, payers, consumers and suppliers over the public Internet or private
intranets, and provide services and applications that enable the secure exchange
of information, transactions and simplified workflows across the healthcare
industry. At the center of these networks is THE HEALTHEON PLATFORM, an open
framework for providing mission-critical applications and supporting complex
healthcare transactions, while at the same time ensuring scalability,
availability and security."
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
Healtheon is pioneering the use of the Internet to simplify workflows,
decrease costs and improve the quality of patient care throughout the healthcare
industry. We have designed and developed an Internet-based information and
transaction platform, the "Healtheon Platform," that allows us to create Virtual
Healthcare Networks, "VHNs," that facilitate and streamline interactions among
the myriad participants in the healthcare industry. The Healtheon VHN solution
includes a suite of services delivered through applications operating on our
Internet-based platform. Our solution enables the secure exchange of information
among disparate healthcare information systems and supports a broad range of
healthcare transactions, including enrollment, eligibility determination,
referrals and authorizations, laboratory and diagnostic test ordering, clinical
data retrieval and claims processing. We provide our own applications on the
Healtheon Platform and also enable third-party applications to operate on the
platform. In addition to Virtual Healthcare Networks, we provide comprehensive
consulting, development, implementation and network management services to
enable our customers to take full advantage of the capabilities of the Healtheon
Platform. To date, our revenue has been derived primarily from non-Internet
network services, development and consulting services and management and
operation of customers' information technology infrastructure. We have
established strategic relationships with leading healthcare companies, including
United HealthCare Corporation, SmithKline Beecham Clinical Laboratories, Inc.,
Brown & Toland Physician Services Organization and Beech Street Corporation. We
believe these relationships will enhance our application portfolio, provide us
with important specialized industry expertise, increase our market penetration
and generate revenue. An investment in our common stock involves risks and
uncertainties, including the risks that the healthcare industry may be resistant
to the adoption of new information technology due to concerns about government
regulation, patient confidentiality and security. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
U.S. offering........................... shares
International offering.................. shares
Total................................. shares
Common stock to be outstanding after the
offering................................ shares(1)
Use of proceeds........................... For general corporate purposes, including working capital and capital
expenditures. See "Use of Proceeds."
Dividend Policy........................... We do not anticipate paying any cash dividends in the foreseeable future.
Proposed Nasdaq National Market symbol.... "HLTH"
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................................... $ 2,175 $ 11,013 $ 13,390 $ 7,000 $ 33,231
Loss from operations........................................................ (3,936) (16,541) (25,423) (19,073) (35,196)
Net loss applicable to common stockholders.................................. $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613)
Basic and diluted net loss per common share(2).............................. $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23)
Weighted-average shares outstanding used in computing basic and diluted net
loss per common share(2).................................................. 5,246 6,583 7,223 7,019 28,934
Pro forma basic and diluted net loss per common share (unaudited)(2)........ $ (.56) $ (.73)
Shares used in computing pro forma basic and diluted net loss per common
share (unaudited)(2)...................................................... 44,715 47,263
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED(3)
--------- ---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................................... $ 5,392 $
Working capital (deficit)............................................................................ (6,055)
Total assets......................................................................................... 50,270
Long-term obligations, net of current portion........................................................ 1,714
Stockholders' equity................................................................................. 30,225
</TABLE>
- ------------
(1) Based on the number of shares outstanding at September 30, 1998. Excludes
the following:
- 15,979,566 shares subject to options and warrants outstanding or reserved
for issuance under our stock plans at September 30, 1998;
- 7,683,341 shares of Series A convertible preferred stock issued in
November 1998;
- a warrant to purchase 500,000 shares issued in December 1998; and
- shares having a value of $11.0 million that may be issued in connection
with an asset purchase agreement with SmithKline Beecham Clinical
Laboratories, Inc.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing basic and diluted net loss per common share.
(3) As adjusted to give effect to the sale of the shares at an assumed initial
public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and our estimated offering expenses.
See "Use of Proceeds" and "Capitalization."
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS OR FINANCIAL CONDITION.
IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY HARMED. IN SUCH CASE, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
OUR OPERATING HISTORY IS LIMITED AND OUR BUSINESS MODEL IS UNPROVEN
Because we have recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. We began operations in January 1996 and until
recently had not earned significant revenue. In May 1998, we acquired ActaMed
and in August 1998, we acquired Metis, LLC. Our historical financial information
is of limited value in projecting our future operating results because of our
limited operating history as a combined organization and the emerging nature of
our markets. We have lost money since we began operations and, as of September
30, 1998, we had an accumulated deficit of $85.0 million. We currently derive
our revenue primarily from proprietary non-Internet network services offered by
ActaMed, from development and consulting services and from managing and
operating our customers' information technology infrastructures. We plan to
invest heavily in acquisitions, infrastructure development, applications
development and sales and marketing. As a result, we expect that we will
continue to lose money through 1999 and we may never achieve or sustain
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
THE HEALTHCARE INDUSTRY MAY NOT ACCEPT OUR SOLUTIONS
To be successful, we must attract a significant number of customers
throughout the healthcare industry. To date, the healthcare industry has been
resistant to adopting new information technology solutions. Electronic
information exchange and transaction processing by the healthcare industry is
still developing. We believe that complexities in the nature of the healthcare
transactions that must be processed have hindered the development and acceptance
of information technology solutions by the industry. Conversion from traditional
methods to electronic information exchange may not occur as rapidly as we expect
it will. Even if the conversion does occur as rapidly as we expect, healthcare
industry participants may use applications and services offered by others.
We believe that we must gain significant market share with our applications
and services before our competitors introduce alternative products, applications
or services with features similar to our current or proposed offerings. Our
business plan is based on our belief that the value and market appeal of our
solution will grow as the number of participants and the scope of the
transaction services available on our platform increase. We may not achieve the
critical mass of users we believe is necessary to become successful. In
addition, we expect to generate a significant portion of our revenue from
subscription and transaction-based fees. Consequently, any significant shortfall
in the number of users or transactions occurring over our platform would
adversely affect our financial results. See "Business -- Industry Background."
4
<PAGE>
WE RELY ON STRATEGIC RELATIONSHIPS
To be successful, we must establish and maintain strategic relationships
with leaders in a number of healthcare industry segments. This is critical to
our success because we believe that these relationships will enable us to:
- extend the reach of our applications and services to the various
participants in the healthcare industry;
- obtain specialized healthcare expertise;
- develop and deploy new applications;
- further enhance the Healtheon brand; and
- generate revenue.
Entering into strategic relationships is complicated because some of our
current and future partners may decide to compete with us. In addition, we may
not be able to establish relationships with key participants in the healthcare
industry if we have established relationships with competitors of these key
participants. Consequently, it is important that we are perceived as independent
of any particular customer or partner. Moreover, many potential partners may
resist working with us until our applications and services have been
successfully introduced and have achieved market acceptance.
Once we have established strategic relationships, we will depend on our
partners' ability to generate increased acceptance and use of our platform,
applications and services. To date, we have established only a limited number of
strategic relationships and these relationships are in the early stages of
development. We have limited experience in establishing and maintaining
strategic relationships with healthcare industry participants. If we lose any of
these strategic relationships or fail to establish additional relationships, or
if our strategic partners fail to actively pursue additional business
relationships and partnerships, we would not be able to execute our business
plans and our business would suffer significantly. We may not experience
increased use of our platform, applications and services even if we establish
and maintain these strategic relationships. For additional information regarding
strategic relationships, see "Business -- Strategy" and "-- Strategic
Relationships."
WE NEED TO EXPAND OUR SUITE OF APPLICATIONS
We currently offer a limited number of applications on our platform and our
future success depends on quickly introducing new applications in several
healthcare segments. We do not have the internal resources and specialized
healthcare expertise to develop all these applications independently.
Consequently, we must rely on a combination of internal development, strategic
relationships, licensing and acquisitions to develop these applications. Each of
our applications, regardless of how it was developed, must be integrated and
customized to operate with existing customer legacy computer systems and our
platform. Developing, integrating and customizing these applications will be
expensive and time consuming. Even if we are successful, these applications may
never achieve market acceptance. If we fail to expand the breadth of our
applications quickly or these applications fail to achieve market acceptance,
our business will suffer significantly.
WE FACE RISKS WITH OUR ACQUISITION STRATEGY
We expect to continue to acquire technologies and other healthcare
technology companies to increase the number and variety of applications on our
platform and to increase our customer base. For example, in May 1998 we acquired
ActaMed, and in August 1998 we acquired substantially all the assets of Metis,
LLC. To be successful, we will need to identify applications, technologies and
businesses that are complementary to ours, integrate disparate technologies and
corporate cultures and manage a geographically dispersed
5
<PAGE>
company. Acquisitions could divert our attention from other business concerns
and expose us to unforeseen liabilities or risks associated with entering new
markets. Finally, we may lose key employees while integrating these new
companies.
Integrating newly acquired organizations and technologies into our company
could be expensive, time consuming and may strain our resources. In addition, we
may lose our current customers if any acquired companies have relationships with
competitors of our customers. Consequently, we may not be successful in
integrating any acquired businesses or technologies and may not achieve
anticipated revenue and cost benefits. The healthcare industry is consolidating
and we expect that we will face intensified competition for acquisitions,
especially from larger, better-funded organizations. If we fail to execute our
acquisition strategy successfully for any reason, our business will suffer
significantly.
We intend to pay for some of our acquisitions by issuing additional common
stock and this could dilute our stockholders. We may also use cash to buy
companies or technologies in the future. If we do use cash, we may need to incur
debt to pay for these acquisitions. Acquisition financing may not be available
on favorable terms or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would materially harm our results of operations.
WE MUST MANAGE OUR GROWTH
We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and is expected to continue to place,
a significant strain on our managerial, operational, financial and other
resources. As of September 30, 1998, we have grown to 613 employees and
independent contractors, from 176 employees and independent contractors on
December 31, 1997. A large portion of this increase resulted from our
acquisitions of ActaMed in May 1998 and Metis, LLC in August 1998, which
increased our payroll by 230 employees. We expect to hire a significant number
of new employees to support our business.
Our current information systems, procedures and controls may not continue to
support our operations and may hinder our ability to exploit the market for
healthcare applications and services. We are in the process of evaluating our
accounting and management information systems and anticipate that we may
implement new systems within the next twelve months. We could experience
interruptions to our business while we transition to new systems.
WE DEPEND ON THE ADOPTION OF INTERNET SOLUTIONS
Our business model depends on the adoption of Internet solutions by
commercial users. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including:
- inadequate development of the necessary infrastructure for communication
speed, access and server reliability;
- security and confidentiality concerns;
- lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
- implementation of competing technologies;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity; and
- governmental regulation.
6
<PAGE>
We expect Internet use to grow in number of users and volume of traffic. The
Internet infrastructure may be unable to support the demands placed on it by
this continued growth. If these factors limit the acceptance or effectiveness of
Internet solutions, our business could suffer dramatically.
Growth in the demand for our applications and services depends on the
adoption of Internet solutions by healthcare participants, which requires the
acceptance of a new way of conducting business and exchanging information. The
healthcare industry, in particular, relies on legacy systems that may be unable
to benefit from our Internet-based platform. To maximize the benefits of our
platform, healthcare participants must be willing to allow sensitive information
to be stored in our databases. We can process transactions for healthcare
participants that maintain information on their own proprietary databases.
However, the benefits of our connectivity and sophisticated information
management solution are limited under these circumstances. Customers using
legacy and client-server systems may refuse to adopt new systems when they have
made extensive investment in hardware, software and training for older systems.
WE FACE SECURITY AND NETWORK RISKS
We currently process substantially all our customer transactions and data at
our facilities in Santa Clara, California and Atlanta, Georgia. Although we have
safeguards for emergencies, we do not have backup facilities to process
information if either of these facilities is not functioning. The occurrence of
a major catastrophic event or other system failure at either the Santa Clara or
the Atlanta facility could interrupt data processing or result in the loss of
stored data. In addition, we depend on the efficient operation of Internet
connections from customers to our systems. These connections, in turn, depend on
the efficient operation of Web browsers, Internet service providers and Internet
backbone service providers, all of which have had periodic operational problems
or experienced outages. Any system delays, failures or loss of data, whatever
the cause, could reduce customer satisfaction with our applications and services
and harm our business.
We retain confidential customer and patient information in our processing
centers. Therefore, it is critical that our facilities and infrastructure remain
secure and that our facilities and infrastructure are perceived by the
marketplace to be secure. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors, attacks by third parties or similar disruptive problems. A
material security breach could damage our reputation or result in liability to
us.
OUR BUSINESS IS AFFECTED BY RAPIDLY CHANGING TECHNOLOGY
Healthcare information exchange and transaction processing is a relatively
new and evolving market. The pace of change in our markets is rapid and there
are frequent new product introductions and evolving industry standards. We may
be unsuccessful in responding to technological developments and changing
customer needs. In addition, our applications and services offerings may become
obsolete due to the adoption of new technologies or standards. See "Business --
Development and Engineering."
OUR PLATFORM INFRASTRUCTURE AND ITS SCALABILITY ARE NOT PROVEN
So far, we have processed a limited number and variety of transactions over
our platform. Similarly, a limited number of healthcare participants use our
platform. We must continue to expand and adapt our network infrastructure to
accommodate additional users, increased transaction volumes and changing
customer requirements. This expansion and adaptation will be expensive and will
divert our attention from other activities. Our systems may not accommodate
increased use while maintaining acceptable overall performance.
Many of our service agreements contain performance standards. If we fail to
meet these standards, our customers could terminate their agreements with us.
The loss of any of our service agreements would directly
7
<PAGE>
and significantly impact our business. We may be unable to expand or adapt our
network infrastructure to meet additional demand or our customers' changing
needs on a timely basis and at a commercially reasonable cost, or at all.
OUR REVENUES ARE CONCENTRATED IN A FEW CUSTOMERS
We receive a substantial majority of our revenue from four customers. United
HealthCare Corporation, SmithKline Beecham Clinical Laboratories, Inc., Brown &
Toland Physician Services Organization and Beech Street Corporation each
accounted for over 10% and together accounted for approximately 90% of our total
revenue for the nine months ended September 30, 1998. In addition, United
HealthCare and Brown & Toland each accounted for over 10% and together accounted
for approximately 70% of our total revenue for the year ended December 31, 1997.
Customers who also own shares of our stock, including United HealthCare and
SmithKline Labs, accounted for 55% of our total revenue in the year ended
December 31, 1997 and 43% of our total revenue for the nine months ended
September 30, 1998. United HealthCare will own approximately % of our stock
after this offering. Similarly, SmithKline Labs will own approximately % of
our stock after this offering (not including common stock having a fair market
value of $11.0 million that may be issued to SmithKline Labs under a December
1998 Asset Purchase Agreement). We expect that we will generate a significant
portion of our revenue from a small number of customers for the next few years.
If we do not generate as much revenue from these customers as we expect to, or
if we lose any of them as customers, our revenue will be significantly reduced
which would harm our business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Strategic
Relationships."
WE FACE SIGNIFICANT COMPETITION
The market for healthcare information services is intensely competitive,
rapidly evolving and subject to rapid technological change. Many of our
competitors have announced or introduced Internet strategies that will compete
with our applications and services. We have many competitors, including:
- healthcare information software vendors, including HBO & Company and
Shared Medical Systems Corporation;
- healthcare electronic data interchange companies, including ENVOY
Corporation and National Data Corporation;
- large information technology consulting service providers, including
Andersen Consulting, International Business Machines Corporation and
Electronic Data Systems Corporation; and
- small regional organizations.
In addition, we expect that major software information systems companies and
others specializing in the healthcare industry will offer competitive
applications or services. Some of our large customers may also compete with us.
Many of our competitors have greater financial, technical, product
development, marketing and other resources than we have. These organizations may
be better known and have more customers than us. We may be unable to compete
successfully against these organizations. See "Business -- Competition."
CHANGES IN THE HEALTHCARE INDUSTRY COULD AFFECT OUR BUSINESS
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could cause us to make
unplanned enhancements of applications or services, or result in delays or
cancellations of orders or in the revocation of endorsement of our applications
and services by healthcare participants. Federal and state legislatures have
8
<PAGE>
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state level. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry participants
operate. Healthcare industry participants may respond by reducing their
investments or postponing investment decisions, including investments in our
applications and services. We do not know what effect any proposals would have
on our business.
Many healthcare providers are consolidating to create integrated healthcare
delivery systems with greater market power. These providers may try to use their
market power to negotiate price reductions for our applications and services. If
we were forced to reduce our prices, our operating results would suffer. As the
healthcare industry consolidates, competition for customers will become more
intense and the importance of acquiring each customer will become greater.
GOVERNMENT REGULATION COULD AFFECT OUR BUSINESS
Our business is subject to government regulation. Laws and regulations may
be adopted with respect to the Internet or other on-line services covering
issues such as:
- user privacy;
- pricing;
- content;
- copyrights;
- distribution; and
- characteristics and quality of products and services.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Demand for our applications and services may be affected by additional
regulation of the Internet. For example, until recently current Health Care
Financing Administration guidelines prohibited transmission of Medicare
eligibility information over the Internet.
We are subject to extensive regulation relating to the confidentiality and
release of patient records. Additional legislation governing the distribution of
medical records has been proposed at both the state and federal level. It may be
expensive to implement security or other measures designed to comply with any
new legislation. Moreover, we may be restricted or prevented from delivering
patient records electronically.
Legislation currently being considered at the federal level could affect our
business. For example, the Health Insurance Portability and Accountability Act
of 1996 mandates the use of standard transactions, standard identifiers,
security and other provisions by the year 2000. We are designing our platform
and applications to comply with these proposed regulations; however, until these
regulations become final, they could change, which could cause us to use
additional resources and lead to delays in order to revise our platform and
applications. In addition, our success depends on other healthcare participants
complying with these regulations.
Some computer applications and software are considered medical devices and
are subject to regulation by the United States Food and Drug Administration, or
the "FDA." We do not believe that our current applications or services are
subject to FDA regulation. We may expand our application and service offerings
into areas that subject us to FDA regulation. We have no experience in complying
with FDA regulations. We believe that complying with FDA regulations would be
time consuming, burdensome and expensive and could delay our introduction of new
applications or services. See "Business -- Governmental Regulations."
9
<PAGE>
OUR QUARTERLY OPERATING RESULTS MAY VARY
We expect that our quarterly revenue and operating results may fluctuate as
a result of a number of factors, including:
- changes in our strategic relationships;
- future acquisitions;
- our entry into new healthcare markets;
- new customers;
- new application and service offerings;
- software defects, delays in development and other quality factors;
- customer demand for our applications and services;
- our ability to meet project milestones or customer expectations;
- our mix of consulting and transaction fee revenue;
- variability in demand for Internet-based healthcare solutions;
- changes within the healthcare industry; and
- seasonality of demand.
We expect to increase activities and spending in substantially all of our
operational areas. We base our expense levels in part upon our expectations
concerning future revenue and these expense levels are relatively fixed in the
short-term. If we have lower revenue, we may not be able to reduce our spending
in the short-term in response. Any shortfall in revenue would have a direct
impact on our results of operations. Fluctuations in our quarterly results could
affect the market price of our common stock in a manner unrelated to our
long-term operating performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." For these and other reasons, we
may not meet the earnings estimates of securities analysts or investors and our
stock price could suffer.
WE MAY FACE PRODUCT-RELATED LIABILITIES
While we and our customers test our applications, they may contain defects
or result in system failures. In addition, our platform may experience problems
in security, availability, scalability or other critical features. These defects
or problems could result in the loss of or delay in generating revenue, loss of
market share, failure to achieve market acceptance, diversion of development
resources, injury to our reputation or increased insurance costs.
Many of our strategic relationships and services agreements involve
providing critical information technology services to our clients' businesses.
Providing these services is complex because our clients have complex computing
system environments. If we fail to meet our clients' expectations, our
reputation could suffer and we could be liable for damages. In addition, patient
care could suffer and we could be liable if our systems fail to deliver correct
information in a timely manner. Our insurance may not protect us from this risk.
Finally, we could become liable if confidential information is disclosed
inappropriately.
Our contracts limit our liability arising from our errors; however, these
provisions may not be enforceable and may not protect us from liability. While
we have general liability insurance that we believe is adequate, including
coverage for errors and omissions, we may not be able to maintain this insurance
on reasonable terms in the future. In addition, our insurance may not be
sufficient to cover large claims and our insurer could disclaim coverage on
claims. If we are liable for an uninsured or underinsured claim or if our
premiums increase significantly, our financial condition could be materially
harmed.
10
<PAGE>
WE DEPEND ON OUR PROPRIETARY TECHNOLOGY
Our intellectual property is important to our business. We expect that we
could be subject to intellectual property infringement claims as the number of
our competitors grows and the functionality of our applications overlaps with
competitive offerings. These claims, even if not meritorious, could be expensive
and divert our attention from operating our company. If we become liable to
third parties for infringing their intellectual property rights, we would be
required to pay a substantial damage award and to develop noninfringing
technology, obtain a license or cease selling the applications that contain the
infringing intellectual property. We may be unable to develop noninfringing
technology or obtain a license on commercially reasonable terms, or at all. In
addition, we may not be able to protect against misappropriation of our
intellectual property. Third parties may infringe upon our intellectual property
rights, we may not detect this unauthorized use and we may be unable to enforce
our rights. See "Business -- Intellectual Property."
THE SALES AND IMPLEMENTATION CYCLES FOR OUR SOLUTIONS CAN BE LENGTHY
A key element of our strategy is to market our solutions directly to large
healthcare organizations. We expect that the sales and implementation process
will be lengthy and will involve a significant technical evaluation and
commitment of capital and other resources by our customers. The sale and
implementation of our solutions are subject to delays due to our customers'
internal budgets and procedures for approving large capital expenditures and
deploying new technologies within their networks. We are unable to control many
of the factors that will influence our customers' buying decisions.
We will need to expend substantial resources to integrate our applications
with the existing legacy and client-server architectures of large healthcare
organizations. We have limited experience in integrating our applications with
large, complex architectures, and we may experience delays in the integration
process. These delays would, in turn, delay our ability to generate revenue from
these applications and could adversely affect our results of operations.
WE FACE RISKS RELATED TO THE YEAR 2000
Two of our systems, SBCL SCAN, or "SCAN," and ProviderLink, are not Year
2000 compliant. Our revenue from these systems accounted for approximately 43%
of our total revenue in the first nine months of 1998. We plan to release Year
2000 upgrades to these systems in early 1999. We estimate the cost of these Year
2000 upgrades to SCAN and ProviderLink to be less than $1.0 million. In
addition, our SCAN product is installed on approximately 4,650 workstations
located in physician offices. Many of these workstations are not Year 2000
compliant and we must upgrade or replace them. We could experience delays and
cost overruns in developing these upgrades. In addition, it may be difficult to
convince physicians to implement these upgrades. Our revenue from SCAN and
ProviderLink could decrease if we experience delays in upgrading these
applications and workstations. In addition, we may not identify all of our
applications and systems that must be modified to be Year 2000 compliant and may
need to spend additional amounts to repair or modify our applications and
systems. In certain of our agreements, we warrant that our applications and
services are Year 2000 compliant. If they fail to be compliant, our customers
could terminate the agreements and we could be liable for damages.
We also depend on other healthcare participants to be Year 2000 compliant.
Many of these organizations are not Year 2000 compliant, and we do not know what
affect this would have on our systems. We could be liable for the failure of our
platform even if the failure was caused by someone else. Furthermore, the costs
to our customers of becoming Year 2000 compliant may result in reduced funds
being available to purchase and implement our applications and services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
11
<PAGE>
WE MAY NEED TO OBTAIN FUTURE CAPITAL
We expect that the money generated from this offering, combined with our
current cash resources and credit facilities, will be sufficient to meet our
requirements for at least the next twelve months. However, we may raise
additional financing to support expansion, develop new or enhanced applications
and services, respond to competitive pressures, acquire complementary businesses
or technologies or take advantage of unanticipated opportunities. We may need to
raise additional funds by selling debt or equity securities, by entering into
strategic relationships or through other arrangements. We may be unable to raise
any additional amounts on reasonable terms when they are needed.
OUR COMMON STOCK PRICE MAY BE VOLATILE
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated quarterly variations in our operating results;
- changes in expectations of future financial performance or changes in
estimates of securities analysts;
- announcements of technological innovations;
- announcements relating to strategic relationships;
- customer relationship developments; and
- conditions affecting the Internet or healthcare industries, in general.
The trading price of our common stock may be volatile. The stock market in
general, and the market for technology and Internet-related companies in
particular, has experienced extreme volatility that often has been unrelated to
the operating performance of particular companies. These broad market and
industry fluctuations may adversely affect the trading price of our common
stock, regardless of our actual operating performance.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to Healtheon, litigation would be expensive
and would divert management's attention.
The initial public offering price will be established by negotiation between
the U.S. underwriters and Healtheon. You should read the "Underwriters" section
for a more complete discussion of the factors determining the initial public
offering price.
WE DEPEND ON OUR KEY PERSONNEL
Our success will depend significantly on our senior management team and
other key employees. We need to attract, integrate, motivate and retain
additional highly skilled technical people. In particular, we need to attract
experienced professionals capable of developing, selling and installing complex
healthcare information systems. We face intense competition for these people.
Our executive management team, including W. Michael Long, our Chief Executive
Officer, and Pavan Nigam, our Vice President, Engineering, is critical to our
success. We do not maintain key person life insurance for anyone.
WE HAVE CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing an acquisition of Healtheon. For example, our board of directors is
divided into three classes to serve staggered three-year terms, our stockholders
may not take actions by written consent and our stockholders are limited in
their ability to make proposals at stockholder meetings. See "Description of
Capital Stock" for a further discussion of these provisions.
12
<PAGE>
FUTURE SALES OF SHARES COULD AFFECT OUR STOCK PRICE
The market price for our common stock could fall dramatically if our
stockholders sell large amounts of our common stock in the public market
following this offering. These sales, or the possibility that these sales may
occur, could make it more difficult for us to sell equity or equity-related
securities in the future. The number of shares of common stock available for
sale in the public market is limited by restrictions under federal securities
law and by certain "lock-up" agreements that our stockholders have entered into
with the underwriters. The lock-up agreements restrict our stockholders from
selling or otherwise disposing of any of their shares for a period of 180 days
after the date of this prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated may, however, in
its sole discretion and without notice, release all or any portion of the shares
from the restrictions in the lock-up agreements.
After this offering, we will have outstanding shares of common
stock, based upon shares outstanding as of November 30, 1998 and assuming no
exercise of the Underwriters' overallotment option and no exercise of
outstanding options or warrants. These shares will become eligible for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE ELIGIBLE FOR PUBLIC RESALE
- ----------------------- ---------------------------------------------------------------------
<S> <C>
.............. Date of this prospectus (includes the shares sold in this
offering)
52,254,368............. 180 days after the date of this prospectus
9,283,341............. At various times thereafter through November 6, 1999
</TABLE>
All but 10,437,264 of the shares eligible for sale at the 180th day after
the date of this prospectus or afterward will be subject initially to certain
volume and other limitations under Rule 144 of the Securities Act.
On or prior to the 180th day following the date of this prospectus, we
intend to register for resale an additional 13,811,659 shares of common stock
reserved for issuance under our employee stock plans. In addition, the holders
of approximately 50,007,164 shares of our common stock have the right to require
us to register their shares for sale to the public. If these holders cause a
large number of shares to be registered and sold in the public market, our stock
price could fall materially. See "Shares Eligible for Future Sale."
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL OF
THE COMPANY AND WILL BENEFIT FROM THE OFFERING
After this offering, our directors and management will own or control
approximately % of our common stock. If these people act together, they will
be able to significantly influence the management and affairs of Healtheon and
will have the ability to control all matters requiring stockholder approval.
This concentration of ownership may have the effect of delaying, deferring or
preventing an acquisition of Healtheon and may adversely affect the market price
of our common stock.
Existing stockholders have paid an average of $2.07 per share for their
common stock, which is considerably less than the amount to be paid by investors
who purchase in this offering. This offering will also create a public market
for the resale of shares held by existing investors, and substantially increase
the market value of those shares. See "Dilution" and "Principal Stockholders."
13
<PAGE>
HEALTHEON CORPORATION
Healtheon is pioneering the use of the Internet to simplify workflows,
decrease costs and improve the quality of patient care throughout the healthcare
industry. We designed and developed the Healtheon Platform, an Internet-based
information and transaction platform that allows us to create Virtual Healthcare
Networks, or VHNs, that facilitate and streamline interactions among the myriad
participants in the healthcare industry. The Healtheon VHN solution includes a
suite of services delivered through applications operating on our Internet-based
platform. Our solution enables the secure exchange of information among
disparate healthcare information systems and supports a broad range of
healthcare transactions, including enrollment, eligibility determination,
referrals and authorizations, laboratory and diagnostic test ordering, clinical
data retrieval and claims processing. We provide our own applications on the
Healtheon Platform and also enable third-party applications to operate on the
platform. In addition to Virtual Healthcare Networks, we provide comprehensive
consulting, development, implementation and network management services to
enable our customers to take full advantage of the capabilities of the Healtheon
Platform. We have established strategic relationships with leading healthcare
companies, including United HealthCare Corporation, SmithKline Beecham Clinical
Laboratories, Inc., Brown & Toland Physician Services Organization and Beech
Street Corporation. We believe that these relationships will enhance our
application portfolio, provide us with important specialized industry expertise,
increase our market penetration and generate revenue.
The Internet's open architecture, universal accessibility and growing
acceptance make it an increasingly important environment for
business-to-business and business-to-consumer interaction. Use of the Internet
is rapidly expanding from simple information publishing, messaging, and data
gathering to critical business transactions and confidential communications. For
many industries, the Internet is connecting previously disconnected business
processes and allowing companies to automate workflows, lower distribution costs
and extend their market reach. We believe the healthcare industry, because of
its size, fragmentation and extreme dependence on information exchange, is
particularly well suited to benefit from greater use of the Internet.
The Healtheon Platform is designed to ensure security, scalability,
reliability, availability and flexibility. The platform includes a CORBA-based
distributed application framework that allows reliable, simultaneous access by
large numbers of users. Open architecture and object-oriented design permit
standards-based integration with legacy systems and third-party applications. A
combination of advanced technologies, including digital encryption, digital
certificates and audit trail tracking, ensures security. The platform is
deployed on redundant, fault tolerant servers with associated software to create
24-hour availability.
Our objective is to become the leading provider of Internet-based
transaction and information services to the healthcare industry. Our strategy
includes:
- leveraging Internet technology to provide secure transactions and
communications among a broad range of healthcare participants, regardless
of their computing platforms;
- expanding the functionality and transaction capability of our platform
through the development, acquisition or enabling of Internet-based
applications;
- forming additional strategic relationships to increase our portfolio of
applications and services, to increase the number of connected healthcare
participants and to provide specialized industry expertise for our new
applications;
- targeting regional markets where we can gain critical mass, thereby
expanding nationally region by region; and
- employing our usage-based business model to reduce the initial investment
required by customers to obtain the benefits of high-end information
technology systems and enable physicians, small organizations and
individuals to gain access to advanced information systems for the first
time.
14
<PAGE>
We were incorporated in Delaware in December 1995 and commenced operations
in January 1996. In May 1998, we acquired ActaMed, a leading provider of network
services to the healthcare industry. In August 1998, we acquired Metis, LLC, a
leading consulting, design and development firm focused on Internet and
intranet-based solutions for medical centers and integrated delivery networks.
USE OF PROCEEDS
The net proceeds from the sale of the shares of common stock in
this offering are estimated to be approximately $ million (approximately
$ million if the U.S. underwriters' over-allotment option is exercised in
full), at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and our estimated
offering expenses. The principal purposes of this offering are to obtain
additional capital, to create a public market for the Company's common stock, to
enhance the ability of the Company to acquire other businesses, products or
technologies, and to facilitate future access by the Company to public equity
markets.
The Company currently expects to use the net proceeds of this offering for
general corporate purposes, including working capital and capital expenditures.
The Company may also use a portion of the net proceeds of this offering to
acquire or invest in complementary businesses or technologies, although the
Company has no present commitments or agreements with respect to any such
acquisition or investment. However, the Company from time to time enters into
nondisclosure agreements with third parties for the purpose of evaluating
strategic transactions involving complementary businesses or technologies.
Pending such uses, the Company intends to invest such funds in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common
stock or other securities and does not intend to pay any cash dividends with
respect to its common stock in the foreseeable future. The Company intends to
retain any earnings for use in the operation of its business and to fund future
growth. In addition, the terms of the Company's credit agreement prohibit the
payment of cash dividends on its capital stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
September 30, 1998 (1) on an actual basis and (2) on an as adjusted basis to
reflect the receipt by the Company of the estimated net proceeds from the sale
of the shares of common stock in this offering (at an assumed initial
public offering price of $ per share) and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations, net of current portion........................................ $ 1,714 $ 1,714
---------- -----------
Stockholders' equity:
Convertible Preferred Stock, $.0001 par value; no shares authorized, no shares issued
or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding,
as adjusted........................................................................... -- --
Common Stock, $.0001 par value; 75,000,000 shares authorized, 54,422,868 shares issued
and outstanding, actual; 150,000,000 shares authorized, shares issued and
outstanding, as adjusted(1)........................................................... 5
Additional paid-in capital............................................................... 117,964
Deferred stock compensation.............................................................. (2,751) (2,751)
Accumulated deficit...................................................................... (84,993) (84,993)
---------- -----------
Total stockholders' equity........................................................... 30,225
---------- -----------
Total capitalization............................................................... $ 31,939 $
---------- -----------
---------- -----------
</TABLE>
- ---------
(1) Excludes (i) 11,186,473 shares of common stock issuable upon the exercise of
options outstanding at September 30, 1998, with a weighted average exercise
price of $2.33 per share, (ii) 2,715,853 shares reserved for issuance under
our 1996 Stock Plan and our 1998 Purchase Plan at September 30, 1998, (iii)
2,077,240 shares of common stock issuable upon the exercise of warrants
outstanding at September 30, 1998, with a weighted average exercise price of
$2.81 per share, (iv) 500,000 shares of common stock subject to a warrant
with an exercise price of $10.40 per share issued to a customer in December
1998, (v) 7,683,341 shares of Series A convertible preferred stock issued in
November 1998 for $46.1 million in cash proceeds, (vi) options to purchase
common stock granted and shares of common stock issued pursuant to
restricted stock purchase agreements equal to a total of 1,518,257 shares
from October to December 1998 with a weighted-average exercise or purchase
price of $3.55 per share and (vii) shares of common stock having a value of
$11.0 million that may be issued in connection with a December 1998 Asset
Purchase Agreement with SmithKline Beecham Clinical Laboratories, Inc. See
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Notes 10, 11 and 14 of Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1998 was
approximately $6.5 million, or $0.12 per share. Net tangible book value per
share is determined by dividing the total net tangible book value of the
Company, which is total tangible assets less total liabilities, by the number of
shares of common stock at that date. Dilution per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to the sale
of shares of common stock offered by the Company hereby, at an assumed
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and the application of the estimated net proceeds therefrom, the
Company's net tangible book value at September 30, 1998 would have been $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value to existing stockholders of $ per share and an
immediate dilution to new investors of $ per share. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............................ $
Net tangible book value per share as of September 30, 1998............... .12
Increase per share attributable to new investors
-----
Net tangible book value per share after this offering...................... $
-----
Dilution per share to new public investors $
-----
-----
</TABLE>
The following table sets forth, on a pro forma basis, as of September 30,
1998, the difference between the number of shares of common stock purchased from
the Company, the total consideration paid and the average price per share paid
by existing stockholders and by the new investors (at an assumed initial public
offering price of $ per share and before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 54,422,868 % $ 112,858,000 % $ 2.07
New public investors..........
------------ ----- -------------- -----
Total..................... 100.0% 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
As of September 30, 1998, there were options outstanding to purchase a total
of 11,186,473 shares of common stock, with a weighted average exercise price of
$2.33 per share, and warrants to purchase a total of 2,077,240 shares of common
stock, with a weighted average exercise price of $2.81 per share. From October
through December 1998, the Company granted options to purchase common stock and
issued shares of common stock pursuant to restricted stock purchase agreements
equal to a total of 1,518,257 shares, with a weighted average exercise or
purchase price of $3.55 per share. To the extent that any of the outstanding
options or warrants are exercised, there will be further dilution to new public
investors. If all outstanding options and warrants, through December 31, 1998,
were exercised, the dilution per share to new public investors would be $ .
In November 1998, the Company issued 7,683,341 shares of Series A
convertible preferred stock for $46.1 million in cash proceeds at a purchase
price of $6.00 per share.
In October 1998, the Company offered to reprice options granted from July
1998 through October 1998. Pursuant to this repricing, option holders could
surrender their original option in exchange for a new option with a new vesting
start date and an exercise price of $3.55 per share. Options for a total of
2,067,950 shares were canceled and reissued. On December 14, 1998, 455,000
shares of common stock issued in July 1998 pursuant to restricted stock purchase
agreements were repurchased.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Consolidated Financial Statements and
Notes thereto, which are included elsewhere in this prospectus. In May 1998,
Healtheon acquired ActaMed in a transaction accounted for as a pooling of
interests. All financial information has been restated to reflect the combined
operations of the Company and ActaMed. The consolidated statements of operations
data for the three-year period ended December 31, 1997 and the consolidated
balance sheet data at December 31, 1996 and 1997 are derived from, and are
qualified by reference to, the audited Consolidated Financial Statements
included elsewhere in this prospectus. The consolidated statements of operations
data for the two-year period ended December 31, 1994 and the consolidated
balance sheet data at December 31, 1993, 1994 and 1995 are derived from, and are
qualified by reference to, audited Consolidated Financial Statements that are
not included in this prospectus. The statements of operations data for the
nine-month period ended September 30, 1997 and 1998 and the balance sheet data
as of September 30, 1998 are derived from unaudited financial statements
included elsewhere in this prospectus and, in the opinion of the Company,
include all adjustments, consisting only of normal recurring adjustments, which
are necessary for a fair presentation of the results of operations for this
period. Historical operating results are not necessarily indicative of results
in the future, and the results for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenue:
Services.................................... $ -- $ 190 $ 458 $ 1,795 $ 4,301 $ 1,216 $ 18,326
Services to related parties(2).............. -- -- -- 4,237 7,309 5,199 14,320
Software licenses........................... -- -- 1,717 4,981 1,780 585 585
--------- --------- --------- --------- --------- --------- ---------
Total revenue............................... -- 190 2,175 11,013 13,390 7,000 33,231
Operating costs and expenses:
Cost of revenue:
Cost of services.......................... -- 507 1,573 1,648 4,011 1,080 18,688
Cost of services to related parties....... -- -- -- 4,919 6,536 4,648 12,512
Cost of software licenses................. -- -- 343 160 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue....................... -- 507 1,916 6,727 10,547 5,728 31,200
Development and engineering expense......... 1,002 1,863 2,446 8,596 12,986 9,681 13,036
Sales, general and administrative expense... 769 938 1,749 9,042 11,031 7,477 16,794
Amortization of intangible assets........... -- -- -- 3,189 4,249 3,187 7,397
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses.......... 1,771 3,308 6,111 27,554 38,813 26,073 68,427
--------- --------- --------- --------- --------- --------- ---------
Loss from operations.......................... (1,771) (3,118) (3,936) (16,541) (25,423) (19,073) (35,196)
Interest income............................... 5 172 208 539 611 359 834
Interest expense.............................. (117) (57) (6) (56) (323) (177) (361)
Dividends on ActaMed's convertible redeemable
preferred stock............................. -- -- -- (2,548) (2,870) (2,382) (890)
--------- --------- --------- --------- --------- --------- ---------
Net loss...................................... (1,883) (3,003) (3,734) (18,606) (28,005) (21,273) (35,613)
Dividends on ActaMed's convertible redeemable
preferred stock............................. -- (423) (724) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss applicable to common stockholders.... $ (1,883) $ (3,426) $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic and diluted net loss per common share... $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23)
Weighted-average shares outstanding used in
computing basic and diluted net loss per
common share(3)............................. 5,246 6,583 7,223 7,019 28,934
Pro forma basic and diluted net loss per
common share (unaudited).................... $ (.56) $ (.73)
Shares used in computing pro forma basic and
diluted net loss per common share
(unaudited)(3)............................. 44,715 47,263
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- -------
SEPTEMBER 30,
1998
-------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Cash, cash equivalents and short-term investments..................... $ 74 $ 4,186 $ 9,386 $ 7,539 $21,804 $ 5,392
Working capital (deficit)............................................. (1,737) 4,226 7,244 2,505 14,790 (6,055)
Total assets.......................................................... 899 5,379 10,801 34,407 53,747 50,270
Long-term obligations, net of current portion......................... 159 63 -- 1,210 932 1,714
Convertible redeemable preferred stock................................ -- 7,919 16,029 39,578 50,948 --
Stockholders' equity (net capital deficiency)......................... (1,335) (2,838) (7,697) (14,553) (9,930) 30,225
</TABLE>
- ------------
(1) The consolidated statements of operations and balance sheet data as of and
for the years ended December 31, 1993, 1994 and 1995 are derived solely from
the ActaMed statements of operations and balance sheets for such periods
because Healtheon did not commence operations until January 1996. See Notes
1 and 2 of Notes to Consolidated Financial Statements for a discussion of
the accounting for the acquisition of ActaMed.
(2) Revenue from services to related parties consists of revenue from United
HealthCare and SmithKline Labs, customers that are also significant
stockholders of the Company.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the shares used in computing basic and diluted net
loss per common share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS CONTEMPLATED BY THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Healtheon is pioneering the use of the Internet to simplify workflows,
decrease costs and improve the quality of patient care throughout the healthcare
industry. Healtheon's VHN Solution enables the secure exchange of information
among a wide array of disparate healthcare information systems and provides a
framework for a broad range of healthcare transactions.
Healtheon was incorporated in December 1995, commenced operations in January
1996 and until late 1997 had not recognized substantial revenue and was
considered to be in the development stage. In May 1998, Healtheon acquired
ActaMed, which was incorporated in 1992. The acquisition of ActaMed was
accounted for as a pooling of interests. The financial information presented
reflects the combined financial position and operations of Healtheon and ActaMed
for all dates and periods presented. The Company's limited revenue to date has
been derived primarily from proprietary non-Internet network services offered by
ActaMed and from management and operation of customers' information technology,
or "IT," infrastructure. In March 1996, ActaMed acquired EDI Services, Inc., or
"EDI," a wholly-owned subsidiary of United HealthCare, in a transaction
accounted for as a purchase. Accordingly, the operations of EDI are included in
the Company's consolidated statements of operations beginning in March 1996. In
August 1998, the Company acquired substantially all of the assets of Metis, LLC,
a leading consulting, design and development firm focused on Internet and
intranet-based solutions for medical centers and integrated delivery networks.
In connection with this acquisition, the Company issued 1,600,000 shares of its
common stock, of which 476,548 shares will be issued to certain employees
pursuant to restricted stock purchase agreements subject to a lapsing right of
repurchase, at the option of the Company, over the agreements' respective
vesting periods. Of these shares, 200,000 shares are held in escrow to secure
certain indemnification obligations. The Metis acquisition was treated as a
tax-free reorganization and accounted for as a purchase.
The Company earns revenue from services and services to related parties,
which include providing access to its network-based services, including fixed
fee and transaction-based services, and performing development and consulting
services, and from licensing software. Revenue from services to related parties
consists of services provided to United HealthCare under a Services and License
Agreement between the Company and United HealthCare dated April 4, 1996, or the
"United HealthCare Agreement," and services provided to SmithKline Labs under a
Services Agreement between the Company and SmithKline Labs dated December 31,
1997, or the "Services Agreement." Customers may purchase some or all of the
Company's applications and services and the customer relationship may evolve
from utilizing development and consulting services to utilizing transaction and
subscription-based services. The Company earns network-based services revenue
from fixed fee subscription arrangements, which revenue is recognized ratably
over the term of the applicable agreement, or revenue from arrangements that are
priced on a per-transaction or per-user basis, which revenue is recognized as
the services are performed. Revenue from development projects is recognized on a
percentage-of-completion basis or as such services are performed, depending on
the terms of the contract. Revenue from consulting services is recognized as
such services are performed. Cash received in excess of revenue recognized
relating to such services has been recorded as deferred revenue. As of September
30, 1998, the Company had deferred revenue of approximately $4.4 million.
20
<PAGE>
The United HealthCare Agreement has a five year term; however, the agreement
provides that two years after the date of the agreement, April 4, 1998, the
parties will agree on new prices that they agree are competitive with the
marketplace. The Company and United HealthCare are negotiating such new prices,
and the Company anticipates that the new prices will reduce the rates paid by
United HealthCare. The Services Agreement with SmithKline Labs also has a five
year term, but provides that the parties will negotiate new rates as of January
1, 2001 and each two year period thereafter. Pursuant to the Services Agreement,
the renegotiated rates must be competitive with the marketplace and must be no
higher than the lowest fees charged by the Company to similarly situated
customers.
In December 1998, Healtheon and SmithKline Labs entered into an asset
purchase agreement. The agreement provides that Healtheon will purchase certain
assets currently used by SmithKline Labs to provide laboratory results delivery
services in exchange for $2.0 million in cash and shares of Healtheon's common
stock having a value of $11.0 million. The asset purchase agreement calls for
Healtheon and SmithKline Labs to enter a related services agreement under which
Healtheon will provide certain electronic laboratory results delivery services
to approximately 20,000 provider sites, in addition to the sites currently
served through the SCAN service. The asset purchase agreement is subject to
execution of the related service agreement and approval by the Company's Board
of Directors.
The Company recognizes software license revenue in accordance with the
American Institute of Certified Public Accountants' Statement of Position 97-2.
ActaMed entered into a national marketing and licensing agreement with
International Business Machines Corporation, "IBM", in 1995 that granted IBM a
nonexclusive, nontransferable right to market ActaMed's software and services
for a total of $6.3 million. For the years ended December 31, 1995, 1996 and
1997, approximately $1.7 million, $3.4 million and $1.2 million, respectively,
of this amount was recognized as software license revenue upon delivery of the
software. No software license revenue was recognized under this agreement for
the nine months ended September 30, 1997 or 1998.
In December 1996, the Company entered into a new agreement, or the
"License," to license its newly granted patent to IBM. As part of the License,
IBM agreed to pay ActaMed $4.8 million over a four-year period, $1.0 million in
December 1996 and the remaining balance in 48 equal monthly installments
commencing in January 1997. Additionally, in conjunction with the License, the
Company issued IBM a five-year warrant to purchase 282,522 shares of the
Company's common stock at a price of $7.97 per share. Because of the extended
payment terms and the Company's contentious relationship with IBM, the Company
concluded that the license fee was not assured of collection and, accordingly,
is recognizing this revenue as the proceeds are collected. For the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1997 and
1998, the Company recognized revenue from the License of $1.0 million, $.8
million, $.6 million and $.6 million, respectively. At December 31, 1997,
amounts due from IBM of $.7 million and $1.7 million were included in accounts
receivable and other assets, respectively. At September 30, 1998, amounts due
from IBM of $.8 million and $1.1 million were included in accounts receivable
and other assets, respectively. Deferred revenue at December 31, 1996 and 1997
and September 30, 1998 included $3.1 million, $2.3 million and $1.8 million,
respectively, related to the License.
The Company does not expect that it will earn a material amount of revenue
from software licenses in the foreseeable future.
The Company has developed strategic relationships with healthcare industry
leaders, including United HealthCare, SmithKline Labs, Brown & Toland and Beech
Street. These four companies each accounted for over 10%, and together accounted
for approximately 90%, of the Company's total revenue for the nine months ended
September 30, 1998 and United HealthCare and SmithKline Labs accounted for all
of the Company's revenue from services to related parties. The Company expects
that a small number of customers will continue to account for a substantial
portion of the Company's revenue for the foreseeable future. The
21
<PAGE>
loss of one or more of the Company's significant customers, or a decline in
volume of business generated by such customers, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Cost of services and cost of services to related parties consist of costs
related to services the Company provides to customers and costs associated with
the operation and maintenance of Healtheon's networks. These costs include
salaries and related expenses for consulting and development personnel, network
operations personnel, customer support personnel, telecommunication costs,
depreciation and maintenance of network equipment, a portion of facilities
expenses and leased personnel and facilities costs. Cost of software licenses
consists primarily of expenses related to royalties and sublicensing fees. Given
the Company's limited operating history, changes in revenue mix, limited history
of Internet-based network services, recent investments in personnel,
amortization of infrastructure investments and evolving business model, the
Company believes that analysis of historical cost of revenue as a percentage of
revenue is not meaningful. The Company anticipates that its total cost of
revenue will increase in absolute dollars in the future.
Development and engineering expense, which excludes development expenses
that are included in cost of revenue, consists primarily of salaries and related
expenses associated with the development of applications and services and
includes compensation paid to engineering personnel, fees to outside contractors
and consultants, a portion of facilities expenses and the depreciation and
amortization of capital equipment used in the development process. The Company
believes its success is partially dependent upon its ability to introduce new
applications in several healthcare markets in a relatively short period of time.
Accordingly, the Company intends to continue recruiting and hiring experienced
engineering personnel and to continue making other investments in development
and engineering. The Company expects that development and engineering expenses
will continue to increase in absolute dollars. Currently, all development and
engineering costs are expensed as incurred.
Sales, general and administrative expense consists primarily of salaries and
related expenses for sales, account management, marketing, administrative,
finance, legal, human resources and executive personnel, commissions, costs and
expenses for marketing programs and trade shows, fees for professional services
and costs of accounting and internal control systems to support the operations
of the Company. The Company anticipates that sales, general and administrative
expense will continue to increase in absolute dollars as it adds sales,
marketing and administrative personnel, increases its marketing and promotional
activities and incurs costs related to being a public company, such as
directors' and officers' liability insurance premiums and professional fees.
The Company's business model is still in an emerging stage, and revenue and
income potential from the Company's business is unproven. Moreover, the
Company's limited operating history under its current business model makes an
evaluation of the Company and its prospects difficult; investors should not use
the Company's past results as a basis to predict future performance. The Company
has incurred net losses since inception and, as of September 30, 1998, had an
accumulated deficit of $85.0 million. The Company intends to continue investing
heavily in acquisitions, infrastructure development, application development and
sales and marketing. As a result, the Company expects to incur substantial
operating losses at least through 1999. There can be no assurance that the
Company will achieve significant revenue or profitability or, if significant
revenue or profitability are achieved, that they can be sustained.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain data expressed as a percentage of
total revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Services................................................................... 21.1% 16.3% 32.1% 17.4% 55.1%
Services to related parties(1)............................................. -- 38.5 54.6 74.3 43.1
Software licenses.......................................................... 78.9 45.2 13.3 8.3 1.8
-------- -------- -------- -------- --------
Total revenue.............................................................. 100.0 100.0 100.0 100.0 100.0
Operating costs and expenses:
Cost of revenue:
Cost of services......................................................... 72.3 15.0 30.0 15.4 56.2
Cost of services to related parties...................................... -- 44.7 48.8 66.4 37.7
Cost of software licenses................................................ 15.8 1.5 -- -- --
-------- -------- -------- -------- --------
Total cost of revenue.................................................... 88.1 61.2 78.8 81.8 93.9
Development and engineering................................................ 112.5 78.0 97.0 138.4 39.2
Sales, general and administrative.......................................... 80.4 82.1 82.4 106.8 50.5
Amortization of intangible assets.......................................... -- 29.0 31.7 45.5 22.3
-------- -------- -------- -------- --------
Total operating costs and expenses......................................... 281.0 250.3 289.9 372.5 205.9
-------- -------- -------- -------- --------
Loss from operations......................................................... (181.0) (150.3) (189.9) (272.5) (105.9)
Interest income.............................................................. 9.6 4.9 4.6 5.1 2.5
Interest expense............................................................. (0.3) (0.5) (2.4) (2.5) (1.1)
Dividends on ActaMed's convertible redeemable preferred stock................ -- (23.1) (21.4) (34.0) (2.7)
-------- -------- -------- -------- --------
Net loss..................................................................... (171.7) (169.0) (209.1) (303.9) (107.2)
Dividends on ActaMed's convertible redeemable preferred stock................ (33.3) -- -- -- --
-------- -------- -------- -------- --------
Net loss applicable to common stockholders................................... (205.0)% (169.0)% (209.1)% (303.9)% (107.2)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ---------
(1) Revenue from services to related parties consists of revenue from United
HealthCare and SmithKline Labs, customers that are also significant
stockholders of the Company.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUE. Total revenue increased to $33.2 million in the first nine months
of 1998 from $7.0 million in the same period of 1997. Revenue from services
increased to $18.3 million in the first nine months of 1998 from $1.2 million in
the same period in 1997. The significant increase in revenue was due principally
to new contracts with Brown & Toland and Beech Street for the management and
operation of their IT infrastructure beginning in late 1997. To provide these
services, the Company utilizes its own personnel, certain outside contractors
and certain personnel and facilities of the customers that are leased to the
Company. The cost of these leased customer personnel and facilities are included
as part of the total costs of the IT and development services billed to the
customers by the Company. In the first nine months of 1998, the Company
recognized revenue for IT services of $10.9 million, which included the
Company's costs of leased personnel and facilities of $8.8 million. In addition,
the Company recognized revenue of approximately $4.8 million for development
services in the same period.
23
<PAGE>
Revenue from services to related parties increased to $14.3 million in the
first nine months of 1998 from $5.2 million in the same period of 1997 primarily
due to a new contract with SmithKline Labs in December 1997 to service its SCAN
laboratory test order and results service. Revenue from software licenses was
unchanged in the first nine months of 1998 from the same period in 1997. The
Company expects that revenue from software licenses will continue to decline in
future periods as a percentage of total revenue.
COST OF REVENUE. Total cost of revenue increased to $31.2 million in the
first nine months of 1998 from $5.7 million in the same period of 1997. Cost of
services increased to $18.7 million in the first nine months of 1998 from $1.1
million in the same period in 1997. This increase includes $8.8 million related
to costs of leased personnel and facilities utilized to provide IT services and
$4.8 million related to development services. The remainder of the increase
resulted from increased personnel to support the Brown & Toland and Beech Street
contracts. The Company had no cost of software licenses revenue in the first
nine months of 1998 or in the comparable period of 1997.
Cost of services to related parties increased to $12.5 million in the first
nine months of 1998 from $4.6 million in the same period of 1997. This increase
resulted from higher personnel and network operations costs necessary to support
increased transactions from the Company's SCAN services.
DEVELOPMENT AND ENGINEERING. Development and engineering expense, which
excludes development expenses that are included in cost of revenue, increased to
$13.0 million in the first nine months of 1998 from $9.7 million in the same
period of 1997. The increase in development and engineering expenses was caused
by a significant increase in the number of engineers engaged in the development
of the Company's applications and services.
SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative
expense increased to $16.8 million in the first nine months of 1998 from $7.5
million in the same period of 1997. The increase resulted primarily from the
addition of sales personnel and executive management (approximately $6.7 million
in salaries and related support costs), approximately $.8 million of costs
related to the merger with ActaMed and from the amortization of deferred
compensation. The Company recorded deferred compensation of $2.4 million during
the first nine months of 1998, and recorded $1.8 million of amortization of
deferred compensation in this period. Deferred compensation represents the
difference between the purchase or exercise price of certain restricted stock
and stock option grants and the deemed fair value of the Company's common stock
at the time of such grants. The deferred compensation balance of $2.8 million at
September 30, 1998 will be amortized over the vesting period, generally four
years, of the respective option or restricted stock grants. Amortization is
estimated to total $0.6 million for the last three months of 1998, $1.4 million
for 1999, $0.6 million for 2000, and $0.2 million for 2001. In October and
December 1998, the Company repriced certain stock options and restricted stock
purchases and may record additional deferred compensation as a result of this
repricing.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was
$7.4 million in the first nine months of 1998 and $3.2 million in the same
period of 1997. This amortization relates to the acquisition of EDI in March
1996 from United HealthCare and certain intangible assets related to SCAN
acquired from SmithKline Labs in December 1997 and acquisition of Metis, LLC in
August 1998. Although the Services and License Agreement entered into with
United HealthCare in connection with the acquisition of EDI has a five year
term, the Company determined that a three year amortization period was
appropriate for the EDI-related assets due to the price renegotiation required
by such agreement, the probability that the purchased technology and software
would be replaced within three years and the uncertain profitability of the
agreement after the price renegotiation. Similarly, although the Services
Agreement entered into with SmithKline Labs in connection with the acquisition
of the SCAN-related assets has a five year term, the Company determined that a
three year amortization period was appropriate for the SCAN related assets due
to the price renegotiation required by such agreement, the probability that the
purchased technology and software would be replaced within three years and the
uncertain profitability of the agreement after the price
24
<PAGE>
renegotiation. There can be no assurance that the Company's services to United
HealthCare and SmithKline Labs will be profitable after the price renegotiations
required by the agreements, particularly given the uncertainty of future rates
and volumes under those agreements. The Company determined that the acquisition
of Metis, LLC included the value of an assembled workforce, which will be
amortized over two years. The other intangible assets related to the acquisition
of Metis, LLC were determined to have a three-year life. At September 30, 1998,
a total of $23.7 million remained to be amortized, and the amortization charges
for the three months ending December 31, 1998 and for the years ending 1999 and
2000 are estimated to be $3.9 million, $10.1 million and $8.2 million,
respectively, assuming no impairment of the remaining unamortized intangible
asset balances. See Notes 2 and 3 of Notes to Consolidated Financial Statements.
INTEREST INCOME AND EXPENSE. Interest income has been derived primarily
from cash investments, and increased to $.8 million in the first nine months of
1998 compared to $.4 million in the same period of 1997. The increase resulted
from the Company's $25.0 million preferred stock financing in October 1997.
Interest expense results from the Company's borrowings and from capitalized
lease obligations for equipment purchases.
DIVIDENDS ON ACTAMED'S CONVERTIBLE REDEEMABLE PREFERRED STOCK. As dividends
on ActaMed's convertible redeemable preferred stock were cumulative whether
declared or not, the Company accrued such dividends on a quarterly basis.
Dividends of $2.4 million and $.9 million are shown as a charge against income
in the consolidated statement of operations for the first nine months of 1997
and 1998, respectively. None of the dividends were paid, and, in conjunction
with approving the acquisition of ActaMed by the Company, the preferred
stockholders waived their right to receive such dividends, which totaled $7.5
million at the time of the acquisition, and received an aggregate of 17,252,408
shares of Healtheon common stock in exchange for their ActaMed preferred stock.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
REVENUE. Total revenue increased to $13.4 million in 1997 from $11.0
million in 1996 and $2.2 million in 1995. Revenue from services increased to
$4.3 million in 1997 from $1.8 million in 1996 and $.5 million in 1995. The
increase is due primarily to the contract with Brown & Toland, which began in
October 1997. In 1997, the Company recognized $2.1 million of revenue for IT
services under this contract, which included costs of leased personnel and
facilities of $1.9 million.
Revenue from services to related parties increased to $7.3 million in 1997
from $4.2 million in 1996. There was no revenue from services to related parties
in 1995. The Company's acquisition of ProviderLink in March 1996 from United
HealthCare accounts for substantially all of the related party revenue in 1996
and the 1997 increase is substantially due to recording a full year of revenue
in 1997 compared to nine months in 1996.
Revenue from software licenses was $1.8 million, $5.0 million and $1.7
million in 1997, 1996 and 1995, respectively. Substantially all of this revenue
was derived from licensing agreements with IBM. The full amount of revenue to be
derived from one of these agreements had been recognized by the end of 1997.
Revenue will continue to be recognized under a second agreement through December
2000.
COST OF REVENUE. Cost of services was $4.0 million, $1.6 million and $1.6
million in 1997, 1996 and 1995, respectively. The increase from 1996 to 1997 was
primarily due to the $1.9 million cost related to the leased personnel and
facilities under the Brown & Toland contract. Cost of services to related
parties increased to $6.5 million in 1997 from $4.9 million in 1996. This
increase was primarily due to recording a full year of costs related to
ProviderLink in 1997 compared to only nine months in 1996. Cost of software
licenses in 1996 and 1995 related principally to royalties and sublicense fees
paid by the Company.
25
<PAGE>
DEVELOPMENT AND ENGINEERING. Development and engineering expense, which
excludes development expenses that are included in cost of revenue, was $13.0
million in 1997 compared to $8.6 million in 1996 and $2.4 million in 1995. The
increase in development and engineering expense was caused by a significant
increase in the number of engineers engaged in the development of the Company's
applications and services.
SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative
expense was $11.0 million in 1997, compared to $9.0 million in 1996 and
approximately $1.7 million in 1995. The increase resulted primarily from the
addition of sales personnel and executive management, which caused related
salaries to increase by approximately $1.4 million in 1997 from 1996, and from
the amortization of deferred compensation. The Company recorded deferred
compensation of $2.7 million during 1997 and recorded $.6 million of
amortization of deferred compensation in 1997.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition-related
costs including intangible assets was $4.2 million in 1997 and $3.2 million in
1996. This amortization relates to the acquisition of EDI in March 1996.
INTEREST INCOME AND EXPENSE. Interest income was derived from cash
investments following the Company's issuance of preferred stock and imputed
interest on payments due from IBM beginning in early 1997. Interest expense
increased in 1997 as a result of bridge financing and bank borrowings of the
Company and from capitalized lease obligations for equipment purchases.
INCOME TAXES. At December 31, 1997, the Company had net operating loss
carryforwards for federal income tax purposes of $37.6 million and federal tax
credits of $.8 million, both expiring from 2009 through 2012. Of these net
operating losses, $16.7 million relates to a consolidated subsidiary. This loss
carryforward is available only to offset future taxable income of that
subsidiary. Because of the "change of ownership" provisions of the Internal
Revenue Code, a portion of the Company's net operating loss carryforwards and
tax credit carryforwards may be subject to an annual limitation regarding their
utilization against taxable income in future periods. Thus, a portion of these
carryforwards may expire before becoming available to reduce future income tax
liabilities.
QUARTERLY FINANCIAL RESULTS
The following table presents the Company's operating results for each of the
seven quarters in the period ended September 30, 1998, as well as such data
expressed as a percentage of the Company's total revenue for the periods
indicated. The information for each of these quarters is unaudited and has been
prepared on the same basis as the audited consolidated financial statements
appearing elsewhere in this prospectus. In the opinion of management, all
necessary adjustments, consisting only of normal recurring adjustments, have
been included to present fairly the unaudited quarterly results. This data
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this prospectus. These operating results
are not indicative of the results of any future period.
26
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED, IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue:
Services................ $ 239 $ 417 $ 560 $ 3,085 $ 4,903 $ 5,990 $ 7,433
Services to related
parties................ 1,488 1,752 1,959 2,110 4,656 4,714 4,950
Software licenses....... 195 195 195 1,195 195 195 195
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue....... 1,922 2,364 2,714 6,390 9,754 10,899 12,578
Operating costs and
expenses:
Cost of revenue:
Cost of services...... 213 385 482 2,931 5,088 5,682 7,918
Cost of services to
related parties...... 1,633 1,496 1,519 1,888 2,860 4,457 5,195
Cost of software
licenses............. -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of
revenue............ 1,846 1,881 2,001 4,819 7,948 10,139 13,113
Development and
engineering............ 3,247 3,162 3,272 3,305 3,919 4,413 4,704
Sales, general and
administrative......... 2,501 2,222 2,754 3,554 4,966 7,157 4,671
Amortization of
intangible assets...... 1,062 1,062 1,063 1,062 1,949 1,989 3,459
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
costs and
expenses........... 8,656 8,327 9,090 12,740 18,782 23,698 25,947
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations...... (6,734) (5,963) (6,376) (6,350) (9,028) (12,799) (13,369)
Interest income........... 146 108 105 252 358 279 197
Interest expense.......... (50) (78) (49) (146) (116) (135) (110)
Dividends on ActaMed's
convertible redeemable
preferred stock......... (783) (823) (776) (488) (890) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss.................. $(7,421) $(6,756) $(7,096) $(6,732) $(9,676) $(12,655) $(13,282)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
AS A PERCENTAGE OF
REVENUE:
Revenue:
Services................ 12.4% 17.6% 20.6% 48.3% 50.3% 55.0% 59.1%
Services to related
parties................ 77.4 74.1 72.2 33.0 47.7 43.3 39.4
Software licenses....... 10.2 8.3 7.2 18.7 2.0 1.7 1.5
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating costs and
expenses:
Cost of revenue:
Cost of services...... 11.1 16.3 17.8 45.9 52.2 52.1 63.0
Cost of services to
related parties...... 85.0 63.3 56.0 29.5 29.3 40.9 41.3
Cost of software
licenses............. -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of
revenue............ 96.1 79.6 73.8 75.4 81.5 93.0 104.3
Development and
engineering............ 168.9 133.7 120.6 51.7 40.2 40.5 37.4
Sales, general and
administrative......... 130.1 94.0 101.5 55.6 50.9 65.7 37.1
Amortization of
intangible assets...... 55.3 44.9 39.2 16.6 20.0 18.2 27.5
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
costs and
expenses........... 450.4 352.2 335.1 199.3 192.6 217.4 206.3
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations...... (350.4) (252.2) (235.1) (99.3) (92.6) (117.4) (106.3)
Interest income........... 7.6 4.6 3.9 3.9 3.7 2.6 1.6
Interest expense.......... (2.6) (3.3) (1.8) (2.3) (1.2) (1.2) (0.9)
Dividends on ActaMed's
convertible redeemable
preferred stock......... (40.7) (34.8) (28.6) (7.6) (9.1) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss.................. (386.1)% (285.7)% (261.6)% (105.3)% (99.2)% (116.0)% (105.6)%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Revenue has grown each quarter as demand for the Company's services has
increased. Cost of revenue increased in the quarter ended December 31, 1997 due
primarily to expenses related to the Brown & Toland contract, and in the
quarters ended March 31, June 30 and September 30, 1998 due primarily to
expenses related to the Beech Street and SmithKline Labs contracts. In addition,
in the quarter ended June 30, 1998,
27
<PAGE>
total cost of revenue increased due in part to an increase in amortization of
capitalized internally developed software. This increase was due to the fact
that the Company evaluated the carrying value of the capitalized internally
developed software in light of the changes in operations resulting from the
acquisition of ActaMed by Healtheon. The Company determined that it expected no
future cash flows to be generated by this software and, accordingly, wrote off
the remaining unamortized balance of $.6 million. Development and engineering
expense increased in the quarters ended March 31, June 30 and September 30, 1998
due to a significant increase in personnel engaged in the development of the
Company's applications and services. Sales, general and administrative expenses
increased in each of the quarters ended September 30, 1997 through September 30,
1998 due to increases in sales and executive personnel and due to amortization
of deferred compensation. In addition, the Company recorded substantial
professional fees related to the acquisition of ActaMed in the quarter ended
June 30, 1998.
The Company's quarterly revenue and operating results have varied in the
past and are likely to vary substantially in the future. The Company intends to
increase its marketing, sales, development and engineering, and administrative
activities and to increase other operating expenses as required to integrate the
operations, technologies and networks of recent and any future acquisitions and
expand its healthcare network infrastructure and operations. It is anticipated
that these expenses could significantly precede any revenue generated by such
increased spending. If the Company does not experience significantly increased
revenue from these efforts, the Company's business, financial condition and
results of operations could be materially and adversely affected. In addition,
the Company's expense levels are based in part on its expectations concerning
future revenue and are relatively fixed in the short-term. Consequently, if the
Company's revenue is below expectations in any period, the Company may not be
able to adjust its spending levels in a timely manner.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through the
private placement of equity securities, through which it had raised net proceeds
of $59.6 million through September 30, 1998. The Company has also financed its
operations through equipment lease financing and bank borrowings. As of
September 30, 1998, the Company had outstanding equipment lease financing and
bank borrowings of $4.8 million. As of September 30, 1998, the Company had
approximately $5.4 million of cash, cash equivalents and short-term investments.
Cash used in operating activities was $1.3 million in 1995, $9.6 million in
1996 and $16.4 million in 1997. The cash used during these periods was primarily
attributable to net losses of $3.7 million, $18.6 million and $28.0 million in
1995, 1996, 1997, respectively, offset in part by depreciation and amortization
and dividends on ActaMed's convertible redeemable preferred stock. These losses
were principally related to increased development and engineering expenses and
sales, general and administrative expenses. Cash used in operations in the first
nine months of 1998 was $13.9 million, reflecting a net loss partially offset by
depreciation and amortization expenses and increases in liabilities.
Investments in property and equipment, excluding equipment acquired under
capital leases, and internally developed software were $.5 million, $3.0
million, $3.1 million and $5.1 million in 1995, 1996 and 1997, and the first
nine months of 1998, respectively. In 1997, the Company used $5.3 million of
cash to purchase short-term investments. During the first nine months of 1998,
the Company purchased an additional $4.3 million of short-term investments and
realized $8.8 million in cash from maturities of its short-term investments. The
Company had no purchases or maturities of short-term investments in 1995, 1996,
or the nine months ended September 30, 1997.
Cash provided by financing activities was $7.0 million, $11.1 million and
$34.6 million in 1995, 1996 and 1997, respectively, resulting primarily from net
proceeds from the sale of preferred stock and, to a lesser extent, from a bank
line and bridge note financing in 1997. Cash provided by financing activities
for the first nine months of 1998 was $3.2 million, primarily from the net
proceeds from the sale of preferred and
28
<PAGE>
common stock, partially offset by payments on line of credit borrowings and
capital lease obligations. In November 1998, the Company received proceeds of
$46.1 million from the sale of its Series A preferred stock.
As of September 30, 1998, the Company did not have any material commitments
for capital expenditures. The Company's principal commitments at December 31,
1997 consisted of obligations under operating leases and capital leases of $14.4
million and $2.2 million, respectively. See Note 6 of Notes to Consolidated
Financial Statements.
The Company currently anticipates that the net proceeds from the offering,
together with its available cash resources and credit facilities, will be
sufficient to meet its presently anticipated working capital, capital
expenditure and business expansion requirements for at least the next 12 months.
However, the Company may need to raise additional funds prior to such time to
support expansion, develop new or enhanced applications and services, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of unanticipated opportunities. The Company's future liquidity and
capital requirements will depend upon numerous factors, including the success of
the Company's existing and new application and service offerings and competing
technological and market developments. The Company may be required to raise
additional funds through public or private financing, strategic relationships or
other arrangements. There can be no assurance that such additional funding, if
needed, will be available on terms acceptable to the Company, or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with such "Year 2000" requirements. The Company's
business is dependent on the operation of numerous systems that could
potentially be impacted by Year 2000 related problems. Those systems include,
among others: hardware and software systems used by the Company to deliver
services to its customers, including the Company's proprietary software systems
as well as hardware and software supplied by third parties; communications
networks, such as the Internet and private intranets, which the Company depends
on to provide electronic transactions to its customers; the internal systems of
the Company's customers and suppliers; the hardware and software systems used
internally by the Company in the management of its business; and non-information
technology systems and services used by the Company in its business, such as
telephone systems and building systems.
The Company has internally reviewed the proprietary software systems it uses
to deliver services to its customers. Although the Company believes that its
internally developed applications and systems are designed to be Year 2000
compliant, the Company utilizes third-party equipment and software that may not
be Year 2000 compliant. Also, two systems acquired by ActaMed, specifically SCAN
and ProviderLink, which together accounted for approximately 43% of the
Company's total revenue in the first nine months of 1998, will require
modifications to become Year 2000 compliant. The Company plans to release Year
2000 upgrades to these systems in early 1999. The Company estimates the cost of
these Year 2000 upgrades to be less than $1.0 million. In addition, the
Company's SCAN product is installed on approximately 4,650 Company-owned
workstations located in provider offices. Many of these workstations are not
Year 2000 compliant and must be upgraded or replaced by the Company. The Company
expects the costs of such upgrades or replacements to be less than $1.0 million.
However, the Company could experience delays and cost overruns in the
development of these upgrades, such upgrades could contain defects and the
Company could experience difficulties in getting the Company's installed base of
physicians to implement these upgrades in a timely manner. If the Company
experiences these or other difficulties in developing and deploying its Year
2000 upgrades, revenues from SCAN and ProviderLink could be significantly
reduced, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Failure of such third-party or
Healtheon equipment or software to operate properly with regard to the Year 2000
and thereafter could require the Company to incur unanticipated expenses to
remedy any
29
<PAGE>
problems, which could have a material adverse effect on the Company's business,
financial condition and results of operations. In certain of its agreements, the
Company warrants that its applications and services are Year 2000 compliant.
Failure of the Company's applications and services to be Year 2000 compliant
could result in the termination of these agreements or in liability for damages,
either of which could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not believe that
its expenditures to upgrade its internal systems and applications will have a
material adverse effect on its business, financial condition and results of
operations.
Furthermore, the success of the Company's efforts may depend on the success
of other healthcare participants in dealing with their Year 2000 issues. Many of
these organizations are not Year 2000 compliant, and the impact of widespread
customer failure on the Company's systems is difficult to determine. Customer
difficulties due to Year 2000 issues could interfere with healthcare
transactions or information, which might expose the Company to significant
potential liability. If client failures result in the failure of Healtheon
systems, the Company's business, financial condition and results of operations
would be materially adversely affected. Furthermore, the purchasing patterns of
these customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to become Year 2000 compliant. The costs
of becoming Year 2000 compliant for current or potential customers may result in
reduced funds being available to purchase and implement the Company's
applications and services.
The Company, with the assistance of an independent consulting firm
specializing in Year 2000 issues, is conducting a formal assessment of its Year
2000 exposure in order to determine what steps beyond those identified by the
Company's internal review may be advisable. The Company expects to complete such
assessment in the first quarter of 1999. The Company does not presently have a
contingency plan for handling Year 2000 problems that are not detected and
corrected prior to their occurrence. Any failure of the Company to address any
unforeseen Year 2000 issue could adversely affect the Company's business,
financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board, or "FASB," issued
Statement of Financial Accounting Standards, or "SFAS," No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company is
required to adopt SFAS No. 131 for the year ending December 31, 1998. SFAS No.
131 requires disclosure of certain information regarding operating segments,
products and services, geographic areas of operation and major customers.
Adoption of SFAS No. 131 is expected to have no material impact on the Company's
financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt SFAS No.
133 for the year ending December 31, 2000. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because the Company
currently holds no derivative financial instruments and does not currently
engage in hedging activities, adoption of SFAS No. 133 is expected to have no
material impact on the Company's financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position, or "SOP," 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
entities capitalize certain costs related to internal-use software once certain
criteria have been met. The Company is required to implement SOP 98-1 for the
year ending December 31, 1999. Adoption of SOP 98-1 is expected to have no
material impact on the Company's financial condition or results of operations.
30
<PAGE>
BUSINESS
INDUSTRY BACKGROUND
GROWTH OF INTERNET COMMERCE AND FUNCTIONALITY
The Internet's open architecture, universal accessibility and growing
acceptance make it an increasingly important environment for
business-to-business and business-to-consumer interaction. Use of the Internet
is rapidly expanding from simple information publishing, messaging, and data
gathering to critical business transactions and confidential communications. For
many industries, the Internet is connecting previously disconnected business
processes and allowing companies to automate workflows, lower distribution costs
and extend their market reach. The Company believes the healthcare industry,
because of its size, fragmentation and extreme dependence on information
exchange, is particularly well suited to benefit from greater use of the
Internet.
NEED FOR REDUCED HEALTHCARE COSTS AND IMPROVED QUALITY OF CARE
According to the Health Insurance Association of America, healthcare is the
largest single sector of the U.S. economy, consuming approximately $1 trillion
annually, or 14% of the country's gross domestic product. The healthcare
industry consists of a complex mix of participants, which includes:
- "Providers" -- physicians, medical practice groups, hospitals and other
organizations that deliver medical care;
- "Payers" -- the government agencies, insurance companies, managed care
organizations and other enterprises that pay the bills for healthcare;
- "Suppliers" -- clinical laboratories, pharmaceutical companies, and other
groups that provide tests, drugs, x-rays and other services; and
- "Consumers" -- individual patients who receive medical care, and the
government agencies, employers and other organizations that represent
groups of individuals.
All healthcare participants rely heavily upon information to perform their
roles in the industry. Individuals compare medical plans, choose physicians and
submit claims for reimbursement. Employers select health plans, determine
benefit levels, enroll employees and maintain employee eligibility data.
Providers verify patient eligibility, collect patient histories, order
diagnostic tests and x-rays, receive and interpret test results, render
diagnoses, make referrals and submit claims to payers. Payers manage referrals,
establish medical care protocols and reimbursement policies and process claims.
Suppliers analyze and process patient samples or tests, provide results, fill
prescriptions and submit claims for reimbursement. These and many other
healthcare transactions are also highly dependent on information, and each
participant is dependent on the others for parts of that information. In sum,
the finance and delivery of healthcare requires that consistent, accurate
information be shared confidentially across a large and fragmented industry.
Inefficiencies within the healthcare system consume enormous amounts of
time, resources and dollars. It is estimated that over $250 billion, or 25% of
every healthcare dollar, are wasted through the delivery of unnecessary care,
performance of redundant tests and procedures, and excessive administrative
costs. The Company believes much of this inefficiency and waste is a direct
result of poor information exchange among healthcare participants. Consumers do
not have easy access to the detailed information they need to compare health
plans, select physicians, or manage their own healthcare and benefits. Providers
often lack timely access to relevant patient information, and this lack of
information causes them to prescribe unnecessary tests or procedures and hinders
their ability to diagnose and treat patients. Providers and suppliers often rely
on manual processes to share data, and errors and information bottlenecks
resulting from these manual processes cause delays in determining eligibility,
approving referrals, reporting test
31
<PAGE>
results and paying claims. These inefficiencies contribute to the rising cost of
healthcare. As a result, the government and other purchasers of healthcare have
increasingly placed pressure on the healthcare industry to improve the
cost-effectiveness of healthcare while maintaining the quality of care.
LIMITATIONS OF TRADITIONAL FUNCTIONAL APPROACH TO HEALTHCARE INFORMATION
MANAGEMENT
The unique characteristics of the healthcare industry have limited the scope
of previous technology solutions. The sheer number of participants, the
complexity of healthcare transactions, and pervasive concerns about
confidentiality have precluded any comprehensive solution that would deliver
connectivity and automated workflows across the entire industry. Healthcare
organizations and their traditional technology vendors have focused on
automating discrete business processes, such as billing and scheduling for
physicians, or claims processing for hospitals and payers. As a result, the
industry currently uses thousands of different mainframe and client/server
systems that lack cross-platform compatibility. While these legacy systems serve
the narrow functions for which they were designed, they have compounded the
industry's connectivity problems. Information the industry needs to share is
trapped in isolated, proprietary databases using non-standardized data formats.
In this environment, many physician offices, particularly those with limited
financial resources, have been reluctant to invest in information technology
solutions. Current solutions may provide connectivity to a single payer or
supplier, or to a limited subset of payers or suppliers, leaving the physician
office with its old manual processes for the majority of its transactions. The
following examples illustrate how poor information management and the lack of
connectivity result in costly, inefficient healthcare services:
ENROLLMENT AND ELIGIBILITY. The enrollment process typically begins with
employees choosing a health plan and completing paper forms; the employer
manually enters the employee information into its human resources information
system and subsequently sends the data, often via a paper report, to the
relevant health plan. The plan manually enters the information into its
membership system and sends the information, again often in paper form, to other
entities, such as provider groups, pharmacies, pharmacy benefit management
companies and diagnostic laboratories, which in turn must manually enter this
information into their own systems. By the time this process is complete, the
information may be months old and contain data entry errors, and the disparate
healthcare information systems of the various participants may contain
conflicting information about the same member. The participants must then expend
costly, time-consuming extra effort to correct these errors manually. In the
interim, patients may be denied treatment or providers may go unpaid for their
services.
REFERRALS AND AUTHORIZATIONS. Managed care organizations may require
physicians to obtain prior approval to refer patients to specialists or to
render certain treatments. The approval process often requires physicians to
mail, fax or telephone requests for authorization to the health plan. The plan
manually enters the data into its own system, checks its guidelines regarding
conditions of referral (which can involve multiple parties in different
organizations) and replies via mail, fax or telephone with an approval or
denial, a process that can take two days to a week or more. Next, the patient
must schedule an appointment if the request is approved, or seek alternative
care if the request is denied. This lengthy authorization process is costly,
wastes valuable physician time and delays patient care.
CLINICAL INFORMATION EXCHANGE. To diagnose and treat a patient properly,
physicians need access to clinical information, such as medical history data,
laboratory and x-ray results, and medication lists. However, this information
typically resides in proprietary databases or is stored in paper form.
Therefore, the physician must submit requests for information by phone or fax to
various hospitals, laboratories, outpatient diagnostic centers or provider
offices. Even when the data are stored at the physician's office, it can be
time-consuming to locate in the physician's paper-based medical record system.
As a result, significant delays can occur before the physician obtains the
information required to diagnose the patient's condition accurately. Often,
physicians will require patients to repeat tests for which data are missing,
32
<PAGE>
leading to unnecessary expense. More important, the lack of timely access to
accurate clinical information in an urgent care situation may lead to inaccurate
diagnoses resulting in delayed or inappropriate care. The problem is therefore
not only costly, but also potentially harmful.
The limitations and inefficiencies of traditional healthcare information
management ultimately harm the individual consumer. Individual consumers have
little control or influence over how healthcare services are provided, in part
because they lack easy access to information. It can be difficult for consumers
to perform simple tasks, such as changing primary care providers, gaining access
to their own medical records, or monitoring their own care and compliance at
home, because the information they need for these simple tasks requires
time-consuming phone calls or paper correspondence. Consumers, frustrated by
burdensome bureaucracy and lack of empowerment, often fail to take ownership and
control of their own treatment and recovery. The result is higher costs of care
and growing dissatisfaction with the healthcare experience.
HEALTHEON'S OPPORTUNITY
Healtheon believes a significant opportunity exists to leverage the power of
the Internet to provide secure, open, universally accessible network services
that connect participants and automate workflows throughout the healthcare
delivery process. The Company believes that such a solution has the potential to
create significant improvements in the way that information is used by the
healthcare system, enabling improved workflows, better decision-making and,
ultimately, higher quality care at a lower cost.
THE HEALTHEON VIRTUAL HEALTHCARE NETWORK
Healtheon is pioneering the use of the Internet to simplify workflows,
decrease costs and improve the quality of patient care throughout the healthcare
industry. Healtheon has designed an Internet-based information and transaction
platform that allows it to create Virtual Healthcare Networks that facilitate
and streamline interactions among the myriad participants in the healthcare
industry. The Healtheon VHN solution includes a suite of services delivered
through applications operating on its Internet-based platform. Healtheon VHNs
enable the secure exchange of information among disparate healthcare information
systems and support a broad range of healthcare transactions, including
enrollment, eligibility determination, referrals and authorizations, laboratory
and diagnostic test ordering, clinical data retrieval and claims processing.
Healtheon provides its own applications on the Healtheon Platform and also
enables third-party applications to operate on its platform. The Healtheon
Virtual Healthcare Network solution provides the following key benefits:
ELIMINATION OF UNNECESSARY OR REDUNDANT EFFORTS. The Healtheon VHN solution
is designed to reduce paper-based transactions, eliminate redundant data entry,
shorten cycle times and decrease the communication inefficiencies created by
isolated proprietary systems. Healtheon believes that by decreasing redundant
tasks, errors, delays, and unnecessary tests and procedures, it can create
efficiencies and reduce costs across the healthcare industry.
EXTENDIBILITY ACROSS THE CONTINUUM OF HEALTHCARE. The Company leverages the
Internet to provide an open, low-cost information and transaction platform
capable of extending across a wide range of healthcare market segments. The
Healtheon VHN solution is designed to interconnect a broad range of practice
management, managed care, human resources and laboratory information systems.
The Company expects the benefits of its solution to increase as it adds
customers, enabling each user to exchange more data and complete more
transactions with a greater number and broader range of other healthcare
industry participants.
SCALABILITY AND FLEXIBILITY. The Healtheon VHN solution is designed to
support the Company's customers as their businesses grow and evolve. The
Healtheon Platform is designed to scale to accommodate
33
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high volumes of transactions and large numbers of simultaneous users. In
addition, Healtheon's object-oriented platform provides flexibility so that
customers can add or modify applications and transaction capabilities to react
to changes in the healthcare marketplace.
HIGH DEGREE OF SECURITY. To enable the use of the Internet for transmission
of highly sensitive and confidential data, Healtheon utilizes advanced
technology designed to ensure a high degree of security. This technology
includes strict authentication requirements, sophisticated data encryption
techniques, system-wide network security monitoring and tightly controlled
physical security systems. These safeguards are designed to provide a secure
environment for the exchange of confidential patient and customer data. The
Healtheon Platform is designed to enable compliance with proposed government
standards under the Health Insurance Portability and Accountability Act of 1996,
which mandate the acceptance by payers of electronic transactions as well as the
use of standard transactions, standard identifiers and security features by the
year 2000.
INCREASED ACCURACY AND TIMELINESS OF INFORMATION. The Healtheon VHN
solution is designed to increase information flows among all healthcare
participants, which ultimately results in more timely and appropriate
treatments. For example, on-line access to accurate, up-to-date eligibility
information facilitates patients' access to care on a more timely basis, reduces
frustration and costs and increases the likelihood that providers will be
compensated for their services in a timely manner. Similarly, using Healtheon's
VHN solution, consumers will have greater access to their healthcare
information, thereby enabling them to become more active participants in the
provision of their own healthcare.
Healtheon believes that these and other benefits provided by its solution
will result in increased quality of care.
STRATEGY
Healtheon's objective is to become the leading provider of Internet-based
transaction and information services to the healthcare industry. The Company's
strategy includes the following key elements:
LEVERAGE INTERNET TECHNOLOGY. Healtheon leverages Internet technology to
create Virtual Healthcare Networks that provide secure transactions and
communications among a broad range of healthcare participants, regardless of
their legacy computing platforms. Unlike traditional proprietary solutions that
focus on point-to-point communications and narrowly defined transactions,
Internet technology allows the Company to integrate all categories of healthcare
participants--payers, providers, suppliers and consumers--to eliminate redundant
tasks and reduce costs. The Company believes that such connectivity will
optimize and simplify the flow of mission-critical information.
EXPAND FUNCTIONALITY AND TRANSACTION CAPABILITY. The Company seeks to
identify key functions that are critical to particular industry participants and
integrate applications supporting these functions into its VHN. The Company
plans to accomplish this by building native, Internet-based applications
encompassing the identified functionality, by acquiring businesses or
technologies, and by enabling industry-leading, third-party applications on its
platform. The Company has initially targeted those applications that are most
critical to each business segment of the healthcare industry, offer the highest
value to the participants, and are readily adaptable to a network computing
paradigm. For example, the Company developed its Benefits Administration
application suite to automate healthcare plan enrollment and is developing its
Healtheon Practice application suite, which is in use at beta sites, to manage
eligibility, referrals, authorizations and claims transactions between
healthcare providers and payers.
FORM STRATEGIC RELATIONSHIPS WITH LEADING HEALTHCARE PARTICIPANTS. The
Company is aggressively pursuing strategic relationships with leaders in key
healthcare industry segments to increase its portfolio of applications and
services, increase the number of connected users and provide specialized
industry expertise for new applications. In addition, the Company plans to
acquire companies with strategic relationships with leading healthcare industry
participants. The Company believes this strategy also provides accelerated
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market awareness and demand for Healtheon's services through the influence of
these partners both directly, through their use and sales efforts, and
indirectly, through their relationships with other potential customers. To date,
Healtheon has established strategic relationships with leading healthcare
organizations, including: United HealthCare, the largest health maintenance
organization in the United States; SmithKline Labs, one of the largest
independent clinical laboratory companies in the United States; Brown & Toland,
a leading medical group in the San Francisco Bay Area; and Beech Street, one of
the largest preferred provider organizations in the United States.
ESTABLISH A NATIONAL PRESENCE REGION BY REGION. The Company believes that
the value of its applications and services will grow as the number of connected
parties and the breadth of the transactions conducted on the Company's platform
increase. However, healthcare remains highly regional, driven by business
relationships and practices that are often unique to specific regions.
Therefore, the Company's approach is to target regional markets where it can
gain critical mass and to expand nationally region by region. The Company plans
to enter into, and to acquire companies with, strategic relationships with
national and regional healthcare participants that have significant market share
in specific regions. In addition, the Company intends to leverage its existing
relationships to penetrate new regions and markets.
PURSUE USAGE-BASED BUSINESS MODEL. The Company offers network-based
transaction and information services on a transaction or subscription fee basis.
This pricing model reduces the initial investment required to obtain the
benefits of high-end information technology systems, enabling physicians, small
organizations and individuals to gain access to such systems for the first time.
By enabling the shift from fixed information technology costs to variable costs,
the Company believes that it will be able to achieve a critical mass of users
and broad-based adoption of the Healtheon Virtual Healthcare Network solution.
PROVIDE A COMPLETE SOLUTION. In addition to its network-based transaction
and information services, the Company offers consulting, application
development, systems integration and network management services to provide
complete customer-specific solutions. By offering this range of services, the
Company can provide customers with a complete migration path from the customers'
legacy systems and processes to Healtheon's Internet-based model.
HEALTHEON'S SERVICES
Healtheon offers a suite of healthcare transaction and information services
delivered over the Internet or over private intranets and other networks. These
network-based services are provided by software applications operating on or
interfacing with the Healtheon Platform, which is designed to provide
connectivity across the healthcare industry and enable a broad array of secure,
mission-critical healthcare transactions. In addition to its platform and
Internet-based applications, Healtheon provides comprehensive consulting and
implementation services to enable its customers to take full advantage of the
capabilities of Healtheon's platform.
Healtheon provides a broad range of applications and services that support
key healthcare transactions. The components of these application suites can be
combined and modified, or supplemented with new application components, to
provide custom solutions for large, complex, multi-entity business enterprises.
These applications and services are typically sold on a transaction or
subscription fee basis, which varies across customers and market segments. The
following chart summarizes the key transactions supported by Healtheon,
organized by business function.
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<TABLE>
<CAPTION>
BUSINESS CUSTOMERS/
FUNCTION USERS TRANSACTIONS SUPPORTED HEALTHEON SERVICE
<S> <C> <C> <C>
Membership Services Consumers - Enrollment Benefits
Payers - Plan comparison/selection Administration
- Provider search, selection, change
- Benefits inquiry
- Messaging
Healthcare Administration Payers - Eligibility determination Healtheon Practice
and Financial Management Providers - Referrals Healtheon
- Authorization ProviderWorks*
- Claims submission and status ProviderLink
- Remittance advice
- Provider directories*
- Provider files-management*
- Reporting
- Claims repricing*
Clinical Information Providers - Patient identification and Healtheon Dx*
Services Suppliers encounter history SCAN+
- Patient registration GMPI+
- Lab orders and results
- Text document/transcription
distribution
Online Consumer Consumers - Access to licensed dictionaries Healtheon
Information and encyclopedias, medical news and Consumer
other reference sources Portal
- Customized wellness assessments
- Food label and nutritional library
- Secure communications and
transactions with providers and
health plans*
</TABLE>
- ---------
*Under development
+Not Internet-enabled
The primary applications and services currently available or under
development are described in greater detail below. Certain of these applications
were acquired by the Company and are not yet Internet-enabled; the Company is
currently redeveloping or replacing these applications to integrate them with
the Healtheon Platform.
MEMBERSHIP SERVICES. Healtheon provides membership services through its
Benefits Administration service. The Benefits Administration service utilizes
internally developed applications operating on the Healtheon Platform. The
service provides Internet-based connectivity between healthcare payers and
consumers and supports transactions such as selection of health plans and
providers, enrollment for benefits and benefit inquiries. Benefits
Administration users also receive Healtheon's Health Risk Appraisal service,
which provides consumer education in wellness and health risks. Healtheon has
deployed its Benefits Administration service directly and through aggregators to
45 companies, covering approximately 190,000 members.
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HEALTHCARE ADMINISTRATION AND FINANCIAL MANAGEMENT. Healtheon supports or
will support healthcare administration and financial management transactions
through its ProviderLink, Healtheon Practice and Healtheon ProviderWorks
services. ProviderLink was licensed by the Company's ActaMed subsidiary from
United HealthCare Corporation. The Company is currently developing a software
interface between the Healtheon Platform and ProviderLink to integrate
ProviderLink with the Company's network-based services. ProviderLink is used by
providers to support transactions and workflows with payers. ProviderLink
supports transactions such as eligibility determinations, claims submission and
status, and remittance advice. For example, physicians use ProviderLink to
determine eligibility of patients to receive care and to submit health claims to
payers. ProviderLink is currently deployed in over 4,300 active provider sites
in more than 20 major markets, and processes over 3.2 million transactions per
month.
The Company has developed Healtheon Practice, a new Internet-based provider
service with support from Brown & Toland, one of the Company's strategic
partners. Healtheon Practice, which is in use at beta sites, is designed to
provide all of the functionality of ProviderLink and also support referrals,
authorization, and provider directories reporting. Providers using the Healtheon
Practice service will be able to receive real-time patient eligibility
verifications and referral authorizations over the Healtheon VHN.
The Company is developing Healtheon ProviderWorks, a new Internet-based
payer service, with support from Beech Street, one of the Company's strategic
partners. Healtheon ProviderWorks is designed to support the creation and
management of networks of providers. The service is designed to manage large,
complex provider directories and files, manage provider relationships and
contracts and perform certain claim processing functions, such as claim
repricing. See "-- Strategic Relationships."
CLINICAL INFORMATION SERVICES. The Company's SCAN product supports ordering
and distribution of clinical tests and test results between SmithKline Labs and
providers using SmithKline Labs' services. ActaMed acquired the SCAN application
from SmithKline Labs. SCAN is deployed on approximately 4,650 installed
workstations serving physicians throughout the United States. SCAN is not
Internet-enabled; however, the Company is developing a new Internet-enabled
application called Healtheon Dx, currently in beta testing, that will combine
the functionality of SCAN and ProviderLink. See "-- Strategic Relationships."
The Company's Global Master Person Index, or "GMPI," enables the unique
identification of a patient and reconciliation of multiple records for the same
patient contained on diverse information systems. GMPI also supports access to
patient data and registration information as well as clinical records. GMPI is
an object-oriented application developed by ActaMed and is not yet
Internet-enabled. Healtheon intends to adapt and implement GMPI functionality on
the Healtheon Platform.
ONLINE CONSUMER INFORMATION. The Company's recently introduced Consumer
Portal provides individual consumers with an authoritative source for healthcare
information and is intended to extend the Company's transaction services
directly to individual consumers. The Consumer Portal provides access to medical
dictionaries and encyclopedias, medical news, a food label and nutritional
library and customized wellness assessments. These sources include: Miller-Keane
Encyclopedia & Dictionary of Medicine, Nursing & Allied Health; Dorland's
Illustrated Medical Dictionary; Citizen 1's CitiLine index of authoritative
medical information; A.D.A.M.'s Hypertext Medical Encyclopedia; and Links to
medical headlines via the New York Times Syndicate. Healtheon's business
partners can integrate the Consumer Portal into their own sites to provide their
consumers with a single point of entry into the healthcare community.
The Company expects to expand its Consumer Portal to support secure
communications and transactions between consumers and their providers and health
plans.
OTHER SERVICES. Healtheon also provides professional services to its
customers to enable them to define, develop and implement network-based
information systems that leverage the capabilities of the Healtheon Platform.
These services are typically sold on a fixed fee or time and materials basis.
These services include consulting on information systems strategy related to the
use of the Internet and secure
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networks, including design of information systems functional specifications,
mapping and redesign of business processes and identification of enterprise
transformation and training requirements to take advantage of increased
connectivity. Healtheon also provides custom development of applications and
enables the deployment of Healtheon services and integration with legacy
information technology systems. In addition, Healtheon provides transitional
network management services of its customers' networks. The Company believes
that its success is partially dependent upon its ability to introduce new
applications in several healthcare markets in a relatively short period of time.
The Company currently offers a limited number of applications on its platform.
CUSTOMERS AND MARKETS
Healtheon's target customers include providers, payers, suppliers and
consumers. Because the Company believes that the value and benefit of
Healtheon's services are directly related to both the number of participants
using Healtheon VHNs and the breadth of functionality supported, it intends
initially to focus on selected regions where it can quickly gain significant
market acceptance. Healtheon is presently targeting a number of regional markets
across the United States.
PROVIDERS. Healtheon's target provider customers include aggregators of
individual physicians such as large medical groups, independent practice
associations, physician practice management companies and other large, organized
physician entities. In particular, the Company seeks to form strategic
relationships with providers with a high degree of involvement in managed care,
especially providers that are involved in activities such as capitation, which
require them to bear some level of insurance risk for each enrolled patient.
Healtheon's services for these providers include benefit eligibility
determinations, referrals and authorizations, claims processing, ordering of
clinical tests and delivery of results and maintenance of patient histories.
Healtheon also targets as potential customers large integrated delivery networks
that combine multiple healthcare facilities, such as hospitals, outpatient
facilities, labs and diagnostic centers, and affiliate with physicians and
physician groups to coordinate care, contract for managed care lives and manage
healthcare resource utilization. Healtheon offers these customers the following
services: patient identification, patient registration, ordering of clinical
tests and delivery of results and distribution of text documents across the
network. The Company's current customers in this category include Brown &
Toland, Baylor Health Care System, Hill Physician Group, Promina Health System
and the Greater Dayton Area Hospital Association.
PAYERS. Healtheon's target payer customers include managed care
organizations, indemnity insurers, third-party administrators and federal and
state governmental agencies. Healtheon targets managed care organization
customers, such as mid-sized to large HMOs and PPOs. Healtheon's services for
these customers include eligibility determination, member customer service
functions, referral and authorization management, coordination of provider files
and directories, and submission and tracking of claims and patient encounter
reports. Healtheon targets indemnity insurer and third-party administrator
customers, such as mid-sized to large commercial entities, Medicare and other
agencies of federal and state government. The Company's current customers in
this category consist of United HealthCare, Beech Street, Sun Life of Canada,
Blue Shield of California, CIGNA HealthCare and the Health Care Financing
Administration.
SUPPLIERS. Healtheon's target supplier customers include large national
laboratory companies, pharmaceutical companies and pharmacy benefit managers.
Healtheon's services for laboratory companies include ordering clinical tests
and reporting test results. The Company's customers in this category include
SmithKline Labs and Schering Corporation.
CONSUMERS. Healtheon's target consumer customers include employers, health
plans and health plan brokers. Healtheon's services in this area include a
consumer web portal, health plan enrollment, benefits administration and
membership coordination. Healtheon's target employer group includes mid-sized
and large employers and, particularly, self-funded employers that have complex
benefits management needs.
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Healtheon's target health plan broker customers include mid-sized to large
brokers that aggregate small and medium employers and administer healthcare
benefits on their behalf. Healtheon services 45 employers covering approximately
190,000 members.
STRATEGIC RELATIONSHIPS
The Company has entered into several strategic relationships that it
believes will enhance its application portfolio, provide important specialized
industry expertise, increase its market penetration, and generate revenue.
Certain of these relationships are described below:
UNITED HEALTHCARE CORPORATION. United HealthCare is the largest HMO in the
United States. United HealthCare is the Company's second largest stockholder and
will own approximately % of the Company's common stock after the offering.
In March 1996, the Company acquired United HealthCare's ProviderLink network
which supports over 4,300 active provider sites in more than 20 major markets
servicing over 3.2 million transactions per month. The Company earns transaction
fee revenue by providing certain healthcare information services to United
HealthCare, members of United HealthCare's provider network and ProviderLink
subscribers.
In April 1996, the Company and United HealthCare entered into a Services and
License Agreement, the "United HealthCare Agreement", under which the Company,
using ProviderLink, provides claims processing, referral, eligibility and
enrollment services, to United HealthCare's managed care providers and
customers. Under the United HealthCare Agreement, the Company currently receives
a monthly fee for each user site enrolled with United HealthCare and a fee per
transaction. However, the United HealthCare Agreement does not guarantee any
minimum level of transactions or payments to the Company. The United HealthCare
Agreement has a five year term; however, the agreement provides that two years
after the date of the agreement, the parties will agree on new prices that will
be competitive with the marketplace. The Company and United HealthCare are
negotiating such new prices, and the Company anticipates that the new prices
will reduce the rates paid by United HealthCare. United HealthCare has also
agreed during the term of the United HealthCare Agreement not to promote or
contract for services providing the same functionality as that provided by the
Company, although United HealthCare is permitted to continue to utilize services
it was utilizing when it entered into the United HealthCare Agreement.
In addition, through ActaMed, the Company has developed PLNet, an
Internet-based version of ProviderLink, which the Company intends to integrate
into the Healtheon Platform and offer to other major healthcare payers and
providers. The Company is working with United HealthCare to expand the
applications and content available to United HealthCare's provider network, to
increase the size and geographic reach of its provider network, and to
assimilate newly acquired health plans. William McGuire, M.D., the Chairman and
CEO of United HealthCare, is a member of the Company's Board of Directors. The
United HealthCare Agreement is effective through March 2001, subject to earlier
termination in the event the Company fails to meet certain network performance
standards or otherwise breaches its material obligations under the United
HealthCare Agreement.
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. SmithKline Beecham Clinical
Laboratories, Inc., or "SmithKline Labs," a subsidiary of SmithKline Beecham, is
one of the largest independent clinical laboratories in the United States.
SmithKline is a stockholder of the Company and will own approximately % of
the Company's common stock after the offering. In December 1997, the Company and
SmithKline Labs entered into a Services Agreement, or the "Services Agreement"
under which the Company provides lab orders and results to providers that use
SCAN. SmithKline Labs has also agreed to promote the Company as its preferred
vendor for laboratory electronic connectivity services.
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The Company acquired SCAN-related assets from SmithKline Labs, including
approximately 4,200 installed workstations in physicians' offices, hospitals and
other provider offices. The Company is currently developing Healtheon Dx, an
Internet-enabled version of the SCAN system, which the Company plans to
integrate into the Healtheon Platform and to offer to physicians using
SmithKline Labs' services or to physicians using other laboratories. Tadataka
Yamada, M.D., President of SmithKline Beecham Healthcare Services, is a member
of the Company's Board of Directors. The Services Agreement is effective through
December 2002, with options for successive two-year renewals, subject to earlier
termination in the event the Company fails to meet certain network performance
standards or if the Company otherwise breaches its material obligations under
the Services Agreement. The Services Agreement provides that the parties will
negotiate new rates as of January 1, 2001 and each two years thereafter.
Pursuant to the Services Agreement, the renegotiated rates must be competitive
with the marketplace and must be no higher than the lowest fees charged by the
Company to similarly situated customers.
In December 1998, Healtheon and SmithKline Labs entered into an asset
purchase agreement. The agreement provides that Healtheon will purchase certain
assets currently used by SmithKline Labs to provide laboratory results delivery
services in exchange for $2.0 million in cash and shares of Healtheon's common
stock having a value of $11.0 million. The asset purchase agreement calls for
Healtheon and SmithKline Labs to enter a related services agreement under which
Healtheon will provide certain electronic laboratory results delivery services
to approximately 20,000 provider sites, in addition to the sites currently
served through the SCAN service. The asset purchase agreement is subject to
execution of the related service agreement and approval by the Company's Board
of Directors.
BROWN & TOLAND PHYSICIAN SERVICES ORGANIZATION. Brown & Toland Medical
Group, or "BTMG," based in San Francisco, California, is a partnership of
approximately 2,000 physicians representing a merger of physicians from
California Pacific Medical Center, the University of California-San Francisco
and Stanford University. Brown & Toland Physician Services Organization, or
"Brown & Toland", a wholly owned subsidiary of BTMG, is the management company
that administers the managed care risk business on behalf of BTMG and other
physician organizations. In December 1997, the Company and Brown & Toland
entered into an agreement under which the Company is developing Healtheon
Practice, which the Company intends to market to Brown & Toland and other payers
and providers. The Company also manages the information technology operations of
Brown & Toland. Through its relationship with Brown & Toland, the Company
believes it is gaining valuable industry-segment expertise from a leader in
managed care and accelerating its market presence in the San Francisco Bay Area.
The Company's agreement with Brown & Toland is effective through September 2000,
although it may be terminated by either party upon 120 days' notice.
BEECH STREET CORPORATION. Beech Street is one of the largest PPOs in the
United States. Beech Street's PPO network consists of approximately 4,300
hospitals and 320,000 physician locations serving 15 million individuals in 49
states, and its clients consist of major self-insured employers, insurance
companies and third-party administrators. In December 1997, the Company and
Beech Street have entered into an agreement under which the Company is
developing Healtheon ProviderWorks, which the Company intends to offer to Beech
Street and to other payers and providers. The Company also manages the
information technology operations of Beech Street. The relationship with Beech
Street provides the Company with important industry-segment expertise and a
strategic entry-point into the PPO market segment. The Company's agreement with
Beech Street is effective through December 2002, although it may be terminated
by either party upon 180 days' notice.
THE HEALTHEON PLATFORM
The Healtheon Platform is a CORBA-based distributed application framework,
combined with software tools that ensure security, scalability, availability,
reliability and manageability, on which transaction intensive applications can
be delivered over the Internet or over other distributed environments.
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The Healtheon Platform is deployed on a server complex at the Healtheon data
center in Santa Clara, California, which consists of SUN Solaris servers in a
fault tolerant configuration and redundant or fault tolerant network components.
The Healtheon Platform includes the following features:
SECURITY. The Healtheon Platform is designed to ensure the privacy and
integrity of data and communications by using a combination of security
methodologies to provide multiple lines of defense. All Internet communications
between Healtheon and its users employ the Secure Sockets Layer protocol. In
addition, Healtheon utilizes server digital certificates and username/password
schemes to authenticate users. Each user has a unique user ID and has one or
more roles that define the types of functionality and data access available. All
Healtheon's applications record logging information, creating an audit trail,
and protect privacy by encrypting sensitive data. The Company also uses a
multi-layered firewall complex to secure the Healtheon network infrastructure.
In addition, network vulnerability scanners are used on a regular basis to
actively monitor security status. Healtheon's physical security systems at its
Santa Clara facility consist of comprehensive physical controls and
multi-layered internal network and information system safeguards. The physical
controls include using fingerprint authentication, dual-level access points, and
multiple alarm systems.
SCALABILITY. The Healtheon Platform utilizes CORBA-based middleware, which
enables a highly scalable distributed applications infrastructure. The platform
enables an application to run simultaneously on multiple host systems, allowing
for large numbers of simultaneous users while at the same time optimizing
network performance and resource utilization. In addition, the Healtheon
Platform has been designed to transparently deploy new services and hardware
while existing applications remain operational. Finally, the Healtheon Platform
reduces communications bottlenecks resulting from limited numbers of connections
to database servers through intelligent management of database connections and
object caches that reduce the need to query database servers for frequently used
data.
RAPID APPLICATION DEVELOPMENT AND INTEGRATION. The Healtheon Platform is
designed to enable rapid application development and integration. The platform
supports object-oriented programming, which accelerates the design process
through object reuse. The Company maintains a comprehensive set of object
libraries, called core services, that allows developers to build complex
applications rapidly. The platform is also designed for deploying applications
developed by third parties with relative ease. The platform interfaces with
legacy systems by accepting industry standard ANSI X.12 and HL7 electronic data
interchange formats.
HIGH AVAILABILITY. The Healtheon Platform architecture is designed to
ensure high availability through the replication of applications and other
software services, failure detection and automatic restart of failed services
and applications. Running multiple copies of a service or application removes
any single point of failure within the system and ensures that at least some
copies of a service will be available while others may have failed. In addition,
the servers that host Healtheon applications are duplicated to provide
redundancy. Healtheon uses duplicate fiber optic cable connections to Sprint and
WorldCom to ensure highly-available access to the Internet. The Company's
platform uses a mix of fault-tolerant hardware, redundant equipment and back-up
power systems.
MANAGEABILITY. The Healtheon management framework provides a single image
view of all Healtheon services, thus simplifying administration in a distributed
environment. Healtheon services can be managed from a Web-based management
station. The Healtheon management and administration framework monitors service
performance and generates event notifications of system abnormalities.
DISASTER RECOVERY PLANS. Although the Company believes its operations
facilities are highly resistant to systems failure and sabotage, it has
developed, and is in the process of implementing, a disaster recovery and
contingency operations plan. In addition, all of the Company's services are
linked to advanced storage systems that provide data protection through
techniques such as replication. The Company also maintains on-site backup power
systems.
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AUDITS. The Company's information technology department periodically
performs, and retains accredited third parties to perform, audits of its
operational procedures under both internally-developed audit procedures and
externally-recognized standards.
CUSTOMER SUPPORT
The Company believes that a high level of customer support is necessary to
achieve wide acceptance of its solution. The Company provides a wide range of
customer support services through a staff of customer service personnel,
multiple call centers and an e-mail help desk. The Company also offers Web-based
support services that are available 24 hours a day, seven days a week and are
frequently updated to improve existing information and to support new services.
The Company also employs technical support personnel who work directly with its
direct sales force, distributors and customers of its applications and services.
The Company provides its customers with the ability to purchase maintenance for
its applications and services, which includes technical support and upgrades.
The Company also provides training programs for its customers. As of September
30, 1998, the Company had 251 employees and independent contractors in customer
support functions, including network services, provider services and customer
support services.
SALES AND MARKETING
Healtheon's sales and marketing efforts are organized according to its four
main customer segments: providers, payers, suppliers and consumers. Healtheon's
direct sales force targets significant potential customers in each market
segment by region. In certain instances, the Company's direct sales force works
with complementary brokers, value added resellers and systems integrators to
deliver complete solutions for major customers. In addition, senior management
plays an active role in the sales process by cultivating industry contacts. The
Company markets its applications and services through direct sales contacts,
strategic relationships, the sales and marketing organizations of its strategic
partners, participation in trade shows, articles in industry publications and by
leveraging its existing client base. Healtheon attends a number of major trade
shows each year and has begun to sponsor executive conferences, which feature
industry experts who address the information systems needs of large healthcare
organizations. The Company supports its sales force with technical personnel who
perform demonstrations of Healtheon's applications and assist clients in
determining the proper hardware and software configurations. The Company's
executive sales and marketing management is located in its Santa Clara,
California headquarters and in its Atlanta, Georgia, Minneapolis, Minnesota and
San Francisco, California facilities, while its account representatives are
deployed across the United States. As of September 30, 1998, the Company
employed 67 sales executives, account managers, direct sales representatives and
sales support personnel.
DEVELOPMENT AND ENGINEERING
The Company believes that its future success will depend in large part on
its ability to continue to maintain and enhance its platform, applications and
services. To this end, the Company leverages the modular nature of its platform
architecture to enable it to develop new applications and services rapidly. The
Company has developed applications and services both independently and through
acquisitions. The Company will continue to work closely with other companies in
its applications development efforts.
The Company has several significant projects currently in development. These
include the continued enhancement of the platform architecture, development of
new services such as Healtheon Practice, Healtheon ProviderWorks and Healtheon
Dx, and integration of ActaMed's platform, network and associated services. As
of September 30, 1998, the Company employed 201 people in the areas of
applications design, research and development, quality assurance and technical
support.
In 1995, 1996, 1997 and the nine months ended September 30, 1998, the
Company's development and engineering expense, which excludes development
expenses included in total cost of revenue, totaled $2.4 million, $8.6 million,
$13.0 million and $13.0 million, respectively, representing 112%, 78%, 97% and
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39%, respectively, of its total revenue. The Company believes that timely
development of new and enhanced applications and technology is necessary to
remain competitive in the marketplace. Accordingly, the Company intends to
continue recruiting and hiring experienced development personnel and to make
other investments in development and engineering.
The emerging market for healthcare information exchange and transaction
processing is characterized by rapid technological developments, frequent new
application introductions and evolving industry standards. The emerging nature
of this market and its rapid evolution will require that the Company continually
improve the performance, features and reliability of its applications and
services, particularly in response to competing offerings, and that it introduce
new applications and services or enhancements to existing applications and
services as quickly as possible and prior to its competitors. The success of new
application and service introductions is dependent on several factors, including
proper definition of new applications or services, timely completion and
introduction of new applications and services, differentiation of new
applications and services from those of the Company's competitors and market
acceptance. There can be no assurance that the Company will be successful in
developing and marketing new applications and services that respond to
competitive and technological developments and changing customer needs. The
failure of the Company to develop and introduce new applications and services
successfully on a timely basis and to achieve market acceptance for such
applications and services could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
widespread adoption of new Internet, networking or telecommunication
technologies or standards or other technological changes could render its
applications and services obsolete or require substantial expenditures by the
Company to adapt its applications and services. Moreover, there is a risk that a
competitor's product might become the standard for healthcare information
services.
INTELLECTUAL PROPERTY
The Company relies upon a combination of trade secret, copyright and
trademark laws, license agreements, confidentiality procedures, employee
nondisclosure agreements and technical measures to maintain the secrecy of its
intellectual property. The Company believes that patent, trade secret and
copyright protection are less significant to the Company's success than its
ability to further develop applications. The Company has several trademarks in
the United States and internationally.
COMPETITION
The market for healthcare information services is intensely competitive,
rapidly evolving and subject to rapid technological change. Many of the
Company's actual and potential competitors have announced or introduced Internet
strategies. The Company's competitors can be divided into several groups:
healthcare information software vendors, including HBO & Company, which has
agreed to be acquired by McKesson Corporation, one of the country's largest drug
wholesalers, and Shared Medical Systems Corporation; healthcare electronic data
interchange companies, including ENVOY Corporation, which has agreed to be
acquired by Quintiles Transnational Corp., and National Data Corporation; and
large information technology consulting service providers, including Andersen
Consulting, International Business Machines Corporation and Electronic Data
Systems Corporation. Each of these companies can be expected to compete with the
Company within certain segments of the healthcare information technology market.
Furthermore, major software information systems companies and others, including
those specializing in the healthcare industry that are not presently offering
applications that compete with those offered by the Company, may enter the
Company's markets. In some cases, large customers may have the ability to
compete directly with the Company as well. The Company also competes with
smaller regional competitors. Many of the Company's competitors and potential
competitors have significantly greater financial, technical, product
development, marketing and other resources and greater market recognition than
the Company. Many of the Company's competitors also currently have, or may
develop or acquire, substantial installed customer bases in the healthcare
industry. As a result of these factors, the Company's competitors may be
43
<PAGE>
able to respond more quickly to new or emerging technologies and changes in
customer requirements or to devote greater resources to the development,
promotion and sale of their applications or services than the Company. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.
GOVERNMENT REGULATION AND HEALTHCARE REFORM
Laws and regulations may be adopted with respect to the Internet or other
on-line services covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. The adoption of any additional laws or regulations may impede the
growth of the Internet or other on-line services, which could, in turn, decrease
the demand for the Company's applications and services and increase the
Company's cost of doing business, or otherwise have an adverse effect on the
Company's business, financial condition and results of operations. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet and other
online services could have a material adverse effect on the Company's business,
financial condition and results of operations.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
subject to substantial regulation by state governments. These state laws and
regulations govern both the disclosure and the use of confidential patient
medical record information. Although compliance with these laws and regulations
is at present principally the responsibility of the hospital, physician or other
healthcare provider, regulations governing patient confidentiality rights are
evolving rapidly. Additional legislation governing the dissemination of medical
record information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by the Company. There can be
no assurance that changes to state or federal laws will not materially restrict
the ability of healthcare providers to submit information from patient records
using the Company's applications.
Legislation currently being considered at the federal level could impact the
manner in which the Company conducts its business. The Health Insurance
Portability and Accountability Act of 1996 mandates the use of standard
transactions, standard identifiers, security and other provisions by the year
2000. The Company is designing its Platform and applications to enable
compliance with the proposed regulations; however, until such regulations become
final, they could change, which could require the Company to expend additional
resources to comply with the revised standards. In addition, the success of the
Company's compliance efforts may be dependent on the success of healthcare
participants in dealing with the standards.
International regulations with respect to the Internet, privacy and
transborder data flows are considerably more developed than regulations in the
United States. The Company intends to develop applications and services to be
used on a worldwide basis and, consequently, will be required to comply with
international regulations regarding the Internet and electronic commerce, as
well as with U.S. regulations. The Company has not evaluated the effect that
these regulations would have on its business, and there can be no assurance that
such regulations will not have an adverse effect on the Company's ability to
compete internationally.
The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug and
Cosmetic Act. Computer applications and software are considered medical devices
and subject to regulation by the FDA when they are indicated, labeled or
intended to be used in the diagnosis of disease or other conditions, or in the
cure, mitigation, treatment or prevention of disease, or are intended to affect
the structure or function of the body. The
44
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Company does not believe that any of its current applications or services are
subject to FDA jurisdiction or regulation; however, the Company plans to expand
its application and service offerings into areas that may subject it to FDA
regulation. The Company has no experience in complying with FDA regulations.
Healtheon's compliance with FDA regulations could prove to be time consuming,
burdensome and expensive, which could have a material adverse effect on the
Company's ability to introduce new applications or services in a timely manner.
EMPLOYEES
As of September 30, 1998, the Company had a total of 613 employees and
independent contractors, of whom 184 engaged in customer and network services,
244 in development and engineering, 14 in consulting services, 67 in provider
services, 67 in sales and marketing and 37 in corporate finance and
administration. None of the Company's employees is represented by a labor union,
and the Company has never experienced a work stoppage. The Company believes its
relationship with its employees to be good. The Company's ability to achieve its
financial and operational objectives depends in large part upon its continuing
ability to attract, integrate, retain and motivate highly qualified sales,
technical and managerial personnel, and upon the continued service of its senior
management and key sales and technical personnel, most of whom are not bound by
an employment agreement. Competition for such qualified personnel in the
Company's industry and geographical location in the San Francisco Bay Area is
intense, particularly in software development and technical personnel.
FACILITIES
The Company's principal executive and corporate offices and development and
network operations are located in Santa Clara, California, in approximately
50,000 square feet of leased office space under a lease that expires in March
2008. The Company also maintains sales, development and network operations in
Atlanta, Georgia, in approximately 41,000 square feet of leased office space
under a lease that expires in July 2001; sales, engineering and support
operations in Minneapolis, Minnesota, in approximately 16,500 square feet of
leased office space under a lease that expires in December 1999; and sales,
engineering and support operations in San Francisco, California, in
approximately 6,000 square feet and 5,000 square feet of leased office space
under two leases that expire in November 2000 and September 2001, respectively.
The Company believes that its facilities are adequate for its current operations
and that additional leased space can be obtained if needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the Company's
current executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- ----------- --------------------------------------------------------------
<S> <C> <C>
James H. Clark(1)(2)........................ 53 Chairman of the Board of Directors
W. Michael Long(3).......................... 46 Chief Executive Officer and Director
Michael K. Hoover........................... 43 President and Director
Mark Bailey................................. 39 Vice President, Business Development
Kallen Chan................................. 44 Corporate Controller
Jack Dennison............................... 42 Vice President and General Counsel
Dennis Drislane............................. 49 Vice President, Customer and Network Services
Edward Fotsch, M.D.......................... 42 Vice President, Physician and Integrated Delivery Network
Group
Nancy Ham................................... 37 Vice President, Laboratories and Pharmaceuticals
J. Philip Hardin............................ 35 Vice President, Managed Care Group
John R. Hughes, Jr.......................... 46 Vice President, Provider Services
Krishna Kolluri............................. 36 Vice President, Applications
Matthew Moore............................... 34 Vice President, Consumer Internet Services
Pavan Nigam................................. 39 Vice President, Engineering
Charles Saunders, M.D....................... 44 Vice President, Marketing and Consulting Services and Medical
Director
John L. Westermann III...................... 53 Vice President, Chief Financial Officer, Secretary and
Treasurer
L. John Doerr(1)(2)......................... 46 Director
C. Richard Kramlich(1)(2)................... 63 Director
William W. McGuire, M.D.(1)(2).............. 50 Director
P. E. Sadler(1)............................. 64 Director
Tadataka Yamada, M.D.(1).................... 53 Director
</TABLE>
- ---------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee.
JAMES H. CLARK has served as Chairman of the Board of the Company since he
co-founded it in December 1995. Dr. Clark co-founded Netscape Communications
Corporation in April 1994 and has served as the Chairman of the Board of
Directors of Netscape since its inception. He served as President and Chief
Executive Officer of Netscape from its founding until December 1994. From 1981
until 1994, Dr. Clark served as Chairman of the board of directors of Silicon
Graphics, Inc., a company that he founded in 1981. Prior to founding Silicon
Graphics, Dr. Clark was an Associate Professor at Stanford University. He holds
a B.S. and an M.S. from the University of New Orleans and a Ph.D. from the
University of Utah.
W. MICHAEL LONG has served as Chief Executive Officer and a director of the
Company since joining the Company in July 1997. Prior to joining the Company,
Mr. Long was President and Chief Executive Officer of CSC Continuum, Inc., a
unit of Computer Sciences Corporation, from August 1996 to July 1997. For more
46
<PAGE>
than five years prior to its acquisition by CSC, he was President and Chief
Executive Officer of The Continuum Company, Inc., a provider of IT and
consulting services to the financial industry. He holds a B.A. from the
University of North Carolina.
MICHAEL K. HOOVER has served as President and a director of the Company
since the Company acquired ActaMed Corporation in May 1998. Mr. Hoover
co-founded ActaMed in May 1992, and served as its President from its inception
to May 1998, and as its President and Chief Executive Officer from December 1995
to May 1998. From 1989 to 1992, Mr. Hoover served as the Executive Director of
Financial Services of the MicroBilt division of First Financial Management
Corporation. Prior to that, he founded FormMaker Software Corporation, a
producer of electronic forms automation systems, and served as its Chief
Executive Officer from 1982 to 1988 and as its Executive Vice President during
1988.
MARK BAILEY has served as Vice President, Business Development of the
Company since joining the Company in July 1998. Prior to joining the Company,
Mr. Bailey served as general partner at Venrock Associates, the venture capital
organization for the Rockefeller family, from October 1997 to April 1998. Prior
to that he was Senior Vice President Business Development at Symantec
Corporation, a provider of productivity and utilities software, where he
directed mergers and acquisitions efforts from December 1989 to October 1997.
Before joining Symantec, he was an associate with Kleiner Perkins Caufield &
Byers, a venture capital firm, from June 1985 to December 1989. Mr. Bailey holds
an MBA from Harvard University and a BSE from Princeton University.
KALLEN CHAN has served as Corporate Controller of the Company since April
1996. Prior to joining the Company, Mr. Chan was the Director of Audit and Group
Controller for Worldwide Manufacturing at Cirrus Logic, Inc. since March 1995.
From January 1993 to February 1995, Mr. Chan was Vice President of Finance and
Chief Financial Officer of Comtech Labs Inc., a video imaging technology
company. From 1986 to 1992, Mr. Chan served as Chief Financial Officer for
various early stage companies, including Caeco Inc., Harmonic Lightwaves, Inc.
and Oasic Technology, Inc. Prior to 1986, Mr. Chan spent nine years at Philips
Semiconductor as a Division Controller. He holds a B.S. in commerce and an
M.B.A. from the University of Santa Clara.
JACK DENNISON has served as Vice President and General Counsel of the
Company since joining the Company in July 1998. Mr. Dennison served as Deputy
General Counsel of Computer Sciences Corporation from August 1996 to July 1998.
Prior to that time, Mr. Dennison served as Vice President and General Counsel of
The Continuum Company, Inc. Prior to joining Continuum in 1989, he was a partner
with Ford, Dennison & Byrne in Austin, Texas. Mr. Dennison holds a B.A. and a
J.D. from the University of Texas.
DENNIS DRISLANE has served as Vice President, Customer and Network Services
of the Company since joining the Company in July 1997. Mr. Drislane served as
Vice President, Communications Industry Group, at Electronic Data Systems
Corporation, "EDS," from June 1995 to July 1997. From October 1992 to June 1995,
he was President of EDS' Healthcare Division. Prior to October 1992, he held
various management positions for EDS. Mr. Drislane holds both a B.S. and an M.S.
in business administration from California State University in Sacramento.
EDWARD FOTSCH, M.D. has served as the Vice President, Physician and
Integrated Delivery Network group of the Company since the Company acquired
Metis, LLC in August 1998. Dr. Fotsch served as President and Chief Executive
Officer of Metis, LLC from March 1997 to August 1998. Prior to working at Metis,
LLC, Dr. Fotsch served as Vice President of Healthcare for NetSource
Communications Inc., an Internet development and consulting organization, from
November 1994 to March 1997. Prior to working at NetSource, Dr. Fotsch was
President of Med-Tech Consulting, a healthcare consulting firm from October 1992
through November 1994. Dr. Fotsch practiced medicine as Chief of the Department
of Emergency Medicine at Doctors Hospital in Northern California for ten years
prior to 1994. He holds a Doctorate in Medicine from the Medical College of
Wisconsin and a B.S. from Marquette University.
47
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NANCY HAM has served as Vice President, Laboratories and Pharmaceuticals
Group of the Company since the Company acquired ActaMed in May 1998. Ms. Ham
served as a Senior Vice President of ActaMed from June 1996 to May 1998. She
served as Chief Financial Officer and Secretary of ActaMed from 1993 to May
1996. From 1992 to 1993, she was a Corporate Finance Director for the Capital
Finance Group of Equifax, Inc. Prior to that, she was an Assistant Vice
President at G.E. Capital Corporation. Ms. Ham holds a B.A. in economics from
Duke University and a masters in international business studies from the
University of South Carolina.
J. PHILIP HARDIN has served as Vice President, Managed Care Group of the
Company since the Company acquired ActaMed in May 1998. Mr. Hardin served as
Vice President of Managed Care Operations of ActaMed from August 1997 until May
1998. He also served as Director of payer Sponsorship for ActaMed from January
1997 to August 1997, and Project Executive from July 1995 to December 1996. From
August 1993 to June 1995, Mr. Hardin attended Stanford University and received
an MBA degree in June 1995. Prior to that, he served as Vice President, Finance,
Director of Finance and Controller of Melita International Corporation and held
various accounting positions at Arthur Andersen & Company. Mr. Hardin also holds
a B.B.A. in accounting from the University of Georgia.
JOHN R. HUGHES, JR. has served as Vice President, Provider Services of the
Company since the Company acquired ActaMed in May 1998. Mr. Hughes served as
Chief Operating Officer of ActaMed from March 1996 to May 1998. Prior to working
at ActaMed, Mr. Hughes served as General Manager of the EDI Services Group of
United HealthCare from August 1992 to March 1996. Mr. Hughes served as Vice
President of North American Sales for Revelation Technologies, a computer
software company, from 1990 to 1992. From 1980 to 1990, Mr. Hughes was Vice
President, Sales Manager and Product Marketing Manager at Harris Corporation.
Mr. Hughes holds a B.S. in business administration from the University of
Kansas.
KRISHNA KOLLURI has served as Vice President, Applications of the Company
since July 1998, and prior to that, as Senior Director of Development
Engineering of the Company since February 1996. Prior to joining the Company,
Mr. Kolluri spent six years at Silicon Graphics, Inc. From August 1993 to
February 1996, Mr. Kolluri served as Senior Engineering Manager of Applications
and Development Environments in the Interactive Media Group of Silicon Graphics,
Inc. From May 1992 to August 1993, he served as Senior Engineering Manager of
Programming Environments in Silicon Graphics' CASE group where he was involved
in the development and deployment of interactive TV projects in Orlando, Florida
and Urayasu, Japan. From March 1990 to May 1992, he was a Member of Silicon
Graphic's technical staff. Mr. Kolluri holds a B.S.M.E. from the Indian
Institute of Technology, Madras, India, an M.S. in Operations Research from
S.U.N.Y., Buffalo, and an M.S.C.S. from the University of California, Santa
Cruz.
MATTHEW MOORE has served as Vice President, Consumer Internet Services since
joining the Company in September 1998. Prior to joining the Company, Mr. Moore
spent four years at Netscape Communications, where he co-founded the firm's
European operations and served as Director of Strategic Sales from August 1994
until December 1997. Commencing January 1998, he moved to Netscape's U.S.
operations to head up vertical markets internationally. From 1989 to 1994, he
was a partner at Keystone Strategies, a technology consultancy firm based in
Geneva, Switzerland. Mr. Moore holds a B.A. from University of California, Los
Angeles, and an M.B.A from Hautes Etudes Commerciales, University of Geneva,
Switzerland.
PAVAN NIGAM co-founded the Company and has served as its Vice President,
Engineering since February 1996. Prior to joining the Company, Mr. Nigam worked
at Silicon Graphics from August 1989 to January 1996, where he was the division
manager for Silicon Graphic's Interactive Media Group and was responsible for
deploying Time Warner, Inc.'s Interactive TV project in Orlando, Florida. From
1989 to 1993, he was director of Silicon Graphics' Casevision products. Prior to
1989, Mr. Nigam was employed by Atherton Technologies and Intel Corporation. Mr.
Nigam holds a B.S.E.E. from the Indian Institute of Technology and an M.S.C.S.
from the University of Wisconsin-Madison.
48
<PAGE>
CHARLES SAUNDERS, M.D. has served as Vice President, Marketing and
Consulting Services and Medical Director since joining the Company in September
1997. Prior to joining the Company, Dr. Saunders was a principal in the
consulting firm of A.T. Kearney, Inc./Electronic Data Systems Corporation from
September 1994 to August 1997. Prior to that time, Dr. Saunders was Executive
Director of managed care programs at San Francisco General Hospital, and served
as Medical Director of the San Francisco Department of Public Health, Paramedic
Division, from 1988 to 1994. He has conducted healthcare systems research for
and has served on the faculties of the University of California at San
Francisco, Vanderbilt University and the University of Colorado. Dr. Saunders
holds a B.S. in biology from the University of Southern California and an M.D.
from Johns Hopkins University.
JOHN L. WESTERMANN III has served as Vice President, Chief Financial
Officer, Secretary and Treasurer of the Company since joining the Company in
July 1998. From August 1996 to July 1998, Mr. Westermann was Chief Financial
Officer and Vice President of CSC Continuum, Inc., a unit of Computer Sciences
Corporation. For more than five years prior to its acquisition by CSC, Mr.
Westermann was Chief Financial Officer, Vice President, Secretary and Treasurer
of The Continuum Company, Inc., a provider of IT and consulting services to the
financial industry. Mr. Westermann holds a B.A. from Northwestern University and
an M.B.A. from the University of Chicago Graduate School of Business.
L. JOHN DOERR has served as a director of the Company since July 1997. He
has been a general partner at Kleiner Perkins Caufield & Byers, or "KPCB," a
venture capital firm, since 1980. Prior to joining KPCB, Mr. Doerr worked at
Intel Corporation for five years. He is a director of At Home Corporation,
Amazon.com, Inc., Netscape Communications Corporation, Intuit Inc., Platinum
Software Corporation and Sun Microsystems, Inc. He holds a B.S.E.E. and an
M.E.E. from Rice University and an M.B.A. from Harvard Business School.
C. RICHARD KRAMLICH has served as a director of the Company since July 1996.
Mr. Kramlich is the co-founder and has been a General Partner of New Enterprise
Associates, a venture capital firm, since 1978. He is a director of Ascend
Communications, Inc., Com 21, Inc., Lumisys, Inc., Silicon Graphics, Inc.,
Chalone Wine Group, Inc. and SyQuest Technology, Inc. Mr. Kramlich holds a B.A.
from Northwestern University and an M.B.A. from Harvard Business School.
WILLIAM W. MCGUIRE, M.D. has served as a director of the Company since the
Company acquired ActaMed in May 1998. He has been the President of United
HealthCare since 1989 and the Chief Executive Officer and Chairman of the Board
of Directors of United HealthCare since 1991. Prior to this, Dr. McGuire was
Executive Vice President and Chief Operating Officer of United HealthCare. Prior
to this time, he served as President and Chief Operating Officer of Peak Health
Plan. Before becoming President and Chief Operating Officer, he held a number of
other positions within that organization. Dr. McGuire practiced medicine in
Colorado, specializing in cardiopulmonary medicine. He holds a B.A. from the
University of Texas and an M.D. from the University of Texas Medical Branch.
P. E. SADLER has served as a director of the Company since the Company
acquired ActaMed in May 1998. He was Chairman of the Board of ActaMed from the
time that he helped co-found it in 1992 until it was acquired by the Company,
and served as its Chief Executive Officer from 1992 until May 1996. Prior to
founding ActaMed, Mr. Sadler founded MicroBilt Corporation, a computer
processing company, and served as its Chairman, Chief Executive Officer and
President from 1981 until MicroBilt was acquired by First Financial Management
Corporation, or "FFMC," in 1989. Following the acquisition of MicroBilt, he
served as President of the MicroBilt division of FFMC until 1991. Mr. Sadler
also founded Agency Data Systems in 1972 and served as its President until the
Company was acquired in 1975. Mr. Sadler also served on the board of
Knowledgeware, Inc. from 1990 to 1995 and currently serves on the Board of
Directors of Central Parking, Inc., an operator of parking lots. Mr. Sadler
holds a B.A. in business and economics from Vanderbilt University.
TADATAKA YAMADA, M.D. has served as a director of the Company since the
Company acquired ActaMed in May 1998. Dr. Yamada has been President and
Executive Director of SmithKline Beecham HealthCare
49
<PAGE>
Services since February 1996 and has been a non-executive director of SmithKline
Beecham's Board of Directors since February 1994. From June 1990 to February
1996, Dr. Yamada was Chairman of the Internal Medicine department and
Physician-in-Chief of the University of Michigan Medical Center. Prior to that
time, Dr. Yamada was a Professor and Chief of the Gastroenterology Division at
the University of Michigan Medical School's Internal Medicine department. Prior
to his work at the University of Michigan, Dr. Yamada was an associate professor
of medicine at the UCLA School of Medicine. Dr. Yamada is also a director of
Genevco, Inc. Dr. Yamada holds a B.A. in history from Stanford University and an
M.D. from the New York University School of Medicine.
The Company's Bylaws authorize between six and eight directors. The size of
the Board of Directors is currently set at eight. The Certificate of
Incorporation and the Bylaws of the Company also provide for a staggered Board.
Under a staggered Board, each director is designated to one of three categories.
Each year the directors' positions in one of the three categories are subject to
election so that it would take up to three years to replace the entire Board,
absent resignation or premature expiration of a director's term. Executive
officers of the Company are appointed by the Board and serve at the discretion
of the Board. There are no family relationships among any of the directors or
executive officers of the Company.
BOARD COMMITTEES
The Board currently has three committees: an Audit Committee, a Stock Option
Committee and a Compensation Committee.
The Audit Committee is currently comprised of Dr. Clark, Mr. Doerr, Mr.
Kramlich, Dr. McGuire, Mr. Sadler and Dr. Yamada. The Audit Committee reviews
and recommends to the Board the internal accounting and financial controls for
the Company and the accounting principles and auditing practices and procedures
to be used for the financial statements of the Company. The Audit Committee
makes recommendations to the Board concerning the engagement of independent
public accountants and the scope of the audit to be undertaken by such
accountants.
The Stock Option Committee is currently comprised of Mr. Long and is charged
with overseeing the stock option plans as they relate to employees other than
officers and directors of the Company.
The Compensation Committee is currently comprised of Dr. Clark, Mr. Doerr,
Mr. Kramlich, and Dr. McGuire. The Compensation Committee reviews and recommends
to the Board policies, practices and procedures relating to the compensation of
the officers and other managerial employees and the establishment and
administration of employee benefit plans. The Committee exercises all authority
under the Company's employee equity incentive plans and advises and consults
with the officers of the Company regarding managerial personnel policies.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the Board or any
Board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at Board and
Board committee meetings. Upon completion of this offering, all Board members
will be eligible to receive stock options under the 1996 Plan, and outside
directors will receive stock options pursuant to automatic grants of stock
options under the 1996 Plan. In July 1998, the Company granted to each of Drs.
McGuire and Yamada an option to purchase 30,000 shares of its common stock under
the 1996 Plan with an exercise price equal to $7.00 per share. In October 1998,
Drs. McGuire and Yamada each agreed to exchange his option for a new option with
an exercise price of $3.55 per share, reflecting the fair market value of the
Company's common stock on that date as determined by the Board of Directors
after taking into account the Company's financial results and prospects. In
connection with this repricing, the vesting of the options for Drs. McGuire and
Yamada was restarted. Therefore, 25% of their shares will vest in October 1999,
and the remainder will vest ratably over the subsequent three years. The 1996
Plan provides that each outside director will receive an option to purchase
5,000 shares of common stock annually.
50
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Yamada, a member of the Compensation Committee, is a director and
executive officer of SmithKline Beecham, which, through its subsidiary
SmithKline Labs, beneficially owns 7.1% of the Company's common stock, and has
entered into the Services Agreement and certain other agreements with the
Company. Dr. McGuire, a member of the Compensation Committee, is the Chairman
and Chief Executive Officer of United HealthCare, which, with its affiliates,
beneficially owns approximately 14.4% of the Company's common stock prior to
this offering, and has entered into the United HealthCare Agreement and certain
other agreements with the Company. See "Certain Transactions." No interlocking
relationship exists between the Board or Compensation Committee and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and Bylaws limit or eliminate the
personal liability of its directors for monetary damages for breach of the
directors' fiduciary duty of care. The duty of care generally requires that,
when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Consequently, a director or officer will not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for
- any breach of the director's duty of loyalty to the Company or its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; and
- any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
The Company's Certificate of Incorporation also provides that the Company
will indemnify, to the fullest extent permitted by law, any person made or
threatened to be made a party to any action or proceeding by reason of the fact
that such person is or was a director or officer of the Company or serves or
served at any other enterprise as a director, officer or employee at the
Company's request.
The Company's Bylaws provide that the Company will, to the maximum extent
and in the manner permitted by Delaware law, indemnify each of the following
persons against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts incurred in connection with any proceeding
arising by reason of the fact that such person is or was an agent of the
Company:
- a current or past director or officer of the Company or any subsidiary of
the Company;
- a current or past director or officer of another enterprise who served at
the request of the Company; or
- a current or past director or officer of a corporation that was a
predecessor corporation of the Company or any of its subsidiaries or of
another enterprise at the request of such predecessor corporation or
subsidiary.
51
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The Company intends to enter into Indemnification Agreements with each of
its directors and executive officers to give them additional contractual
assurances regarding the scope of the indemnification described above and to
provide additional procedural protections. These agreements, among other things,
indemnify the Company's directors and executive officers for certain expenses,
including attorneys' fees, judgments, fines, penalties and settlement amounts
incurred by them in any action or proceeding arising out of such person's
services to the Company, its subsidiaries or any other enterprise to which the
person provides services at the Company's request. In addition, the Company
intends to obtain directors' and officers' insurance providing indemnification
for the Company's directors, officers and certain employees for certain
liabilities. The Company believes that these indemnification provisions and
agreements are necessary to attract and retain qualified directors and officers.
The limited liability and indemnification provisions in the Company's
Certificate of Incorporation and Bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty and may
reduce the likelihood of derivative litigation against directors and officers,
even though such an action, if successful, might otherwise benefit the Company
and it stockholders. Furthermore, a stockholder's investment in the Company may
be adversely affected to the extent the Company pays the costs of settlement and
damage awards against directors and officers of the Company pursuant to these
indemnification provisions.
At present, there is no pending or threatened litigation or proceeding
involving any director, officer or employee of the Company where indemnification
is expected to be required or permitted, and the Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned for services rendered to the Company in 1998 by (1) the Company's Chief
Executive Officer and (2) the Company's four other most highly compensated
executive officers who earned more than $100,000 in 1998 and were serving as
executive officers at the end of 1998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(2) OPTIONS(#)
- ------------------------------------------------------------------- ---------- ----------- -------------------
<S> <C> <C> <C>
W. Michael Long
Chief Executive Officer.......................................... $ 458,337 $ -- --
Michael K. Hoover(3)
President........................................................ 154,487 60,000(4) 80,000
Dennis Drislane
Vice President, Customer and Network Services.................... 163,500 73,500 --
Pavan Nigam
Vice President, Engineering...................................... 225,000 -- 325,000
Charles Saunders
Vice President, Marketing and Consulting Services and Medical
Director......................................................... 151,250 45,000 200,000(5)
</TABLE>
- ---------
(1) In accordance with the rules of the Securities and Exchange Commission, this
table does not include certain perquisites and other benefits received by
the Named Executive Officers which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
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<PAGE>
(2) Some employee year-end bonus amounts for 1998 have not been determined yet
by the Board of Directors.
(3) Mr. Hoover joined the Company in May 1998.
(4) Mr. Hoover's 1998 year-end bonus is to be paid on January 15, 1999.
(5) Includes 100,000 shares underlying an option granted in 1998 that was
cancelled pursuant to a stock option repricing exchange program in October
1998.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
The following table sets forth certain information for the year ended
December 31, 1998 with respect to grants of stock options to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------ ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -------------------------
NAME GRANTED(1) IN 1998(2) SHARE(3) DATE 5% 10%
- ----------------------------------------------------- ---------- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
W. Michael Long...................................... -- --% $ -- -- $ -- $ --
Michael K. Hoover.................................... 80,000 0.9 3.55 6/2/08 178,606 452,623
Dennis Drislane...................................... -- -- -- -- -- --
Pavan Nigam.......................................... 325,000 3.8 4.50 7/8/08 919,758 2,330,848
Charles Saunders..................................... 100,000(5) 1.2 4.50 --(5) 283,003(5) 717,184(5)
100,000 1.2 3.55 10/21/08 223,258 565,779
</TABLE>
- ---------
(1) Options granted in 1998 were granted under the Company's 1996 Stock Plan.
Options vest at a rate of 25% of the shares on the first anniversary of the
date of grant and 1/48 of the shares each month thereafter. These options
have a term of 10 years. See "--Employee Benefit Plans" for a description of
the material terms of these options.
(2) The Company granted options to purchase common stock and issued shares of
common stock pursuant to restricted stock purchase agreements equal to a
total of 8,662,807 shares during 1998. Includes 2,067,950 shares underlying
options granted and 568,732 shares issued pursuant to restricted stock
purchase agreements in connection with a repricing program in October 1998
and on December 14, 1998.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's common stock, as determined in good faith by the Board of
Directors. The Board of Directors determined the fair market value based on
the Company's financial results and prospects, the share price derived for
arms-length transactions, and independent evaluations conducted by valuation
experts.
(4) Potential realizable values are net of exercise price before taxes, and are
based on the assumption that the common stock of the Company appreciates at
the annual rate shown (compounded annually) from the date of grant until the
expiration of the ten-year term. These numbers are calculated based on
Securities and Exchange Commission requirements and do not reflect the
Company's projection or estimate of future stock price growth.
(5) Represents an option to purchase 100,000 shares of common stock granted to
Dr. Saunders in 1998 that was cancelled pursuant to a stock option repricing
exchange program in October 1998.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND 1998 YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning exercisable and unexercisable options held as of
December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
DECEMBER 31, 1998(1) DECEMBER 31, 1998(2)
SHARES ACQUIRED ON VALUE REALIZED -------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------------ ---------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
W. Michael Long........ 400,000 $ 1,320,000(3) 537,500 1,562,500 $ $
750,000(4) -- --
Michael K. Hoover...... 100,000 446,800(5) 793,268 80,000
Dennis Drislane........ -- -- -- -- -- --
Pavan Nigam............ -- -- 364,062 85,937
Charles Saunders....... -- -- 228,571 171,429
</TABLE>
- ---------
(1) Except in the case of Mr. Hoover, options shown were granted under the 1996
Stock Plan and are subject to vesting as described in footnote (1) to the
option grant table above. An option to purchase 80,000 shares of common
stock held by Mr. Hoover was granted under the 1996 Stock Plan and vests as
is described above. Mr. Hoover also holds options to purchase 793,268 shares
granted under the ActaMed 1992, 1993 Class B Common and 1994 Stock Option
Plans. These options were assumed by the Company upon the consummation of
the acquisition of ActaMed.
(2) Based on an assumed initial public offering price of $ per share and net
of the option exercise price.
(3) Based on a value of $3.55 per share, the fair market value of the common
stock at June 2, 1998 as determined by the Board of Directors, minus the
exercise price.
(4) Represents shares issuable upon exercise of a warrant issued to Mr. Long
upon commencement of his employment with the Company. See "--Employment
Agreements."
(5) Based on value of $4.50 per share, the fair market value of the common stock
at July 8, 1998 as determined by the Board of Directors, minus the exercise
price.
EMPLOYMENT AGREEMENTS
The Company's ActaMed subsidiary has an employment agreement with Michael K.
Hoover, Healtheon's President. The agreement provides for a base salary of
$85,000, and imposes a covenant not to compete upon Mr. Hoover for a period of
one year following the termination of his employment.
In July 1997, the Company and Mr. Long entered into an employment agreement
pursuant to which Mr. Long became the President and Chief Executive Officer of
the Company. The Company granted Mr. Long an option to purchase 2,500,000 shares
of common stock, 25% of which vested immediately, and the remainder of which
vests ratably each month during the second through the fourth year of his
employment. In addition, Mr. Long purchased 250,000 shares for $500,000,
$499,750 of which was represented by a promissory note to the Company, and was
issued a warrant to purchase an additional 750,000 shares at an exercise price
of $2.00 per share. The shares issuable upon exercise of this warrant are
subject to a right of repurchase commencing on Mr. Long's employment start date
and lapsing as to 31,250 shares each month. The employment agreement provides
that should Mr. Long leave the Company because he is no longer offered a
position with similar responsibility due to a change of control of the Company,
Mr. Long's option vests immediately as to 625,000 shares and the Company's
repurchase right lapses. Additionally, if the Company terminates Mr. Long's
employment without cause, he will receive six
54
<PAGE>
months' salary in installments, his option will vest immediately as to 625,000
shares and the Company's repurchase right will lapse.
EMPLOYEE BENEFIT PLANS
1996 STOCK PLAN. In February 1996 the Board adopted, and the Company's
stockholders approved, the 1996 Plan. The Company initially reserved for
issuance 9,000,000 shares of common stock under the 1996 Plan. In March 1998,
the Board and the stockholders each approved an amendment to the 1996 Plan to
increase the number of shares of common stock issuable thereunder to 10,000,000
shares. In July 1998, the Board approved, subject to stockholder approval, an
amendment to increase the number of shares of common stock issuable under the
1996 Plan to 15,000,000 shares plus annual increases equal to the lesser of (1)
5% of the outstanding shares or (2) a lesser amount determined by the Board.
Unless terminated sooner, the 1996 Plan will terminate automatically in February
2006. The 1996 Plan provides for the discretionary grant of incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
the "Code," to employees and for the grant of nonstatutory stock options and
stock purchase rights, "SPRs," to employees, directors and consultants. The 1996
Plan also provides for annual grants of options to purchase 5,000 shares of
common stock to each of the outside directors.
The 1996 Plan may be administered by the Board or a committee thereof (as
applicable, the "Administrator"). The Administrator has the power to determine
the terms of the options or SPRs granted, including the exercise price of the
options or SPRs, the number of shares subject to each option or SPR, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the Administrator has the authority to amend, suspend or
terminate the 1996 Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted under
the 1996 Plan.
The exercise price of all incentive stock options granted under the 1996
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options and SPRs granted
under the 1996 Plan is determined by the Administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must be at least equal to the fair market value of the common stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive stock option granted must be at least
equal 110% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other options
granted under the 1996 Plan may not exceed ten years. Options generally vest as
to 25% at the end of the first year and monthly thereafter over a period of
three years so that the entire option is vested after four years, based upon the
optionee's continued employment or consulting relationship with the Company.
In the case of SPRs, unless the Administrator determines otherwise, the
restricted stock purchase agreement will grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with the Company for any reason (including
death or disability). The purchase price for shares repurchased pursuant to a
restricted stock purchase agreement must be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option will lapse at a rate determined by the
Administrator.
Options and SPRs granted under the 1996 Plan are generally not transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1996 Plan must
generally be exercised within 30 days after the end of optionee's status as an
employee, director or consultant of the Company, or within one year after such
optionee's termination by disability or death, respectively, but in no event
later than the expiration of the option's term.
55
<PAGE>
The 1996 Plan provides that, in the event of a merger of the Company with or
into another corporation, each outstanding option and SPR must be assumed or an
equivalent option substituted by the successor corporation. If the outstanding
options and SPRs are not assumed or substituted by the successor corporation,
such outstanding options and SPRs will terminate.
ACTAMED STOCK OPTION PLANS. In connection with its acquisition of ActaMed
in a merger, the Company assumed the outstanding options of ActaMed under the
following ActaMed stock option plans (collectively, the "ActaMed Plans"):
ActaMed Corp. 1992 Stock Option Plan, ActaMed Corp. 1993 Class B common stock
Option Plan, ActaMed Corp. 1994 Stock Option Plan, ActaMed Corp. 1995 Stock
Option Plan, ActaMed Corp. 1996 Stock Option Plan, ActaMed Corp. 1997 Stock
Option Plan and ActaMed Corp. 1996 Director Stock Option Plan. The following
options held by directors and executive officers of the Company were assumed by
the Company: options to purchase 1,424,216 shares of ActaMed common stock held
by Michael Hoover, options to purchase 250,000 shares of ActaMed common stock
held by Nancy Ham, options to purchase 80,000 shares of ActaMed common stock
held by J. Philip Hardin, and options to purchase 220,000 shares of ActaMed
common stock held by John R. Hughes, Jr. As a result of the merger, each option
to purchase shares of ActaMed common stock now represents an option to purchase
a number of shares of Healtheon common stock equal to .6272 times the number of
shares of ActaMed common stock originally subject to the option at the per share
exercise price equal to the original per share exercise price divided by .6272.
The Company will make no further grants under the ActaMed Plans. However, each
assumed ActaMed option continues to have and remains subject to substantially
the terms and conditions of the applicable ActaMed Plan under which such option
was originally granted as in effect immediately prior to the merger.
Generally, options granted under the ActaMed Plans will automatically
terminate ten years following their adoption, and may be administered by the
Board of Directors or a committee of the Board (as applicable, the
"Administrator"). Options granted under the ActaMed Plans generally are not
transferable by the optionee, and must generally be exercised within 30 days
after the end of the optionee's status as an employee or consultant of the
Company or within 90 days after such optionee's termination by disability or
death, respectively, but in no event later than the expiration of the option's
term. Generally, in the event of any merger, sale of stock, consolidation,
liquidation, recapitalization, reclassification, stock split up, combination of
shares, share exchange, stock dividend, or transaction having a similar effect,
where the Company does not remain in existence, the Administrator may (1)
declare that all ActaMed options shall vest in full and be exercisable for a
period of thirty (30) days following written notice from the Administrator,
after which all ActaMed options shall terminate, (2) provide that all ActaMed
options shall be assumed by the successor corporation, or (3) provide for a
combination of (1) and (2).
1998 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1998 Employee Stock
Purchase Plan, or the "1998 Purchase Plan," was adopted by the Board in
September 1998, and is subject to stockholder approval. A total of 1,000,000
shares of common stock has been reserved for issuance under the 1998 Purchase
Plan, plus annual increases equal to the lesser of (1) 500,000 shares, (2) .5%
of the outstanding shares on such date or (3) a lesser amount determined by the
Board.
The 1998 Purchase Plan contains consecutive, overlapping, twenty-four month
offering periods. Each offering period includes four six-month purchase periods.
The offering periods generally start on the first trading day on or after May 1
and November 1 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before October 31, 2000.
Employees are eligible to participate if they are employed by the Company or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted an option
to purchase stock under the 1998 Purchase Plan if the employee (1) immediately
after grant would own stock possessing 5% or more of the total combined voting
power or value of all classes of the capital stock of the Company, or (2) holds
rights to purchase stock under any
56
<PAGE>
employee stock purchase plans of the Company that together accrue at a rate
which exceeds $25,000 worth of stock for each calendar year. The 1998 Purchase
Plan permits each participant to purchase common stock through payroll
deductions of up to 15% of the participant's "compensation." Compensation is
defined as the participant's base straight time gross earnings and commissions
but excludes payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses and other compensation. The maximum number of shares
a participant may purchase during a single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1998 Purchase Plan is 85% of the lower of the fair market
value of the common stock (1) at the beginning of the offering period or (2) at
the end of the purchase period. In the event the fair market value at the end of
a purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
period following exercise and automatically re-enrolled in a new offering
period. The new offering period will use the lower fair market value as of the
first date of the new offering period to determine the purchase price for future
purchase periods. Participants may end their participation at any time during an
offering period, and they will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with the
Company.
Rights granted under the 1998 Purchase Plan are not transferable by a
participant other than by will or the laws of descent and distribution. The 1998
Purchase Plan provides that, in the event of a merger of the Company with or
into another corporation or a sale of substantially all of the Company's assets,
each outstanding option may be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set. The 1998 Purchase Plan will terminate in
2008. The Board has the authority to amend or terminate the 1998 Purchase Plan,
except that no such action may adversely affect any outstanding options under
the 1998 Purchase Plan. The Board may alter the purchase price for any offering
period or shorten an offering period at any time without consent of the
stockholders or of any participants.
401(K) PLAN. The Company participates in a tax-qualified employee savings
and retirement plan, or the "401(k) Plan," which covers all of the Company's
full-time employees who have completed three months of service. Pursuant to the
401(k) Plan, eligible employees may defer up to 20% of their pre-tax earnings,
subject to the Internal Revenue Service's annual contribution limit. The 401(k)
Plan permits additional discretionary matching contributions by the Company on
behalf of all participants in the 401(k) Plan in such a percentage amount as may
be determined annually by the Board. To date, the Company has made no such
matching contributions. The 401(k) Plan is intended to qualify under Section 401
of the Code, as amended, so that contributions by employees or by the Company to
the 401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made. The trustee under the 401(k) Plan, at the direction of
each participant, invests the assets of the 401(k) Plan in any of a number of
investment options.
57
<PAGE>
CERTAIN TRANSACTIONS
Since December 26, 1995, the Company's inception date, there has not been
nor is there currently proposed any transaction or series of similar
transactions to which the Company or any of its subsidiaries was or is to be a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer, holder of more than 5% of the common stock of the Company or
any member of the immediate family of any of the foregoing persons had or will
have a direct or indirect material interest other than (1) compensation
agreements and other arrangements, which are described where required in
"Management," and (2) the transactions described below.
ACTAMED CORPORATION ACQUISITION
On May 19, 1998, the Company acquired ActaMed in a merger. Pursuant to the
merger, the Company issued 23,271,355 shares of its common stock in exchange for
all of the issued and outstanding capital stock of ActaMed, and assumed all
options to purchase ActaMed common stock. The merger was treated as a tax-free
reorganization and as a "pooling-of-interests" transaction for accounting and
financial reporting purposes. All of the then outstanding shares of preferred
stock of the Company were converted into shares of common stock of the Company
upon the consummation of the merger.
The Company and certain stockholders of the Company who together hold a
majority of the outstanding shares of common stock of the Company entered into a
Voting Agreement in connection with the merger, or the "Voting Agreement." Among
other things, the Voting Agreement requires each of the signatories thereto to
vote its shares in favor of the election of four directors nominated by those
signatories who were ActaMed shareholders prior to the merger and four directors
nominated by those signatories who were Healtheon stockholders prior to the
merger. The Voting Agreement terminates upon the consummation of this offering.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
1996 SERIES A PREFERRED STOCK. On January 26, 1996, the Company sold
10,285,000 shares of its Series A preferred stock for $.50 per share. The
purchasers of the Series A preferred stock included, among others: Dr. James H.
Clark--3,500,000 shares; Kleiner Perkins Caufield & Byers VII--2,999,500 shares;
KPCB VII Founders Fund--325,500 shares; KPCB Life Sciences Zaibatsu Fund
II--175,000 shares; and New Enterprise Associates VI, Limited Partnership, or
"New Enterprise Associates VI"--2,000,000 shares. KPCB VII Founders Fund, KPCB
Life Sciences Zaibatsu Fund II and Kleiner Perkins Caufield & Byers VII, along
with KPCB VII Associates and KPCB Java Fund, are affiliated entities. L. John
Doerr, a director of the Company, is a general partner of KPCB VII Associates
and the general partner of KPCB Life Sciences Zaibatsu Fund II. Mr. Doerr
disclaims beneficial ownership of the securities held by such entities except
for his proportional interest therein. C. Richard Kramlich, a director of the
Company, is a general partner of New Enterprise Associates VI. Mr. Kramlich
disclaims beneficial ownership of the securities held by such entity except for
his proportional interest therein.
COMMON STOCK. On January 26, 1996, the Company sold 1,000,000 shares of its
common stock for $.05 per share. The purchasers of the common stock included:
Dr. Clark--500,000 shares; Kleiner Perkins Caufield & Byers VII--428,500 shares;
KPCB VII Founders Fund--46,500 shares; and KPCB Life Sciences Zaibatsu Fund
II--25,000 shares.
SERIES B PREFERRED STOCK AND WARRANTS. On October 1, 1996, the Company sold
3,000,000 shares of its Series B preferred stock for $2.00 per share. The
purchasers of the Series B preferred stock included, among others: Dr.
Clark--1,125,000 shares; Kleiner Perkins Caufield & Byers VII--1,068,750 shares;
KPCB Life Sciences Zaibatsu Fund II--56,250 shares; and New Enterprise
Associates VI--500,000 shares.
In related transactions, on November 1, 1996, the Company issued a warrant
to purchase 1,000,000 shares of Series B preferred stock with an exercise price
of $2.00 per share to each of Clark Ventures, as an incentive for Dr. Clark to
continue to provide services to the Company, and KPCB VII Associates, in
consideration for services provided to the Company by David Schnell, a former
general partner of KPCB, in his capacity as President and CEO. The warrant
issued to KPCB VII Associates was valued at $504,900.
58
<PAGE>
Clark Ventures subsequently exercised its warrant on May 1, 1998 for an
aggregate purchase price of $2.0 million. Clark Ventures is controlled by Dr.
Clark. On July 11, 1997 the Company issued 250,000 shares of Series B preferred
stock for a purchase price of $.5 million and a warrant to purchase 750,000
shares of Series B Stock with an exercise price of $2.00 per share to W. Michael
Long. See "--Employment Agreements." In order to purchase the 250,000 shares of
preferred stock, Mr. Long borrowed $499,750 from the Company pursuant to a
one-year interest-free full recourse promissory note. The note was paid in full
on June 30, 1998.
BRIDGE FINANCING. Between April 15, 1997 and May 6, 1997, the Company
borrowed an aggregate of $2.0 million at an annual interest rate of 6% pursuant
to promissory notes, each of which included a right to receive certain Series B
preferred stock warrants at the time of repayment or upon cancellation of such
note in a bridge financing transaction, or the "Bridge Financing." The lenders
in the Bridge Financing included, among others: Dr. Clark--$765,750; Kleiner
Perkins Caufield & Byers VII--$727,463; KPCB Life Sciences Zaibatsu Fund
II--$38,288; and New Enterprise Associates VI--$312,500. On July 1, 1997 the
promissory notes were cancelled in consideration for the issuance of Series C
preferred stock, as described below, and the Series B preferred stock warrants
were issued as follows: Dr. Clark received a warrant to purchase 17,229 shares,
Kleiner Perkins Caufield & Byers VII received a warrant to purchase 27,891
shares, KPCB Life Sciences Zaibatsu Fund II received a warrant to purchase 1,468
and New Enterprise Associates VI received a warrant to purchase 11,979 shares.
All of the Series B Warrants have an exercise price of $2.00 per share. Dr.
Clark subsequently exercised his warrant on May 1, 1998 for an aggregate
purchase price of $34,458.
SERIES C PREFERRED STOCK. On July 1, 1997, the Company sold 2,400,000
shares of its Series C preferred stock for $2.50 per share. The purchasers of
the Series C preferred stock included, among others: Dr. Clark--612,600 shares
for a purchase price of $1.5 million, including cancellation of the $765,750
promissory note given in the Bridge Financing discussed above; Kleiner Perkins
Caufield & Byers VII-- 290,985 shares for cancellation of the $727,463 in
promissory notes given in the Bridge Financing discussed above; KPCB Java
Fund--306,300 shares for a purchase price of $765,750; KPCB Life Sciences
Zaibatsu Fund II--15,315 shares for cancellation of the $38,288 in promissory
note given in the Bridge Financing discussed above; and New Enterprise
Associates VI--250,000 shares for a purchase price of $625,000 including
cancellation of the $312,500 promissory note given in the Bridge Financing
discussed above.
SERIES D PREFERRED STOCK. Between October 17, 1997 and December 19, 1997,
the Company sold 4,807,692 shares of its Series D preferred stock for $5.20 per
share. The purchasers of the Series D preferred stock included, among others:
Clark Ventures--1,730,769 shares; Kleiner Perkins Caufield & Byers VII--432,693
shares; KPCB Java Fund--480,769 shares; KPCB Life Sciences Zaibatsu Fund II--
48,077 shares; Kathy Clark--96,154 shares; Michael James Clark Trust--96,154
shares; and New Enterprise Associates VI, Limited Partnership--576,923 shares.
Kathy Clark and Michael James Clark are adult children of Dr. Clark.
On May 19, 1998, pursuant to the ActaMed merger, each outstanding share of
preferred stock of the Company converted into one share of common stock and each
outstanding warrant to purchase shares of the Company's preferred stock
converted into a warrant to purchase shares of the Company's common stock.
1998 SERIES A PREFERRED STOCK. On November 3, 1998 and November 6, 1998 the
Company sold an aggregate of 7,683,341 shares of its Series A preferred stock
for $6.00 per share. Among the purchasers were the following 5% stockholders and
entities affiliated with directors of the Company, who purchased the number of
shares indicated: Atherton Properties Partnership, LP, an entity affiliated with
Kathy Clark and Michael Clark--166,667 shares; Kathy Clark--166,667 shares;
Michael James Clark Trust--166,667 shares; HLM Partners VII, LP, of which United
HealthCare Corporation is a limited partner--166,667 shares; KPCB Java
Fund--416,667 shares; Kleiner Perkins Caufield & Byers--375,000 shares; KPCB
Life Sciences Zaibatsu Fund II--41,667 shares; Monaco Partners, LP--2,850,000
shares; and New Enterprise Associates VI, LP--416,667 shares.
59
<PAGE>
On November 21, 1996, ActaMed entered into an Amended and Restated
Development Agreement with The SFA Limited Partnership, or "SFA," under which
ActaMed granted SFA a license to ActaMed's object broker technology that
supports the GMPI functionality. SFA is controlled by P. E. Sadler, a director
of the Company. SFA was given the right to use such technology outside the
healthcare industry and must pay royalties on any revenues that would be derived
from such use. This agreement expires in November 2001. To date, no royalties
have become payable to the Company or ActaMed as a result of this agreement.
In September 1997, ActaMed received a loan from NationsBank, N.A. in the
aggregate principal amount of $2.1 million, all of which was personally
guaranteed by P. E. Sadler, a director of the Company. As a result of ActaMed's
pledging a note receivable from IBM to NationsBank, N.A. in November 1997, Mr.
Sadler was released from the guarantee. In December 1997, ActaMed obtained a
line of credit in the aggregate principal amount of $2.3 million from
NationsBank, N.A. In exchange for a personal guarantee of this line of credit by
Mr. Sadler, ActaMed granted to Mr. Sadler a security interest in all of its
tangible assets other than the IBM note receivable. Upon the completion of the
acquisition of ActaMed by the Company, Mr. Sadler's guarantee was released. This
line of credit was repaid by the Company on July 31, 1998.
From 1995 through June 1998, up to three companies affiliated with Mr.
Sadler had agreements with ActaMed whereby ActaMed provided office space, phone
facilities and computer network support. In 1995, 1996, 1997 and 1998 ActaMed
was paid approximately $256,000, $215,000, $137,000 and $32,000, respectively,
under such agreements.
CERTAIN BUSINESS RELATIONSHIPS
SMITHKLINE LABS. Prior to the acquisition of ActaMed by the Company,
ActaMed entered into a series of agreements, the "SmithKline Agreements," with
SmithKline Labs, which agreements were assumed by the Company in the ActaMed
merger. Pursuant to the SmithKline Agreements, ActaMed agreed to purchase
certain assets, the "SmithKline Assets," located in four geographic regions,
received a technology license relating to the SmithKline Assets and agreed to
provide certain continuing development and network services to SmithKline Labs.
In December 1997, SmithKline Labs transferred a portion of the SmithKline Assets
from the first region to ActaMed in exchange for $2.0 million in cash and
3,695,652 shares of ActaMed preferred stock (which shares were converted into
2,317,913 shares of the Company's common stock in connection with the ActaMed
merger). In March 1998, SmithKline Labs transferred the SmithKline Assets from
the second region to ActaMed in exchange for 1,217,391 shares of ActaMed
preferred stock (which shares were converted into 763,548 shares of the
Company's common stock in connection with the ActaMed merger). In June 1998,
SmithKline Labs transferred SmithKline Assets from the remaining two regions to
the Company in exchange for 1,336,209 shares of common stock.
Also pursuant to one of the SmithKline Agreements, the "Services Agreement,"
the Company will perform laboratory test order and results services to providers
utilizing SmithKline Labs' laboratory services through SCAN. SmithKline Labs is
obligated to pay the Company a minimum of approximately $10.0 million in 1998
for laboratory test orders and results transactions. SmithKline Labs may be
required to pay the Company certain additional fees for transactions processed
by the Company in the event the number of providers accessing SmithKline Labs'
laboratory services through SCAN increases. SmithKline Labs paid the Company
$7.1 million in service and transaction fees during the first nine months of
1998 under the Services Agreement. The Services Agreement is effective through
December 2002, and provides for automatic successive two-year renewals, subject
to each party's right to elect not to renew the agreement no later than 180
days, in the case of SmithKline Labs, or 360 days, in the case of the Company,
prior to the end of a term. In the event that the Company gives notice of
non-renewal, SmithKline Labs will be entitled to continued to receive long-term
order entry and results reporting services from the Company on a per transaction
pricing basis or, in the alternative, may require the Company to develop a
service for SmithKline that duplicates the services the Company had been
providing under the Services Agreement. Also under the Services Agreement,
SmithKline Labs is entitled, no more than once in any
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three consecutive month periods, to request that the Company engage in certain
exclusive development work for SmithKline Labs. SmithKline Labs has agreed to
use reasonable efforts to use the Company as its "preferred provider" of
electronic eligibility verification and claims processing services. The Services
Agreement provides that the parties will negotiate new rates as of January 1,
2001 and each two years thereafter. Pursuant to the Services Agreement, the
renegotiated rates must be competitive with the marketplace and must be no
higher than the lowest fees charged by the Company to similarly situated
customers. See "Management's Discussion and Analysis--Overview" and Note 3 of
Notes to Consolidated Financial Statements.
In May 1998, the Company and SmithKline Labs entered into a letter agreement
under which the Company is obligated not to compete with SmithKline Labs in the
business of disease management, and has agreed to exclusively promote SmithKline
Labs' disease management products and services so long as SmithKline continues
to promote the Company as its preferred vendor. The Company also agreed that, in
the event it performs development work related to a disease management program
for one of its customers or itself, it will pay 50% of the profits from that
development work to SmithKline Labs.
In December 1998, Healtheon and SmithKline Labs entered into an asset
purchase agreement. The agreement provides that Healtheon will purchase certain
assets currently used by SmithKline Labs to provide laboratory results delivery
services in exchange for $2.0 million in cash and shares of Healtheon's common
stock having a value of $11.0 million. The asset purchase agreement calls for
Healtheon and SmithKline Labs to enter a related services agreement under which
Healtheon will provide certain electronic laboratory results delivery services
to approximately 20,000 provider sites, in addition to the sites currently
served through the SCAN service. The asset purchase agreement is subject to
execution of the related service agreement and approval by the Company's Board
of Directors.
UNITED HEALTHCARE. In March 1996, ActaMed acquired EDI Services, a wholly
owned subsidiary of United HealthCare, which had been formed by United
HealthCare to deliver the ProviderLink service to United HealthCare's provider
network. In exchange for EDI, ActaMed issued United HealthCare 10,344,828 shares
of ActaMed preferred stock valued at $21.0 million (which were converted into
6,488,276 shares of the Company's common stock in connection with the merger).
In April 1996, ActaMed also entered into a Services and License Agreement with
United HealthCare that granted United HealthCare a license to certain ActaMed
technology and granted ActaMed the responsibilities of managing the ProviderLink
service and of providing other information technology services to United
HealthCare. United HealthCare pays the Company fees based on the number of
ProviderLink sites in use and transactions processed. In 1996 and 1997, United
HealthCare paid ActaMed approximately $4.8 million and $7.3 million,
respectively, related to services, transaction and license fees. In the first
nine months of 1998, ActaMed, prior to the merger and the Company were paid an
aggregate of $7.7 million. The Company is also obligated to provide certain
support and maintenance services to United HealthCare. The Services and License
Agreement is effective through March 2001 subject to earlier termination in the
event the Company fails to meet certain network performance standards or
otherwise breaches its material obligations under the United HealthCare
Agreement. The Service and License Agreement provides that two years after the
date of the agreement the parties will agree on new prices that will be
competitive with the marketplace. The Company and United HealthCare are
negotiating such new prices, and the Company anticipates that the new prices
will reduce the rates paid by United HealthCare. See "Management's Discussion
and Analysis--Overview" and Note 2 of Notes to Consolidated Financial
Statements. United HealthCare is a principal stockholder of the Company and Dr.
William McGuire, Chief Executive Officer and Chairman of United HealthCare, is a
director of the Company.
In February 1998, ActaMed issued a one-year promissory note in the aggregate
principal amount of $2.0 million to HLM Partners VII, L.P., or "HLM," which bore
interest at a rate of 10% per annum. United HealthCare was a limited partner of
HLM and a director of United HealthCare, was a partner of HLM. HLM was also a
stockholder of ActaMed. Both UHC and HLM are stockholders of the Company. This
note was repaid at the time of the merger.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of November 30, 1998 and
as adjusted to reflect the sale of the shares of common stock in this offering
by: (1) each person who is known by the Company to beneficially own more than 5%
of the Company's common stock, (2) each director of the Company, (3) each of the
Named Executive Officers and (4) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
NUMBER OF SHARES --------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2)
- ------------------------------------------------------------------------ ----------------- ----------- -------------
<S> <C> <C> <C>
Entities associated with James H. Clark(3).............................. 11,335,598 18.2% %
Entities associated with United HealthCare Corporation(4)............... 8,936,687 14.4
William W. McGuire, M.D.(4)........................................... 8,936,687 14.4
Entities associated with Kleiner Perkins Caufield & Byers(5)............ 8,086,832 12.8
L. John Doerr(5)...................................................... 8,086,832 12.8
P. E. Sadler(6)......................................................... 5,001,993 8.0
SmithKline Beecham Clinical Laboratories, Inc.(7)....................... 4,417,670 7.1
Tadataka Yamada(7).................................................... 4,417,670 7.1
Entities associated with New Enterprise Associates, L.P.(8)............. 3,755,569 6.0
C. Richard Kramlich(8)................................................ 3,755,569 6.0
W. Michael Long(9)...................................................... 1,937,500 3.1
Integral Capital Partners, L.P.......................................... 1,255,129 2.0
Michael K. Hoover(10)................................................... 888,268 1.4
Dennis Drislane(11)..................................................... 550,000 * *
Pavan Nigam(12)......................................................... 509,062 * *
Charles Saunders (13)................................................... 115,178 * *
All officers and directors as a group(21 persons)(14)................... 47,136,495 71.6
</TABLE>
- ----------
* Less than one percent
(1) The number and percentage of shares beneficially owned are based on
62,195,893 shares of common stock outstanding as of November 30, 1998
assuming conversion of all outstanding shares of preferred stock into common
stock, and shares of common stock outstanding after this offering.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. Shares of common
stock subject to options or warrants that are currently exercisable or
exercisable within 60 days of November 30, 1998 are deemed to be outstanding
and beneficially owned by the person holding such options or warrants for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, and subject to
applicable community property laws, such persons have sole voting and
investment power with respect to all shares of the Company's common stock
shown as beneficially owned by them.
(2) Assumes the U.S. Underwriters' over-allotment option to purchase
shares of common stock is not exercised.
(3) Represents 4,000,000 shares held of record by Dr. Clark as trustee of the
James H. Clark and Nancy Rutter Clark Revocable Trust, 1,017,229 shares held
of record by Clark Ventures, 268,000 shares held of record by JHC
Investments, LLC and 6,050,369 shares held of record by Monaco Partners, LP.
Dr. Clark wholly controls Clark Ventures, JHC Investments, LLC and Monaco
Partners, LP. Dr. Clark is a director of the Company. The address for Dr.
Clark is c/o Healtheon Corporation, 4600 Patrick Henry Drive, Santa Clara,
CA 95054. The address for Clark Ventures and Monaco Partners, LP is 777 East
Williams Street, Suite 201, Carson City, NV 89701.
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(4) Represents 6,488,276 shares held of record by United HealthCare, 502,069
shares held of record by United HealthCare Services, Inc., a subsidiary
thereof, 676,262 shares held of record by HLM Partners VII, L.P., of which
United HealthCare is a limited partner and 1,270,080 shares held of record
by Validus, L.P., of which United HealthCare is the sole limited partner.
United HealthCare disclaims beneficial ownership of shares held by both
limited partnerships except to the extent of its pecuniary interests
therein. Dr. McGuire, a director of the Company, is the President, Chief
Executive Officer and Chairman of United HealthCare. Dr. McGuire disclaims
beneficial ownership of all shares held by United HealthCare. United
HealthCare's address is 9900 Bren Road East, 300 Opus Center, Minnetonka, MN
55343.
(5) Represents 5,500,863 shares held of record directly by Kleiner Perkins
Caufield & Byers VII L.P. ("KPCB VII"), 1,203,736 shares held of record by
KPCB Java Fund, and 352,874 shares held of record by KPCB Life Sciences
Zaibatsu Fund II. Also represents 976,423 shares subject to warrants held of
record by KPCB VII, and 52,936 shares subject to warrants held of record by
KPCB Life Sciences Zaibatsu Fund II L.P., all of which are exercisable
within 60 days of November 30, 1998. KPCB Life Sciences Zaibatsu Fund II and
KPCB VII are wholly controlled by KPCB VII Associates, L.P. KPCB Java Fund
is controlled by KPCB VIII Associates. L. John Doerr, a general partner of
KPCB VIII Associates and KPCB VII Associates, L.P., is a director of the
Company. Mr. Doerr disclaims beneficial ownership of shares in such entities
except to the extent of his pecuniary interest therein. Kleiner Perkins
Caufield & Byers' address is 2750 Sand Hill Road, Menlo Park, CA 94025.
(6) Represents 2,975,140 shares held of record by P. E. Sadler and 2,026,853
shares held of record by SFA Limited Partnership, of which P. E. Sadler is a
general partner. Mr. Sadler is a director of the Company. Mr. Sadler's
address is c/o Healtheon Corporation, 4600 Patrick Henry Drive, Santa Clara,
CA 95054.
(7) Excludes common stock having a fair market value of $11 million that may be
issued pursuant to a December 1998 Asset Purchase Agreement with SmithKline
Labs. Dr. Yamada, a director of the Company, is President and Executive
Director of SmithKline Beecham HealthCare Services and a director of
SmithKline Beecham. SmithKline Labs' address is 1201 South Collegeville
Road, Collegeville, PA 19426. Dr. Yamada disclaims beneficial ownership of
all shares held by SmithKline Labs.
(8) Represents 3,723,590 shares held of record directly by New Enterprise
Associates VI, L.P., or "New Enterprise Associates VI," 11,979 shares
subject to warrants held of record by New Enterprise Associates VI
exercisable within 60 days of November 30, 1998, and 20,000 shares held of
record by NEA Ventures 1996, L.P., which is controlled by New Enterprise
Associates VI. Mr. Kramlich is a partner of New Enterprise Associates VI.
Mr. Kramlich disclaims beneficial ownership of shares held by such entities
except for his proportional interests therein. New Enterprise Associates
VI's address is 1119 St. Paul Street, Baltimore, MD 21202.
(9) Includes 750,000 shares subject to a warrant held of record by Mr. Long and
537,500 shares subject to options held of record by Mr. Long, in each case
exercisable within 60 days of November 30, 1998. 187,500 shares underlying
the warrant held by Mr. Long will remain subject to a right of repurchase by
the Company 60 days after November 30, 1998. Mr. Long is the Chief Executive
Officer and a director of the Company.
(10) Represents 92,500 shares held of record directly by Mr. Hoover, 2,500
shares held by Nicholas D. Hoover for which Mr. Hoover is custodian, and
793,268 shares subject to options held of record by Mr. Hoover that are
exercisable within 60 days of November 30, 1998. Mr. Hoover is the President
and a director of the Company.
(11) Includes 343,750 shares held by Mr. Drislane that will remain subject to a
right of repurchase by the Company 60 days after November 30, 1998.
(12) Includes 39,062 shares subject to options held of record by Mr. Nigam that
are exercisable within 60 days of November 30, 1998. Also includes 121,875
shares that will remain subject to a right of repurchase by the Company 60
days after November 30, 1998. Mr. Nigam is the Vice President, Engineering
of the Company.
(13) Represents 115,178 shares subject to options held of record by Mr. Saunders
that are exercisable within 60 days of November 30, 1998. Mr. Saunders is
the Vice President, Marketing and Consulting Services and Medical Director
of the Company.
(14) Includes all shares described in the above footnotes and includes an
additional 1,422,971 shares held by other executive officers, of which
1,085,928 shares were outstanding as of November 30, 1998 and 337,043 shares
are subject to options or warrants that are exercisable within 60 days of
November 30, 1998.
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DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's capital stock
describes all material provisions of the Company's Certificate of Incorporation
and Bylaws. This summary, however, does not purport to be complete and is
subject to, and qualified in its entirety by, the Certificate of Incorporation
and Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this prospectus is a part and by the provisions of applicable
law.
As of November 30, 1998, there were 62,183,393 shares of common stock
outstanding, par value $0.0001 per share, assuming the conversion of all
outstanding shares of preferred stock into shares of common stock. Upon
consummation of this offering, 150,000,000 shares of common stock and 5,000,000
shares of preferred stock will be authorized.
COMMON STOCK
The issued and outstanding shares of common stock are, and the shares of
common stock offered by this prospectus will be validly issued, fully paid and
nonassessable upon payment therefor. The holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available therefor
at such time and in such amounts as the Board may from time to time determine.
See "Dividend Policy." The shares of common stock are not convertible and the
holders thereof have no preemptive or subscription rights to purchase any
securities of the Company. Upon liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to receive pro rata the assets
of the Company that are legally available for distribution, after payment of all
debts and other liabilities. Each outstanding share of common stock is entitled
to one vote on all matters submitted to a vote of the stockholders, including
election of directors. There is no cumulative voting in the election of
directors.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of Series A
preferred stock will be converted into one share of common stock. See Note 14 of
Notes to Consolidated Financial Statements for a description of the Series A
preferred stock issued in November 1998. Upon the closing of this offering, the
Company's Certificate of Incorporation will provide that preferred stock may be
issued by the Company in one or more series and that the Board has the
authority, without further action by the stockholders, to fix the rights,
preferences and privileges thereof, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
would receive dividend payments and payments upon liquidation. Such issuance
could have the effect of decreasing the market price of the common stock. The
issuance of preferred stock may also have the effect of delaying, deterring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of preferred stock.
WARRANTS
As of November 30, 1998, the Company has outstanding warrants for the
purchase of 2,077,240 shares of common stock. Of these, warrants to purchase
1,794,718 shares of common stock have an exercise price of $2.00 and expire with
respect to 1,000,000 shares on November 1, 1999, with respect to 750,000 shares
on July 10, 2000, and with respect to 44,718 shares on June 30, 2002. Warrants
to purchase 282,522 shares of common stock have an exercise price of $7.97,
which expire December 2001. In addition, in December 1998, as part of a service
agreement with a customer, the Company issued to the customer a warrant to
purchase 500,000 shares of common stock with an exercise price of $10.40 per
share, which expires on March 15, 2003.
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<PAGE>
REGISTRATION RIGHTS
The holders of approximately 50,007,164 shares of common stock or their
permitted transferees are entitled to certain rights with respect to
registration of such shares, or the "Registrable Securities," under the
Securities Act pursuant to an Amended and Restated Investors' Rights Agreement.
These shares are held by (1) purchasers of common stock at the founding of the
Company in December 1995, (2) purchasers of preferred stock of the Company prior
to its conversion in connection with the acquisition of ActaMed, (3) certain
former shareholders of ActaMed who received shares of the Company's common stock
pursuant to the Company's acquisition of ActaMed and who had registration rights
with respect to their shares of ActaMed capital stock and (4) purchasers of the
Series A preferred stock sold in November 1998.
At any time after 12 months following the effective date of this offering,
the holders of at least 40% of the Registrable Securities then outstanding may
require the Company to file a registration statement covering Registrable
Securities with an aggregate gross offering price of at least $10.0 million. In
addition, two years after this offering, holders of registrable securities may
require, on up to four separate occasions, that the Company register their
shares for public resale on Form S-3 or any successor form, provided the Company
is eligible to use Form S-3 or any such successor form and provided further that
the value of the securities to be registered is at least $1.0 million.
Furthermore, in the event the Company elects to register any of its shares of
common stock or other securities for purposes of effecting any public offering,
the holders of registrable securities are entitled to include their Registrable
Securities in the registration, subject however to the right of the Company to
reduce the number of shares proposed to be registered in view of market
conditions. All expenses in connection with any registration, other than
underwriting discounts and commissions, will be borne by the Company.
Registration rights, other than the right to require the Company to register
shares on Form S-3 or any successor form, will terminate at such time as the
Company's shares are publicly traded and the holder is entitled to sell all of
its shares in any three-month period under Rule 144 of the Securities Act. If
such holders, by exercising their registration rights, cause a large number of
securities to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's common stock. If the
Company were to initiate a registration and include Registrable Securities
pursuant to the exercise of registration rights, the sale of such Registrable
Securities could have an adverse effect on the Company's ability to raise
capital.
CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS AND OF DELAWARE LAW
GENERAL. Certain provisions of Delaware law and the Company's Certificate
of Incorporation and Bylaws could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
common stock. These provisions of Delaware law and the Certificate of
Incorporation and Bylaws may also have the effect of discouraging or preventing
certain types of transactions involving an actual or threatened change of
control of the Company, including unsolicited takeover attempts, even though
such a transaction may offer the Company's stockholders the opportunity to sell
their stock at a price above the prevailing market price.
DELAWARE TAKEOVER STATUTE. Following consummation of this offering, the
Company will be subject to the "business combination" provisions of Section 203
of the Delaware General Corporation Law. In general, such provisions prohibit a
publicly held Delaware corporation from engaging in various "business
combination" transactions with any interested stockholder for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained such status;
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<PAGE>
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In
general, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years, did own, 15% or
more of a corporation's voting stock.
The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company.
CERTIFICATE OF INCORPORATION AND BYLAWS. The Company's Certificate of
Incorporation provides that any action to be taken by the stockholders of the
Company must be effected at an annual or special stockholder meeting and may not
be taken by written consent. The Company's Bylaws provide that special meetings
of the stockholders of the Company may be called by the Board or by the
President of the Company, or by one or more stockholders holding at least 10% of
the voting power of the Company's outstanding capital stock, or any persons as
may be authorized by the Certificate of Incorporation or the Bylaws (which
currently only give this authority to the Board). The Company's Bylaws also
require advance written notice by a stockholder of a proposal or director
nomination that such stockholder desires to present at an annual or special
stockholders meeting. No business other than that stated in the notice may be
transacted at any special meeting. These provisions will delay consideration of
a stockholder proposal until the next annual meeting unless a special meeting is
called by the Board.
The Company's Bylaws provide that the authorized number of directors may be
changed by an amendment to the Bylaws adopted by the Board or by the
stockholders. Vacancies on the Board may be filled either by holders of a
majority of the Company's voting stock or a majority of directors in office,
although less than a quorum. The Certificate of Incorporation and the Bylaws of
the Company also provide for a staggered Board. Under a staggered Board, each
director is designated to one of three categories. Each year the directors'
positions in one of the three categories are subject to election so that it
would take three years to replace the entire board, absent resignation or
premature expiration of a director's term, which may have the effect of
deterring a hostile takeover or delaying or preventing changes in control or
management of the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation limits the liability of directors
to the fullest extent permitted by the Delaware law. In addition, the
Certificate of Incorporation and Bylaws provide that the Company will indemnify
directors and officers of the Company to the fullest extent permitted by
Delaware law. The Company intends to enter into separate indemnification
agreements with its directors and executive officers that provide such persons
indemnification protection in the event the Certificate of Incorporation is
subsequently amended.
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TRANSFER AGENT AND REGISTRAR
American Stock Transfer Trust Company has been appointed as transfer agent
and registrar for the Company's common stock.
LISTING
Application has been made to have the common stock accepted for quotation on
the Nasdaq National Market under the symbol "HLTH."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common stock
of the Company. Future sales of substantial amounts of common stock in the
public market, or the perception that such sales may occur, could adversely
affect prevailing market prices.
Upon consummation of the offering, the Company will have an aggregate of
shares of common stock outstanding, based on the number of shares of
common stock outstanding as of November 30, 1998, assuming no exercise of the
U.S. underwriters' over-allotment option and no exercise of outstanding options
or warrants. Of these shares, shares, including the shares sold
in this offering, will be freely tradable without restriction under the
Securities Act, except for any such shares that may be purchased by "affiliates"
of the Company, which shares will be subject to the volume and other limitations
of Rule 144 of the Securities Act, or "Rule 144" described below. As defined in
Rule 144, an "affiliate" of an issuer is a person who, directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, such issuer. Upon the expiration of certain contractual
"lock-up" restrictions described below, 52,254,368 shares will be eligible for
sale 180 days after the date of this prospectus, with 41,817,104 of such shares
subject to the volume and other limitations of Rule 144. The remaining 9,283,341
shares will become eligible for sale at various times thereafter, including
7,683,341 shares that will become eligible for resale between November 3 and
November 6, 1999, and all such shares will be subject to the volume and other
limitations of Rule 144.
Each of the Company's directors and officers and certain other stockholders
of the Company have agreed with Morgan Stanley & Co. Incorporated, for a period
of 180 days after the date of this prospectus, not to (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the common stock, whether any such transaction described above is to be settled
by delivery of common stock or such other securities, in cash or otherwise.
Morgan Stanley & Co. Incorporated may choose to release a certain number of
these shares from such restrictions prior to the expiration of the 180-day
period "lock-up" period, although it has no current intention of doing so.
Under Rule 144 as currently in effect, beginning 90 days after the date of
this prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares of common stock for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell a number of such shares within any three-month period equal to
the greater of (1) 1% of the then outstanding shares of the common stock (which
would equal approximately shares immediately after the offering) or (2)
the average weekly reported volume of trading of the common stock on the Nasdaq
National Market during the four calendar weeks preceding such sale. Rule 144
also imposes on such restricted shares certain manner of sale and notice
requirements and requirements as to the availability of current public
information concerning the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years, including the holding period of any prior owner except an affiliate,
is entitled to sell such shares without regard to the volume or other
limitations of Rule 144 just described.
The holders of approximately 50,007,164 shares of common stock are also
entitled to certain rights with respect to registration of such shares of common
stock for offer or sale to the public. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold in
the public market, such sales could have a material adverse effect on the market
price for the Company's common stock.
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Immediately after this offering, there will be options to purchase
approximately 11,827,385 shares of common stock outstanding, based on the number
of options outstanding as of November 30, 1998. Subject to the provisions of the
lock-up agreements described above, holders of these options may rely on the
resale provisions of Rule 701 under the Securities Act, which permits
non-Affiliates to sell their shares without having to comply with the volume,
holding period or other limitations of Rule 144 and permits Affiliates to sell
their shares without having to comply with the holding period limitation of Rule
144, in each case beginning 90 days after the consummation of this offering. In
addition, shortly after this offering, the Company intends to file a
registration statement on Form S-8 covering the 13,811,659 shares of common
stock reserved for issuance under the 1996 Plan and the 1998 Purchase Plan based
upon the number of options outstanding as of November 30, 1998. Shares of common
stock registered under such registration statement will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the lock-up agreements described above.
69
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CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences relevant to holders of common stock that are
non-U.S. Holders. A non-U.S. Holder is a holder of common stock that is not, for
United States federal income tax purposes, any of the following: (i) a citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
state thereof, (iii) an estate, the income of which is subject to U.S. federal
income taxation regardless of its source, or (iv) a trust that meets the
following two tests: (A) a U.S. court is able to exercise primary supervision
over the administration of the trust, and (B) one or more U.S. persons have the
authority to control all substantial decisions of the trust. This discussion
does not consider the specific facts and circumstances that may be relevant to
particular non-U.S. Holders in light of their personal circumstances and does
not address the treatment of such holders under the laws of any state, local or
foreign taxing jurisdiction. Further, the discussion is based on provisions of
the United States Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations thereunder, and administrative and judicial interpretations
thereof, all as in effect on the date hereof and all of which are subject to
change or different interpretation on a possibly retroactive basis. THIS
DISCUSSION IS LIMITED TO NON-U.S. HOLDERS WHO HOLD THE COMMON STOCK AS A CAPITAL
ASSET. EACH PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT
TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a non-U.S. Holder of common stock will be subject to
United States federal withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business within the United
States (and are attributable to a United States permanent establishment of such
holder, if an applicable income tax treaty so requires as a condition for the
non-U.S. holder to be subject to United States income tax on a net income basis
in respect of such dividends). Such "effectively connected" dividends are
subject to tax at rates applicable to United States citizens, resident aliens
and domestic United States corporations, and are not generally subject to
withholding. Any such effectively connected dividends received by a corporate
non-U.S. Holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under currently effective United States Treasury regulations, dividends paid
prior to January 1, 2000 to an address in a foreign country are presumed to be
paid to a resident of that country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under recently finalized
United States Treasury regulations that will generally be effective for
distributions after December 31, 1999 (the "Final Withholding Regulations"),
however, a non-U.S. Holder of common stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification
requirements. In addition, under the Final Withholding Regulations, in the case
of common stock held by a foreign partnership, (1) the certification requirement
would generally be applied to the partners of the partnership and (2) the
partnership would be required to provide certain information, including a United
States taxpayer identification number. The Final Withholding Regulations provide
look-through rules for tiered partnerships.
A non-U.S. Holder of common stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the United States Internal Revenue Service.
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GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of common stock
unless: (1) the gain is effectively connected with a trade or business conducted
by the non-U.S. Holder in the United States (and is attributable to a permanent
establishment maintained in the United States by such non-U.S. Holder if an
applicable income tax treaty so requires as a condition for such non-U.S. Holder
to be subject to United States taxation on a net income basis in respect of gain
from the sale or other disposition of the common stock); (2) in the case of a
non-U.S. Holder who is an individual and holds the common stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale and certain other conditions exist; (3) the Company is
or has been a "United States real property holding corporation" for federal
income tax purposes and, in the event that the common stock is considered
"regularly traded on an established securities market," the non-U.S. Holder
held, directly or indirectly at any time during the five-year period ending on
the date of disposition, more than 5% of the common stock (and is not eligible
for any treaty exemption); or (4) the non-U.S. Holder is subject to tax pursuant
to certain provisions of the Code applicable to U.S. expatriates. Effectively
connected gains realized by a corporate non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
The Company believes it is not currently, and does not anticipate becoming,
a "United States real property holding corporation" for federal income tax
purposes.
FEDERAL ESTATE TAXES
Common stock held by a non-U.S. Holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current law, United States information reporting requirements, other
than reporting of dividend payments for purposes of the withholding tax noted
above, and backup withholding tax generally will not apply to dividends paid to
non-U.S. Holders that are either subject to the 30% withholding discussed above
or that are not so subject because an applicable tax treaty reduces such
withholding. Otherwise, backup withholding of United States federal income tax
at a rate of 31% may apply to dividends paid with respect to common stock to
holders that are not "exempt recipients" and that fail to provide certain
information (including the holder's United States taxpayer identification
number). Generally, unless the payer of dividends has actual knowledge that the
payee is a United States person, the payer may treat dividend payments to a
payee with a foreign address as exempt from information reporting and backup
withholding. However, under the Final Withholding Regulations, dividend payments
generally will be subject to information reporting and backup withholding unless
applicable certification requirements are satisfied. See the discussion above
with respect to the rules applicable to foreign partnerships under the Final
Withholding Regulations.
In general, United States information reporting and backup withholding
requirements also will not apply to a payment made outside the United States of
the proceeds of a sale of common stock through an office outside the United
States of a non-United States broker. However, United States information
reporting, but not backup withholding, requirements will apply to a payment made
outside the United States of the proceeds of a sale of common stock through an
office outside the United States of a broker that is a United States person,
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, that is a "controlled
foreign corporation" as to the United States, or, in the case of payments made
after December 31, 1999, a foreign partnership with certain connections to the
United States, unless the broker has documentary evidence in its records that
71
<PAGE>
the holder or beneficial owner is a non-United States person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
the sale of common stock to or through a United States office of a broker is
currently subject to both United States backup withholding and information
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
A non-U.S. Holder generally may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the United States Internal Revenue Service.
72
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof (the "underwriting agreement"), the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Hambrecht & Quist LLC and Volpe Brown Whelan & Company, LLC are
acting as U.S. representatives, and the international underwriters named below
for whom Morgan Stanley & Co. International Limited, Goldman Sachs
International, Hambrecht & Quist LLC & Volpe Brown Whelan & Company, LLC are
acting as international representatives, have severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective number of
shares of common stock set forth opposite the names of such underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.................................................................
Goldman, Sachs & Co...............................................................................
Hambrecht & Quist LLC.............................................................................
Volpe Brown Whelan & Company, LLC.................................................................
Subtotal........................................................................................
------------
International Underwriters:
Morgan Stanley & Co. International Limited........................................................
Goldman Sachs International.......................................................................
Hambrecht & Quist LLC.............................................................................
Volpe Brown Whelan & Company, LLC.................................................................
Subtotal........................................................................................
------------
Total.........................................................................................
------------
------------
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives," respectively. The
underwriting agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the shares of common stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby (other than those covered by the U.S.
underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the agreement between U.S. and international underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions: (1)
it is not purchasing any shares for the account of anyone other than a United
States or Canadian Person (as defined herein) and (2) it has not offered or
sold, and will not offer or sell, directly or indirectly, any Shares or
distribute any prospectus relating to the shares outside the United States or
Canada or to anyone other than a United States or Canadian Person. Pursuant to
the agreement between U.S. and international underwriters, each international
underwriter has represented and agreed that, with certain exceptions: (1) it is
not purchasing any shares for the account of any United States or Canadian
Person and (2) it has not offered or sold, and will not offer or sell,
73
<PAGE>
directly or indirectly, any shares or distribute any prospectus relating to the
shares in the United States or Canada or to any United States or Canadian
Person. With respect to any underwriter that is a U.S. underwriter and an
international underwriter, the foregoing representations and agreements (1) made
by it in its capacity as a U.S. underwriter apply only to it in its capacity as
a U.S. underwriter and (2) made by it in its capacity as an international
underwriter apply only to it in its capacity as an international underwriter.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the agreement between U.S. and
international underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person.
Pursuant to the agreement between U.S. and international underwriters, sales
may be made between the U.S. underwriters and international underwriters of any
number of shares as may be mutually agreed. The per share price of any shares
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the agreement between U.S. and international underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that (1) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the shares to the international underwriters, will not offer or sell any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (2) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom; and (3) it has only issued or passed on and will only issue
or pass on in the United Kingdom any document received by it in connection with
the offering of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the agreement between U.S. and international underwriters, each
international underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese international
74
<PAGE>
underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law. Each international
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, any of such shares, directly or indirectly, in Japan or to or for
the account of any resident thereof except for offers or sales to Japanese
international underwriters or dealers and except pursuant to an exemption from
the registration requirements of the Securities and Exchange Law and otherwise
in compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such shares a notice
containing substantially the same statement as is contained in this sentence.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain other dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
The Company has granted to the U.S. underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth
on the cover page hereof, less underwriting discounts and commissions. The U.S.
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered hereby. To the extent such option is exercised, each U.S.
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of common stock as
the number set forth next to such U.S. underwriter's name in the preceding table
bears to the total number of shares of common stock set forth next to the names
of all U.S. underwriters in the preceding table.
The underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Each of the Company and the directors, officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus, (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock or (2) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the common stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of common stock or such
other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to (x) the sale of shares to the underwriters, (y) the
issuance by the Company of shares of common stock upon the exercise of an option
or a warrant or the conversion of a security outstanding on the date of this
prospectus of which the underwriters have been advised in writing, or (z)
transactions by any person other than the Company relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares, provided that purchasers in
transactions described in clause (y) enter into similar "lock-up" agreements.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the
75
<PAGE>
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the common stock in the offering if the syndicate
repurchases previously distributed common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common stock
above independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Certain of the underwriters from time to time perform various investment
banking services for the Company, for which such underwriters receive customary
compensation.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between the Company and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this preliminary prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Fenwick & West LLP, Palo Alto, California.
EXPERTS
Healtheon was incorporated in December 1995 and did not commence operations
until January 1996. Thus, the financial statements of ActaMed for the year ended
December 31, 1995 also represent the financial statements of Healtheon on a
pooled basis for that period.
The consolidated financial statements of Healtheon Corporation at December
31, 1996 and 1997, and for the two years in the period ended December 31, 1997
appearing in this prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein which, as to the year ended December 31, 1996, is
based in part on the report of Deloitte & Touche LLP, independent auditors. The
consolidated financial statements referred to above are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of ActaMed Corporation for the year
ended December 31, 1995, included in this Prospectus and Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein. The consolidated financial statements of ActaMed
Corporation as of December 31, 1996 and for the year then ended, (not separately
presented in this Prospectus and Registration Statement) have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein. Such financial statements are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
76
<PAGE>
The statements of divisional net loss and United HealthCare Corporation's
net investment and of divisional cash flows of EDI Services Group, a division of
United HealthCare Corporation, included in this prospectus and Registration
Statement have been audited by Deloitte and Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act, and
the rules and regulations promulgated thereunder, with respect to the common
stock offered hereby. This prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. Statements contained in this
prospectus as to the contents of any contract or other document that is filed as
an exhibit to the Registration Statement are not necessarily complete and each
such statement is qualified in all respects by reference to the full text of
such contract or document. For further information with respect to the Company
and the common stock, reference is hereby made to the Registration Statement and
the exhibits thereto, which may be inspected and copied at the principal office
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained at prescribed rates from the Commission's Public Reference Section
at such addresses. Also, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
Upon completion of this offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act and, in
accordance therewith, will file periodic reports, proxy and information
statements and other information with the Commission. Such periodic reports,
proxy and information statements and other information will be available for
inspection and copying at the regional offices, public reference facilities and
Web site of the Commission referred to above.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHEON CORPORATION:
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Report of Deloitte & Touche LLP, Independent Auditors..................... F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Operations..................................... F-5
Consolidated Statement of Convertible Redeemable Preferred Stock and
Stockholders' Equity (Net Capital Deficiency)........................... F-6
Consolidated Statements of Cash Flows..................................... F-9
Notes to Consolidated Financial Statements................................ F-11
FINANCIAL STATEMENTS OF EDI SERVICES, INC.:
Report of Deloitte and Touche LLP, Independent Auditors................... F-34
Statement of Divisional Net Loss and United's Net Investment.............. F-35
Statement of Divisional Cash Flows........................................ F-36
Notes to Financial Statements............................................. F-37
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Healtheon Corporation
We have audited the accompanying consolidated balance sheets of Healtheon
Corporation as of December 31, 1996 and 1997, and the related consolidated
statements of operations, convertible redeemable preferred stock and
stockholders' equity (net capital deficiency), and cash flows for each of the
two years in the period ended December 31, 1997. 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. In May 1998, the
Company acquired ActaMed Corporation in a transaction that was accounted for as
a pooling of interests. We did not audit the financial statements of ActaMed
Corporation for the year ended December 31, 1996, which statements reflect total
assets constituting approximately 82% of the related consolidated financial
statement totals at December 31, 1996 and revenues and a net loss constituting
approximately 89% and 54%, respectively, of the related consolidated financial
statement totals for the year ended December 31, 1996. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for ActaMed Corporation, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted accounting
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Healtheon Corporation at
December 31, 1996 and 1997, and the consolidated results of its operations and
its cash flows for each of the two years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 27, 1998,
except for Notes 1 and 2, as to which the date is September 26, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of ActaMed Corporation
We have audited the consolidated balance sheet of ActaMed Corporation and
subsidiary (the "Company") as of December 31, 1996 and the related consolidated
statements of operations, convertible redeemable preferred stock and
stockholders' equity (net capital deficiency), and cash flows for each of the
two years in the period ended December 31, 1996 (the consolidated financial
statements for 1996 are not separately presented herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 20, 1997 (September 26, 1998 as to Note 1--Net Loss per Common Share,
paragraph 2 and Note 2--Acquisition of EDI Services, Inc., paragraph 4)
F-3
<PAGE>
HEALTHEON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ---------- SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 7,539 $ 16,504 $ 4,526
Short-term investments................................................... -- 5,300 866
Accounts receivable, net of allowance for doubtful accounts of $41, $71
and $130 in 1996, 1997 and 1998, respectively........................... 959 2,723 5,104
Due from related parties................................................. 1,742 1,533 1,159
Other current assets..................................................... 437 527 621
---------- ---------- -------------
Total current assets..................................................... 10,677 26,587 12,276
Property and equipment, net................................................ 4,534 5,500 11,276
Intangible assets, net..................................................... 16,555 18,768 23,741
Other assets............................................................... 2,641 2,892 2,977
---------- ---------- -------------
$ 34,407 $ 53,747 $ 50,270
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Borrowings under line of credit.......................................... $ 30 $ 3,425 $ 1,415
Accounts payable......................................................... 1,359 2,225 4,472
Accrued compensation..................................................... 242 448 2,465
Other accrued liabilities................................................ 1,097 1,265 3,871
Current portion of capital lease obligations............................. 763 1,038 1,716
Deferred revenue......................................................... 4,681 3,396 4,392
---------- ---------- -------------
Total current liabilities................................................ 8,172 11,797 18,331
Capital lease obligations, net of current portion.......................... 1,210 932 1,714
Commitments
Convertible redeemable preferred stock, $.016 par value, issuable in
series: 16,488,860 shares authorized in 1996 and 1997, none in 1998;
14,170,947, 16,488,860 and no shares issued and outstanding in 1996, 1997
and 1998, respectively; at amounts paid in............................... 39,578 50,948 --
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $.0001 par value, issuable in series:
48,020,000 shares authorized in 1996 and 1997, none in 1998; 13,285,000,
21,002,692 and no shares issued and outstanding in 1996, 1997 and 1998,
respectively; at amounts paid in........................................ 11,607 43,756 --
Common stock, $.0001 par value, 75,000,000 shares authorized; 8,652,422,
9,436,724 and 54,422,868 shares issued and outstanding in 1996, 1997 and
1998, respectively...................................................... 1 1 5
Additional paid-in capital............................................... 1,523 4,502 117,964
Note receivable from officer............................................. -- (349) --
Deferred stock compensation.............................................. -- (2,151) (2,751)
Accumulated deficit...................................................... (27,684) (55,689) (84,993)
---------- ---------- -------------
Total stockholders' equity (net capital deficiency)...................... (14,553) (9,930) 30,225
---------- ---------- -------------
$ 34,407 $ 53,747 $ 50,270
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HEALTHEON CORPORATION
ACTAMED ----------------------------------------------
CORPORATION
------------ YEARS ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30
DECEMBER 31, ---------------------- ----------------------
1995 1996 1997 1997 1998
------------ ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Services............................................ $ 458 $ 1,795 $ 4,301 $ 1,216 $ 18,326
Services to related parties(2)...................... -- 4,237 7,309 5,199 14,320
Software licenses................................... 1,717 4,981 1,780 585 585
------------ ---------- ---------- ---------- ----------
Total revenue....................................... 2,175 11,013 13,390 7,000 33,231
Operating costs and expenses:
Cost of revenue:
Cost of services.................................. 1,573 1,648 4,011 1,080 18,688
Cost of services to related parties............... -- 4,919 6,536 4,648 12,512
Cost of software licenses......................... 343 160 -- -- --
------------ ---------- ---------- ---------- ----------
Total cost of revenue............................. 1,916 6,727 10,547 5,728 31,200
Development and engineering......................... 2,446 8,596 12,986 9,681 13,036
Sales, general and administrative................... 1,749 9,042 11,031 7,477 16,794
Amortization of intangible assets................... -- 3,189 4,249 3,187 7,397
------------ ---------- ---------- ---------- ----------
Total operating costs and expenses.................. 6,111 27,554 38,813 26,073 68,427
------------ ---------- ---------- ---------- ----------
Loss from operations.................................. (3,936) (16,541) (25,423) (19,073) (35,196)
Interest income....................................... 208 539 611 359 834
Interest expense...................................... (6) (56) (323) (177) (361)
Dividends on ActaMed's convertible redeemable
preferred stock..................................... -- (2,548) (2,870) (2,382) (890)
------------ ---------- ---------- ---------- ----------
Net loss.............................................. (3,734) (18,606) (28,005) (21,273) (35,613)
Dividends on ActaMed's convertible redeemable
preferred stock..................................... (724) -- -- -- --
------------ ---------- ---------- ---------- ----------
Net loss applicable to common stockholders............ $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613)
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
Basic and diluted net loss per common share........... $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23)
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
Weighted-average shares outstanding used in computing
basic and diluted net loss per common share......... 5,246 6,583 7,223 7,019 28,934
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
Pro forma basic and diluted net loss per common share
(unaudited)......................................... $ (.56) $ (.73)
---------- ----------
---------- ----------
Shares used in computing pro forma basic and diluted
net loss per common share (unaudited)............... 44,715 47,263
---------- ----------
---------- ----------
</TABLE>
- ---------
(1) Because Healtheon did not commence operations until January 1996, the
ActaMed statement of operations presented for the year ended December 31,
1995 represents the statement of operations of Healtheon for that period on
a pooled basis.
(2) Revenue from services to related parties consists of revenue from United
HealthCare and SmithKline Labs, customers that are also significant
stockholders of the Company.
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
CONSOLIDATED STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(1)
(IN THOUSANDS, EXCEPT SHARE DATA)
ACTAMED CORPORATION
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK COMMON STOCK
--------------------- --------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ----------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994...... 8,800,880 $ 8,343 -- $ -- 8,250,000 $ 200
Net loss........................... -- -- -- -- -- --
Issuance of common stock pursuant
to option exercises by
employees........................ -- -- -- -- 1,071,250 21
Issuance of Series B convertible
redeemable preferred stock for
cash (less issuance costs of
$36)............................. 3,448,276 6,963 -- -- -- --
Dividends accrued on convertible
redeemable preferred stock....... -- 724 -- -- -- --
----------- -------- ----------- -------- ---------- -------
BALANCES AT DECEMBER 31, 1995...... 12,249,156 $ 16,030 -- $ -- 9,321,250 $ 221
----------- -------- ----------- -------- ---------- -------
----------- -------- ----------- -------- ---------- -------
HEALTHEON CORPORATION
BALANCES AT DECEMBER 31, 1995
(REFLECTING THE EXCHANGE RATIO OF
.6272)........................... 7,682,671 $ 16,030 -- $ -- 5,846,288 $ 1
Net loss........................... -- -- -- -- -- --
Issuance of common stock to
founders and employees for
cash............................. -- -- -- -- 2,806,134 --
Issuance of Series A convertible
preferred stock for cash (less
issuance costs of $27)........... -- -- 10,285,000 5,115 -- --
Issuance of Series B convertible
preferred stock for cash (less
issuance costs of $8)............ -- -- 3,000,000 5,992 -- --
Issuance of Series B convertible
preferred stock warrant to
investor for services............ -- -- -- 500 -- --
Issuance of Series C convertible
redeemable preferred stock for
acquisition...................... 6,488,276 21,000 -- -- -- --
Issuance of common stock
warrants......................... -- -- -- -- -- --
Dividends accrued on convertible
redeemable preferred stock....... -- 2,548 -- -- -- --
----------- -------- ----------- -------- ---------- -------
BALANCES AT DECEMBER 31, 1996...... 14,170,947 39,578 13,285,000 11,607 8,652,422 1
<CAPTION>
TOTAL
NOTE STOCKHOLDERS'
ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET
PAID-IN FROM STOCK ACCUMULATED CAPITAL
CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY)
---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994...... $ 1,883 $ -- $ -- $ (5,344) $ (3,261)
Net loss........................... -- -- -- (3,734) (3,734)
Issuance of common stock pursuant
to option exercises by
employees........................ -- -- -- -- 21
Issuance of Series B convertible
redeemable preferred stock for
cash (less issuance costs of
$36)............................. -- -- -- -- --
Dividends accrued on convertible
redeemable preferred stock....... (724) -- -- -- (724)
---------- ---------- ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1995...... $ 1,159 $ -- $ -- $ (9,078) $ (7,698)
---------- ---------- ------------ ----------- -------------
---------- ---------- ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1995
(REFLECTING THE EXCHANGE RATIO OF
.6272)........................... $ 1,379 $ -- $ -- $ (9,078) $ (7,698)
Net loss........................... -- -- -- (18,606) (18,606)
Issuance of common stock to
founders and employees for
cash............................. 140 -- -- -- 140
Issuance of Series A convertible
preferred stock for cash (less
issuance costs of $27)........... -- -- -- -- 5,115
Issuance of Series B convertible
preferred stock for cash (less
issuance costs of $8)............ -- -- -- -- 5,992
Issuance of Series B convertible
preferred stock warrant to
investor for services............ -- -- -- -- 500
Issuance of Series C convertible
redeemable preferred stock for
acquisition...................... -- -- -- -- --
Issuance of common stock
warrants......................... 4 -- -- -- 4
Dividends accrued on convertible
redeemable preferred stock....... -- -- -- -- --
---------- ---------- ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1996...... 1,523 -- -- (27,684) (14,553)
</TABLE>
- -------------
(1) Because Healtheon did not commence operations until January 1996, the
ActaMed statement of convertible redeemable preferred stock and
stockholders' equity (net capital deficiency) presented for the year ended
December 31, 1995 represents the statement of stockholders' equity of
Healtheon for that period on a pooled basis.
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
CONSOLIDATED STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(1) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
HEALTHEON CORPORATION
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK COMMON STOCK
--------------------- --------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ----------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996...... 14,170,947 $ 39,578 13,285,000 $ 11,607 8,652,422 $ 1
Net loss........................... -- -- -- -- -- --
Issuance of common stock pursuant
to option and restricted stock
exercises by employees........... -- -- -- -- 1,397,844 --
Repurchase of employee common
stock............................ -- -- -- -- (613,542) --
Issuance of Series A and Series B
convertible preferred stock for
services......................... -- -- 45,000 55 -- --
Issuance of Series B convertible
preferred stock for cash......... -- -- 15,000 30 -- --
Issuance of Series B convertible
preferred stock to officer for
note receivable.................. -- -- 250,000 500 -- --
Issuance of Series B convertible
preferred stock warrants in
connection with bridge
financing........................ -- -- -- 64 -- --
Issuance of Series C convertible
preferred stock for cash and
conversion of bridge note........ -- -- 2,600,000 6,500 -- --
Issuance of Series D convertible
preferred stock for cash......... -- -- 4,807,692 25,000 -- --
Issuance of Series D convertible
redeemable preferred stock for
asset purchase................... 2,317,913 8,500 -- -- -- --
Repayment of note receivable from
officer.......................... -- -- -- -- -- --
Dividends accrued on convertible
redeemable preferred stock....... -- 2,870 -- -- -- --
Deferred stock compensation........ -- -- -- -- -- --
Amortization of deferred stock
compensation..................... -- -- -- -- -- --
----------- -------- ----------- -------- ---------- -------
BALANCES AT DECEMBER 31, 1997...... 16,488,860 50,948 21,002,692 43,756 9,436,724 1
<CAPTION>
TOTAL
NOTE STOCKHOLDERS'
ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET
PAID-IN FROM STOCK ACCUMULATED CAPITAL
CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY)
---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996...... $ 1,523 $ -- $ -- $(27,684) $(14,553)
Net loss........................... -- -- -- (28,005) (28,005)
Issuance of common stock pursuant
to option and restricted stock
exercises by employees........... 297 -- -- -- 297
Repurchase of employee common
stock............................ (31) -- -- -- (31)
Issuance of Series A and Series B
convertible preferred stock for
services......................... -- -- -- -- 55
Issuance of Series B convertible
preferred stock for cash......... -- -- -- -- 30
Issuance of Series B convertible
preferred stock to officer for
note receivable.................. -- (500) -- -- --
Issuance of Series B convertible
preferred stock warrants in
connection with bridge
financing........................ -- -- -- -- 64
Issuance of Series C convertible
preferred stock for cash and
conversion of bridge note........ -- -- -- -- 6,500
Issuance of Series D convertible
preferred stock for cash......... -- -- -- -- 25,000
Issuance of Series D convertible
redeemable preferred stock for
asset purchase................... -- -- -- -- --
Repayment of note receivable from
officer.......................... -- 151 -- -- 151
Dividends accrued on convertible
redeemable preferred stock....... -- -- -- -- --
Deferred stock compensation........ 2,713 -- (2,713) -- --
Amortization of deferred stock
compensation..................... -- -- 562 -- 562
---------- ---------- ------------ ----------- -------------
BALANCES AT DECEMBER 31, 1997...... 4,502 (349) (2,151) (55,689) (9,930)
</TABLE>
- -------------
(1) Because Healtheon did not commence operations until January 1996, the
ActaMed statement of convertible redeemable preferred stock and
stockholders' equity (net capital deficiency) presented for the year ended
December 31, 1995 represents the statement of stockholders' equity of
Healtheon for that period on a pooled basis.
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
CONSOLIDATED STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(1) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
HEALTHEON CORPORATION
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK COMMON STOCK
--------------------- --------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ----------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1997...... 16,488,860 $ 50,948 21,002,692 $ 43,756 9,436,724 $ 1
Net loss (unaudited)............... -- -- -- -- -- --
Issuance of common stock pursuant
to option exercises by employees
(unaudited)...................... -- -- -- -- 2,247,606 --
Issuance of Series B convertible
preferred stock pursuant to
warrant exercises (unaudited).... -- -- 1,017,229 2,034 -- --
Issuance of Series D convertible
redeemable preferred stock for
asset purchase (unaudited)....... 763,548 2,800 -- -- -- --
Dividends accrued on convertible
redeemable preferred stock
(unaudited)...................... -- 890 -- -- -- --
Conversion of redeemable preferred
and preferred stock to common
stock (unaudited)................ (17,252,408) (54,638) (22,019,921) (45,790) 39,272,329 4
Issuance of common stock for asset
purchase (unaudited)............. -- -- -- -- 2,936,209 --
Repayment of note receivable from
officer (unaudited).............. -- -- -- -- -- --
Deferred stock compensation
(unaudited)...................... -- -- -- -- -- --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- -- -- --
Issuance of common stock pursuant
to restricted stock purchase by
employees (unaudited)............ -- -- -- -- 530,000 --
----------- -------- ----------- -------- ---------- -------
BALANCES, SEPTEMBER 30, 1998
(UNAUDITED)...................... -- $ -- -- $ -- 54,422,868 $ 5
----------- -------- ----------- -------- ---------- -------
----------- -------- ----------- -------- ---------- -------
<CAPTION>
TOTAL
NOTE STOCKHOLDERS'
ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET
PAID-IN FROM STOCK ACCUMULATED CAPITAL
CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY)
---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1997...... $ 4,502 $(349) $(2,151) $(55,689) $ (9,930)
Net loss (unaudited)............... -- -- -- (35,613) (35,613)
Issuance of common stock pursuant
to option exercises by employees
(unaudited)...................... 1,260 -- -- -- 1,260
Issuance of Series B convertible
preferred stock pursuant to
warrant exercises (unaudited).... -- -- -- -- 2,034
Issuance of Series D convertible
redeemable preferred stock for
asset purchase (unaudited)....... -- -- -- -- --
Dividends accrued on convertible
redeemable preferred stock
(unaudited)...................... -- -- -- -- --
Conversion of redeemable preferred
and preferred stock to common
stock (unaudited)................ 94,115 -- -- 6,309 54,638
Issuance of common stock for asset
purchase (unaudited)............. 13,220 -- -- -- 13,220
Repayment of note receivable from
officer (unaudited).............. -- 349 -- -- 349
Deferred stock compensation
(unaudited)...................... 2,402 -- (2,402) -- --
Amortization of deferred stock
compensation (unaudited)......... -- -- 1,802 -- 1,802
Issuance of common stock pursuant
to restricted stock purchase by
employees (unaudited)............ 2,465 -- -- -- 2,465
---------- ---------- ------------ ----------- -------------
BALANCES, SEPTEMBER 30, 1998
(UNAUDITED)...................... $ 117,964 $ -- $(2,751) $(84,993) $ 30,225
---------- ---------- ------------ ----------- -------------
---------- ---------- ------------ ----------- -------------
</TABLE>
- -------------
(1) Because Healtheon did not commence operations until January 1996, the
ActaMed statement of convertible redeemable preferred stock and
stockholders' equity (net capital deficiency) presented for the year ended
December 31, 1995 represents the statement of stockholders' equity of
Healtheon for that period on a pooled basis.
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS(1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HEALTHEON CORPORATION
ACTAMED ------------------------------------------
CORPORATION NINE MONTHS ENDED
------------- YEARS ENDED DECEMBER
YEAR ENDED 31, SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1995(1) 1996 1997 1997 1998
------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (3,734) $ (18,606) $ (28,005) $ (21,273) $ (35,613)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 359 6,366 9,319 6,937 13,489
Amortization of deferred stock compensation.............. -- -- 562 309 1,802
Warrants and preferred stock issued for services......... -- 500 119 55 --
Dividends on ActaMed's convertible redeemable preferred
stock................................................... -- 2,548 2,870 2,382 890
Changes in operating assets and liabilities:
Accounts receivable.................................... (36) (5,066) (806) 651 (1,819)
Other assets........................................... (77) (325) (224) 122 (162)
Accounts payable....................................... 49 1,139 751 (263) 2,580
Accrued compensation and other liabilities............. 516 800 345 681 3,964
Deferred revenue....................................... 1,603 3,078 (1,285) (285) 996
------------- --------- --------- --------- ---------
Net cash used in operating activities...................... (1,320) (9,566) (16,354) (10,684) (13,873)
------------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of short-term investments......................... -- -- (5,300) -- (4,341)
Maturities of short-term investments....................... -- -- -- -- 8,775
Increase in restricted cash................................ -- -- (867) -- --
Purchases of property and equipment........................ (464) (2,027) (2,817) (449) (5,071)
Cash paid in business combination.......................... -- -- -- -- (652)
Acquisition costs related to business combination.......... -- (316) -- -- --
Capitalized internally developed software costs............ -- (1,001) (291) (291) --
------------- --------- --------- --------- ---------
Net cash used in investing activities...................... (464) (3,344) (9,275) (740) (1,289)
------------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from line of credit borrowings and bridge notes... -- 30 5,395 2,000 --
Payment of line of credit borrowings....................... -- -- -- -- (2,010)
Proceeds from line of credit borrowings from related
party.................................................... -- -- -- -- 1,000
Payments of line of credit borrowings from related party... -- -- -- -- (1,000)
Proceeds from issuance of preferred stock.................. 6,963 11,107 29,530 4,470 2,034
Proceeds from issuance of common stock, net of
repurchases.............................................. 21 144 266 18 3,725
Payments on note receivable from officer................... -- -- 151 -- 349
Principal payments of capital lease obligations............ -- (218) (748) (573) (914)
------------- --------- --------- --------- ---------
Net cash from financing activities......................... 6,984 11,063 34,594 5,915 3,184
------------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 5,200 (1,847) 8,965 (5,509) (11,978)
Cash and cash equivalents at beginning of period........... 4,186 9,386 7,539 7,539 16,504
------------- --------- --------- --------- ---------
Cash and cash equivalents at end of period................. $ 9,386 $ 7,539 $ 16,504 $ 2,030 $ 4,526
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
</TABLE>
F-9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS(1) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HEALTHEON CORPORATION
ACTAMED ------------------------------------------
CORPORATION NINE MONTHS ENDED
------------- YEARS ENDED DECEMBER
YEAR ENDED 31, SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1995(1) 1996 1997 1997 1998
------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 5 $ 56 $ 252 $ 154 $ 379
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Supplemental schedule of noncash investing and financing
activities:
Equipment acquired under capital lease obligations......... $ -- $ 2,083 $ 774 $ 472 $ 2,278
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Issuance of note receivable from officer for preferred
stock.................................................... $ -- $ -- $ 500 $ -- $ --
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Conversion of bridge notes to preferred stock.............. $ -- $ -- $ 2,000 $ 2,000 $ --
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Dividends on ActaMed's convertible redeemable preferred
stock.................................................... $ 724 $ -- $ -- $ -- $ --
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Issuance of convertible redeemable preferred stock for
business combination..................................... $ -- $ 21,000 $ -- $ -- $ --
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Issuance of convertible redeemable preferred stock for
asset purchase........................................... $ -- $ -- $ 8,500 $ -- $ 2,800
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Issuance of common stock for asset purchase................ $ -- $ -- $ -- $ -- $ 4,900
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Issuance of common stock for business combination.......... $ -- $ -- $ -- $ -- $ 8,320
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Deferred stock compensation related to options granted..... $ -- $ -- $ 2,713 $ 1,101 $ 2,402
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Conversion of convertible redeemable preferred and
convertible preferred stock to common stock.............. $ -- $ -- $ -- $ -- $ 94,115
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
</TABLE>
- ------------
(1) Because Healtheon did not commence operations until January 1996, the
statement of cash flows presented for the year ended December 31, 1995
represents the statement of cash flows of Healtheon for that period on a
pooled basis.
SEE ACCOMPANYING NOTES
F-10
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In May 1998, Healtheon Corporation ("Healtheon") acquired ActaMed
Corporation ("ActaMed") in a merger transaction accounted for as a pooling of
interests (see Note 2). ActaMed was incorporated in 1992. Healtheon was
incorporated on December 26, 1995 and was considered to be in the development
stage through late 1997. All financial information has been restated to reflect
the combined operations of Healtheon and ActaMed. All 1995 financial statement
information represents that of ActaMed. Because Healtheon did not commence
operations until January 1996, the financial statements of ActaMed for the year
ended December 31, 1995 also represent the financial statements of Healtheon on
a pooled basis for that period. As used herein, the "Company" refers to the
combined companies and "Healtheon" or "ActaMed" is used to refer to the
individual pre-merger company where required for clarity of presentation.
NATURE OF OPERATIONS
The Company is pioneering the use of the Internet to simplify workflows,
decrease costs and improve the quality of patient care throughout the healthcare
industry. The Company has designed and developed an Internet-based information
and transaction platform (the "Healtheon Platform") that allows it to create
Virtual Healthcare Networks ("VHNs") that facilitate and streamline interactions
among the myriad participants in the healthcare industry. The Company's VHN
solution includes a suite of services delivered through applications operating
on its Internet-based platform. The Company's solution enables the secure
exchange of information among disparate healthcare information systems and
supports a broad range of healthcare transactions, including enrollment,
eligibility determination, referrals and authorization, laboratory and
diagnostic test ordering, clinical data retrieval and claims processing.
Healtheon provides its own applications on the Healtheon Platform and also
enables third-party applications to operate on the platform. In addition to
VHNs, Healtheon provides consulting, implementation and network management
services to enable its customers to take advantage of the capabilities of the
Healtheon Platform.
The Company has incurred operating losses to date and had an accumulated
deficit of $84,993,000 at September 30, 1998. Company activities have been
primarily financed through private placements of equity securities. The Company
had cash, cash equivalents and short-term investments totaling $5,392,000 at
September 30, 1998. As noted above and as further discussed in Note 2, Healtheon
merged with ActaMed in May 1998. This merger may significantly affect the
Company's operating cash needs. The Company may need to raise additional capital
through the issuance of debt or equity securities. There can be no assurance
that the Company will be able to raise additional financing, or that such
financing will be available on terms satisfactory to the Company, if at all.
INTERIM FINANCIAL INFORMATION
The financial information as of September 30, 1998 and for the nine months
ended September 30, 1997 and 1998 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the Company's operating results and cash
flows for such period. Results for the nine months ended September 30, 1998 are
not necessarily indicative of results to be expected for the full fiscal year of
1998 or for any future period.
F-11
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.
ACCOUNTING 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. Actual
results could differ materially from these estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All highly liquid investments with an original maturity from date of
purchase of three months or less are considered to be cash equivalents. The
Company's cash, cash equivalents and short-term investments are invested in
various investment-grade commercial paper, money market accounts and
certificates of deposit. All of the Company's short-term investments mature
within nine months. The fair value of the Company's cash equivalents and
short-term investments is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1996 1997 1998
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash equivalents:
Corporate and other non-government debt securities...... $ -- $ 12,704 $ 2,808
Money market funds...................................... 5,603 3,429 1,372
--------- --------- ------
5,603 16,133 4,180
Short-term investments:
Corporate and other non-government debt securities...... -- 5,300 866
--------- --------- ------
$ 5,603 $ 21,433 $ 5,046
--------- --------- ------
--------- --------- ------
</TABLE>
Net unrealized gains (losses) were immaterial at December 31, 1996 and 1997
and September 30, 1998.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Marketable debt and equity securities are classified as
available-for-sale, and are carried at their fair value, with the unrealized
gains and losses, when material, reported net-of-tax in a separate component of
stockholders' equity. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in
interest income. The cost of securities sold is based on specific
identification. Interest and dividends on securities classified as
available-for-sale are included in interest income.
Additionally, at December 31, 1997 and September 30, 1998, the Company had
restricted cash of $867,000, related to a letter of credit invested in a
certificate of deposit at a financial institution as a
F-12
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
security deposit for its office facilities (see Note 6). Such amount is included
in other assets in the accompanying consolidated balance sheets.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Depreciation is computed using the straight-line method over
the estimated useful life of the related asset, generally three to seven years.
Leasehold improvements and equipment acquired under capital leases are amortized
over the shorter of the lease term or the estimated useful life of the related
asset.
INTANGIBLE ASSETS
Intangible assets related to software technology rights, services agreements
and goodwill are amortized on a straight-line basis over three years. Intangible
assets related to assembled workforce are amortized on a straight-line basis
over two years.
SOFTWARE DEVELOPMENT COSTS
Software development costs are incurred in the development or enhancement of
software utilized in providing the Company's business management systems and
services. Software development costs incurred after the establishment of
technological feasibility for each product or process are capitalized and
capitalization ceases when the product or process is available for general
release to customers or is put into service. Capitalized internally developed
software costs were approximately $1,001,000, $291,000 and $288,000 for the
years ended December 31, 1996 and 1997 and the nine months ended September 30,
1997, respectively. There were no internally developed software costs
capitalized for the year ended December 31, 1995 or for the nine months ended
September 30, 1998. Capitalized internally developed software costs are
amortized based on the greater of the amount determined using the straight line
method over the estimated useful economic life of the software or the ratio of
remaining unamortized costs to current and expected future revenue from the
software. Amortization expense related to the Company's capitalized internally
developed software costs included in cost of revenue was approximately $134,000,
$376,000, $268,000 and $782,000 for the years ended December 31, 1996 and 1997
and the nine months ended September 30, 1997 and 1998, respectively. There was
no amortization expense related to ActaMed's capitalized internally developed
software costs for the year ended December 31, 1995.
LONG-LIVED ASSETS
The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of long-lived assets, including intangible
assets, may not be recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. In June 1998, the Company evaluated the
carrying value of the capitalized internally developed software in light of the
changes in operations resulting from the acquisition of ActaMed by Healtheon.
The Company determined that it expected no future cash flows to be generated by
this software and, accordingly, wrote off the remaining unamortized balance of
$603,000 related to capitalized internally developed software. Such amount is
included in the $782,000 amortization expense for the nine
F-13
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
months ended September 30, 1998 noted above. No impairment losses were recorded
for the years ended December 31, 1995, 1996 and 1997 or for the nine months
ended September 30, 1997.
REVENUE RECOGNITION
The Company earns revenue from services and services to related parties,
both of which include providing access to its network-based services and
performing development and consulting services, and from licensing software. The
Company earns network-based services revenue from fixed fee subscription
arrangements, which is recognized ratably over the term of the applicable
agreement, and from arrangements that are priced on a per-transaction or
per-user basis, which is recognized as the services are performed. Revenue from
development projects is recognized on a percentage-of-completion basis or as
such services are performed, depending on the terms of the contract. Revenue
from consulting services is recognized as such services are performed. Cash
received in excess of revenue recognized relating to such services has been
recorded as deferred revenue in the accompanying consolidated balance sheets.
Revenue from services to related parties consists of services revenue
attributable to United HealthCare and SmithKline Labs. To date, the Company has
derived no significant revenue from brokers, value-added resellers or systems
integrators.
During the year ended December 31, 1997, the Company entered into agreements
with two customers to manage and operate their current and expanding information
technology ("IT") operations, to develop a suite of specific Internet-based
commercial software applications and to assist these customers in migrating from
their current IT operating environment to these new applications. The Company
utilizes its own personnel, certain outside contractors and certain personnel
and facilities of the customers that are leased under contract terms to the
Company for these services. The cost of these leased customer personnel and
facilities is included as part of the total costs of the IT and development
services billed to the customers by the Company. For the year ended December 31,
1997 and the nine months ended September 30, 1998, the Company recognized
revenue of approximately $2,100,000 and $10,915,000, respectively, for the IT
services and approximately $200,000 and $4,772,000, respectively, for the
development services. Included in the revenue recognized for IT services for the
year ended December 31, 1997 and the nine months ended September 30, 1998 were
amounts related to leased personnel and facilities of $1,909,000 and $8,806,000,
respectively, which amounts were also included in cost of revenue for the
respective periods.
The Company recognizes revenue from license fees when a noncancellable
license agreement has been signed with a customer, the software product covered
by the license agreement has been delivered, there are no uncertainties
surrounding product acceptance, there are no significant future performance
obligations, the license fees are fixed and determinable and collection of the
license fees is considered probable. The Company's products do not require
significant customization.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP
97-2 is effective January 1, 1998 and generally requires revenue earned on
software arrangements involving multiple elements such as software products,
upgrades, enhancements, post-contract customer support, installation and
training to be allocated to each element based on the relative fair values of
the elements. There was no material change to the Company's accounting for
revenue as a result of the adoption of SOP 97-2.
F-14
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ActaMed entered into a national marketing and licensing agreement (the
"Agreement") with International Business Machines Corporation ("IBM") in 1995
that granted IBM a nonexclusive, nontransferable right to market ActaMed's
software and services for a total of $6,300,000. For the years ended December
31, 1995, 1996 and 1997, approximately $1,700,000, $3,400,000 and $1,200,000,
respectively, of this amount was recognized as software license revenue upon
delivery of the software. No software license revenue was recognized under this
agreement for the nine months ended September 30, 1997 or 1998.
In December 1996, the Company entered into a new agreement (the "License")
to license its newly granted patent to IBM. As part of the License, IBM agreed
to pay ActaMed $4,800,000 over a four-year period. Additionally, in conjunction
with the License, the Company issued IBM a five-year warrant to purchase 282,522
shares of the Company's common stock at a price of $7.97 per share. Because of
the extended payment terms and the Company's contentious relationship with IBM,
the Company concluded that the license fee was not assured of collection and,
accordingly, is recognizing this revenue as the proceeds are collected. For the
years ended December 31, 1996 and 1997 and the nine months ended September 30,
1997 and 1998, the Company recognized revenue from the License of $995,000,
$780,000, $585,000 and $585,000, respectively. At December 31, 1997, amounts due
from IBM of $738,000 and $1,715,000 were included in accounts receivable and
other assets, respectively. At September 30, 1998, amounts due from IBM of
$795,000 and $1,112,000 were included in accounts receivable and other assets,
respectively. Deferred revenue at December 31, 1996 and 1997 and September 30,
1998 included $3,121,000, $2,341,000 and $1,756,000, respectively, related to
the License.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value for marketable debt securities is based on quoted market
prices. The carrying value of these securities approximates their fair value.
The fair value of notes is estimated by discounting the future cash flows
using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. The
carrying value of the note receivable from an officer approximated its fair
value.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to the Company for debt
instruments with similar terms, degrees of risk and remaining maturities. The
carrying values of these obligations approximate their respective fair values.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company currently derives a substantial portion of its consolidated
revenue from a few large customers, two of which are related parties. Two
customers represented 35% and 17% of the total balance of trade accounts
receivable and amounts due from related parties at December 31, 1997, and three
customers represented 20%, 18% and 15% of the total balance of trade accounts
receivable and amounts due from related parties at September 30, 1998. The
Company believes that the concentration of credit risk in its trade receivables,
with respect to its limited customer base, is substantially mitigated by the
Company's credit evaluation process. The Company does not require collateral. To
date, the Company's bad debt write-offs have not been significant. During the
years ended December 31, 1996 and 1997 and the
F-15
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
nine months ended September 30, 1998, respectively, the Company added
approximately $41,000, $35,000 and $66,000 to its bad debt reserves. Total
write-offs of uncollectible amounts were zero, $5,000 and $7,000 in these
periods, respectively.
For the year ended December 31, 1995, one customer accounted for 85% of
consolidated revenue. For the year ended December 31, 1996, two customers
accounted for 46% and 38% of consolidated revenue. For the year ended December
31, 1997, two customers accounted for 55% and 15% of consolidated revenue. For
the nine months ended September 30, 1998, four customers accounted for 27%, 22%,
21% and 20% of consolidated revenue.
The Company operates solely within one business segment, the development and
marketing of healthcare transaction and information services delivered over the
Internet, private intranets or other networks. Through September 30, 1998, the
Company had no export sales.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair market value of the shares at the date
of grant. As permitted under Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company
accounts for stock option grants to employees and directors in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
NET LOSS PER COMMON SHARE
Basic net loss per common share and diluted net loss per common share are
presented in conformity with SFAS No. 128, "Earnings Per Share," for all periods
presented. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued or granted
for nominal consideration prior to the anticipated effective date of the
Company's initial public offering must be included in the calculation of basic
and diluted net loss per common share as if they had been outstanding for all
periods presented. To date, the Company has not had any issuances or grants for
nominal consideration.
In accordance with SFAS No. 128, basic net loss per common share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. For the year ended
December 31, 1995, the weighted-average number of shares of ActaMed reflects the
effect of the exchange ratio of 0.6272. Basic pro forma net loss per common
share, as presented in the statements of operations, has been computed as
described above and also gives effect, under Securities and Exchange Commission
guidance, to the conversion of the convertible and convertible redeemable
preferred stock (using the if-converted method) from the original date of
issuance. On May 19, 1998, in connection with Healtheon's acquisition of
ActaMed, all outstanding shares of Healtheon's convertible preferred stock and
ActaMed's convertible redeemable preferred stock were converted into an
aggregate of 39,272,329 shares of common stock. There were no shares of
convertible or convertible redeemable preferred stock outstanding at September
30, 1998.
F-16
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per common share follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss applicable to common stockholders............. $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Basic and diluted:
Weighted-average shares of common stock
outstanding........................................ 5,246 7,398 8,621 8,396 30,389
Less: Weighted-average shares subject to
repurchase......................................... -- (815) (1,398) (1,377) (1,455)
--------- ---------- ---------- ---------- ----------
Weighted-average shares used in computing basic and
diluted net loss per common share.................... 5,246 6,583 7,223 7,019 28,934
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Basic and diluted net loss per common share............ $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Pro forma:
Net loss applicable to common stockholders............. $ (28,005) $ (35,613)
Add: Dividends on ActaMed convertible redeemable
preferred stock...................................... 2,870 890
---------- ----------
Pro forma net loss..................................... $ (25,135) $ (34,723)
---------- ----------
---------- ----------
Shares used above...................................... 7,223 28,934
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock.... 37,492 18,329
---------- ----------
Shares used in computing pro forma basic and diluted
net loss per common share (unaudited)................ 44,715 47,263
---------- ----------
---------- ----------
Pro forma basic and diluted net loss per common share
(unaudited).......................................... $ (.56) $ (.73)
---------- ----------
---------- ----------
</TABLE>
The Company has excluded all convertible redeemable preferred stock,
convertible preferred stock, warrants, outstanding stock options and shares
subject to repurchase by the Company from the calculation of diluted loss per
common share because all such securities are anti-dilutive for all periods
presented. The total numbers of shares excluded from the calculations of diluted
loss per share were 10,157,109, 36,643,084, 51,216,689, 46,893,485 and
12,687,723 for the years ended December 31, 1995, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998, respectively. See Notes 9, 10 and 11
for further information on these securities.
F-17
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE LOSS
The Company has no material components of other comprehensive loss and
accordingly the comprehensive loss is the same as net loss for all periods
presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company is required to adopt SFAS No. 131 for the year ending December 31,
1998. SFAS No. 131 requires disclosure of certain information regarding
operating segments, products and services, geographic areas of operation and
major customers. Adoption of SFAS No. 131 is expected to have no material impact
on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt SFAS No.
133 for the year ending December 31, 2000. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because the Company
currently holds no derivative financial instruments and does not currently
engage in hedging activities, adoption of SFAS No. 133 is expected to have no
material impact on the Company's financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 requires that entities capitalize certain costs
related to internal use software once certain criteria have been met. The
Company is required to implement SOP 98-1 for the year ending December 31, 1999.
Adoption of SOP 98-1 is expected to have no material impact on the Company's
financial condition or results of operations.
2. BUSINESS COMBINATIONS
ACQUISITION OF EDI SERVICES, INC.
Effective March 31, 1996, ActaMed acquired EDI Services Inc. ("EDI"), a
wholly-owned subsidiary of United HealthCare Corporation ("United HealthCare"),
in a transaction pursuant to which EDI became a wholly-owned subsidiary of
ActaMed. ActaMed issued 6,488,276 shares of Series C convertible redeemable
preferred stock with a fair value of $21,000,000 and incurred
acquisition-related costs of approximately $316,000 in connection with the
acquisition. EDI is a provider of electronic data interchange services to health
care providers and has marketed its health care network product, ProviderLink,
to providers of United HealthCare's local health plans since 1992.
In connection with the acquisition, United HealthCare and ActaMed entered
into a five-year Services and License Agreement pursuant to which the Company
earns transaction fee revenue by providing certain health care information
services to United HealthCare and its provider network and ProviderLink
subscribers.
The acquisition was accounted for as a purchase. Accordingly, the operations
of EDI were included in the Company's consolidated statements of operations only
after March 31, 1996. Assets and liabilities
F-18
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED)
acquired in connection with this acquisition were recorded at their estimated
fair market values. Approximately $359,000 of the purchase price was allocated
to certain equipment and the remaining approximately $20,957,000 of the purchase
price was allocated to intangible assets, consisting principally of software
technology rights, the Services and License Agreement, trademarks and goodwill.
Subsequent to the issuance of the financial statements for 1996 and 1997,
ActaMed changed the allocation of the purchase price associated with the
acquisition of the EDI technology to decrease the amount previously expensed as
in process research and development costs and increase the amount capitalized as
software technology rights. The financial statements for ActaMed for the year
ended December 31, 1996, have been reissued to reflect this restatement.
Intangible assets arising from the acquisition of EDI at March 31, 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD
---------------
<S> <C> <C>
Goodwill.......................................................... 3 years $ 8,012
Software technology rights........................................ 3 years 8,333
Service and License Agreement..................................... 3 years 2,855
Trademarks........................................................ 3 years 216
Other intangibles................................................. 3 years 1,541
---------
$ 20,957
---------
---------
</TABLE>
The following pro forma information gives effect to the acquisition of EDI
as if such transaction had occurred as of the beginning of each respective year
(in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net revenue........................................................... $ 6,330 $ 12,031
---------- ----------
---------- ----------
Net loss applicable to common stockholders............................ $ (11,475) $ (20,492)
---------- ----------
---------- ----------
Basic and diluted net loss per common share........................... $ (2.19) $ (3.11)
---------- ----------
---------- ----------
</TABLE>
ACQUISITION OF ACTAMED CORPORATION
On May 19, 1998, the Company completed its acquisition of ActaMed, a Georgia
corporation that develops and markets an integrated health care network, in a
transaction that has been accounted for as a pooling of interests. Accordingly,
the financial information presented reflects the combined financial position and
operations of the Company and ActaMed for all dates and periods presented. The
Company issued 23,271,355 shares of its common stock in exchange for all of the
outstanding shares of common and convertible redeemable preferred stock of
ActaMed. The Company also assumed all outstanding stock options and warrants to
acquire 3,383,011 shares of ActaMed capital stock, after giving effect to the
exchange ratio.
F-19
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED)
Separate results of the combined entities for the years ended December 31,
1995, 1996 and 1997 and the four months ended April 30, 1998 (period ended
immediately prior to the acquisition) were as follows (in thousands, unaudited):
<TABLE>
<CAPTION>
FOUR MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------------- APRIL 30,
1995 1996 1997 1998
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue:
Healtheon...................................................... $ -- $ 1,200 $ 3,199 $ 6,405
ActaMed........................................................ 2,175 9,813 10,191 6,690
--------- ---------- ---------- ------------
$ 2,175 $ 11,013 $ 13,390 $ 13,095
--------- ---------- ---------- ------------
--------- ---------- ---------- ------------
Net loss:
Healtheon...................................................... $ -- $ (8,543) $ (13,979) $ (6,664)
ActaMed........................................................ (3,734) (10,063) (14,026) (6,186)
--------- ---------- ---------- ------------
$ (3,734) $ (18,606) $ (28,005) $ (12,850)
--------- ---------- ---------- ------------
--------- ---------- ---------- ------------
</TABLE>
There were no significant intercompany transactions between the two
companies or significant conforming accounting adjustments.
ACQUISITION OF METIS, LLC
On August 25, 1998, the Company acquired Metis, LLC ("Metis"), a provider of
Internet/intranet strategic consulting, design and development of Internet-based
applications and content for the healthcare industry enabling clinical
integration and managed care process improvement. The acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible and intangible assets acquired
and the liabilities assumed on the basis of their respective fair values on the
acquisition date. Metis' results of operations have been included in the
consolidated financial statements from its date of acquisition.
The Company issued 1,600,000 shares of its common stock with a fair market
value of $8.3 million. Of these shares, 476,548 shares will be issued to
employees pursuant to restricted stock purchase agreements subject to a lapsing
right of repurchase, at the option of the Company, over the respective vesting
periods. In addition, the Company made a cash payment of approximately $.6
million, assumed liabilities of approximately $.3 million and incurred other
acquisition related expenses, consisting primarily of legal and other
professional fees, of approximately $.1 million. The total purchase price was
approximately $9.4 million. Approximately $.3 million of the purchase price was
allocated to accounts receivable and certain assets; approximately $1.4 million
of the purchase price was allocated to the assembled workforce of Metis and will
be amortized over two years; and the remaining $7.7 million of the purchase
price was allocated to goodwill and will be amortized over three years.
F-20
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
3. SERVICES AGREEMENT WITH SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
Effective December 31, 1997, the Company entered into a series of agreements
with SmithKline Beecham Clinical Laboratories, Inc. ("SmithKline") to outsource
the network connection between their customers and SmithKline laboratories. In
connection with this transaction, SmithKline and the Company entered into a
five-year Services Agreement pursuant to which the Company will earn transaction
fee revenue by providing certain health care information services to SmithKline
and its provider customers.
As part of that transaction, the Company acquired a license to SBCL SCAN
software and computer workstations that reside in various medical providers'
offices. At December 31, 1997, the SCAN license and the assets from one region
of the country were transferred to the Company for $2,000,000 in cash and
2,317,913 shares of Series D convertible redeemable preferred stock valued at
$8,500,000. In March and June 1998, the assets for the remaining regions of the
country were transferred to the Company and the Company paid the remaining
purchase price of $7,700,000 through the issuance of 763,548 shares of the
Company's Series D convertible redeemable preferred stock in March and 1,336,209
shares of the Company's common stock in June. The value of the services
agreement and the SCAN software license totaled $14,774,000, and the value of
the computer workstations totaled $3,426,000.
SmithKline determined there was substantial benefit to their existing
customers and potential marketing advantages in attracting new customers, if the
SCAN software was upgraded to a new technology platform. Accordingly, in 1998
SmithKline entered into a development agreement with the Company to upgrade the
technology. Payments to the Company are based upon achieving certain milestones
in the development effort. At September 30, 1998 the Company had not achieved
any milestones. Accordingly, no development revenue had been recognized by the
Company under this development agreement.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- --------- SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment......................................... $ 3,677 $ 6,238 $ 12,458
Office equipment, furniture and fixtures................... 1,185 1,237 2,885
Purchased software for internal use........................ 1,001 1,240 1,852
Leasehold improvements..................................... 303 328 1,604
--------- --------- -------------
6,166 9,043 18,799
Less accumulated depreciation and amortization............. (1,632) (3,543) (7,523)
--------- --------- -------------
Property and equipment, net................................ $ 4,534 $ 5,500 $ 11,276
--------- --------- -------------
--------- --------- -------------
</TABLE>
Included in property and equipment at December 31, 1996 and 1997 and
September 30, 1998 were assets acquired under capital lease obligations with a
cost of approximately $2,302,000, $3,076,000 and $5,354,000, respectively.
Accumulated depreciation related to the assets acquired under capital leases
totaled $319,000, $1,174,000 and $2,176,000 at December 31, 1996 and 1997 and
September 30, 1998, respectively.
F-21
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
AMORTIZATION ----------------------
PERIOD 1996 1997
------------ ---------- ---------- SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Services agreements...................... 3 years $ 2,855 $ 2,855 $ 2,855
Software technology rights............... 3 years 8,333 17,664 23,107
Internally developed software............ 3 years 1,001 1,292 --
Trademarks............................... 3 years 216 216 216
Goodwill................................. 3 years 8,012 8,012 15,668
Other.................................... 2-3 years 1,541 1,541 2,924
---------- ---------- -------------
21,958 31,580 44,770
Less accumulated amortization............ (5,403) (12,812) (21,029)
---------- ---------- -------------
$ 16,555 $ 18,768 $ 23,741
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
6. COMMITMENTS
The Company has entered into several lease lines of credit. Lease lines
totaling $3,500,000 and $2,000,000 were entered into during the years ended
December 31, 1996 and 1997, respectively. Approximately $2,900,000 and
$5,135,000 had been utilized under these lease lines through December 31, 1997
and September 30, 1998, respectively. At September 30, 1998, approximately
$1,266,000 was available for future utilization under these lease lines. This
amount included approximately $901,000 that was repaid under the terms of a
revolving lease line and is thus again available for future utilization. The
arrangements are secured by the property and equipment subject to the leases.
The term of the leases is generally three years and the interest rates implicit
in the leases range from 16.9% to 20.2% per annum. Information on payments due
under these lease lines is included in the table below under "Capital Leases."
The Company leases its headquarters and other office facilities under
operating lease agreements that expire at various dates through 2008. Total rent
expense for all operating leases was approximately $391,000, $953,000,
$1,646,000, $1,165,000 and $1,616,000 for the years ended December 31, 1995,
1996 and 1997 and the nine months ended September 30, 1997 and 1998,
respectively, net of sublease income from a related party of approximately
$30,000, $68,000, $58,000, $42,000 and $43,000, respectively. Future
F-22
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
6. COMMITMENTS (CONTINUED)
minimum lease commitments under noncancellable lease agreements at December 31,
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- ---------------
<S> <C> <C>
Year ending December 31,
1998...................................................... $ 2,444 $ 1,167
1999...................................................... 2,423 858
2000...................................................... 2,077 164
2001...................................................... 1,506 --
2002...................................................... 963 --
Thereafter................................................ 4,978 --
------- ------
Total minimum lease payments................................ $ 14,391 2,189
-------
-------
Amount representing interest................................ (219)
------
Present value of minimum lease payments under capital lease
obligations............................................... 1,970
Less current portion........................................ (1,038)
------
Non-current portion......................................... $ 932
------
------
</TABLE>
7. BRIDGE LOANS AND NOTE RECEIVABLE FROM OFFICER
In 1997, the Company borrowed $2,000,000 from certain stockholders in the
form of 6% convertible promissory notes (the "Notes") in contemplation of the
Series C convertible preferred stock offering. The Notes were converted into
800,000 shares of Series C convertible preferred stock upon the closing of that
offering. Warrants to purchase 61,947 shares of Series B convertible preferred
stock were issued in connection with the Notes (see Note 10).
In July 1997, in consideration of 250,000 shares of the Company's Series B
convertible preferred stock issued to an officer, the Company received a
one-year, full-recourse, noninterest-bearing promissory note for $500,000. At
December 31, 1997, $349,000 remained outstanding under the note. At September
30, 1998, the note had been paid in full.
In February 1998, the Company entered into a $2,000,000 line of credit
agreement with a stockholder. The Company borrowed $1,000,000 under the
agreement, which was repaid with interest at 10% per annum in May 1998.
8. LINES OF CREDIT
In September 1997, the Company entered into a line of credit agreement with
a bank that allows the Company to borrow up to $2,101,000. Amounts borrowed
under this agreement bear interest at the bank's prime rate (8.5% at December
31, 1997 and September 30, 1998). Interest is payable monthly with payments
commencing on September 30, 1997. The line of credit availability declines over
the term to $1,821,000, $1,215,000 and $547,000 at December 31, 1997, 1998 and
1999, respectively, and expires on
F-23
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
8. LINES OF CREDIT (CONTINUED)
September 5, 2000. The amount outstanding is collateralized by certain assets.
At December 31, 1997 and September 30, 1998, $1,415,000 was outstanding under
the agreement.
In December 1997, the Company entered into a loan agreement with a bank that
allowed the Company to borrow up to $2,250,000. Amounts borrowed under this loan
agreement bear interest at the bank's prime rate (8.5% at December 31, 1997 and
September 30, 1998). The loan was personally guaranteed by one of the Company's
stockholders until the acquisition of ActaMed in May 1998. In May 1998,
concurrent with the removal of the stockholder guarantee, the interest rate was
increased to the bank's prime rate plus 1.5%. Interest is payable monthly with
payments commencing on January 31, 1998. At December 31, 1997, $2,000,000 was
outstanding under the loan agreement. The principal balance of the loan was
repaid in full in August 1998.
9. CONVERTIBLE REDEEMABLE PREFERRED STOCK
A summary of ActaMed's 8% cumulative convertible redeemable preferred stock
is as follows.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1997
--------------------------- ---------------------------
ISSUED ISSUED
SHARES AND LIQUIDATION AND LIQUIDATION
AUTHORIZED OUTSTANDING PREFERENCE OUTSTANDING PREFERENCE
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Series A............. 5,519,912 5,519,912 $ 9,825,000 5,519,912 $ 10,458,000
Series B............. 2,162,759 2,162,759 7,614,000 2,162,759 8,171,000
Series C............. 6,488,276 6,488,276 22,257,000 6,488,276 23,936,000
Series D............. 2,317,913 -- -- 2,317,913 8,500,000
------------ ------------ ------------- ------------ -------------
16,488,860 14,170,947 $ 39,696,000 16,488,860 $ 51,065,000
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
</TABLE>
In March 1998, an additional 763,548 shares of Series D convertible
redeemable preferred stock were issued in connection with the asset acquisition
from SmithKline Labs (see Note 3).
Dividends on each Series were cumulative whether or not declared and are
shown as a charge against income in the accompanying financial statements. On
May 19, 1998, in connection with the acquisition of ActaMed by Healtheon, the
convertible redeemable preferred stockholders waived payment of all accrued and
unpaid dividends.
Preferred holders voted generally on an as-if converted basis. In addition,
a majority approval of the four Series was required to approve certain
transactions.
The Series A, B, C and D cumulative convertible redeemable preferred
stockholders were entitled to receive, upon liquidation, an amount per share
equal to the issuance price, plus all accrued but unpaid dividends. Common
stockholders would then have received $5,000,000. Any remaining proceeds would
then have been distributed pro rata to the stockholders, subject only to the
Series A holders' right to receive sufficient funds to provide a 20% return on
their original investment.
Each Series was redeemable at up to one-third of the originally issued
shares per year commencing in years six, seven and eight after the issue date at
a redemption price equal to the issue price plus all accrued
F-24
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
9. CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED)
but unpaid dividends. On May 19, 1998, all outstanding shares of convertible
redeemable preferred stock were converted into 17,252,408 shares of common stock
in connection with the acquisition of ActaMed by the Company.
10. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company was authorized to issue 48,020,000 shares of convertible
preferred stock, designated in series. A summary of convertible preferred stock
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1997
--------------------------- ---------------------------
ISSUED ISSUED
SHARES AND LIQUIDATION AND LIQUIDATION
DESIGNATED OUTSTANDING PREFERENCE OUTSTANDING PREFERENCE
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Series A............. 10,305,000 10,285,000 $ 5,143,000 10,305,000 $ 5,153,000
Series B............. 6,105,000 3,000,000 6,000,000 3,290,000 6,580,000
Series C............. 2,600,000 -- -- 2,600,000 6,500,000
Series D............. 5,000,000 -- -- 4,807,692 25,000,000
------------ ------------ ------------- ------------ -------------
24,010,000 13,285,000 $ 11,143,000 21,002,692 $ 43,233,000
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
</TABLE>
Series A and Series B convertible preferred shares included 20,000 and
25,000 shares, respectively, that were issued for services rendered.
On May 19, 1998, all outstanding shares of convertible preferred stock were
converted into shares of common stock on a one-for-one basis at the election of
the holders in connection with the Company's acquisition of ActaMed.
Concurrently with the conversion, all outstanding warrants to purchase Series B
preferred stock were converted into warrants to purchase the same number of
shares of the Company's common stock.
Series A, B, C and D convertible preferred stockholders were entitled to
noncumulative dividends of $0.03375, $0.135, $0.16875 and $0.351, respectively,
per share per annum. No dividends were declared through the date of conversion.
The Series A, B, C and D convertible preferred stockholders were entitled to
receive, upon liquidation, an amount per share equal to the issuance price, plus
all declared but unpaid dividends. The Series A, B, C and D convertible
preferred stockholders had voting rights equal to the common shares issuable
upon conversion.
PREFERRED STOCK
In July 1998, the Board of Directors approved a resolution authorizing the
Company to issue up to 5,000,000 shares of preferred stock, to be effective upon
the effective date of an initial public offering by the Company.
F-25
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In November 1996, the Company issued a warrant to a venture capital investor
to purchase 1,000,000 shares of Series B convertible preferred stock at an
exercise price of $2.00 per share for services rendered by the investor on
behalf of the Company. A then partner of the venture capital firm assumed the
role of President and Chief Executive Officer for the Company from the Company's
inception through June 1997. The warrant was immediately exercisable and expires
three years from the date of issuance. The Company recorded a charge of $500,000
representing the fair value of the warrant issued and services received based on
a valuation obtained by the Company from an independent appraiser utilizing a
modified Black-Scholes option pricing model. This warrant was outstanding at
December 31, 1997 and in May 1998 was converted to a warrant to purchase common
stock. It remained outstanding at September 30, 1998.
In November 1996, the Company granted a warrant to a director of the Company
to purchase 1,000,000 shares of Series B convertible preferred stock at an
exercise price of $2.00 per share, the fair value of Series B convertible
preferred stock at the date of issuance. The warrant vests over a period of 18
months from the date of issuance. The term of the warrant is three years. This
warrant was outstanding at December 31, 1997 and was exercised in full in May
1998.
In December 1996, the Company issued a warrant to a customer to purchase
282,522 shares of the Company's common stock at a price of $7.97 per share. The
warrant expires in December 2001. This warrant was outstanding at September 30,
1998.
In July 1997, the Company issued a warrant to an officer of the Company, in
connection with his employment, to purchase 750,000 shares of Series B
convertible preferred stock at an exercise price of $2.00 per share, the fair
value of Series B convertible preferred stock at the date of issuance. The
warrant expires three years from issuance, and shares purchased under the
warrant are subject to repurchase by the Company, at the Company's option, upon
termination of employment. Shares under the warrant vest ratably over a period
of two years from the date of grant. This warrant was outstanding at December
31, 1997 and in May 1998 was converted to a warrant to purchase common stock. It
remained outstanding at September 30, 1998.
In July 1997, the Company issued warrants to purchase a total of 61,947
shares of Series B convertible preferred stock to certain investors in
connection with a bridge financing. The warrants expire four years from issuance
and are exercisable at $2.00 per share. The value of these warrants,
approximately $64,000, was expensed as a cost of financing. All of these
warrants were outstanding at December 31, 1997. In May 1998, warrants to
purchase 17,229 shares of Series B convertible preferred stock were exercised
and the remainder of the warrants, which were outstanding at September 30, 1998,
were converted to warrants to purchase 44,718 shares of common stock.
At December 31, 1997 the Company had reserved 2,811,947 and 282,522 shares
of its Series B preferred stock and common stock, respectively, for issuance
upon exercise of outstanding warrants. In conjunction with the acquisition of
ActaMed in May 1998, all outstanding warrants to purchase Series B preferred
stock were converted into warrants to purchase common stock. At September 30,
1998, the Company had reserved 2,077,240 shares of its common stock for issuance
upon exercise of the outstanding warrants for common stock.
F-26
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
In December 1998, as part of a service agreement with a customer, the
Company issued to the customer a warrant to purchase 500,000 shares of the
Company's common stock with an exercise price of $10.40 per share. (See Note
14).
11. STOCK-BASED COMPENSATION
STOCK OPTION PLANS
Under the 1996 Stock Plan (the "1996 Plan"), which was adopted in February
1996, the Board of Directors may grant options to purchase common stock or issue
common stock subject to a restricted stock purchase agreement to eligible
participants. At December 31, 1997, a total of 9,000,000 shares had been
reserved under the Plan. In March 1998, the Board of Directors and the
stockholders approved an increase in the reserve of 1,000,000 shares; in July
1998, the Board of Directors approved, subject to stockholder approval, an
additional increase in the reserve of 5,000,000 shares to a total of 15,000,000
shares reserved. Options granted may be either incentive stock options or
nonstatutory stock options and are exercisable within the times or upon the
events determined by the Board of Directors as specified in each option
agreement. Options vest over a period of time as determined by the Board of
Directors, generally four years. The term of the 1996 Plan is ten years. At
December 31, 1997 and September 30, 1998, 274,166 and 1,715,853 shares,
respectively, remained available for future grant under the 1996 Plan.
In connection with the acquisition of ActaMed, the Company assumed all the
outstanding options issued under the ActaMed stock option plans, after the
application of the exchange ratio, and reserved 3,100,489 shares of the
Company's common stock for issuance upon exercise of the assumed options. No
further options can be granted under these plans. At the time of the
acquisition, options for 2,717,269 shares were fully vested. The remainder of
the shares vest based upon annual cliffs over a five-year period from the date
of grant.
During the years ended December 31, 1996 and 1997 and the nine-month period
ended September 30, 1998, the Company issued approximately 1,806,000, 850,000
and 530,000 shares, respectively, of common stock subject to restricted stock
purchase agreements to employees for cash. The common stock is subject to
repurchase at the original exercise price until vested, at the option of the
Company, and approximately 614,000 shares were repurchased from terminated
employees during the year ended December 31, 1997. The shares vest over a period
of time as determined by the Board of Directors for each individual purchase
agreement, generally four years. At December 31, 1996 and 1997 and September 30,
1998, approximately 1,660,000, 1,430,000 and 1,501,000 shares, respectively,
were subject to repurchase.
F-27
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
11. STOCK-BASED COMPENSATION (CONTINUED)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE PER
SHARES SHARE
----------------- -------------------
<S> <C> <C>
ACTAMED CORPORATION
Outstanding at January 1, 1995.............................................. 4,223,214 $ .34
Granted................................................................... 856,000 .91
Exercised................................................................. (1,071,250) .02
Canceled.................................................................. (62,750) .83
-----------------
Options outstanding at December 31, 1995.................................... 3,945,214 $ .55
-----------------
-----------------
HEALTHEON CORPORATION
Options outstanding at December 31, 1995 (reflecting the exchange ratio of
.6272).................................................................... 2,474,438 $ .88
Granted................................................................... 3,004,384 .54
Exercised................................................................. (300) .05
Canceled.................................................................. (233,907) .78
-----------------
Options outstanding at December 31, 1996.................................... 5,244,615 .68
Granted................................................................... 5,394,008 .73
Exercised................................................................. (547,844) .16
Canceled.................................................................. (890,528) .49
-----------------
Options outstanding at December 31, 1997.................................... 9,200,251 .72
Granted (unaudited)....................................................... 4,756,006 4.47
Exercised (unaudited)..................................................... (2,247,606) .59
Canceled (unaudited)...................................................... (522,178) 1.01
-----------------
Options outstanding at September 30, 1998 (unaudited)....................... 11,186,473 $ 2.33
-----------------
-----------------
</TABLE>
<TABLE>
<CAPTION>
ACTAMED
CORPORATION HEALTHEON CORPORATION
--------------- ---------------------------------------
NINE MONTHS
YEAR ENDED YEARS ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
--------------- -------------------- -----------------
1995 1996 1997 1998
--------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Weighted-average fair value of options granted...................... $ .28 $ .15 $ .18 $ .75
--- --- --- ---
--- --- --- ---
</TABLE>
F-28
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
11. STOCK-BASED COMPENSATION (CONTINUED)
The following table summarizes information regarding options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING WEIGHTED-
WEIGHTED- CONTRACTUAL AVERAGE
AVERAGE LIFE NUMBER EXERCISE
EXERCISE PRICES NUMBER OUTSTANDING EXERCISE PRICE (IN YEARS) EXERCISABLE PRICE
- --------------------------------------- ------------------- --------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ .03 - $.08.......................... 2,490,007 $ .05 6.98 1,679,870 $ .04
$ .20 - $.25.......................... 3,693,879 .24 9.53 682,500 .20
$1.00 - $1.45.......................... 2,092,187 1.24 9.69 794,213 1.45
$3.24.................................. 924,178 3.24 7.94 76,644 3.24
---------- ----------
9,200,251 $ .72 8.63 3,233,227 $ .50
---------- ----------
---------- ----------
</TABLE>
The Company recorded deferred stock compensation of approximately $2,713,000
and $2,402,000 during the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively. These amounts represented the difference
between the exercise price and the deemed fair value of the Company's common
stock on the date such stock options were granted. The Company recorded
amortization of deferred stock compensation of approximately $562,000 and
$1,802,000, respectively, during these periods based on a graded vesting method.
At September 30, 1998, the Company had a total of approximately $2,751,000
remaining to be amortized on a graded vesting method over the corresponding
vesting period of each respective option, generally four years.
PRO FORMA INFORMATION
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, no compensation expense is recognized when the
exercise price of stock options granted to the Company's employees equals the
market price of the underlying stock on the date of grant.
Pro forma information regarding net loss is required by SFAS No. 123 and has
been determined as if employee stock options granted subsequent to December 31,
1994 were accounted for under the fair value method of SFAS No. 123. The fair
value for these options was estimated at the date of grant using the minimum
value method with the following weighted-average assumptions for the years ended
December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1998:
risk-free interest rate
F-29
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
11. STOCK-BASED COMPENSATION (CONTINUED)
of approximately 6.2%, 6.0%, 6.0% and 5.4%, respectively; a weighted-average
expected life of the option of 5.0 years, 4.3 years, 4.2 years and 3.5 years,
respectively; and a dividend yield of zero for all periods.
<TABLE>
<CAPTION>
HEALTHEON CORPORATION
ACTAMED ------------------------------------
CORPORATION
------------ YEARS ENDED NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ---------------------- SEPTEMBER 30
1995 1996 1997 1998
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net loss applicable to common stockholders (in thousands):
As reported................................................ $ (4,458) $ (18,606) $ (28,005) $ (35,613)
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Pro forma.................................................. $ (4,488) $ (18,695) $ (28,173) $ (36,645)
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Basic and diluted net loss per common share:
As reported................................................ $ (.85) $ (2.83) $ (3.88) $ (1.23)
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Pro forma.................................................. $ (.86) $ (2.84) $ (3.90) $ (1.27)
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
In September 1998, the Board of Directors approved and in October 1998, the
stockholders also approved the adoption of the Company's 1998 Employee Stock
Purchase Plan (the "1998 Purchase Plan"), to be effective on the effective date
of an initial public offering by the Company. A total of 1,000,000 shares of
common stock has been reserved for issuance under the 1998 Purchase Plan, plus
annual increases equal to the lesser of 500,000 shares, 0.5% of the outstanding
common shares on such date or a lesser amount determined by the Board of
Directors.
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-30
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
12. INCOME TAXES (CONTINUED)
purposes. Significant components of the Company's deferred tax assets
(liabilities) were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................................... $ 7,537 $ 14,263
Intangible assets...................................................... 1,580 3,688
Research and development tax credit.................................... 561 1,014
Reserves and accruals not currently deductible......................... 227 308
--------- ---------
Total deferred tax assets................................................ 9,905 19,273
Valuation allowance...................................................... (9,545) (18,931)
--------- ---------
Net deferred tax assets.................................................. 360 342
--------- ---------
Deferred tax liabilities
Depreciation........................................................... (31) (45)
Capitalized software development costs................................. (329) (297)
--------- ---------
Total deferred tax liabilities........................................... (360) (342)
--------- ---------
Net deferred tax assets and liabilities.................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
A valuation allowance equal to 100% of the net deferred tax assets has been
established because of the uncertainty of realization of the deferred tax assets
due to the Company's lack of earnings history. The valuation allowance for
deferred tax assets increased by $6,580,000 and $9,386,000 during the years
ended December 31, 1996 and 1997, respectively.
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $37,575,000, which expire in 2009
through 2012, and federal tax credits of approximately $800,000, which expire in
2009 through 2012.
Approximately $16,675,000 of the net operating loss at December 31, 1997
related to a consolidated subsidiary. This loss carryforward is only available
to offset future taxable income of that subsidiary.
Because of the "change of ownership" provisions of the Internal Revenue
Code, a portion of the Company's net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods. A portion of these carryforwards may
expire before becoming available to reduce future income tax liabilities.
13. RELATED PARTY TRANSACTIONS
The Company has two customers that are significant stockholders of the
Company.
The Company entered into a Development Agreement with a partnership
controlled by the former Chairman of the Board of Directors of ActaMed. Pursuant
to this agreement, the Company granted the partnership exclusive licenses to use
ActaMed's technology for industries other than the health care industry. Under
the agreement, the Company will receive a commercial royalty on the
partnership's gross
F-31
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
receipts. If the Company desires in the future to expand to other industries,
the partnership must either develop that industry in a defined time period or
rights to that industry revert to the Company. The agreement expires December 3,
1998 and to date no fees have been paid to the Company thereunder.
The Company shares office space and provides administrative support and
network resources to a company controlled by a member of the Board of Directors.
Amounts reimbursed for the shared facilities and administrative support totaled
approximately $62,000, $58,000, $46,000, $36,000 and $51,000 for the years ended
December 31, 1995, 1996, and 1997 and the nine months ended September 30, 1997
and 1998, respectively. Approximately $211,000, $187,000, $78,000 and $41,000
was reimbursed during the years ended December 31, 1995, 1996 and 1997 and the
nine months ended September 30, 1997, respectively, for the use of the network
maintained by the Company. No income for the use of the network by the related
party was recognized for the nine months ended September 30, 1998. All such
amounts are included as an offset to general and administrative expenses in the
accompanying consolidated statements of operations. Amounts due from the related
party of $33,000 and $72,000 at December 31, 1996 and 1997, respectively, were
included in other current assets in the accompanying consolidated balance
sheets. There were no amounts due from the related party at September 30, 1998.
14. SUBSEQUENT EVENTS (UNAUDITED)
From October through December 1998, the Company granted to employees options
to purchase common stock and issued shares of common stock pursuant to
restricted stock purchase agreements equal to a total of 1,518,257 shares of
common stock at an exercise or purchase price of $3.55 per share.
In October 1998, the Company offered its employees who were granted options
between July 1998 through October 1998 the ability to cancel their original
option grant in exchange for a new option agreement with a new vesting start
date and option price of $3.55 per share. A total of 3,380,200 option shares
with exercise prices of $4.50, $6.30, $7.00 and $8.00 were eligible to be
repriced. A total of 2,067,950 option shares were cancelled and reissued. In
addition, on December 14, 1998, 455,000 shares of common stock issued in July
1998 pursuant to restricted stock purchase agreements with purchase prices of
$4.55 to $7.00 per share were rescinded. The Company anticipates that it may
record additional deferred compensation as a result of this repricing.
In December 1998, the Company issued to a customer a warrant to purchase
500,000 shares of the Company's common stock at an exercise price of $10.40 per
share.
In October 1998, the Board of Directors authorized 8,285,007 shares of
convertible preferred stock and designated all of these shares as Series A. In
November 1998, the Company issued 7,683,341 shares of Series A convertible
preferred stock for $46,100,000 of cash proceeds. The Series A convertible
preferred stockholders are entitled to non-cumulative dividends of $.405 per
share per annum, and liquidation rights per share equal to the issuance price
plus all declared but unpaid dividends. The Series A preferred stock has voting
rights equal to the common stock issuable upon conversion.
Also in October 1998, the Board of Directors approved an increase in the
number of shares of common stock authorized for issuance to 150,000,000 shares.
F-32
<PAGE>
HEALTHEON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
In December 1998, Healtheon and SmithKline Labs entered into an asset
purchase agreement. The agreement provides that Healtheon will purchase certain
assets currently used by SmithKline Labs to provide laboratory results delivery
services in exchange for $2.0 million in cash and shares of Healtheon's common
stock having a value of $11.0 million. The asset purchase agreement calls for
Healtheon and SmithKline Labs to enter a related services agreement under which
Healtheon will provide certain electronic laboratory results delivery services
to approximately 20,000 provider sites, in addition to the sites currently
served through the SCAN service. The asset purchase agreement is subject to
execution of the related service agreement and approval by the Company's Board
of Directors.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of United HealthCare Corporation:
We have audited the accompanying statements of divisional net loss and
United HealthCare Corporation's ("United's") net investment and of divisional
cash flows for the year ended December 31, 1995 of EDI Services Group ("EDI") (a
Division of United.) These statements of divisional net loss and United's net
investment and of divisional cash flows are the responsibility of United's
management. Our responsibility is to express an opinion on these statements of
divisional net loss and United's net investment and of divisional cash flows
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of divisional net loss and
United's net investment and of divisional cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of divisional net loss and
United's net investment and of divisional cash flows. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statements of divisional net loss
and United's net investment and of divisional cash flows presentation. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying statements of divisional net loss and United's net
investment and of divisional cash flows reflect a component of a business
enterprise that was derived from a consolidated group of companies rather than a
complete legal entity. See Note 1 to the statements of divisional net loss and
United's net investment and of divisional cash flows for a description of the
basis of presentation.
In our opinion, the statements of divisional net loss and United's net
investment and of divisional cash flows present fairly, in all material
respects, the results of its divisional net loss and United's net investment and
of divisional cash flows for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 4, 1996
F-34
<PAGE>
EDI SERVICES GROUP
(A DIVISION OF UNITED HEALTHCARE CORPORATION)
STATEMENT OF DIVISIONAL NET LOSS AND UNITED'S NET INVESTMENT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Revenue:
Related-party processing revenue.............................................. $2,900,448
Related-party site revenue.................................................... 1,155,300
Other processing revenue...................................................... 100,013
---------
Total revenue............................................................. 4,155,761
Operating costs and expenses:
Cost of revenues.............................................................. 1,646,039
Sales and marketing........................................................... 302,145
Research and development...................................................... 1,604,897
General and administrative.................................................... 642,980
---------
Total operating costs and expenses........................................ 4,196,061
---------
Loss before income taxes........................................................ (40,300)
Income taxes.................................................................... 48,177
---------
Net loss.................................................................. (88,477)
United's net investment--Beginning of period.................................... 124,393
Net cash flows to EDI division.................................................. 417,213
---------
United's net investment--end of period.......................................... $ 453,129
---------
---------
</TABLE>
See notes to financial statements.
F-35
<PAGE>
EDI SERVICES GROUP
(A DIVISION OF UNITED HEALTHCARE CORPORATION)
STATEMENT OF DIVISIONAL CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Operating activities:
Net loss....................................................................... $ (88,477)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................ 285,613
Increase in deferred income taxes............................................ 48,177
Changes in assets and liabilities:
Accounts receivable........................................................ (13,347)
Accounts payable........................................................... (58,612)
Accrued expenses........................................................... (46,083)
---------
Net cash provided by operating activities................................ 127,271
---------
Investing activities:
Purchase of property........................................................... (190,375)
Software development costs..................................................... (354,109)
---------
Net cash used in investing activities.................................... (544,484)
---------
Net cash flows of division which were provided by United......................... $(417,213)
---------
---------
</TABLE>
See notes to financial statements.
F-36
<PAGE>
EDI SERVICES GROUP
(A DIVISION OF UNITED HEALTHCARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS--EDI Services Group ("EDI") is an operating division of
United HealthCare Corporation ("United"). EDI was established to develop and
market software to control a network that facilitates the exchange of health
care information among managed care organizations, insurance carriers,
hospitals, physicians, and other health care industry participants. On December
15, 1995, United transferred EDI and its ProviderLink operations to a holding
company, UHC Green Acquisition Inc. ("UHC Green") (a wholly owned subsidiary of
United).
BASIS OF PRESENTATION--The accompanying statements of divisional net loss
and United's net investment and divisional cash flows have been prepared from
the books and records maintained by EDI and United. The statement of divisional
net loss may not necessarily be indicative of the results of operations that
would have been obtained if EDI had been operated as an independent entity. The
statement of divisional net loss includes allocation of certain expenses that
are material in amount. Such expenses are allocations for corporate services and
overhead.
Intercompany revenue results from network services provided to health plans
owned or managed by United.
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and liabilities in the
normal course of business. As shown in the financial statements, during the year
ended December 31, 1995, EDI incurred a net loss of approximately $88,000 and a
cash flow deficit of approximately $417,000.
As discussed in Note 5, EDI was acquired by ActaMed Corporation ("ActaMed")
effective March 31, 1996. EDI's continued existence is dependent on funding of
its cash flow deficit by ActaMed and on its relationship and service agreement
with United. The service agreement states that the combined entities will be the
primary provider of electronic data interchange services for United for a period
of five years.
The nature of EDI's operations exposes EDI to certain business risks. Such
business risks include EDI's concentration of sales transactions with United,
which accounted for 98% of EDI's 1995 revenues (see Note 4). The market for
health care information services is highly competitive and subject to rapid
technological change, evolving industry standards, and regulatory developments
and influences that may affect both the operations of EDI and its customers. In
addition, significant demands may be placed on EDI's management as a result of
EDI's merger with ActaMed (see Note 5). Other significant business risks faced
by EDI include a dependence on key employees and the risk of liability
associated with unforeseen software product errors.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES--United provides for income taxes under the provisions of SFAS
No. 109, "Accounting for Income Taxes," which requires deferred income tax
balances to be computed annually for differences between financial statement and
tax bases of assets and liabilities based on enacted tax rates. An income tax
provision has been allocated to EDI as if EDI filed on a separate return basis;
however, under the
F-37
<PAGE>
EDI SERVICES GROUP
(A DIVISION OF UNITED HEALTHCARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income tax allocation agreement policy with United, no benefit is allocated for
losses incurred which are utilized in the consolidated income tax return (see
Note 2).
UNITED'S NET INVESTMENT--United's net investment, as shown in the
accompanying statement of divisional net loss and United's net investment,
represents losses incurred by EDI since inception and the intercompany account
with United that consists of transactions with United and the net cash flows of
EDI, which have been funded by United.
REVENUE RECOGNITION--EDI earns revenue from providing access to its network
services, including fixed fee and transaction-based services. EDI recognizes
revenue from network services over the period the services are provided.
2. INCOME TAXES
Components of income tax expense for the year ended December 31, 1995 were:
<TABLE>
<S> <C>
Deferred:
State............................................................................ $ 11,666
Federal.......................................................................... 36,511
---------
$ 48,177
---------
---------
</TABLE>
Differences between the provision for income taxes at the federal statutory
rate and the recorded provision for the year ended December 31, 1995 are
summarized as follows:
<TABLE>
<S> <C>
Benefit at statutory rate......................................................... $ (13,610)
State income taxes................................................................ (2,590)
Net operating loss carryforward for which no benefit could be recognized under
United's tax allocation policy.................................................. 60,368
Other............................................................................. 4,009
---------
$ 48,177
---------
---------
</TABLE>
As of December 31, 1995, EDI had no federal and state tax loss
carryforwards. Under a tax sharing agreement, tax loss carryforwards are not
available to EDI because United has already realized these tax benefits in its
prior years, consolidated federal and state returns.
3. EMPLOYEE STOCK OWNERSHIP PLAN
EDI employees participate in United's unleveraged Employee Stock Ownership
Plan ("ESOP") maintained for the benefit of all eligible employees. United
contributions are made at the discretion of the Board of Directors.
Contributions totaling $3,700 for the year ended December 31, 1995, have been
made to the ESOP for EDI employees.
F-38
<PAGE>
EDI SERVICES GROUP
(A DIVISION OF UNITED HEALTHCARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
4. RELATED PARTIES
Revenue from processing transactions and site licensing for United and its
affiliates comprises approximately 98% of total revenue for the year ended
December 31, 1995, and was approximately $4,056,000 for the year then ended.
EDI utilizes various common corporate systems and support maintained by
United. The related costs are charged to EDI based on specific allocation
methods, if applicable, and are based on employee headcount. These functions
include human resources, accounting, legal, other processing and administrative
services, and building rent. The total amounts allocated to EDI were
approximately $438,000 for the year ended December 31, 1995. United's management
believes that these allocations are reasonable; however, these allocations would
not necessarily represent the amounts that would have been incurred on a
separate company basis.
5. SUBSEQUENT EVENTS
On March 1, 1996, United and UHC Green (renamed "EDI Services, Inc.")
entered into an agreement with ActaMed and EDI Acquisition, Inc. (a
subcorporation of ActaMed). This agreement allows for the acquisition of EDI
Services, Inc. by ActaMed pursuant to the merger of EDI Acquisition, Inc. with
and into EDI Services, Inc. effective March 31, 1996. The outstanding shares of
capital stock of EDI Services, Inc. were converted into 10,344,828 shares of
ActaMed's Series C convertible redeemable preferred stock.
F-39
<PAGE>
[LOGO]
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
SHARES
[LOGO]
COMMON STOCK
-----------------
HEALTHEON CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR
SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $ AND $ PER SHARE.
-------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "HLTH."
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------------
PRICE $ A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
--------- ------------- -----------
<S> <C> <C> <C>
PER SHARE.................................................................. $ $ $
TOTAL...................................................................... $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HEALTHEON HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999.
-------------------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS INTERNATIONAL
HAMBRECHT & QUIST VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
------------
<S> <C>
Securities and Exchange Commission registration fee............................. $ 9,730
NASD filing fee................................................................. 4,000
Nasdaq National Market listing fee.............................................. 95,000
Printing and engraving expenses................................................. 500,000
Professional fees and expenses.................................................. 1,550,000
Blue Sky fees and expenses...................................................... 5,000
Transfer agent fees............................................................. 5,000
Miscellaneous................................................................... 31,270
------------
Total......................................................................... $ 2,200,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article V of the Registrant's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers and directors (and allows the Registrant to indemnify other employees
and third parties) acting on behalf of the Registrant if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to the
best interest of the Registrant, and, with respect to any criminal action or
proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.
The Registrant intends to enter into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Registrant intends to obtain directors' and officers' insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
Reference is also made to Section 7 of the Underwriting Agreement to be
filed as Exhibit 1.1 to the Registration Statement for information concerning
the Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) From its founding in December 1995, through August 31, 1998, the
Registrant has issued and sold the following unregistered securities:
(1) Between January 26 and August 15, 1996, the Registrant sold an
aggregate of 10,285,000 shares of Series A preferred stock to 22 investors
at a purchase price of $.50 per share, which was paid in cash.
II-1
<PAGE>
(2) On January 26, 1996, the Registrant sold 1,000,000 shares of common
stock to four investors at a purchase price of $.05 per share, which was
paid in cash.
(3) On July 8, 1996, the Registrant sold 10,000 shares of Series A
preferred stock valued at $5,000 to a consulting firm for services rendered.
(4) Between October 1 and November 27, 1996, the Registrant sold an
aggregate of 3,000,000 shares of Series B preferred stock to five investors
at a purchase price of $2.00 per share, which was paid in cash.
(5) On November 1, 1996, the Registrant issued warrants to purchase (i)
1,000,000 shares of Series B preferred stock with an exercise price of $2.00
per share to KPCB VII Associates, L.P., in consideration of services
rendered by David Schnell as President and Chief Executive Officer with a
value of $504,900 and (ii) 1,000,000 shares of Series B preferred stock with
an exercise price of $2.00 per share to Clark Ventures as an incentive for
James H. Clark to continue to provide services.
(6) On July 1, 1997, the Registrant issued warrants to purchase a total
of 61,947 shares of Series B preferred stock with an exercise price of $2.00
per share to five investors pursuant to a bridge loan financing.
(7) Between July 1 and July 27, 1997, the Registrant sold an aggregate
of 2,600,000 shares of Series C preferred stock to nine investors at a
purchase price of $2.50 per share, in consideration of cash and cancellation
of indebtedness incurred in connection with a bridge loan financing.
(8) Between July 7 and July 16, 1997, the Registrant sold 25,000 shares
of Series B preferred stock to the same consulting firm referred to in (3)
above at a purchase price of $2.00 per share for services rendered.
(9) On July 11, 1997, the Registrant sold 10,000 shares of Series A
preferred stock valued at $5,000 to the same consulting firm referred to in
(3) above for services rendered.
(10) On July 11, 1997, the Registrant sold 250,000 shares of Series B
preferred stock to W. Michael Long at a purchase price of $2.00 per share,
paid with an amount of cash equal to the par value of the purchased shares
and with a promissory note that has subsequently been paid in full for the
remainder.
(11) On July 11, 1997, the Registrant issued a warrant to purchase
750,000 shares of Series B preferred stock with an exercise price of $2.00
per share to W. Michael Long as an incentive to continue to provide
services.
(12) On July 22, 1997, the Registrant sold 15,000 shares of Series B
preferred stock to Hugh Reinhuff, a former Director, at a purchase price of
$2.00 per share, which was paid in cash.
(13) Between October 17 and December 19, 1997, the Registrant sold an
aggregate of 4,807,692 shares of Series D preferred stock to 13 investors at
a purchase price of $5.20 per share, which was paid in cash.
(14) On May 1, 1998, the Registrant issued 1,000,000 shares of Series B
preferred stock to Clark Ventures and 17,229 shares of Series B preferred
stock to James H. Clark upon the exercise of warrants with exercise prices
of $2.00 per share which were paid in cash.
(15) On May 19, 1998, in connection with the acquisition of ActaMed
Corporation, 22,019,921 shares of the Registrant's preferred stock were
converted into common stock on a one-for-one basis and warrants to purchase
1,794,718 shares of the Registrant's preferred stock were exchanged for
warrants to purchase an equal number of shares of common stock.
II-2
<PAGE>
(16) On May 19, 1998, in connection with the ActaMed acquisition, the
Registrant assumed options to purchase ActaMed common stock which were held
by former ActaMed employees which are now exercisable for an aggregate of
3,100,489 shares of Registrant's common stock.
(17) On May 19, 1998, the Registrant issued 23,271,355 shares of its
common stock to former shareholders of ActaMed in connection with the
acquisition of ActaMed Corporation ("ActaMed") in exchange for all of the
issued and outstanding shares of capital stock of ActaMed.
(18) On May 19, 1998, in connection with the acquisition of ActaMed, the
Registrant assumed a warrant held by IBM to purchase shares of ActaMed
capital stock which is now exercisable for an aggregate of 282,522 shares of
Healtheon common stock with an exercise price of $7.97 per share.
(19) On June 26, 1998, the Registrant sold 1,336,209 shares of common
stock valued at $3.67 to SmithKline Labs in consideration for certain assets
and licenses relating to SmithKline Labs.
(20) Since January 1996, the Registrant has granted options to purchase
15,995,609 shares of Registrant's common stock to employees pursuant to the
Company's 1996 Stock Plan.
(21) From July 6, 1996 through December 31, 1998, the Company issued an
aggregate of 6,108,770 shares of common stock as the result of exercises of
options or stock purchase rights for aggregate consideration, in the form of
cash and a promissory note, of approximately $4.1 million.
(22) On August 25, 1998, the Registrant issued 1,600,000 shares of
common stock valued at $12.8 million to Metis, LLC in connection with
acquisition of certain assets of Metis, LLC of which 476,548 shares will be
issued to employees pursuant to restricted stock purchase agreements subject
to a lapsing right of repurchase, at the option of the Company, over the
agreements' respective vesting periods.
(23) On December 15, 1998 the Registrant issued to Beech Street
Corporation a warrant to Purchase 500,000 shares of the Registrant's common
stock at an exercise price of $10.40 per share as part of a service
agreement.
(24) On November 3 and November 6, 1998, the Registrant sold an
aggregate of 7,683,341 shares of Series A preferred stock to 21 investors at
a purchase price of $6.00 per share, which was paid in cash.
(b) There were no underwriters, brokers or finders employed in connection
with any of the transactions set forth above.
(c) The transactions referred to in numbers 16-18 and 22 were exempt from
registration pursuant to the provisions of Section 3(a)(10) of the Securities
Act. The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
issuances to employees, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Registrant.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
2.0 Agreement and Plan of Reorganization, dated as of February 24, 1998, by and among
the Registrant, MedNet Acquisition Corp. and ActaMed Corporation.
2.1 Agreement and Plan of Merger, dated as of March 1, 1996, by and among ActaMed
Corporation, EDI Acquisition, Inc., UHC Green Acquisition, Inc. and United
HealthCare Corporation, including amendment.
2.2 Asset Purchase Agreement, dated June 25, 1998, among the Registrant, Metis
Acquisition Corp. and Metis, LLC.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2 Form of Amended and Restated Certificate of Incorporation, to be filed prior to the
closing of the offering made under this Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Form of Bylaws of the Registrant, to be adopted prior to the closing of the
offering made under this Registration Statement.
4.1 Specimen Common Stock certificate.
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1 Form of Indemnification Agreement to be entered into by the Registrant with each of
its directors and executive officers.
10.2 1996 Stock Plan and form of Stock Option Agreement thereunder.
10.3 ActaMed Corp. 1997 Stock Option Plan
10.4 ActaMed Corp. 1996 Stock Option Plan
10.5 ActaMed Corp. 1995 Stock Option Plan
10.6 ActaMed Corp. 1994 Stock Option Plan.
10.7 ActaMed Corp. 1993 Class B Common Stock Option Plan.
10.8 ActaMed Corp. 1992 Stock Option Plan.
10.9 ActaMed Corp. 1996 Director Stock Option Plan, as amended.
10.10 Amended and Restated Investors' Rights Agreement dated as of May 19, 1998 among the
Registrant and certain of the Registrant's security holders.
10.11 Lease Agreement, dated December 2, 1997, between Larvan Properties and Registrant,
including addenda.
10.12 Lease Agreement, dated November 6, 1995, as amended, between ActaMed Corporation
and ZML-Central Park, L.L.C., including addenda.
10.13+ Services and License Agreement, dated as of April 4, 1996, between ActaMed
Corporation and United HealthCare Corporation.
10.14+ Services Agreement, dated as of December 31, 1997, as amended, between ActaMed
Corporation and SmithKline Beecham Clinical Laboratories, Inc.
10.15+ Assets Purchase Agreement, dated as of December 31, 1997, as amended, between
ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.16+ License Agreement, dated as of December 31, 1997, between ActaMed Corporation and
SmithKline Beecham Clinical Laboratories, Inc.
10.17+ Development Agreement, dated as of October 31, 1997, as amended, between ActaMed
Corporation and SmithKline Beecham Clinical Laboratories, Inc.
10.18+ Services, Development and License Agreement, dated as of December 15, 1997, between
the Registrant and Beech Street Corporation.
10.19+ Services, Development and License Agreement, dated as of September 30, 1997,
between the Registrant and Brown & Toland Physician Services Organization.
10.20 Amended and Restated Securities Purchase Agreement, dated as of August 15, 1996,
between the Registrant and investors.
10.21 Amended and Restated Series B Preferred Stock Purchase Agreement dated October 31,
1996, between Registrant and investors.
10.22 Form of Series B Preferred Stock Purchase Warrant between the Registrant and
certain of the Registrant's investors.
10.23 Series C Preferred Stock Purchase Agreement dated July 25, 1997, between the
Registrant and investors.
10.24 Series D Preferred Stock Purchase Agreement dated October 13, 1997, between the
Registrant and investors.
10.25 Full Recourse Promissory Note dated as of July 11, 1997, between the Registrant and
W. Michael Long.
10.26 Form of Promissory Note for Bridge Financing
10.27 W. Michael Long Employment Agreement
10.28 Michael Hoover Employment Agreement, as amended
10.29 1998 Employee Stock Purchase Plan
10.30 Series A Preferred Stock Purchase Agreement, dated as of October 31, 1998, between
the Registrant and investors.
10.31*+ Asset Purchase Agreement, dated December 31, 1998, between the Registrant and
SmithKline Beecham Clinical Laboratories, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors (see page II-8).
23.3 Consent of Deloitte & Touche LLP, independent auditors (see page II-9).
23.4 Consent of Deloitte & Touche LLP, independent auditors (see page II-10).
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
+ Confidential treatment requested as to portions of this exhibit.
II-5
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on this 14th day of January, 1999.
HEALTHEON CORPORATION
BY: /S/ W. MICHAEL LONG
-----------------------------------------
W. Michael Long
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John L.
Westermann III, Jack Dennison, and Kallen Chan, and any two of them, as
attorneys-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendment to this Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
to said attorneys-in-fact, and any two of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact or
any two of them, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ W. MICHAEL LONG Chief Executive Officer and
- ------------------------------ Director (Principal January 14, 1999
W. Michael Long Executive Officer)
/s/ JOHN L. WESTERMANN III Chief Financial Officer
- ------------------------------ (Principal Financial and January 14, 1999
John L. Westermann III Accounting Officer)
/s/ JAMES H. CLARK Chairman of the Board
- ------------------------------ January 14, 1999
James H. Clark
/s/ L. JOHN DOERR Director
- ------------------------------ January 14, 1999
L. John Doerr
/s/ MICHAEL HOOVER President and Director
- ------------------------------ January 14, 1999
Michael Hoover
Director
- ------------------------------ January , 1999
C. Richard Kramlich
Director
- ------------------------------ January , 1999
William W. Mcguire, M.D.
/s/ P. E. SADLER Director
- ------------------------------ January 14, 1999
P. E. Sadler
Director
- ------------------------------ January , 1999
Tadataka Yamada
II-7
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 27, 1998 (except Notes 1 and 2 as to which
the date is September 26, 1998) with respect to the consolidated financial
statements of Healtheon Corporation in the Registration Statement on Form S-1
and related Prospectus of Healtheon Corporation for the registration of shares
of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
January 13, 1999
II-8
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Healtheon
Corporation on Form S-1 of our report dated June 20, 1997 (September 26, 1998 as
to Note 1--Net Loss per Common Share, paragraph 2 and Note 2--Acquisition of EDI
Services, Inc., paragraph 4), relating to the consolidated financial statements
of ActaMed Corporation as of December 31, 1996 and for the two years then ended
(the consolidated financial statements for 1996 are not separately presented
herein) appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 13, 1999
II-9
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Healtheon
Corporation on Form S-1 of our report dated April 4, 1996, relating to the
statements of divisional net loss and United's net investment and of divisional
cash flows for the year ended December 31, 1995 of EDI Services Group (a
Division of United HealthCare Corporation) appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
January 13, 1999
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
1.1* Form of Underwriting Agreement.
2.0 Agreement and Plan of Reorganization, dated as of February 24, 1998, by and among the
Registrant, MedNet Acquisition Corp. and ActaMed Corporation.
2.1 Agreement and Plan of Merger, dated as of March 1, 1996, by and among ActaMed
Corporation, EDI Acquisition, Inc., UHC Green Acquisition, Inc. and United HealthCare
Corporation, including amendment.
2.2 Asset Purchase Agreement, dated June 25, 1998, among the Registrant, Metis Acquisition
Corp. and Metis, LLC.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as currently in
effect.
3.2 Form of Amended and Restated Certificate of Incorporation, to be filed prior to the
closing of the offering made under this Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Form of Bylaws of the Registrant, to be adopted prior to the closing of the offering
made under this Registration Statement.
4.1 Specimen Common Stock certificate.
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1 Form of Indemnification Agreement to be entered into by the Registrant with each of
its directors and executive officers.
10.2 1996 Stock Plan and form of Stock Option Agreement thereunder.
10.3 ActaMed Corp. 1997 Stock Option Plan
10.4 ActaMed Corp. 1996 Stock Option Plan
10.5 ActaMed Corp. 1995 Stock Option Plan
10.6 ActaMed Corp. 1994 Stock Option Plan.
10.7 ActaMed Corp. 1993 Class B Common Stock Option Plan.
10.8 ActaMed Corp. 1992 Stock Option Plan.
10.9 ActaMed Corp. 1996 Director Stock Option Plan, as amended.
10.10 Amended and Restated Investors' Rights Agreement dated as of May 19, 1998 among the
Registrant and certain of the Registrant's securityholders.
10.11 Lease Agreement, dated December 2, 1997, between Larvan Properties and Registrant,
including addenda.
10.12 Lease Agreement, dated November 6, 1995, as amended, between ActaMed Corporation and
ZML-Central Park, L.L.C., including addenda.
10.13+ Services and License Agreement, dated as of April 4, 1996, between ActaMed Corporation
and United HealthCare Corporation.
10.14+ Services Agreement, dated as of December 31, 1997, as amended, between ActaMed
Corporation and SmithKline Beecham Clinical Laboratories, Inc.
10.15+ Assets Purchase Agreement, dated as of December 31, 1997, as amended, between ActaMed
Corporation and SmithKline Beecham Clinical Laboratories, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
10.16+ License Agreement, dated as of December 31, 1997, between ActaMed Corporation and
SmithKline Beecham Clinical Laboratories, Inc.
10.17+ Development Agreement, dated as of October 31, 1997, as amended, between ActaMed
Corporation and SmithKline Beecham Clinical Laboratories, Inc.
10.18+ Services, Development and License Agreement, dated as of December 15, 1997, between
the Registrant and Beech Street Corporation.
10.19+ Services, Development and License Agreement, dated as of September 30, 1997, between
the Registrant and Brown & Toland Physician Services Organization.
10.20 Amended and Restated Securities Purchase Agreement, dated as of August 15, 1996,
between the Registrant and investors.
10.21 Amended and Restated Series B Preferred Stock Purchase Agreement dated October 31,
1996, between Registrant and investors.
10.22 Form of Series B Preferred Stock Purchase Warrant between the Registrant and certain
of the Registrant's investors.
10.23 Series C Preferred Stock Purchase Agreement dated July 25, 1997, between the
Registrant and investors.
10.24 Series D Preferred Stock Purchase Agreement dated October 13, 1997, between the
Registrant and investors.
10.25 Full Recourse Promissory Note dated as of July 11, 1997, between the Registrant and W.
Michael Long.
10.26 Form of Promissory Note for Bridge Financing
10.27 W. Michael Long Employment Agreement
10.28 Michael Hoover Employment Agreement, as amended
10.29 1998 Employee Stock Purchase Plan
10.30 Series A Preferred Stock Purchase Agreement, dated as of October 31, 1998, between the
Registrant and investors.
10.31*+ Asset Purchase Agreement, dated December 31, 1998, between the Registrant and
SmithKline Beecham Clinical Laboratories, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors (see page II-8).
23.3 Consent of Deloitte & Touche LLP, independent auditors (see page II-9).
23.4 Consent of Deloitte & Touche LLP, independent auditors (see page II-10).
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
+ Confidential treatment requested as to portions of this exhibit.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HEALTHEON CORPORATION,
MEDNET ACQUISITION CORP.
AND
ACTAMED CORPORATION
DATED AS OF FEBRUARY 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. . . . . . . . . . . . . . 3
1.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9 No Further Ownership Rights in Company Common Stock . . . . . . . . . . . . . . 7
1.10 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . . . . . . . . . . 7
1.11 Tax and Accounting Consequences . . . . . . . . . . . . . . . . . . . . . . . . 7
1.12 Taking of Necessary Action; Further Action. . . . . . . . . . . . . . . . . . . 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . . 8
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . .12
2.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . .14
2.10 Title to Properties; Absence of Liens and Encumbrances. . . . . . . . . . . . .14
2.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . .16
2.13 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . .18
2.14 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.17 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
2.19 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . . . . . . . . .19
2.20 Employee Matters and Benefit Plans. . . . . . . . . . . . . . . . . . . . . . .20
2.21 Accounting and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . .23
2.22 Representations Complete. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . . . .24
3.1 Organization of Parent and Merger Sub . . . . . . . . . . . . . . . . . . . . .24
3.2 Parent and Merger Sub Capital Structure . . . . . . . . . . . . . . . . . . . .24
i
<PAGE>
3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
3.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .27
3.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
3.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . .29
3.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . .30
3.10 Title to Properties; Absence of Liens and Encumbrances. . . . . . . . . . . . .30
3.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
3.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . .32
3.13 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . .33
3.14 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.17 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.19 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . . . . . . . . .35
3.20 Employee Matters and Benefit Plans. . . . . . . . . . . . . . . . . . . . . . .35
3.21 Accounting and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . .39
3.22 Representations Complete. . . . . . . . . . . . . . . . . . . . . . . . . . . .39
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . .39
4.1 Conduct of Business of the Company. . . . . . . . . . . . . . . . . . . . . . .39
4.2 No Company Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
4.3 No Parent or Merger Sub Solicitation. . . . . . . . . . . . . . . . . . . . . .45
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
5.1 California Permit; Company Shareholder and Parent Stockholder Approvals . . . .46
5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
5.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
5.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
5.5 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
5.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
5.7 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
5.8 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
5.9 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . .48
5.10 Certain Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
5.11 Accounting and Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . .48
5.12 Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . .49
5.13 Company's Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
5.14 Parent's Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
5.15 Agreement of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
5.16 Amendment of Parent Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . .49
5.17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
ii
<PAGE>
ARTICLE VI CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . .50
6.1 Conditions to Obligations of Each Party to Effect the Merger. . . . . . . . . .50
6.2 Additional Conditions to Obligations of the Company . . . . . . . . . . . . . .52
6.3 Additional Conditions to the Obligations of Parent and Merger Sub . . . . . . .54
ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . .55
7.1 Non-Survival of Representations and Warranties. . . . . . . . . . . . . . . . .55
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . . . .55
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
9.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
9.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
9.4 Entire Agreement; Assignment. . . . . . . . . . . . . . . . . . . . . . . . . .58
9.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
9.6 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
9.8 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
9.9 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
</TABLE>
iii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
EXHIBIT A Company Schedules
EXHIBIT B Parent and Merger Sub Schedules
EXHIBIT C Form of Parent Affiliate Agreement
EXHIBIT D Form of Voting Agreement
EXHIBIT E Form of Company Affiliate Agreement
EXHIBIT F Merger Agreement Schedules
</TABLE>
iv
<PAGE>
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
4.1(a) Exceptions to Company Conduct
4.1(b) Exceptions to Parent Conduct
6.3(j) Company Required Consents
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of February 24, 1998 among Healtheon Corporation, a Delaware
corporation ("PARENT"), MedNet Acquisition Corp., a Georgia corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and ActaMed Corporation, a
Georgia corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each Company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance
thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding
shares of capital stock of the Company ("COMPANY CAPITAL STOCK") and all
outstanding options, warrants or other rights to acquire or receive shares of
Company Capital Stock shall be converted into the right to receive shares of
voting Common Stock of Parent ("PARENT COMMON STOCK").
C. It is the intention of the parties to this Agreement that the
Merger for federal income tax purposes shall qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), and for accounting purposes shall qualify for treatment
as a pooling of interests.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE
LAW") and Georgia Business Corporation Code ("GEORGIA LAW"), Merger Sub shall
be merged with and into the Company, the separate corporate existence of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation and as a wholly-owned subsidiary of Parent. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to
as the "SURVIVING CORPORATION." The Merger shall be consummated
<PAGE>
pursuant to the terms of this Agreement, which has been approved and adopted
by the respective Boards of Directors of the Company, Merger Sub and Parent,
and by Parent, as the sole shareholder of Merger Sub.
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "CLOSING") will take
place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VI,
at the offices of Wilson Sonsini Goodrich & Rosati ("WSGR"), 650 Page Mill
Road, Palo Alto, California, unless another place or time is agreed to by
Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "CLOSING DATE." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing the Articles of
Merger (or like instrument) with the Secretary of State of the State of
Georgia (the "CERTIFICATE OF MERGER"), in accordance with the relevant
provisions of applicable law (the time of acceptance by the Secretary of
State of Georgia of such filing being referred to herein as the "EFFECTIVE
TIME"). The parties currently intend that the Closing Date will occur on or
prior to May 15, 1998.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Georgia Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Merger Sub
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation;
provided, however, that Article I of the Articles of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is ActaMed Corporation."
(b) Unless otherwise determined by Parent, the Bylaws of the
Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. As promptly as practicable following the
Effective Time, unless otherwise unanimously agreed to by Parent's Board of
Directors, the board of directors of Merger Sub shall be comprised of an
equal number of representatives from each of the Company and of Parent, each
to hold office in accordance with the Articles of Incorporation and Bylaws of
the Surviving Corporation. The officers of Merger Sub immediately prior to
the Effective Time shall be the initial officers of the Surviving
Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
2
<PAGE>
1.6 MAXIMUM SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for issuance upon exercise of any of the Company's stock
options or other securities convertible into, exchangeable for or exercisable
for Company Capital Stock to be assumed by Parent) in exchange for the
acquisition by Parent of all outstanding Company Capital Stock and all
unexpired and unexercised options, warrants or other rights to acquire
Company Capital Stock shall be the Aggregate Share Number (as defined in
Section 1.6(g)(iii)). No adjustment shall be made in the number of shares of
Parent Common Stock issued in the Merger as a result of any cash proceeds
received by the Company from the date hereof to the Effective Time pursuant
to the exercise of options, warrants or other rights to acquire Company
Capital Stock. Subject to the terms and conditions of this Agreement, as of
the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, the Company or the holder of any shares of the Company
Capital Stock, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Company
Capital Stock (including any shares of Common Stock of the Company ("COMPANY
COMMON STOCK") issued upon conversion of Preferred Stock of the Company
("COMPANY PREFERRED STOCK") and upon exercise, conversion or exchange of all
other outstanding securities immediately prior to the Closing) issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Capital Stock to be canceled pursuant to Section 1.6(b) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a))
will be canceled and extinguished and be converted automatically into the
right to receive that number of shares of Parent Common Stock equal to the
Exchange Ratio (as defined in Section 1.6(g)(iv) below), upon surrender of
the certificate representing such share of Company Common Stock in the manner
provided in Section 1.8.
(b) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each
share of Company Capital Stock owned by Merger Sub, Parent, the Company or
any direct or indirect wholly-owned subsidiary of Parent or the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) STOCK OPTIONS. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's Option Plans or
otherwise shall be assumed by Parent in accordance with provisions described
below. "Option Plans" means collectively the Company's 1997 Stock Option
Plan, 1996 Stock Option Plan, 1996 Directors Stock Option Plan, 1995 Stock
Option Plan, 1994 Stock Option Plan, 1993 Stock Option Plan and 1992 Stock
Option Plan.
(i) At the Effective Time, each outstanding option and
warrant to purchase shares of Company Common Stock (each a "COMPANY OPTION")
under the Option Plans or otherwise, whether vested or unvested, shall be, in
connection with the Merger, assumed by Parent. Each Company Option so
assumed by Parent under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Option Plans and/or as
provided in the
3
<PAGE>
respective option agreements governing such Company Option immediately prior
to the Effective Time, except that (A) such Company Option shall be
exercisable for that number of whole shares of Parent Common Stock equal to
the product of the number of shares of Company Common Stock that were
issuable upon exercise of such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down (in the case of
Company Options granted under the Option Plan) to the nearest whole number of
shares of Parent Common Stock, (B) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Option shall be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent, and (C) Parent and its Board of
Directors shall be substituted for the Company and the Committee of the
Company's Board of Directors (including, if applicable, the entire Board of
Directors of the Company) administering such Company Stock Plan.
(ii) Promptly following the Effective Time, Parent will issue
to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent. At or prior to the
Effective Time, Parent shall take all corporate action necessary to reserve
for issuance sufficient shares of Parent Common Stock for delivery upon
exercise of Company Options assumed by it in accordance with this Section 1.6.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
equitably adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time. Any such change for which a record date is
established shall be deemed for the purposes of this Section 1.6(e) to have
occurred on the record date.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued.
(g) DEFINITIONS.
(i) COMPANY FULLY DILUTED CAPITALIZATION NUMBER. The
"Company Fully-Diluted Capitalization Number" shall mean all of the issued
and outstanding shares of the Company Common Stock as of the Effective Time
calculated on a fully-diluted basis as if all outstanding convertible
securities had been fully converted and all outstanding warrants, options and
other rights
4
<PAGE>
for the purchase of shares of Company Common Stock or convertible securities
had been fully exercised immediately prior to such issuance (and the
resulting securities fully converted into Company Common Stock, if so
convertible) as of such date.
(ii) PARENT FULLY-DILUTED CAPITALIZATION NUMBER. The "Parent
Fully-Diluted Capitalization Number" shall mean all of the issued and
outstanding shares of Parent Common Stock as of the Effective Time calculated
on a fully-diluted basis as if all outstanding convertible securities had
been fully converted and all outstanding warrants, options and other rights
for the purchase of shares of Parent Common Stock or convertible securities
had been fully exercised immediately prior to such issuance (and the
resulting securities fully converted into Parent Common Stock, if so
convertible) as of such date.
(iii) AGGREGATE SHARE NUMBER. The "Aggregate Share Number"
shall mean the number of shares of Parent Common Stock equal to (a) the
Parent Fully Diluted Capitalization Number multiplied by (b) 44.68 divided by
(c) 55.32.
(iv) EXCHANGE RATIO. The "Exchange Ratio" shall mean the
quotient obtained by dividing (x) the Aggregate Share Number by (y) the
Company Fully Diluted Capitalization Number.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has
demanded and perfected dissenters' rights for such shares in accordance with
Georgia Law and who, as of the Effective Time, has not effectively withdrawn
or lost such dissenters' rights ("DISSENTING SHARES") shall not be converted
into or represent a right to receive Parent Common Stock pursuant to Section
1.6, but the holder thereof shall only be entitled to receive payment in cash
for the fair value of such holder's shares as determined pursuant to the
applicable provisions of Georgia Law; provided, that no such payment shall be
made to any dissenting shareholder unless and until such dissenting
shareholder has complied with the applicable provisions of Georgia Law and
surrendered to the Company the certificate or certificates representing the
Dissenting Shares.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock who demands appraisal of such
shares under Georgia Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive
Parent Common Stock as provided in Section 1.6, without interest thereon,
upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
notice by any shareholder of intent to demand payment for such shareholder's
shares of Company Capital Stock,
5
<PAGE>
withdrawals of such demands, and any other instruments served pursuant to
Georgia Law and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
dissenters' rights under Georgia Law. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for dissenters' rights or offer to settle or settle any such
demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. WSGR shall serve as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Immediately prior to the
Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, certificates representing the
aggregate number of shares of Parent Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Capital Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to
the Effective Time represented outstanding shares of Company Capital Stock
and which shares were converted into the right to receive shares of Parent
Common Stock pursuant to Section 1.6, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock,
to which such holder is entitled pursuant to Section 1.6, and the Certificate
so surrendered shall forthwith be canceled and the holder thereof shall no
longer have any rights with respect to such Certificate. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Capital Stock shall have been
so converted.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Parent Common Stock declared
or made after the Effective Time and with a record date after the Effective
Time will be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole
6
<PAGE>
shares of Parent Common Stock issued in exchange therefor, without interest,
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore payable with respect
to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.8, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to a holder of shares of Parent Common Stock
or Company Capital Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital
Stock, and there shall be no further registration of transfers on the records
of the Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock as may be
required pursuant to Section 1.6; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may
be made against Parent or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment
as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to
7
<PAGE>
vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Company
and Merger Sub, the officers and directors of the Company and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
schedules (referencing the appropriate section number or subsection, as the
case may be) supplied by the Company to Parent attached hereto as EXHIBIT A
(the "COMPANY SCHEDULES") and dated as of the date hereof, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Georgia. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of the Company (hereinafter
referred to as a "COMPANY MATERIAL ADVERSE EFFECT"). The Company has
delivered a true and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of authorized Common Stock, of which 9,384,200 shares are
issued and outstanding; 8,800,880 shares of authorized Series A Preferred
Stock, all of which are issued and outstanding; 3,448,276 shares of
authorized Series B Preferred Stock, all of which are issued and outstanding;
10,344,828 shares of authorized Series C Preferred Stock, all of which are
issued and outstanding; and 7,043,478 shares of authorized Series D Preferred
Stock, of which 3,695,652 are issued and outstanding and the balance of which
may be issued pursuant to the Asset Purchase Agreement between the Company
and SmithKline Beecham Clinical Laboratories, Inc. ("SBCL") dated as of
December 31, 1997 (the "SBCL ASSETS PURCHASE AGREEMENT"). The Company
Capital Stock is held of record by the persons, with the addresses of record
and in the amounts set forth on Schedule 2.2(a). All outstanding shares of
Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of the Company or any agreement to which
the Company is a party or by which it is bound.
(b) The Company has reserved 6,061,238 shares of Common Stock for
issuance to directors, employees and consultants pursuant to the Option
Plans, of which 5,173,615 shares are
8
<PAGE>
subject to outstanding, unexercised options and 887,623 shares remain
available for future grant. The Company has reserved 30,087,912 shares of
Common Stock for issuance upon the conversion, exercise or exchange of any
outstanding securities and 450,450 shares subject to a warrant issued to IBM
(each referred to herein as a "COMPANY CONVERTIBLE SECURITY"). All of the
Company Convertible Securities and Company Options have been duly authorized
and validly issued, as applicable, in accordance with the applicable terms of
the Option Plans and Blue Sky laws. Schedule 2.2(b) sets forth for each
outstanding Company Option or Company Convertible Security the name of the
holder of such option or Company Convertible Security, the domicile address
of such holder, the number of shares of Common Stock subject to such option
or Company Convertible Security, the exercise price of such option or Company
Convertible Security and the vesting schedule for such option or Company
Convertible Security, including the extent vested to date and whether the
exercisability of such option or Company Convertible Security will be
accelerated and become exercisable by reason of the transactions contemplated
by this Agreement. Except for the Company Options and Company Convertible
Securities described in Schedule 2.2(b), there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral,
to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
the Company or obligating the Company to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. The holders of
Company Options and Company Convertible Securities have been or will be
given, or shall have properly waived, any required notice prior to the
Merger, and all such rights will be terminated at or prior to the Effective
Time. As a result of the Merger, Parent will be the record and sole
beneficial owner of all capital stock of the Company and rights to acquire or
receive such capital stock.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries and does not otherwise own and has never otherwise owned any
shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, limited liability company,
association, joint venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger
and this Agreement by the Company's shareholders, the Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The vote required of the
Company's shareholders to duly approve the Merger and this Agreement is set
forth on Schedule 2.4. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval of the Merger by the Company's shareholders.
The Company's Board of Directors has unanimously approved the Merger and this
Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or
9
<PAGE>
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Except as set forth on Schedule 2.4, subject
only to the approval of the Merger and this Agreement by the Company's
shareholders, the execution and delivery of this Agreement by the Company
does not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of,
or default under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of any benefit under (any such event, a "COMPANY
CONFLICT") (i) any provision of the Articles of Incorporation or Bylaws of
the Company or (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission
("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any Company
Conflict) is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Agreement
of Merger with the Georgia Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws (iii) such
notices or filings with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation with respect to any employee benefit plans or under the
HSR Act, and (iv) such other consents, waivers, authorizations, filings,
approvals and registrations which are set forth on Schedule 2.4.
2.5 FINANCIAL STATEMENTS. Schedule 2.5 sets forth the Company's
unaudited balance sheet as of December 31, 1997, and the related unaudited
statement of operations for the twelve month period ended December 31, 1997
(the "COMPANY UNAUDITED FINANCIALS"), and the audited balance sheet as of
December 31, 1996, and the related audited statement of operations for the
twelve-month period ended December 31, 1996 (the "COMPANY AUDITED
FINANCIALS") (collectively, such financial statements are sometimes referred
to herein as "COMPANY FINANCIAL STATEMENTS"). The Company Unaudited
Financials and the Company Audited Financials have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except that the Company Unaudited
Financials do not contain all the notes that may be required by GAAP, and may
require subsequent reclassification for proper recording of the accounting
treatment of the acquisition of the SBCL SCAN business. As of the date
hereof, the final accounting treatment of that transaction has not been
determined). The Company Unaudited Financials and Company Audited Financials
present fairly the financial condition, operating results and, in the case of
Company Audited Financials only, the cash flows of the Company as of the
dates and during the periods indicated therein, subject in the case of the
Company Unaudited Financials, to normal year-end adjustments, which will not
be material in amount or significance except for the effects of
reclassification that may be required by the final accounting treatment of
the SBCL SCAN acquisition. The Company's unaudited balance sheet dated as of
December 31, 1997, shall be referred to as the "COMPANY CURRENT BALANCE
SHEET".
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2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6,
the Company does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not
been reflected in the Company Current Balance Sheet, or (ii) has not arisen
in the ordinary course of the Company's business since the date of the
Company Current Balance Sheet, consistent with past practices.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of
the Company Current Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted as of the date of the Company Current Balance Sheet and
consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets (other than as
may be required by the final accounting of the SBCL SCAN business);
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
of its capital stock;
(i) increase in the salary or other compensation payable or to
become payable to any of its officers, directors, employees or advisors, or
the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement or in the ordinary
course of business and consistent with past practices and Schedule 2.7(i)
lists all salary increases in excess of 10% and any bonus or other
compensation arrangement exceeding $10,000;
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(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, except in the ordinary course of business and
consistent with past practices;
(k) material amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(q) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or could be
reasonably expected to have a Company Material Adverse Effect on the Company;
or
(s) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITIONS.
(i) "TAX" or, collectively, "TAXES", means any and all
federal, state, local and foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation,
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and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(ii) "KNOWLEDGE" as used herein shall mean the personal
knowledge (including references to such person being aware of a particular
matter), after reasonable inquiry, of, (a) in the case of the Company, P.E.
Sadler, Michael K. Hoover, Lew Belote, Nancy J. Ham, J. Philip Hardin, J.R.
Hughes and (to the extent not already identified in the foregoing list) all
directors of the Company on the date of this Agreement, and (b) in the case
of Parent, Jim Clark, W. Michael Long, Kallen Chan, Pavan Nigam, Dennis
Drislane, Chuck Saunders, Denise M. Shea, Ron Alvarez and (to the extent not
already identified in the foregoing list) all directors of Parent on the date
of this Agreement.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared
and filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") due on or before the Effective
Time relating to any and all Taxes concerning or attributable to the Company
or its operations and such Returns are or will be prior to filing true and
correct in all material respects and have been completed in accordance with
applicable law.
(ii) The Company as of the Effective Time: (A) will have
paid (if due on or before the Effective Time) or accrued on the Company
Current Balance Sheet all Taxes it is required to pay, or which are
attributable to the period ending December 31, 1997 and (B) will have
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed, or to its
Knowledge proposed against the Company, nor has the Company executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Company is currently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or
reserved for in accordance with GAAP on the Company Current Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and the Company has
no Knowledge of any basis for the assertion of any such liability
attributable to the Company, its assets or operations.
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(vi) The Company has provided to Parent or has made
available to representatives of Parent for inspection copies of all federal
and state income and all state sales and use Tax Returns for all periods
since the date of Company's incorporation.
(vii) There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort on the assets ("LIENS") of the
Company relating to or attributable to Taxes.
(viii) The Company has no Knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of
the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) Since December 31, 1997 no taxes have been incurred
except in the ordinary course of business.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
to which the Company is a party or otherwise binding upon the Company which
has or reasonably could be expected to have the effect of prohibiting or
impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company or the conduct of business by the
Company. Without limiting the foregoing, the Company has not entered into
any agreement under which the Company is restricted from developing, selling,
licensing, marketing, promoting or otherwise distributing any products,
services or technology to any class of customers, or entering into any
strategic alliances, in any geographic area, during any period of time or in
any segment of the market.
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2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property
currently leased by the Company, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental and/or other
fees payable under any such lease and any security interest in the Company's
assets created by such lease. All such leases are in full force and effect,
are valid and effective in accordance with their respective terms, and there
is not, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
Company Financial Statements or in Schedule 2.10(b) and except for liens for
taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material that are used in the business
of the Company as currently conducted or as proposed to be conducted by the
Company (the "COMPANY INTELLECTUAL PROPERTY RIGHT(S)"). Schedule 2.11(a)
sets forth a complete list of all patents, registered and material
unregistered trademarks, registered copyrights, trade names and service
marks, and any applications therefor, included in the Company Intellectual
Property Rights, and specifies, where applicable, the jurisdictions in which
each such Company Intellectual Property Right has been issued or registered
or in which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners.
(b) Schedule 2.11(b) sets forth a complete list of all licenses,
sublicenses and other agreements to which the Company is a party and pursuant
to which the Company or any other person is authorized to use any Company
Intellectual Property Right (excluding object code end-user licenses granted
to end-users in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the same
("END-USER LICENSES")) or trade secret of the Company, and includes the
identity of all parties thereto, a description of the nature and subject
matter thereof, the applicable royalty or other fees and the term thereof.
The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or
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modify such license, sublicense or agreement. Except as set forth in
Schedules 2.11(a) or 2.11(b), the Company is the sole and exclusive owner or
licensee of, with all right, title and interest in and to (free and clear of
any liens or encumbrances), the Company Intellectual Property Rights, and has
sole and exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof or the
material covered thereby in connection with the services or products in
respect of which the Company Intellectual Property Rights are being used.
(c) No claims with respect to the Company Intellectual Property
Rights have been asserted or are, to the Company's Knowledge, threatened by
any person, nor are there any valid grounds for any claims (i) to the effect
that the manufacture, sale, licensing or use of any of the products of the
Company infringes on any copyright, patent, trade mark, service mark, trade
secret or other proprietary right, (ii) against the use by the Company of any
trademarks, service marks, trade names, trade secrets, copyrights, maskworks,
patents, technology, know-how or computer software programs and applications
used in the Company's business as currently conducted or as proposed to be
conducted by the Company, or (iii) challenging the ownership by the Company,
validity or effectiveness of any of the Company Intellectual Property Rights.
All registered trademarks, service marks and copyrights held by the Company
are valid and subsisting. The Company has not infringed, and the business of
the Company as currently conducted or as proposed to be conducted does not
infringe, any copyright, patent, trademark, service mark, trade secret or
other proprietary right of any third party. There is no material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by the Company. Each employee, consultant or contractor
of the Company has executed a proprietary information and confidentiality
agreement substantially in the Company's standard forms. Except for software
licensed to the Company, all software included in the Company Intellectual
Property Rights (i) is original with the Company and has been either created
by employees of the Company on a work-for-hire basis or by consultants or
contractors who have created such software themselves and have assigned all
rights they may have had in such software to the Company, or (ii) was
acquired by the Company and the seller of such software made representations
substantially similar to those contained in (i) in connection with the
acquisition of such software.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it
bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
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(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company,
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement,
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(xvi) any agreement pursuant to which the Company has granted
or may be required to grant in the future, to any party, a source-code
license or option or other right to use or acquire source-code, or
(xvii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty
(30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are noted in Schedule 2.12(b), the Company has
not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule
2.12(a) or Schedule 2.11(b) (any such agreement, contract or commitment, a
"COMPANY CONTRACT"). Each Company Contract is in full force and effect and,
except as otherwise disclosed in Schedule 2.12(b), is not subject to any
default thereunder of which the Company has Knowledge by any party obligated
to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
2.13, (i) no officer, director or, to the Knowledge of the Company (without
any duty to investigate), any shareholder of the Company has, directly or
indirectly, an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells,
or proposes to furnish or sell, (ii) no officer or director, or to the
Knowledge of the Company (without any duty to investigate), any shareholder
of the Company has, directly or indirectly, an economic interest in any
entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) no officer, director or shareholder of the Company has,
directly or indirectly, a beneficial interest in any contract or agreement
set forth in Schedule 2.12(a) or Schedule 2.11(b); provided, that ownership
of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "economic interest in any
entity" for purposes of this Section 2.13. For the purposes of this
subsection, "officer" and "director" shall include any parent, child, sibling
or spouse of any of such persons, or any trust, partnership or corporation in
which such officer or director has a controlling interest.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to the Company's
Knowledge threatened against the Company, its properties or any of its
officers or directors in their respective capacities as such. Except as set
forth in schedule 2.15, to the Company's Knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its
officers or directors (in their respective capacities as such) by or before
any governmental entity. Schedule 2.15 sets forth, with respect to any
pending or threatened action, suit, proceeding or investigation, the forum,
the parties thereto, the subject matter thereof and the amount of damages
claimed or other remedy requested. No Governmental Entity has
<PAGE>
at any time challenged or questioned the legal right of the Company to
manufacture, offer or sell any of its products in the present manner or style
thereof.
2.16 INSURANCE. Set forth on Schedule 2.16 is a list of all of the
Company's insurance policies and fidelity bonds. With respect to the
insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company, there is no claim by the Company pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under
all such policies and bonds have been paid or will be paid when due and the
Company is otherwise in material compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no Knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees
thereof) and shareholders or actions by written consent since the time of
incorporation of the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not operated any
underground storage tanks, and has no Knowledge of the existence, at any
time, of any underground storage tank (or related piping or pumps), at any
property that the Company has at any time owned, operated, occupied or
leased. The Company has not released any amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state or
local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, oil and
petroleum products, urea-formaldehyde and all substances listed as a
"hazardous substance," "hazardous waste," "hazardous material" or "toxic
substance" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act, as amended; the
Clean Air Act, as amended, and the regulations promulgated pursuant to said
laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present as a
result of the actions or omissions of the Company, or, to the Company's
Knowledge, as a result of any actions of any third party or otherwise, in, on
or under any property, including the land and the improvements, ground water
and surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Effective Time, nor has the Company disposed of,
transported, sold, or manufactured any product containing a Hazardous
Material (any or all of the foregoing being collectively referred to as
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
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regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment, procedure, writ, injunction or claim is pending, or to
the Company's Knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company. The
Company is not aware of any fact or circumstance which could involve the
Company in any environmental litigation or impose upon the Company any
environmental liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on Schedule 2.19, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees,
investment banking fees, consulting fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.19 also sets forth the Company's current reasonable estimate of
all Company Third Party Expenses (as defined in Section 5.4) expected to be
incurred by the Company in connection with the negotiation and effectuation
of the terms and conditions of this Agreement and the transactions
contemplated hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. For purposes of this Section 2.20 and Section
3.20 of this Agreement, the following terms shall have the meanings set forth
below:
(i) "COMPANY AFFILIATE" shall mean any other person or
entity under common control with the Company within the meaning of Section
414(b) or (c) and the regulations thereunder. In addition, for any Company
Employee Plan subject to Section 412(n), the term Company Affiliate shall
mean any other person or entity under common control with the Company within
the meaning of Section 414(b), (c), (m) or (o) of the Code;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
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whether or not legally binding, including without limitation, each "employee
benefit plan", within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by the
Company or any Company Affiliate for the benefit of any "Company Employee"
(as defined below), and any Company Employee Plan which has been maintained,
contributed to, or required to have been contributed to by the Company or any
Company Affiliate pursuant to which the Company or any Company Affiliate has
or may have any material liability contingent or otherwise;
(iv) "COMPANY EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of the Company or any Company
Affiliate;
(v) "COMPANY EMPLOYEE AGREEMENT" shall refer to each
written management, employment, severance, consulting, relocation,
repatriation, expatriation, visas, work permit or similar agreement or
contract between the Company or any Company Affiliate and any Employee or
consultant. Except as set forth on Schedule 2.20(a)(v), the Company
represents and warrants that there are no oral agreements between the Company
or any Affiliate and any Employee or consultant pertaining to management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar matters or arrangements;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37)
of ERISA; and
(viii) "COMPANY PENSION PLAN" shall refer to each Company
Employee Plan which is an "employee pension benefit plan", within the meaning
of Section 3(2) of ERISA.
(ix) "COMPANY DEFINED BENEFIT PLAN" shall mean any Pension
Plan that is a "defined benefit plan," as defined in ERISA Section 3(35).
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan and each Company Employee Agreement. The
Company does not have any plan or commitment, whether legally binding or not,
to establish any new Company Employee Plan or Company Employee Agreement, to
modify any Company Employee Plan or Company Employee Agreement (except to the
extent required by law or to conform any such Company Employee Plan or
Company Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Company Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) DOCUMENTS. The Company has provided to Parent (i) correct and
complete copies of all nonprivileged documents embodying or materially
affecting the interpretation or application of each Company Employee Plan and
each Company Employee Agreement including all amendments thereto, and, to the
Knowledge of the Company, there are no privileged documents
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pertaining to such matters; (ii) the most recent annual actuarial valuations,
if any, prepared for each Company Defined Benefit Plan; (iii) the three most
recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Company Employee
Plan or related trust; (iv) if the Company Employee Plan is funded, the most
recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the most recent
summary of material modifications, if any, required under ERISA with respect
to each Company Employee Plan which has a material adverse effect on such
Company Employee Plan; (vi) the most recent IRS determination, opinion,
notification or advisory letters as applicable, and rulings relating to
Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any
Company Employee Plan; (vii) all communications material to any Company
Employee or Company Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to the Company; and (viii) all registration
statements and prospectuses prepared in connection with each Company Employee
Plan not otherwise publicly available on the SEC website.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
2.20(d), (i) the Company has performed in all material respects all
obligations required to be performed by it under each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred
with respect to any Company Employee Plan for which an exemption is not
applicable; (iii) there are no actions, suits or claims pending, or, to the
Knowledge of the Company, threatened or anticipated (other than routine
claims for benefits) against any Company Employee Plan or against the assets
of any Company Employee Plan; and (iv) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without material liability to the Company, Parent
or any of its Affiliates (other than ordinary administration expenses
typically incurred in a termination event); (v) there are no inquiries or
proceedings pending or, to the Knowledge of the Company or any Affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vi) neither the Company nor any Company Affiliate is subject to any material
penalty or tax with respect to any Company Employee Plan under Section 502(i)
of ERISA or Section 4975 through 4980 of the Code.
(e) PENSION PLANS. Except as set forth on Schedule 2.20(e), the
Company does not now, nor has it ever, maintained, established, sponsored,
participated in, or contributed to, any Pension Plan which is subject to Part
3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company contributed
to or been requested to contribute to any Multiemployer Plan.
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(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Schedule 2.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee welfare benefits to any
Company Employee upon his or her retirement or termination of employment for
any reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Company Employee (either individually or to Company Employees as a group)
that such Company Employee(s) would be provided with life insurance, medical
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute. The term "other
employee welfare benefits" means those benefits traditionally provided under
an "employee benefit welfare plan" as defined in ERISA Section 3(1).
(h) COBRA. Neither the Company nor any Company Affiliate has,
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of the FMLA
or any similar provisions of state law applicable to its Company Employees.
(i) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 2.20(i)(i), the execution
of this Agreement and the consummation of the transactions contemplated
hereby will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company Employee Plan,
Company Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Company Employee.
(ii) Except as set forth on Schedule 2.20(i)(ii), no payment
or benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as
an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code.
(j) EMPLOYMENT MATTERS. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Company Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Company Employees; (iii) is not liable for any arrears of wages, other than
arrears normally included in its payroll schedule and system, or any taxes or
any penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Company Employees (other
than routine payments to be made in the normal course of business and
consistent with past practice).
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(k) LABOR. To the Knowledge of the Company, no work stoppage or
labor strike against the Company is pending or threatened. Except as set
forth in Schedule 2.20(k), the Company is not involved in or, to the
Knowledge of the Company, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Company Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in a material liability to
the Company. To the Knowledge of the Company, neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning
of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company.
Except as set forth in Schedule 2.20(k), the Company is not presently, nor
has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Company Employees and no
collective bargaining agreement is being negotiated by the Company.
2.21 ACCOUNTING AND REGULATORY MATTERS. The Company has no Knowledge of
any action taken or agreed to be taken by the Company or any affiliate of the
Company or has any Knowledge of any fact or circumstance that is reasonably
likely to (a) prevent the Merger from qualifying for pooling-of-interests
accounting treatment, or (b) materially impede or delay receipt of any
consents of regulatory authorities referred to in Section 6.1(c), Section
6.1(e) and Section 6.1(h) or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such Section. An
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 5% or greater equity
or voting interest of such Person; or (iii) any other Persons for which a
Person described in clause (ii) acts in any such capacity.
2.22 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor
any statement made in any schedule or certificate furnished by the Company
pursuant to this Agreement, or furnished in or in connection with documents
mailed or delivered to the shareholders of the Company in connection with
soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of
the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company,
subject to such exceptions as are specifically disclosed in the disclosure
schedule (referencing the appropriate section number or subsection, as the
case may be) supplied by the Parent and Merger Sub to the
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Company attached hereto as EXHIBIT B (the "PARENT AND MERGER SUB SCHEDULES")
and dated as of the date hereof, as follows:
3.1 ORGANIZATION OF PARENT AND MERGER SUB. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Parent has the corporate power to own its properties and to carry on their
business as now being conducted. Parent is duly qualified to do business and
in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or
results of operations of Parent (hereinafter referred to as a "PARENT
MATERIAL ADVERSE EFFECT"). Parent has delivered a true and correct copy of
its Certificate of Incorporation and Bylaws, each as amended to date, to the
Company. Merger Sub has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to the Company.
3.2 PARENT AND MERGER SUB CAPITAL STRUCTURE.
(a) The authorized capital stock of Parent consists of 37,000,000
shares of authorized Common Stock, of which 3,571,480 shares are issued and
outstanding, 10,305,000 shares of authorized Series A Preferred Stock, of
which 10,305,000 shares are issued and outstanding, 10,305,000 shares of
authorized Series A-1 Preferred Stock, none of which is issued and
outstanding, 6,105,000 shares of authorized Series B Preferred Stock, of
which 3,290,000 shares are issued and outstanding, 6,105,000 shares of
authorized Series B-1 Preferred Stock, none of which is issued and
outstanding, 2,600,000 shares of authorized Series C Preferred Stock, of
which 2,600,000 shares are issued and outstanding, 2,600,000 shares of
authorized Series C-1 Preferred Stock, none of which is issued and
outstanding, 5,000,000 shares of authorized Series D Preferred Stock, of
which 4,807,692 shares are issued and outstanding, 5,000,000 shares of
authorized Series D-1 Preferred Stock, none of which is issued and
outstanding. The shares of the capital stock of Parent are held of record by
the persons, with the addresses of record and in the amounts set forth on
Schedule 3.2(a). All outstanding shares of Parent Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Certificate of Incorporation or
Bylaws of Parent or any agreement to which Parent is a party or by which it
is bound.
(b) The authorized capital stock of Merger Sub consists of 100
shares of authorized Common Stock, all of which are issued and outstanding
and held of record by Parent. All outstanding shares of the capital stock of
Merger Sub are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Merger Sub or any agreement to which the Merger
Sub is a party or by which it is bound.
(c) Parent has reserved (i) 9,000,000 shares of Common Stock for
issuance to directors, employees and consultants pursuant to Parent's 1996
Stock Plan ("PARENT STOCK PLAN"), of which 6,441,520 shares are subject to
outstanding, unexercised options ("PARENT OPTIONS") and
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2,558,480 shares remain available for future grant, (ii) 500,000 shares of
Common Stock for issuance pursuant to an outstanding warrant ("COMMON
WARRANT") and (iii) 2,811,947 shares of Series B Preferred Stock for issuance
pursuant to outstanding warrants ("PREFERRED WARRANTS"). The Parent Options,
the Common Warrant and the Preferred Warrants are collectively referred to
herein as "PARENT CONVERTIBLE SECURITIES." Schedule 3.2(b) sets forth for
each outstanding Parent Convertible Security, the name of the holder of such
Parent Convertible Security, the domicile address of such holder, the number
of shares of Common Stock subject to such Parent Convertible Security, the
exercise price of such Parent Convertible Security and the vesting schedule
for such Parent Convertible Security, including the extent vested to date and
whether the exercisability of such Parent Convertible Security will be
accelerated and become exercisable by reason of the transactions contemplated
by this Agreement. Except for the Parent Convertible Securities described in
Schedule 3.2(b), there are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which Parent is a party
or by which it is bound obligating Parent to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed,
any shares of the capital stock of Parent or obligating Parent to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement.
3.3 SUBSIDIARIES. Other than Merger Sub, Parent does not have any
subsidiaries and does not otherwise own and has never otherwise owned any
shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, limited liability company,
association, joint venture or other business entity.
3.4 AUTHORITY. Subject only to the requisite approval of the Merger and
this Agreement by Parent's stockholders and Merger Sub's shareholder, each of
Parent and Merger Sub has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. A
majority vote is required of the holders of Parent's Common Stock and the
holders of Parent's Preferred Stock, each voting as a separate class, to duly
approve the Merger and this Agreement. A majority vote is required of the
holders of Merger Sub's Common Stock to duly approve the Merger and this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and Merger Sub, subject only to the
approval of the Merger by Parent's stockholders and Merger Sub's shareholder.
Each of Parent's Board of Directors and Merger Sub's Board of Directors have
unanimously approved the Merger and this Agreement. This Agreement has been
duly executed and delivered by Parent and Merger Sub and constitutes the valid
and binding obligation of Parent and Merger Sub, enforceable in accordance with
its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought). Except as set forth
on Schedule 3.4, subject only to the approval of the Merger and this Agreement
by Parent's stockholders and Merger Sub's shareholders, the execution and
delivery of this Agreement by Parent and Merger Sub does not, and, as of the
Effective Time,
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the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice
or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under
(any such event, a "PARENT CONFLICT") (i) any provision of the Certificate of
Incorporation or Bylaws of Parent, (ii) any provision of the Articles of
Incorporation or Bylaws of Merger Sub, or (iii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or any third party (so as not to trigger
any Parent Conflict) is required by or with respect to Parent or Merger Sub
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the Articles of Merger with the Georgia Secretary of State, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and
state securities laws, (iii) such notices or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to
any employee benefit plans or under the HSR Act and (iv) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 3.4. Parent, as the sole shareholder of Merger Sub, has
voted prior to the Effective Time the shares of Merger Sub's Common Stock in
favor of approval of this Agreement, as and to the extent required by
applicable law.
3.5 FINANCIAL STATEMENTS. Schedule 3.5 sets forth the Parent's
unaudited balance sheet as of December 31, 1997, and the related unaudited
statement of income and cash flow for the twelve month period ended December
31, 1997 (the "PARENT UNAUDITED FINANCIALS"), and the audited balance sheet
as of December 31, 1996, and the related audited statement of income and cash
flow for the twelve-month period ended December 31, 1996 (the "PARENT AUDITED
FINANCIALS") (collectively, such financial statements are sometimes referred
to herein as "PARENT FINANCIAL STATEMENTS"). The Parent Unaudited Financials
and the Parent Audited Financials have been prepared in accordance with GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other (except that the Parent Unaudited Financials do not contain
all the notes that may be required by GAAP). The Parent Unaudited Financials
and Parent Audited Financials present fairly the financial condition,
operating results and cash flows of the Parent as of the dates and during the
periods indicated therein, subject in the case of the Parent Unaudited
Financials, to normal year-end adjustments, which will not be material in
amount or significance. Parent's unaudited balance sheet dated as of
December 31, 1997, shall be referred to as the "PARENT CURRENT BALANCE SHEET".
3.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 3.6,
Parent does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not
been reflected in the Parent Current Balance Sheet, or (ii) has not arisen in
the ordinary course of Parent's business since the date of the Parent Current
Balance Sheet, consistent with past practices.
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3.7 NO CHANGES. Except as set forth in Schedule 3.7, since the date of
the Parent Current Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by Parent except in the ordinary course of
business as conducted as of the date of the Parent Current Balance Sheet and
consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of Parent;
(c) capital expenditure or commitment by Parent, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of Parent (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Parent;
(g) revaluation by Parent of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of Parent, or any direct or
indirect redemption, purchase or other acquisition by Parent of any of its
capital stock;
(i) increase in the salary or other compensation payable or to
become payable to any of Parent's officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement or in the ordinary
course of business and consistent with past practices and Schedule 3.7(i)
lists all salary increases in excess of 10% and any bonus or other
compensation arrangement exceeding $10,000;
(j) sale, lease, license or other disposition of any of the assets
or properties of Parent, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) material amendment or termination of any material contract,
agreement or license to which Parent is a party or by which it is bound;
(l) loan by Parent to any person or entity, incurring by Parent of
any indebtedness, guaranteeing by Parent of any indebtedness, issuance or
sale of any debt securities of
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Parent or guaranteeing of any debt securities of others, except for advances
to employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(m) waiver or release of any right or claim of Parent, including
any write-off or other compromise of any account receivable of Parent;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of Parent or its affairs;
(o) notice of any claim of ownership by a third party of Parent's
Intellectual Property (as defined in Section 3.11 below) or of infringement
by Parent's of any third party's Intellectual Property rights;
(p) issuance or sale by Parent of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(q) change in pricing or royalties set or charged by Parent to its
customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to Parent;
(r) event or condition of any character that has or could be
reasonably expected to have a Parent Material Adverse Effect on Parent; or
(s) negotiation or agreement by Parent or any officer or employees
thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with the Company and its representatives
regarding the transactions contemplated by this Agreement).
3.8 TAX AND OTHER RETURNS AND REPORTS.
(a) TAX RETURNS AND AUDITS. Except as set forth in Schedule 3.8:
(i) Parent as of the Effective Time will have prepared and
filed all required Returns relating to any and all Taxes concerning or
attributable to Parent or its operations and such Returns are true and
correct in all material respects and have been completed in accordance with
applicable law.
(ii) Parent as of the Effective Time: (A) will have paid
or accrued on the Parent Unaudited Financials all Taxes it is required to pay
or which are attributable to the period ending December 31, 1997 and (B) will
have withheld with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Parent has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, assessed, or to its
Knowledge proposed against Parent, nor has
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Parent executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Parent
is currently in progress, nor has Parent been notified of any request for
such an audit or other examination.
(v) Parent does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the Parent Current Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and Parent has no
Knowledge of any basis for the assertion of any such liability attributable
to the Company, its assets or operations.
(vi) Parent has provided to the Company copies of all
federal and state income and all state sales and use Tax Returns for all
periods since the date of Parent's incorporation.
(vii) There are (and as of immediately following the
Effective Date there will be) no Liens on the assets of Parent relating to or
attributable to Taxes.
(viii) Parent has no Knowledge of any basis for the assertion
of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of Parent.
(ix) None of Parent's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of
Parent that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of
the Code.
(xi) Parent has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by Parent.
(xii) Parent is not a party to a tax sharing or allocation
agreement nor does Parent owe any amount under any such agreement.
(xiii) Parent is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) Since December 31, 1997 no Taxes have been incurred
except in the ordinary course of business.
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Parent's tax basis in its assets for purposes of determining its future
amortization, depreciation and other federal income tax deductions is
accurately reflected on the Parent's tax books and records.
3.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
to which Parent is a party or otherwise binding upon Parent which has or
reasonably could be expected to have the effect of prohibiting or impairing
any business practice of Parent, any acquisition of property (tangible or
intangible) by Parent or the conduct of business by Parent. Without limiting
the foregoing, Parent has not entered into any agreement under which Parent
is restricted from developing, selling, licensing, marketing, promoting or
otherwise distributing any products, services or technology to any class of
customers, or entering into any strategic alliances, in any geographic area,
during any period of time or in any segment of the market.
3.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Parent owns no real property, nor has it ever owned any real
property. Schedule 3.10(a) sets forth a list of all real property currently
leased by Parent, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and/or other fees payable
under any such lease and any security interest in Parent's assets created by
such lease. All such leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default).
(b) Parent has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Parent
Financial Statements or in Schedule 3.10(b) and except for liens for taxes
not yet due and payable and such imperfections of title and encumbrances, if
any, which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present
use, of the property subject thereto or affected thereby.
3.11 INTELLECTUAL PROPERTY.
(a) Parent owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, computer software programs or applications
(in both source code and object code form), and tangible or intangible
proprietary information or material that are used in the business of Parent
as currently conducted or as proposed to be conducted by Parent (the "PARENT
INTELLECTUAL PROPERTY RIGHT(S)"). Schedule 3.11(a) sets forth a complete
list of all patents, registered and material unregistered trademarks,
registered copyrights, trade names and service marks, and any applications
therefor, included in the Parent Intellectual Property Rights, and specifies,
where applicable, the jurisdictions in which each such Parent Intellectual
Property Right has been issued or registered or in which an application for
such issuance
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and registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 3.11(b) sets forth a complete list of all licenses,
sublicenses and other agreements to which Parent is a party and pursuant to
which Parent or any other person is authorized to use any Parent Intellectual
Property Right (excluding End-User Licenses) or trade secret of Parent, and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty or other fees and the term
thereof. The execution and delivery of this Agreement by Parent, and the
consummation of the transactions contemplated hereby, will neither cause
Parent to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement.
Except as set forth in Schedules 3.11(a) or 3.11(b), Parent is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), the Parent Intellectual
Property Rights, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect thereof) to
the use thereof or the material covered thereby in connection with the
services or products in respect of which the Parent Intellectual Property
Rights are being used.
(c) No claims with respect to the Parent Intellectual Property
Rights have been asserted or are, to Parent's Knowledge, threatened by any
person, nor are there any valid grounds for any claims, (i) to the effect
that the manufacture, sale, licensing or use of any of the products of Parent
infringes on any copyright, patent, trade mark, service mark, trade secret or
other proprietary right, (ii) against the use by Parent of any trademarks,
service marks, trade names, trade secrets, copyrights, maskworks, patents,
technology, know-how or computer software programs and applications used in
Parent's business as currently conducted or as proposed to be conducted by
Parent, or (iii) challenging the ownership by Parent, validity or
effectiveness of any of the Parent Intellectual Property Rights. All
registered trademarks, service marks and copyrights held by Parent are valid
and subsisting. Parent has not infringed, and the business of Parent as
currently conducted or as proposed to be conducted does not infringe, any
copyright, patent, trademark, service mark, trade secret or other
proprietary right of any third party. There is no material unauthorized use,
infringement or misappropriation of any of the Parent Intellectual Property
Rights by any third party, including any employee or former employee of
Parent. No Parent Intellectual Property Right or product of Parent or any of
its subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by Parent. Each
employee, consultant or contractor of Parent has executed a proprietary
information and confidentiality agreement substantially in the Parent's
standard forms. All software included in the Parent Intellectual Property
Rights is original with Parent and has been either created by employees of
Parent on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have
had in such software to Parent.
3.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 3.12(a), Parent does not have, is not a party to nor is it bound by:
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(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to Parent,
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of Parent to engage in any line of business or
to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Parent's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more,
(xiv) any construction contracts,
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(xv) any distribution, joint marketing or development
agreement,
(xvi) any agreement pursuant to which Parent has granted or
may grant in the future, to any party, a source-code license or option or
other right to use or acquire source-code, or
(xvii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty
(30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 3.12(b), Parent has
not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule
3.12(a) or Schedule 3.11(b) (any such agreement, contract or commitment, a
"PARENT CONTRACT"). Each Parent Contract is in full force and effect and,
except as otherwise disclosed in Schedule 3.12(b), is not subject to any
default thereunder of which Parent has Knowledge by any party obligated to
Parent pursuant thereto.
3.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
3.13, (i) no officer, director or, to the Knowledge of Parent (without any
duty to investigate), any shareholder of Parent has, directly or indirectly,
an economic interest in any entity which furnished or sold, or furnishes or
sells, services or products that Parent furnishes or sells, or proposes to
furnish or sell, (ii) no officer, director or, to the Knowledge of Parent
(without any duty to investigate), any stockholder of Parent has, directly or
indirectly, an economic interest in any entity that purchases from or sells
or furnishes to, Parent, any goods or services or (iii) no officer, director
or shareholder of Parent has, directly or indirectly, a beneficial interest
in any contract or agreement set forth in Schedule 3.12(a) or Schedule
3.11(b); provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed
an "economic interest in any entity" for purposes of this Section 3.13. For
the purposes of this subsection, "officer" and "director" shall include any
parent, child, sibling or spouse of any of such persons, or any trust,
partnership or corporation in which such officer or director has a
controlling interest.
3.14 COMPLIANCE WITH LAWS. Parent has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law
or regulation.
3.15 LITIGATION. Except as set forth in Schedule 3.15, there is no
action, suit or proceeding of any nature pending or to Parent's Knowledge
threatened against Parent, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 3.15, to the Parent's Knowledge, there is no investigation pending
or threatened against Parent, its properties or any of its officers or
directors (in their respective capacities as such) by or before any
governmental entity. Schedule 3.15 sets forth, with respect to any pending
or threatened action, suit,
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proceeding or investigation, the forum, the parties thereto, the subject
matter thereof and the amount of damages claimed or other remedy requested.
No Governmental Entity has at any time challenged or questioned the legal
right of Parent to manufacture, offer or sell any of its products in the
present manner or style thereof.
3.16 INSURANCE. Set forth on Schedule 3.16 is a list of all of Parent's
insurance policies and fidelity bonds. With respect to the insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of Parent, there is
no claim by Parent pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Parent is otherwise in material compliance with the
terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Parent has no Knowledge of any
threatened termination of, or material premium increase with respect to, any
of such policies.
3.17 MINUTE BOOKS. The minute books of Parent made available to counsel
for the Company are the only minute books of Parent and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
stockholders or actions by written consent since the time of incorporation of
Parent.
3.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Parent has not operated any underground
storage tanks, and has no Knowledge of the existence, at any time, of any
underground storage tank (or related piping or pumps), at any property that
Parent has at any time owned, operated, occupied or leased. Parent has not
released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be a
Hazardous Material. No Hazardous Materials are present as a result of the
actions or omissions of Parent, or, to Parent's Knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that Parent has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Parent has not engaged in any
Hazardous Materials Activities in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) PERMITS. The Company currently holds all Environmental
Permits necessary for the conduct of Parent's Hazardous Material Activities
and other businesses of Parent as such activities and businesses are
currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment, procedure, writ, injunction or claim is pending, or to
Parent's Knowledge, threatened
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concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activity of Parent. Parent is not aware of any fact or circumstance
which could involve Parent in any environmental litigation or impose upon
Parent any environmental liability.
3.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on Schedule 3.19, Parent has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees, investment
banking fees, consulting fees or agents' commissions or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
Schedule 3.19 sets forth the principal terms and conditions of any agreement,
written or oral, with respect to such fees. Schedule 3.19 also sets forth
Parent's current reasonable estimate of all Third Party Expenses (as defined
in Section 5.4) expected to be incurred by Parent in connection with the
negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby.
3.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "PARENT AFFILIATE" shall mean any other person or
entity under common control with Parent within the meaning of Section 414(b)
or (c) and the regulations thereunder. In addition, for any Parent Employee
Plan subject to Section 412(n), the term Parent Affiliate shall mean any
other person or entity under common control with Parent within the meaning of
Section 414(b), (c), (m) or (o) of the Code;
(ii) "PARENT EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan", within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by the
Company or any Parent Affiliate for the benefit of any "Parent Employee" (as
defined below), and any Parent Employee Plan which has been maintained,
contributed to, or required to have been contributed to by Parent or any
Parent Affiliate pursuant to which Parent or any Parent Affiliate has or may
have any material liability contingent or otherwise;
(iii) "PARENT EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of Parent or any Parent Affiliate;
(iv) "PARENT EMPLOYEE AGREEMENT" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract between
Parent or any Parent Affiliate and any Parent Employee or consultant;
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(v) "PARENT PENSION PLAN" shall refer to each Parent
Employee Plan which is an "employee pension benefit plan", within the meaning
of Section 3(2) of ERISA.
(vi) "PARENT DEFINED BENEFIT PLAN" shall mean any Pension
Plan that is a "defined benefit plan," as defined in ERISA Section 3(35).
(b) SCHEDULE. Schedule 3.20(b) contains an accurate and complete
list of each Parent Employee Plan and each Parent Employee Agreement together
with a schedule of all liabilities, whether or not accrued, under each such
Parent Employee Plan or Parent Employee Agreement only to the extent not
reflected on the Parent Current Balance Sheet. Parent does not have any plan
or commitment, whether legally binding or not, to establish any new Parent
Employee Plan or Parent Employee Agreement, to modify any Parent Employee
Plan or Parent Employee Agreement (except to the extent required by law or to
conform any such Parent Employee Plan or Parent Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Parent Employee Plan or Parent Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) DOCUMENTS. Parent has provided to Company (i) correct and
complete copies of all nonprivileged documents embodying or materially
affecting the interpretation or application of each Parent Employee Plan and
each Parent Employee Agreement including all amendments thereto, and, to the
Knowledge of the Company, there are no privileged documents pertaining to
such matters; (ii) the most recent annual actuarial valuations, if any,
prepared for each Parent Defined Benefit Plan; (iii) the three most recent
annual reports (Series 5500 and all schedules thereto), if any, required
under ERISA or the Code in connection with each Parent Employee Plan or
related trust; (iv) if the Parent Employee Plan is funded, the most recent
annual and periodic accounting of Parent Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Parent Employee Plan which has a material adverse effect on such Parent
Employee Plan; (vi) the most recent IRS determination, opinion, notification
or advisory letters as applicable, and rulings relating to Parent Employee
Plans and copies of all applications and correspondence to or from the IRS or
the DOL with respect to any Parent Employee Plan; (vii) all communications
material to any Parent Employee or Parent Employees relating to any Parent
Employee Plan and any proposed Parent Employee Plans, in each case, relating
to any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to Parent; and (viii) all registration
statements and prospectuses prepared in connection with each Parent Employee
Plan not otherwise publicly available on the SEC website.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
3.20(d), (i) Parent has performed in all material respects all obligations
required to be performed by it under each Parent Employee Plan, and each
Parent Employee Plan has been established and maintained in
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all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred
with respect to any Parent Employee Plan for which an exemption is not
applicable; (iii) there are no actions, suits or claims pending, or, to the
Knowledge of Parent, threatened or anticipated (other than routine claims for
benefits) against any Parent Employee Plan or against the assets of any
Parent Employee Plan; and (iv) each Parent Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without material liability to the Company, Parent or any
Parent Affiliates (other than ordinary administration expenses typically
incurred in a termination event); (v) there are no inquiries or proceedings
pending or, to the Knowledge of Parent or any Affiliates, threatened by the
IRS or DOL with respect to any Parent Employee Plan; and (vi) neither Parent
nor any Parent Affiliate is subject to any material penalty or tax with
respect to any Parent Employee Plan under Section 502(i) of ERISA or Section
4975 through 4980 of the Code.
(e) PENSION PLANS. Parent does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has Parent contributed to or
been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Schedule 3.20(g), no Parent Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee welfare benefits to any
Parent Employee upon his or her retirement or termination of employment for
any reason, except as may be required by statute, and Parent has never
represented, promised or contracted (whether in oral or written form) to any
Parent Employee (either individually or to Employees as a group) that such
Parent Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute. The term "other employee welfare
benefits" means those benefits traditionally provided under an "employee
benefit welfare plan" as defined in ERISA Section 3(1).
(h) COBRA. Neither Parent nor any Parent Affiliate has, prior to
the Effective Time and in any material respect, violated any of the health
care continuation requirements of COBRA, the requirements of the FMLA or any
similar provisions of state law applicable to its Parent Employees.
(i) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 3.20(i)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Parent
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Employee Plan, Parent Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Parent Employee.
(ii) Except as set forth on Schedule 3.20(i)(ii), no
payment or benefit which will or may be made by Parent or Company or any of
their respective affiliates with respect to any Employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(j) EMPLOYMENT MATTERS. Parent (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Parent Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Parent Employees; (iii) is not liable for any arrears of wages, other than
arrears normally included in its payroll schedule and system, or any taxes or
any penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Parent Employees (other
than routine payments to be made in the normal course of business and
consistent with past practice).
(k) LABOR. To the Knowledge of Parent, no work stoppage or labor
strike against Parent is pending or threatened. Except as set forth in
Schedule 3.20(k), Parent is not involved in or, to the Knowledge of Parent,
threatened with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any Parent Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability to Parent. To the
Knowledge of Parent, neither Parent nor any of its subsidiaries has engaged
in any unfair labor practices within the meaning of the National Labor
Relations Act which would, individually or in the aggregate, directly or
indirectly result in a material liability to Parent. Except as set forth in
Schedule 3.20(k), Parent is not presently, nor has it been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Parent Employees and no collective bargaining agreement is
being negotiated by Parent.
3.21 ACCOUNTING AND REGULATORY MATTERS. Parent has no Knowledge of any
action taken by Parent or any Affiliate of Parent or agreed to be taken nor
has any Knowledge of any fact or circumstance that is reasonably likely to
(a) prevent the Merger from qualifying for pooling-of-interests accounting
treatment, or (b) materially impede or delay receipt of any consents of
regulatory authorities referred to in Section 6.1(c), Section 6.1(e) and
Section 6.1(h) or result in the imposition of a condition or restriction of
the type referred to in the last sentence of such Section.
3.22 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Parent or Merger Sub (as modified by the Parent and Merger
Sub Schedules), nor any statement made in
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any schedule or certificate furnished by Parent or Merger Sub pursuant to
this Agreement, or furnished in or in connection with documents mailed or
delivered to the stockholders of Parent or Merger Sub in connection with
soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of
the circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY AND PARENT.
(a) COMPANY CONDUCT. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent
that Parent shall otherwise consent in writing or as expressly contemplated
herein) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and, to the
extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers
and key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, all with the goal of preserving unimpaired its goodwill and ongoing
businesses at the Effective Time. The Company shall promptly notify Parent
of any material event or occurrence or emergency not in the ordinary course
of its business, and any material event involving or adversely affecting the
Company or its business. Except as expressly contemplated by this Agreement
and except as set forth on Schedule 4.1(a), the Company shall not, without
the prior written consent of Parent:
(i) Except as set forth in the following subparagraph,
enter into any commitment, activity or transaction not in the ordinary course
of business;
(ii) Except for ProviderLink Valve-Added Reseller
Agreements, transfer to any person or entity any rights to any Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(iii) Enter into or amend any agreements pursuant to which
any other party is granted manufacturing, marketing, distribution or similar
rights of any type or scope with respect to any products of the Company;
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(iv) Amend or otherwise modify (or agree to do so), except
in the ordinary course of business, or violate the terms of, any of the
agreements set forth or described in the Company Schedules;
(v) Commence any litigation;
(vi) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock (or options, warrants or other rights exercisable
therefor);
(vii) Except as may be required by the SBCL Assets Purchase
Agreement, for the issuance of shares of Company Capital Stock upon exercise
or conversion of presently outstanding Company Options or Company Convertible
Securities and except pursuant to agreements previously entered into and
agreements that the Company will enter into in connection with the employment
of non-officer employees, issue, grant, deliver or sell or authorize or
propose the issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares or
other convertible securities;
(viii) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(ix) Except as may be required by the SBCL Assets Purchase
Agreement, acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
business of the Company;
(x) Sell, lease, license or otherwise dispose of any of
its properties or assets, except in the ordinary course of business and
consistent with past practice;
(xi) Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(xii) Grant any severance or termination pay to any
director, officer, employee or consultant, except payments (a) required by
law or, (b) with respect to non-officer employees and consultants (i) made
pursuant to written agreements outstanding on the date hereof
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(which such agreements are disclosed on Schedule 4.1(a)(xii)), or (ii)
pursuant to Company policy in effect on the date hereof;
(xiii) Adopt or amend any employee benefit plan, program,
policy or arrangement, or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees other than in the ordinary course of
business and consistent with past practice;
(xiv) Except as required by the acquisition of assets
pursuant to the SBCL Assets Purchase Agreement, revalue any of its assets,
including without limitation writing down the value of inventory or writing
off notes or accounts receivable other than in the ordinary course of
business and consistent with past practice;
(xv) Take any action, including the acceleration of vesting
of any options, warrants, restricted stock or other rights to acquire shares
of the capital stock of the Company which would be reasonably likely to
interfere with Parent's ability to account for the Merger as a pooling of
interests or any other action that could jeopardize the tax-free
reorganization hereunder;
(xvi) Pay, discharge or satisfy, in an amount in excess of
$15,000, in any one case, or $50,000, in the aggregate, any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the
Company Financial Statements or incurred in the ordinary course of business
since December 31, 1997;
(xvii) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(xviii) Enter into any strategic alliance, joint development
or joint marketing arrangement or agreement;
(xix) Fail to pay or otherwise satisfy its monetary
obligations as they become due, except such as are being contested in good
faith;
(xx) Waive or commit to waive any rights with a value in
excess of $10,000, in any one case, or $25,000, in the aggregate;
(xxi) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
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(xxii) Alter, or enter into any commitment to alter, its
interest in any corporation, association, joint venture, partnership or
business entity in which the Company directly or indirectly holds any
interest on the date hereof; or
(xxiii) Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(i) through (xxii) above, or any other
action that would prevent the Company from performing or cause the Company
not to perform its covenants hereunder.
(b) PARENT CONDUCT. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, Parent agrees (except to the extent that
Company shall otherwise consent in writing or as expressly contemplated
herein) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and, to the
extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers
and key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, all with the goal of preserving unimpaired its goodwill and ongoing
businesses at the Effective Time. Parent shall promptly notify the Company of
any material event or occurrence or emergency not in the ordinary course of
its business, and any material event involving or adversely affecting Parent
or its business. Except as expressly contemplated by this Agreement and
except as set forth on Schedule 4.1(b), Parent shall not, without the prior
written consent of the Company:
(i) Enter into any commitment, activity or transaction not
in the ordinary course of business.
(ii) Transfer to any person or entity any rights to any
Parent Intellectual Property Rights (other than pursuant to End-User Licenses
in the ordinary course of business);
(iii) Enter into or amend any agreements pursuant to which
any other party is granted manufacturing, marketing, distribution or similar
rights of any type or scope with respect to any products of Parent;
(iv) Amend or otherwise modify (or agree to do so), except
in the ordinary course of business, or violate the terms of, any of the
agreements set forth or described in the Parent and Merger Sub Schedules;
(v) Commence any litigation;
(vi) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of Parent, or
repurchase, redeem
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or otherwise acquire, directly or indirectly, any shares of its capital stock
(or options, warrants or other rights exercisable therefor);
(vii) Except for the issuance of shares of Parent capital
stock upon exercise or conversion of presently outstanding Parent Convertible
Securities and except pursuant to agreements previously entered into and
agreements that Parent will enter into in connection with the employment of
non-officer employees, issue, grant, deliver or sell or authorize or propose
the issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(viii) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(ix) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
the business of Parent;
(x) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and
consistent with past practice;
(xi) Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities of Parent or
guarantee any debt securities of others;
(xii) Grant any severance or termination pay to any director,
officer, employee or consultant, except payments (a) required by law or, (b)
with respect to non-officer employees and consultants (i) made pursuant to
written agreements outstanding on the date hereof (which such agreements are
disclosed on Schedule 4.1(b)(xii)), or (ii) pursuant to Parent policy in
effect on the date hereof;
(xiii) Adopt or amend any employee benefit plan, program,
policy or arrangement, or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees other than in the ordinary course of
business and consistent with past practice;
(xiv) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and consistent with
past practice;
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(xv) Take any action, including the acceleration of vesting
of any options, warrants, restricted stock or other rights to acquire shares
of the capital stock of Parent which would be reasonably likely to interfere
with Parent's ability to account for the Merger as a pooling of interests or
any other action that could jeopardize the tax-free reorganization hereunder;
(xvi) Pay, discharge or satisfy, in an amount in excess of
$15,000, in any one case, or $50,000, in the aggregate, any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Parent
Financial Statements or incurred in the ordinary course of business since
December 31, 1997;
(xvii) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(xviii) Enter into any strategic alliance, joint development
or joint marketing arrangement or agreement;
(xix) Fail to pay or otherwise satisfy its monetary
obligations as they become due, except such as are being contested in good
faith;
(xx) Waive or commit to waive any rights with a value in
excess of $10,000, in any one case, or $25,000, in the aggregate;
(xxi) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
(xxii) Alter, or enter into any commitment to alter, its
interest in any corporation, association, joint venture, partnership or
business entity in which Parent directly or indirectly holds any interest on
the date hereof; or
(xxiii) Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(i) through (xxii) above, or any other
action that would prevent Parent from performing or cause Parent not to
perform its covenants hereunder.
4.2 NO COMPANY SOLICITATION. Until the earlier of the Effective Time and
the date of termination of this Agreement pursuant to the provisions of Section
8.1 hereof, the Company will not (nor will the Company permit any of the
Company's officers, directors, shareholders, agents, representatives or
Affiliates to) directly or indirectly, take any of the following actions with
any party other than Parent and its designees: (a) solicit, initiate,
entertain, or encourage any proposals or offers from, or conduct discussions
with or engage in negotiations with, any person relating to any possible
acquisition of the Company or any of its subsidiaries (whether by way of merger,
purchase
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of capital stock, purchase of assets or otherwise), any material portion of
its or their capital stock or assets or any equity interest in the Company or
any of its subsidiaries, (b) provide information with respect to it to any
person, other than Parent, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such person with regard
to, any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its or their capital stock or assets or any equity interest in the
Company or any of its subsidiaries, (c) enter into an agreement with any
person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or
any equity interest in the Company or any of its subsidiaries, or (d) make or
authorize any statement, recommendation or solicitation in support of any
possible acquisition of the Company or any of its subsidiaries (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise),
any material portion of its or their capital stock or assets or any equity
interest in the Company or any of its subsidiaries by any person, other than
by Parent. The Company shall immediately cease and cause to be terminated
any such contacts or negotiations with third parties relating to any such
transaction or proposed transaction. In addition to the foregoing, if the
Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company
shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and
the specific terms of such offer or proposal, as the case may be, and such
other information related thereto as Parent may reasonably request. Except as
contemplated by this Agreement, disclosure by the Company of the terms hereof
(other than the prohibition of this section) shall be deemed to be a
violation of this Section 4.2.
4.3 NO PARENT OR MERGER SUB SOLICITATION. Until the earlier of the
Effective Time and the date of termination of this Agreement pursuant to the
provisions of Section 8.1 hereof, Parent and Merger Sub will not (nor will
Parent or Merger Sub permit any of their officers, directors, stockholders,
agents, representatives or Affiliates to) directly or indirectly, take any of
the following actions with any party other than the Company and its
designees: (a) solicit, initiate, entertain, or encourage any proposals or
offers from, or conduct discussions with or engage in negotiations with, any
person relating to any possible acquisition of Parent or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise), any material portion of its or their capital stock
or assets or any equity interest in Parent or any of its subsidiaries, (b)
provide information with respect to it to any person, other than the Company,
relating to, or otherwise cooperate with, facilitate or encourage any effort
or attempt by any such person with regard to, any possible acquisition of
Parent (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in Parent or any of its subsidiaries, (c) enter
into an agreement with any person providing for the acquisition of Parent
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or
any equity interest in Parent or any of its subsidiaries, or (d) make or
authorize any statement, recommendation or solicitation in support of any
possible acquisition of Parent or any of its subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity
interest in Parent or any of its subsidiaries by any person. Parent shall
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immediately cease and cause to be terminated any such contacts or
negotiations with third parties relating to any such transaction or proposed
transaction. In addition to the foregoing, if Parent receives prior to the
Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, Parent shall immediately notify the Company
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
the Company may reasonably request. Except as contemplated by this
Agreement, disclosure by Parent of the terms hereof (other than the
prohibition of this section) shall be deemed to be a violation of this
Section 4.3.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 CALIFORNIA PERMIT; COMPANY SHAREHOLDER AND PARENT STOCKHOLDER
APPROVALS.
(a) As soon as reasonably practical following the execution of
this Agreement, Parent and the Company will prepare the necessary
documentation to obtain a permit (a "CALIFORNIA PERMIT") from the
Commissioner of Corporations of the State of California (after a hearing
before such Department) pursuant to Section 25121 of the California Corporate
Securities Law of 1968, so that the issuance of Parent Common Stock in the
Merger shall be exempt from registration under Section 3(a)(10) of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). The Company and
Parent will respond to any comments from the California Department of
Corporations and use their commercially reasonable efforts to have the
California Permit granted as soon as practical after such filing. As
promptly as practical after the date of this Agreement, Parent and the
Company shall prepare and make such filings as are required under applicable
Blue Sky laws relating to the transactions contemplated by this Agreement.
(b) As promptly as practicable after the receipt of a California
Permit, the Company shall submit this Agreement and the transactions
contemplated hereby, including without limitation the Merger, to the
Company's shareholders for approval as provided by Georgia Law and the
Company's Articles of Incorporation and Bylaws. The materials submitted to
the Company's shareholders shall be subject to review and approval by Parent
and include information regarding Parent and the Company, the terms of the
Merger and this Agreement and the unanimous recommendation of the Board of
Directors of the Company in favor of the Merger, this Agreement and the
transactions contemplated hereby.
(c) As promptly as practicable after receipt of a California
Permit, Parent shall submit this Agreement and the transactions contemplated
hereby, including without limitation the Merger, to Parent's stockholders for
approval and adoption as provided by Delaware law, California law and
Parent's Certificate of Incorporation and Bylaws. The materials submitted to
Parent's
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stockholders shall include the unanimous recommendation of the Board of
Directors of Parent in favor of the Merger, this Agreement and the
transactions contemplated hereby.
5.2 ACCESS TO INFORMATION. Each party shall afford the others and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a)
all of its properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject
to restrictions imposed by applicable law) of it as the others may reasonably
request, subject, in the case of Parent, to reasonable limits on access to
its technical and other nonpublic information. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep
the terms of this Agreement (except to the extent contemplated hereby) and
such information or knowledge obtained in any investigation pursuant to
Section 5.2, or pursuant to the negotiation and execution of this Agreement
or the effectuation of the transactions contemplated hereby, confidential;
provided, however, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any
violation of law, (c) became known to the public through no fault of such
party, (d) is later lawfully acquired by such party without confidentiality
restrictions from other sources, (e) is required to be disclosed by order of
court or government agency with subpoena powers (provided that such party
shall have provided the other party with prior notice of such order or
subpoena and an opportunity to object or take other available action) or (f)
which is disclosed in the course of any litigation between any of the parties
hereto.
5.4 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting and all
other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by
a party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall
be the obligation of the respective party incurring such fees and expenses.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, federal and state securities laws) prior to the Effective
Time, no disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement shall be made by any party hereto unless approved by
Parent and the Company prior to release, provided that such approval shall
not be unreasonably withheld.
5.6 CONSENTS. Parent and the Company shall use commercially reasonable
efforts to obtain the consents, waivers and approvals under any of the Parent
Contracts and Company Contracts as may be required in connection with the
Merger (all of such consents, waivers and
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approvals are set forth in the Company Schedules and Parent and Merger Sub
Schedules) so as to preserve all rights of and benefits to the Parent and
Company thereunder.
5.7 FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable
efforts to ensure that its representations and warranties remain true and
correct in all material respects, and to take promptly, or cause to be taken,
all actions, and to do promptly, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated hereby, to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings, and to remove any injunctions or other impediments or delays, legal
or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement; provided that Parent
shall not be required to agree to any divestiture by Parent or the Company or
any of Parent's subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of Parent or its subsidiaries or affiliates
or the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to
own or exercise control of such assets, properties and stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of
the Company, Parent or Merger Sub, respectively, contained in this Agreement
to be untrue or inaccurate at or prior to the Effective Time and (ii) any
failure of the Company or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant
to this Section 5.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.10 CERTAIN BENEFIT PLANS. Subject to compliance with
pooling-of-interest accounting treatment of the Merger, Parent shall take
such reasonable actions as are necessary to allow eligible employees of the
Company to participate in the benefit programs of Parent, or alternative
benefits programs substantially comparable to those applicable to employees
of Parent on similar terms, as soon as practicable after the Effective Time.
For purposes of participation, vesting and benefit accrual under Parent's
employee benefit plans, the service of the employees of the Company prior to
the Effective Time shall be treated as service with Parent. Parent shall
cause the Surviving Corporation to honor in accordance with their terms all
employment, severance, consulting and other compensation Contracts disclosed
in the Company Schedules between the Company and any current or former
director, officer or employee thereof, and all provisions for vested benefits
or other vested amounts earned or accrued through the Effective Time under
the Company Benefit Plans.
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5.11 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify for treatment as a
pooling of interests for accounting purposes and each of the Parties agrees
to take no action which would cause the Merger not to qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes.
5.12 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.13 COMPANY'S AUDITORS. The Company will use its commercially
reasonable efforts to cause its management and its independent auditors to
facilitate on a timely basis (i) the review of any Company audit or review
work papers for up to the past three years, including the examination of
selected interim financial statements and data and (ii) the delivery of such
representations from the Company's independent accountants as may be
reasonably requested by Parent or its accountants in order for Parent's
accountants to render the opinion called for by Section 6.1(l) hereof.
5.14 PARENT'S AUDITORS. Parent will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on
a timely basis (i) the review of any Parent audit or review work papers for
up to the past three years, including the examination of selected interim
financial statements and data and (ii) the delivery of such representations
from Parent's independent accountants as may be reasonably requested by the
Company or its accountants in order for Company's accountants to render the
opinion called for by Section 6.1(l) hereof.
5.15 AGREEMENT OF AFFILIATES. Each Party has disclosed in Schedule 5.15
of its Schedules all Persons whom it reasonably believes is an Affiliate. If
the Merger is accounted for using the pooling-of-interests method of
accounting, shares of Parent Common Stock held by such Persons shall not be
transferable until such time as financial results covering at least 30 days
of combined operations of Parent and the Company have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such Affiliate has provided
the Voting Agreement (and Parent shall be entitled to place restrictive
legends upon certificates for shares of Parent Common Stock issued to
Affiliates of the Company pursuant to this Agreement to enforce the
provisions of this Section 5.14).
5.16 AMENDMENT OF PARENT BYLAWS. Parent shall take all necessary
corporate actions, including without limitation soliciting stockholder
approval (including the unanimous recommendation of Parent's Board of
Directors in favor thereof), to increase the authorized number of directors
to eight.
5.17 INDEMNIFICATION.
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(a) For a period of three years after the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, indemnify, defend and
hold harmless the present and former directors, officers, employees and
agents of the Company (each, an "INDEMNIFIED PARTY") against all liabilities
arising out of actions or omissions arising out of the Indemnified Party's
service or services as directors, officers, employees or agents of the
Company, ShareNet, EDI Services, Inc. or as a trustee of the Company's 401(K)
plans(s) occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the fullest extent permitted
under Delaware law (or, in the event Georgia law is more restrictive with
respect to indemnification, then under Georgia law) and by the Company's
Articles of Incorporation and Bylaws as in effect on the date hereof,
including provisions relating to advances of expenses incurred in the defense
of any litigation and whether or not Parent is insured against any such
matter. Without limiting the foregoing, in any case in which approval by the
Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent
counsel mutually and reasonably agreed upon between Parent and the
Indemnified Party.
(b) This Section 5.17 shall survive the Effective Time and is
intended to benefit the Company, the Surviving Corporation and each of the
Indemnified Parties and his or her heirs and representatives (each of whom
shall be entitled to enforce this Section 5.17 against Parent or the
Surviving Corporation, as the case may be) and shall be binding upon all
successors and assigns (whether by operation of law or by contract) of Parent
and the Surviving Corporation.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) COMPANY SHAREHOLDER APPROVAL. This Agreement and the Merger
shall have been approved by the shareholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation and
Bylaws.
(b) PARENT STOCKHOLDER APPROVAL. This Agreement and the Merger
(including any amendments to Parent's Certificate of Incorporation reasonably
necessary to consummate the transactions contemplated by this Agreement)
shall have been approved and adopted by the stockholders of Parent by the
requisite vote under applicable law and Parent's Certificate of Incorporation
and Bylaws.
(c) CALIFORNIA PERMIT. The Commissioner of Corporations for the
State of California shall have approved the terms and conditions of the
transactions contemplated by this
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Agreement, and the fairness of such terms and conditions pursuant to Section
25142 of the California Corporations Code ("CALIFORNIA CODE") following a
hearing for such purpose, and shall have issued a Permit under Section 25121
of the California Code.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal or regulatory restraint
or prohibition preventing the consummation of the Merger shall be in effect.
(e) HSR ACT CLEARANCE. All approvals shall have been received
and the expiration or early termination under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (the "HSR ACT"), and other applicable
antitrust laws ("HSR CLEARANCE"); provided that, neither party may rely on
the condition set forth in this Section 6.1(e) if the failure to obtain HSR
Clearance for the Merger is a result of such party's failure to take
commercially reasonable efforts to obtain HSR Clearance.
(f) TAX OPINIONS. Parent shall have received a written opinion
from its counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation,
and the Company shall have received a written opinion from its counsel,
Alston & Bird LLP (substantially identical to the opinion received by
Parent), to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code; provided, however, that if
Company counsel does not render such opinion, this condition shall
nonetheless be deemed to be satisfied if Parent's counsel renders its opinion
to the Company as well as to Parent. The parties to this Agreement agree to
make reasonable representations (and to cause their Affiliates to make
reasonable representations) as requested by counsel for the purpose of
rendering the opinions discussed herein.
(g) INVESTORS' RIGHTS AGREEMENT. The Investors' Rights Agreement,
dated as of October 14, 1997, as amended (the "INVESTORS' RIGHTS AGREEMENT"),
by and between Parent and certain holders of Parent's securities shall have
been amended and executed by Parent, the shareholders of the Company who
possess registration rights pursuant to written agreements existing on the
date hereof with respect to certain securities of the Company, and a
sufficient number of the existing holders of registration rights with respect
to Parent's securities in order to permit the granting of such rights under
the Investors' Rights Agreement.
(h) OTHER GOVERNMENTAL APPROVALS. All approvals from government
authorities, including without limitation any requisite Blue Sky approvals,
which are appropriate or necessary for the consummation of the Merger, shall
have been obtained.
(i) LITIGATION. There shall be no BONA FIDE action, suit, claim
or proceeding of any nature pending, or overtly threatened, against Parent or
the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Merger or other
transactions contemplated by the terms of this Agreement.
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(j) CONSENTS AND APPROVALS. Each Party shall have obtained any
and all consents required for consummation of the Merger or for the
preventing of any Default under any Contract or Permit of such Party which,
if not obtained or made, is reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect or a Parent Material Adverse
Effect, as applicable. No consent so obtained which is necessary to
consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner which in the reasonable judgment of the Board of
Directors of either party would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement that,
had such condition or requirement been known, such party would not, in its
reasonable judgment, have entered into this Agreement.
(k) AGREEMENT WITH SBCL. Sections 1.5 through 1.8 of the SBCL
Assets Purchase Agreement shall be amended to provide for payment of the
Purchase Price (as that term is defined therein) with Parent Common Stock for
any payment due on any Transfer Date (as that term is defined therein) which
occurs following the Effective Time, and the parties shall obtain such other
amendments and waivers to such agreement as may be reasonably necessary to
accomplish the objectives of the Merger.
(l) POOLING LETTERS. Each of Parent and Company shall have
received letters, dated as of the Effective Time, from Ernst & Young LLP
regarding such firm's concurrence with Parent's managements' and Company's
managements' conclusions as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16 if
the Merger is consummated in accordance with this Agreement.
(m) VOTING AGREEMENTS. Each of the persons and entities listed on
Exhibit A and Exhibit B to the Voting Agreement set forth in EXHIBIT D
hereto, shall have executed and delivered such Voting Agreements in
substantially the form set forth in EXHIBIT D.
(n) AFFILIATE AGREEMENTS. Each of the persons and entities listed
as Affiliates of Parent on Schedule 5.14 shall have executed and delivered
Affiliate Agreements in substantially the form of EXHIBIT C, and each of the
persons and entities listed as Affiliates of the Company on Schedule 5.14
shall have executed and delivered Affiliate Agreements in substantially the
form of EXHIBIT E, and all such Affiliate Agreements shall be in full force
and effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except
for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same
force and effect as if made on and as of the Closing
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Date, except for those representations and warranties that are qualified by
references to "material" or "Material Adverse Effect" which all shall be true
and correct in all respects, and except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Material
Adverse Effect on Parent; and the Company shall have received a certificate
to such effect signed on behalf of Parent by a duly authorized officer of
Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
on or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) EXCHANGE AGENT CERTIFICATION. The Exchange Agent shall have
delivered to the Company a certificate, dated as of the Effective Time, to
the effect that the Exchange Agent has received from Parent appropriate
instructions and authorization for the Exchange Agent to issue a sufficient
number of shares of Parent Common Stock in exchange for outstanding shares of
Company Common Stock and that Parent has deposited with the Exchange Agent
sufficient funds to pay a reasonable estimate of the cash payments necessary
to make all fractional share payments as required by Section 1.6(f).
(d) LEGAL OPINION. The Company shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Parent, in form and substance reasonably acceptable to counsel of
Company.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible
assets), liabilities, financial condition or results of operations of Parent
since the date of the Parent Current Balance Sheet.
(f) CONVERSION OF PREFERRED STOCK. All shares of Parent Preferred
Stock, other than shares of Parent Series D Preferred Stock, shall have
converted into Parent Common Stock in accordance with the Parent's
Certificate of Incorporation; provided, however, if the Company so requests,
shares of Parent Series D Preferred Stock shall have also converted to Parent
Common Stock.
(g) BOARD OF DIRECTORS. Parent shall have amended its Bylaws so
as to increase the number of Directors on its Board of Directors from four to
eight. Parent shall have taken all corporate actions to ensure that
immediately upon the Closing, the Board of Directors of Parent consists of
Jim Clark, John Doerr, Richard Kramlich, W. Michael Long, P. E. Sadler,
Michael K. Hoover, Tadakata Yamada and one other person to be designated by
the Company prior to the Closing Date.
(h) INDEMNIFICATION. The Articles of Incorporation of Merger Sub
shall contain officer and director indemnification provisions that are
substantially similar to the officer and
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director indemnification provisions contained in the Company's Articles of
Incorporation in the form delivered to Parent on the date of this Agreement.
(i) DUE DILIGENCE INVESTIGATION. Company shall have completed its
due diligence investigation of Parent to Company's reasonable satisfaction,
provided that no information or knowledge obtained in such investigation
shall affect or be deemed to modify any representation or warranty of Parent
contained herein. In this regard, Company's due diligence investigation
shall be conclusively deemed to have been completed to Company's reasonable
satisfaction in the event that the preliminary Parent Schedules attached
hereto are not subsequently modified, or otherwise do not require subsequent
modification in order to make Parent's representations and warranties true
and correct in all material respects on and as of the Closing Date.
(j) PARENT 1997 FINANCIAL STATEMENTS. Parent shall have completed
and delivered to the Company a copy of its audited financial statements for
the year ended December 31, 1997.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations
and warranties which address matters only as of a particular date (which
shall remain true and correct as of such date), with the same force and
effect as if made on and as of the Closing Date, except for those
representations and warranties that are qualified by references to "material"
or "Material Adverse Effect" which all shall be true and correct in all
respects, and except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on the Company
or Parent; and Parent and Merger Sub shall have received a certificate to
such effect signed on behalf of the Company by the chief executive officer
and chief financial officer of the Company.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by a duly authorized officer of the Company.
(c) LEGAL OPINION. Parent shall have received a legal opinion
from Alston & Bird LLP, legal counsel to the Company, in form and substance
reasonably acceptable to counsel of Parent.
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(d) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible assets)
financial condition or results of operations of the Company since the date of
the Company Current Balance Sheet.
(e) NO ELECTION TO TREAT AS LIQUIDATION. Prior to the Closing
Date, there shall have been no election made by the holders of a majority of
the Company's Preferred Stock, in accordance with Section 3.2 of the
Company's Articles of Incorporation, to treat the Merger as a liquidation,
dissolution or winding up of the Company in accordance with such Articles of
Incorporation.
(f) NO DISSENTERS. Holders of more than five (5%) of the
outstanding shares of Company Capital Stock shall not have exercised, nor
shall they have any continued right to exercise, dissenters' rights under
applicable law with respect to their shares by virtue of the Merger.
(g) THIRD-PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(j).
(h) DUE DILIGENCE INVESTIGATION. Parent shall have completed its
due diligence investigation of the Company to Parent's reasonable
satisfaction, provided that no information or knowledge obtained in such
investigation shall affect or be deemed to modify any representation or
warranty of the Company contained herein. In this regard, Parent's due
diligence investigation shall be conclusively deemed to have been completed
to Parent's reasonable satisfaction in the event that the preliminary Company
Schedules attached hereto are not subsequently modified, or otherwise do not
require subsequent modification, in order to make the Company's
representations and warranties true and correct in all material respects on
and as of the Closing Date.
(i) COMPANY 1997 FINANCIAL STATEMENTS. The Company shall have
completed and delivered to Parent a copy of its audited financial statements
for the year ended December 31, 1997.
ARTICLE VII
NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Company, Parent and Merger Sub
contained in this Agreement or in any instrument delivered pursuant to this
Agreement (each as modified by the corresponding schedules thereto) shall
terminate at the Effective Time.
ARTICLE VIII
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TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on May 15, 1998 (provided that (A)
the right to terminate this Agreement under this clause 8.1(b)(i) shall not
be available to any party whose failure to use its commercially reasonable
efforts to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date, and (B) such date shall be automatically extended where the failure to
Close is a result of not obtaining HSR Clearance and the parties are
continuing to pursue such clearance); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity that would make consummation of the
Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
to the Merger, by any Governmental Entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of all or any portion of the
business of the Company or (ii) compel Parent or the Company to dispose of or
hold separate all or a portion of the business or assets of the Company or
Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
the Company and (i) such breach has not been cured within thirty (30) days
after written notice to the Company (provided that, no cure period shall be
required for a breach which by its nature cannot be cured), and (ii) as a
result of such breach the conditions set forth in Section 6.3(a) or 6.3(b),
as the case may be, would not then be satisfied; or
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of Parent or Merger Sub and (i) such breach has not been cured
within thirty (30) days after written notice to Parent (provided that, no
cure period shall be required for a breach which by its nature cannot be
cured), and (ii) as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
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8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub or the Company, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches
of this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.3 and 5.4 and Article VIII of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law after
the shareholders of the Company and the Stockholders of Parent approve this
Agreement, this Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of
the agreements or conditions for the benefit of such party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) if to Parent or Merger Sub, to:
Healtheon Corporation
87 Encina
Palo Alto, CA 94301
Attention: W. Michael Long
Telephone No.: (650) 614-0200
Facsimile No.: (650) 614-3300
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with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven E. Bochner, Esq.
Jeffrey A. Herbst, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(ii) if to the Company, to:
ActaMed Corporation
7000 Central Parkway, Suite 600
Atlanta, Georgia 30328
Attention: Michael K. Hoover
Telephone No.: (770) 352-1600
Facsimile No.: (770) 352-1601
with a copy to:
Alston & Bird
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: George M. Maxwell, Jr.
Telephone No.: (404) 881-7570
Facsimile No.: (404) 881-7777
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer
upon any other person any rights
59
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or remedies hereunder (except with respect to Section 5.17); and (c) shall
not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Merger Sub may assign their
respective rights and delegate their respective obligations hereunder to
their respective Affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will
not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
ACTAMED CORPORATION HEALTHEON CORPORATION
By /s/ Michael Hoover By /s/ W. Michael Long
--------------------------- -----------------------------
Name: Michael Hoover Name: W. Michael Long
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
MEDNET ACQUISITION CORP.
By /s/ W. Michael Long
-----------------------------
Name: W. Michael Long
Title: President
***REORGANIZATION AGREEMENT**
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ACTAMED CORPORATION,
EDI ACQUISITION, INC.,
UHC GREEN ACQUISITION, INC.
AND
UNITED HEALTHCARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER. . . . . . . . . . . . . . 1
1.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . 2
1.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Items to Be Delivered at Closing. . . . . . . . . . . . . . 2
ARTICLE 2 THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . 4
2.1 Articles of Incorporation . . . . . . . . . . . . . . . . . 4
2.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Directors and Officers. . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . 5
3.1 Conversion of Shares. . . . . . . . . . . . . . . . . . . . 5
3.2 Exchange Procedures . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UHC AND THE COMPANY . . . 5
4.1 Ownership of Shares; Operations . . . . . . . . . . . . . . 5
4.2 Capacity and Validity . . . . . . . . . . . . . . . . . . . 6
4.3 Organization, Standing and Foreign Qualification. . . . . . 6
4.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 Subsidiaries and Investments. . . . . . . . . . . . . . . . 7
4.6 EDI Financial Statements. . . . . . . . . . . . . . . . . . 7
4.7 Absence of Undisclosed Liabilities. . . . . . . . . . . . . 7
4.8 No Liabilities as Guarantor . . . . . . . . . . . . . . . . 8
4.9 Absence of Changes. . . . . . . . . . . . . . . . . . . . . 8
4.10 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 9
4.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 10
4.12 Real Property . . . . . . . . . . . . . . . . . . . . . . . 10
4.13 Personal Property . . . . . . . . . . . . . . . . . . . . . 10
4.14 Intellectual Property . . . . . . . . . . . . . . . . . . . 11
4.15 Accounts and Notes Receivable . . . . . . . . . . . . . . . 11
4.16 The Proprietary Software. . . . . . . . . . . . . . . . . . 11
4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.18 Compliance with Laws. . . . . . . . . . . . . . . . . . . . 12
4.19 Environmental Conditions. . . . . . . . . . . . . . . . . . 13
4.20 Litigation and Claims . . . . . . . . . . . . . . . . . . . 13
4.21 Contracts and Commitments; Warranties . . . . . . . . . . . 13
4.22 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . 14
4.23 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 14
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4.24 Remuneration. . . . . . . . . . . . . . . . . . . . . . . . 14
4.25 Union and Employment Agreements . . . . . . . . . . . . . . 14
4.26 Officers, Directors, and Bank Accounts. . . . . . . . . . . 15
4.27 Interested Party Transactions . . . . . . . . . . . . . . . 15
4.28 Brokers and Finders . . . . . . . . . . . . . . . . . . . . 15
4.29 Investment Representations; Legend on Shares. . . . . . . . 15
4.30 Compliance with Regulation D Information Requirements . . . 16
4.31 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ACTAMED AND SUBCORP . . . 17
5.1 Organization and Good Standing. . . . . . . . . . . . . . . 17
5.2 Authorization of Agreement, No Breach . . . . . . . . . . . 18
5.3 Corporate Power . . . . . . . . . . . . . . . . . . . . . . 18
5.4 ActaMed Financial Statements. . . . . . . . . . . . . . . . 18
5.5 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 Capitalization. . . . . . . . . . . . . . . . . . . . . . . 19
5.7 Validity and Rights of the Preferred Shares . . . . . . . . 19
5.8 Registration Rights . . . . . . . . . . . . . . . . . . . . 20
5.9 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.11 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 20
5.12 Pending Litigation, etc.. . . . . . . . . . . . . . . . . . 20
5.13 Title to Properties . . . . . . . . . . . . . . . . . . . . 20
5.14 Intellectual Property, etc. . . . . . . . . . . . . . . . . 21
5.15 Compliance with Other Instruments . . . . . . . . . . . . . 21
5.16 Compliance with Law . . . . . . . . . . . . . . . . . . . . 22
5.17 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.18 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 22
5.19 Compliance with Environmental Laws. . . . . . . . . . . . . 22
5.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.21 Material Contracts and Agreements . . . . . . . . . . . . . 23
5.22 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.23 Investment Company. . . . . . . . . . . . . . . . . . . . . 24
5.24 Labor Relations . . . . . . . . . . . . . . . . . . . . . . 24
5.25 No Conflict of Interest . . . . . . . . . . . . . . . . . . 25
5.26 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . 25
5.27 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 6 RELATED AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . 25
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . 25
6.2 Access to Properties. . . . . . . . . . . . . . . . . . . . 26
6.3 Relationship with Employees and Customers . . . . . . . . . 26
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6.4 Hired Employees . . . . . . . . . . . . . . . . . . . . . . 27
6.5 Employee Benefits . . . . . . . . . . . . . . . . . . . . . 27
6.6 Other Offers and Exclusive Dealing. . . . . . . . . . . . . 28
6.7 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . 29
6.8 Consents and Approvals. . . . . . . . . . . . . . . . . . . 29
6.9 Qualification and Corporate Existence . . . . . . . . . . . 29
6.10 Public Announcements. . . . . . . . . . . . . . . . . . . . 29
6.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 30
6.12 Covenant Not to Compete . . . . . . . . . . . . . . . . . . 30
6.13 Closing Conditions. . . . . . . . . . . . . . . . . . . . . 30
6.14 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.15 Repayment of Debts to Company . . . . . . . . . . . . . . . 31
6.16 Compliance with Regulation D. . . . . . . . . . . . . . . . 31
6.17 Voting for Merger . . . . . . . . . . . . . . . . . . . . . 31
6.18 Antitrust Notification. . . . . . . . . . . . . . . . . . . 31
6.19 Review of Registration Statement. . . . . . . . . . . . . . 31
6.20 Escrow of Software. . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED AND SUBCORP 32
7.1 Representations True and Covenants Performed at Closing . . 32
7.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3 No Injunction, etc. . . . . . . . . . . . . . . . . . . . . 32
7.4 Approval of Legal Matters . . . . . . . . . . . . . . . . . 32
7.5 Governmental Approvals. . . . . . . . . . . . . . . . . . . 32
7.6 No Material Adverse Change. . . . . . . . . . . . . . . . . 32
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UHC AND THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Representations True and Covenants Performed at Closing . . 33
8.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 No Injunction, etc. . . . . . . . . . . . . . . . . . . . . 33
8.4 Approval of Legal Matters . . . . . . . . . . . . . . . . . 33
8.5 Governmental Approvals. . . . . . . . . . . . . . . . . . . 33
8.6 No Material Adverse Change. . . . . . . . . . . . . . . . . 34
ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Survival of Representations and Warranties of UHC and the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Survival of Representations and Warranties of ActaMed and
SubCorp . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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9.3 Obligation of UHC to Indemnify. . . . . . . . . . . . . . . 35
9.4 Obligation of ActaMed and SubCorp to Indemnify. . . . . . . 35
9.5 Claims Notice . . . . . . . . . . . . . . . . . . . . . . . 36
9.6 Procedures Involving Non-Third Party Claims . . . . . . . . 36
9.7 Procedures Involving Third Party Claims . . . . . . . . . . 36
9.8 Limitations on Indemnification. . . . . . . . . . . . . . . 37
9.9 No Release for Fraud. . . . . . . . . . . . . . . . . . . . 38
9.10 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . 38
9.12 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 10 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 Tax Indemnities . . . . . . . . . . . . . . . . . . . . . . 39
10.2 Returns and Payments. . . . . . . . . . . . . . . . . . . . 40
10.3 Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.4 Cooperation and Exchange of Information . . . . . . . . . . 41
10.5 Tax Sharing Agreements. . . . . . . . . . . . . . . . . . . 42
10.6 Article 9 . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 11 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 42
11.1 Method of Termination . . . . . . . . . . . . . . . . . . . 42
11.2 Notice of Termination . . . . . . . . . . . . . . . . . . . 43
11.3 Effect of Termination . . . . . . . . . . . . . . . . . . . 43
11.4 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 12 ADDITIONAL COVENANTS OF ACTAMED . . . . . . . . . . . . . . 44
12.1 Securities Law Filings. . . . . . . . . . . . . . . . . . . 44
12.2 Transactions with Substantial Holders . . . . . . . . . . . 44
12.3 Business and Financial Covenants. . . . . . . . . . . . . . 44
12.4 Corporate Existence, Business, Maintenance, Insurance . . . 46
12.5 Payment of Taxes, etc.; ERISA . . . . . . . . . . . . . . . 47
12.6 Books and Records, Compliance . . . . . . . . . . . . . . . 47
12.7 Repurchase of Preferred Shares. . . . . . . . . . . . . . . 48
12.8 Compensation. . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 13 INFORMATIONAL COVENANTS OF ACTAMED. . . . . . . . . . . . . 48
13.1 Audited Annual Financial Statements . . . . . . . . . . . . 48
13.2 Quarterly Unaudited Financial Statements. . . . . . . . . . 48
13.3 Monthly Unaudited Financial Statements. . . . . . . . . . . 49
13.4 Management's Analysis . . . . . . . . . . . . . . . . . . . 49
13.5 Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.6 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . 49
13.7 Other Information . . . . . . . . . . . . . . . . . . . . . 50
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PAGE
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ARTICLE 14 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . 51
14.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.2 Further Assurances. . . . . . . . . . . . . . . . . . . . . 52
14.3 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.4 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 52
14.5 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . 53
14.6 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 53
14.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 53
14.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 53
14.11 Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.12 Time of Essence . . . . . . . . . . . . . . . . . . . . . . 53
14.13 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
A Defined Terms
1.4(a)(1) Services and License Agreement
1.4(a)(2) Registration Rights Agreement Amendment
1.4(a)(3) Stockholders' Agreement Amendment
1.4(a)(4) Standstill Agreement Amendment
1.4(a)(5) Terms of Transition Services Agreement
1.4(a)(6) UHC Compliance Certificate
1.4(a)(7) UHC Secretary's Certificate
1.4(a)(8) Company Compliance Certificate
1.4(a)(9) Company Secretary's Certificate
1.4(b)(2) Third Amended and Restated Articles of Incorporation
1.4(b)(3) ActaMed Compliance Certificate
1.4((b)(4) ActaMed Secretary's Certificate
1.4(b)(5) SubCorp Compliance Certificate
1.4(b)(6) SubCorp Secretary's Certificate
SCHEDULES
4.6 EDI Financial Statements
4.9 Changes
4.13(a) Company Personal Property
4.14 Company Intellectual Property
4.19 Company Environmental Conditions
4.20 Company Litigation
4.21(a) Company Contracts
4.27 Interested Party Transactions
5.4(a) ActaMed Financial Statements
5.4(b) Undisclosed Liabilities
5.5 Consent Requirements
5.6 ActaMed Derivative Securities
5.12 ActaMed Litigation
5.13 ActaMed Liens
5.14 ActaMed Intellectual Property
5.20 ActaMed Insurance Policies
5.21 ActaMed Contracts
5.22 Description of 1993 IRS Audit
5.24 ActaMed Labor Practices
5.25 ActaMed Conflicts
6.5 Hired Employees
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of March
1, 1996, is made and entered into by and among ACTAMED CORPORATION, a Georgia
corporation ("ACTAMED"), EDI ACQUISITION, INC., a Georgia corporation
("SUBCORP"), UNITED HEALTHCARE CORPORATION, a Minnesota corporation ("UHC")
and UHC GREEN ACQUISITION, INC., a Nevada corporation (the "COMPANY").
PREAMBLE
The Boards of Directors of ActaMed, SubCorp and the Company, and UHC are
of the opinion that the transactions described in this Agreement are in the
best interests of the parties and their respective shareholders. UHC is the
sole shareholder of the Company and ActaMed is the sole shareholder of
SubCorp. The assets dedicated to the EDI Services Group of UHC ("EDI") were
transferred to the Company. This Agreement provides for the acquisition of
the Company by ActaMed pursuant to the merger of SubCorp with and into the
Company. At the effective time of such merger, the outstanding shares of the
capital stock of the Company shall be converted into the right to receive
preferred stock of ActaMed. As a result, UHC shall become a shareholder of
ActaMed and the Company shall continue to conduct its business and operations
as a wholly-owned subsidiary of ActaMed. The transactions described in this
Agreement are subject to the approval of the Federal Trade Commission and the
United States Department of Justice, and the satisfaction of several other
conditions described in this Agreement.
Capitalized terms used in this Agreement are defined in EXHIBIT A to
this Agreement.
AGREEMENT
In consideration of the mutual representations, warranties and covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. At the Effective Time, SubCorp shall be merged with and
into the Company in the Merger. The Company shall be the Surviving
Corporation of the Merger and shall be governed by the laws of the State of
Nevada. The Merger shall be consummated pursuant to the terms and subject to
the conditions of this Agreement, which has been approved and adopted by the
respective Boards of Directors (or authorized committees thereof) of ActaMed,
SubCorp and the Company, and by UHC.
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<PAGE>
1.2 TIME AND PLACE OF CLOSING. The Closing of the transactions
contemplated by this Agreement will take place at 9:00 a.m., Atlanta, Georgia
local time, three business days after satisfaction of the conditions set
forth in Articles 7 and 8, or on such other day or at such other time as the
parties hereto may mutually agree. Notwithstanding the foregoing, if the
Closing does not occur on the first day of a month, then solely for financial
accounting and reporting purposes and filing of income tax returns in
connection with the Company, the parties hereto agree that the transactions
contemplated herein shall be deemed to have closed on as of the first day of
the month in which the Closing occurs; provided that the parties hereto agree
that for all other purposes, including, without limitation, risk of loss, the
Closing shall occur, and shall be deemed to have occurred, on the actual date
of the Closing. Executed counterparts of the documents required for the
Closing shall be exchanged by mail prior to the Closing Date, and the parties
shall inspect and approve such executed documents prior to the Closing Date.
Prior to the Closing Date any documents so exchanged shall not be deemed to
have been delivered, but shall be held in escrow for inspection and approval
pending the Closing. On the Closing Date the parties shall confirm to each
other in writing that the documents are satisfactory, the documents shall be
deemed to be delivered, the Closing shall occur and the Merger shall be
effected.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
this Agreement shall become effective at the later of: (a) the date and the
time that a Certificate of Merger reflecting the Merger is filed with the
Secretary of State of the State of Georgia or (b) the date and the time that
articles of merger reflecting the Merger are filed with the Secretary of
State of the State of Nevada.
1.4 ITEMS TO BE DELIVERED AT CLOSING. At the Closing, the parties
shall exchange the following documents in connection with the Merger.
(a) UHC and the Company shall deliver to ActaMed and SubCorp the
following:
(1) a Services and License Agreement, executed by UHC as
attached hereto as EXHIBIT 1.4(a)(1);
(2) a Second Amendment to the Registration Rights Agreement,
executed by UHC and substantially in the form of EXHIBIT 1.4(a)(2);
(3) a Second Amendment to the ActaMed Stockholders'
Agreement, executed by UHC and substantially in the form of EXHIBIT 1.4(a)(3);
(4) an Amendment to the Standstill Agreement, executed by
UHC, UHC Management Company, Inc. and HLM Partners VII, L.P. and
substantially in the form of EXHIBIT 1.4(a)(4);
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<PAGE>
(5) a Transition Services Agreement, to be negotiated in good
faith by ActaMed and UHC and to be executed by UHC on substantially the terms
set forth on EXHIBIT 1.4(a)(5);
(6) a compliance certificate executed by an appropriate
officer of UHC and substantially in the form of EXHIBIT 1.4(a)(6);
(7) a Secretary's certificate executed by the Secretary of
UHC and substantially in the form of EXHIBIT 1.4(a)(7);
(8) a compliance certificate executed by the President of the
Company and substantially in the form of EXHIBIT 1.4(a)(8);
(9) a Secretary's certificate executed by the Secretary of
the Company and substantially in the form of EXHIBIT 1.4(a)(9);
(10) an opinion of Kevin H. Roche to be negotiated in good
faith by ActaMed, UHC and Mr. Roche;
(11) the written consents of other persons obtained pursuant
to SECTION 6.8;
(12) the resignation of each officer and director of the
Company;
(13) all of the books and records of the Company and the
Company Business including, but not limited to, (a) all corporate and other
records of the Company and each of its predecessors, including the minute
books, stock books, stock registers, books of account, leases and contracts,
deeds, title documents, customer lists, financial statements, (b) employee
records and (c) such other documents or certificates as shall be reasonably
requested by ActaMed and SubCorp;
(14) the good standing and other certificates referred to in
SECTION 6.9 hereof; and
(15) all other documents reasonably requested by ActaMed or
SubCorp.
(b) ActaMed and the SubCorp shall deliver to UHC and the Company
the following:
(1) executed counterpart originals of the Services and
License Agreement, the Registration Rights Agreement Amendment, the
Stockholders' Agreement Amendment, the Standstill Agreement Amendment, the
Transition Services Agreement and the Sublease Agreement;
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<PAGE>
(2) a certified copy of the Third Amended and Restated
Articles of Incorporation of ActaMed, filed in the office of the Secretary of
State of Georgia and substantially in the form of EXHIBIT 1.4(b)(2);
(3) a compliance certificate executed by the President of
ActaMed and substantially in the form of EXHIBIT 1.4(b)(3);
(4) a Secretary's certificate executed by the Secretary of
ActaMed and substantially in the form of EXHIBIT 1.4(b)(4);
(5) a compliance certificate executed by the President of
SubCorp and substantially in the form of EXHIBIT 1.4(b)(5);
(6) a Secretary's certificate executed by the Secretary of
SubCorp and substantially in the form of EXHIBIT 1.4(b)(6);
(7) an opinion of Alston & Bird to be negotiated in good
faith by UHC, ActaMed and Alston & Bird; and
(8) all other documents reasonably requested by UHC or the
Company.
ARTICLE 2
THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Company as in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation after the Effective
Time, and thereafter may be amended in accordance with its terms as provided
by law and this Agreement.
2.2 BYLAWS. The Bylaws of SubCorp as in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided by
laws and this Agreement.
2.3 DIRECTORS AND OFFICERS. The directors of SubCorp in office
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, and the officers of SubCorp in office immediately
prior to the Effective Time shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected
and qualified.
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<PAGE>
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this ARTICLE
3, at the Effective Time, by virtue of the Merger and without any action on
the part of UHC:
(a) All of the Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be deemed canceled and cease to
be outstanding and shall be converted into the right to receive at the
Effective Time as consideration from ActaMed for the Merger 10,344,828 shares
of Series C Preferred Stock of ActaMed. If, after the date of this Agreement
and before the Effective Time, ActaMed shall take any action that would have
caused conversion of the Preferred Shares had they been outstanding, then the
Company Common Stock shall be exchanged for the number of shares of the
ActaMed Common Stock that would have been issued upon the conversion of the
Preferred Shares. If, after the date of this Agreement and before the
Effective Time, ActaMed shall take any action that would have caused an
adjustment to the Series C Conversion Price (as defined in the Restated
Articles) had the Preferred Stock been outstanding, then the Series C
Conversion Price shall be so adjusted.
(b) Any and all shares of Company Common Stock held as treasury
shares by the Company shall be canceled and retired at the Effective Time,
and no consideration shall be issued in exchange therefor.
(c) Each share of the common stock of the SubCorp issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time and shall be unaffected by the
Merger.
3.2 EXCHANGE PROCEDURES. At the Closing, UHC shall deliver to ActaMed
the certificates held by it that formerly represented Company Common Stock,
and shall promptly upon surrender thereof receive in exchange therefor the
consideration provided in SECTION 3.1 of this Agreement. The certificates so
surrendered shall be duly endorsed as ActaMed may require. Until surrendered
for exchange in accordance with the provisions of this SECTION 3.2, each
certificate for Company Common Stock shall from and after the Effective Time
represent for all purposes only the right to receive the consideration
provided in SECTION 3.1 of this Agreement in exchange therefor.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF UHC AND THE COMPANY
UHC and the Company jointly and severally represent and warrant to
ActaMed and SubCorp as follows:
4.1 OWNERSHIP OF SHARES; OPERATIONS. UHC is the owner of all right,
title and interest (legal and beneficial) in and to all of the Shares, free
and clear of any and all
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<PAGE>
Liens of any nature whatsoever, and UHC holds no other interest in the
Company or the Company Business. Except as pursuant to this Agreement, no
person or entity has any agreement or option or any right or privilege
(whether pre-emptive or contractual) capable of becoming an agreement or
option for the purchase of any of the Shares. Substantially all of the
assets required for the operation of the Company Business have been
transferred to the Company on _____________, 199_ and the Company did not
have any operations prior to such date.
4.2 CAPACITY AND VALIDITY. UHC and the Company each have the full
power, authority and capacity necessary to enter into and perform its
obligations under this Agreement and the other UHC Documents and to
consummate the transactions contemplated hereby and thereby. This Agreement
and all other UHC Documents have been or will be duly executed and delivered
by UHC and the Company, and constitute or will constitute the legal, valid
and binding obligations of UHC and the Company, enforceable in accordance
with their respective terms. Neither the execution, delivery and performance
of this Agreement or any other UHC Document, nor the consummation of the
transactions contemplated hereby or thereby, will violate any provisions of
the articles of incorporation or bylaws of UHC or the Company, or any
Regulation or Court Order to which UHC or the Company is subject.
4.3 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION. UHC is a
corporation duly incorporated, validly existing and in good standing under
the laws of Minnesota. The Company is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Nevada,
and has the power and authority to carry on its business in the places as it
has been and is now being conducted and to own and lease the properties and
assets which it now owns or leases. The Company is duly qualified and/or
licensed to transact business and is in good standing as a foreign
corporation in the State of Minnesota, and the character of the property
owned or leased by the Company and the nature of the business conducted by it
do not require such qualification and/or licensing in any other jurisdiction.
Copies of the articles of incorporation and all amendments thereto of the
Company (certified by the Secretary of State of the State of Nevada), the
bylaws of the Company (certified by the Secretary of the Company) and copies
of the corporate minutes of the Company, which have been made available to
ActaMed and SubCorp for review, are true and complete copies of such
documents and accurately reflect all proceedings of the shareholders and
directors of the Company (and all committees thereof). The stock record
books of the Company, which have been made available to ActaMed and SubCorp
for review, contain true, complete and adequate records of the stock
ownership of the Company and the transfer of the shares of its capital stock.
4.4 CAPITAL STOCK. The authorized capital stock of the Company
consists of 1,000 shares of Common Stock, $.01 par value per share, all of
which are issued and outstanding. All of the issued and outstanding Shares
are duly and validly issued and outstanding, are fully paid and
nonassessable, and were issued pursuant to a valid exemption from
registration under the Securities Act and all applicable state securities
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<PAGE>
laws. There are no outstanding warrants, options, rights, calls or other
commitments of any nature relating to the Company Common Stock or any other
capital stock of the Company, and there are no outstanding securities of the
Company convertible into or exchangeable for shares of Company Common Stock
or any other capital stock of the Company. There are no shares of capital
stock held in the treasury of the Company.
4.5 SUBSIDIARIES AND INVESTMENTS. The Company has not in the past and
does not currently own, directly or indirectly, any capital stock or other
equity, ownership or proprietary interest in any corporation, partnership,
association, trust, joint venture or other entity.
4.6 EDI FINANCIAL STATEMENTS.
(a) SCHEDULE 4.6 contains audited balance sheets of EDI as of
December 31, 1994, and December 31, 1995, and audited statements of
operations and statements of cash flows for the three years ending December
31, 1995, together with the notes thereto and the reports thereon of Deloitte
& Touche, LLP.
(b) The EDI Financial Statements (1) are in accordance with the
books and records of the UHC Group, which have been properly maintained and
are complete and correct in all material respects; (2) present fairly the
financial condition, assets and liabilities (whether accrued, absolute,
contingent or otherwise) of the Company Business as of the respective dates
indicated and the results of operations for the respective periods indicated;
(3) have been prepared in accordance with GAAP consistently applied
throughout the periods involved, and (4) reflect adequate reserves for all
known Liabilities and reasonably anticipated losses.
(c) The EDI Financial Statements contain no untrue statements of
any material fact nor do they omit to state any material fact required to be
stated to make the EDI Financial Statements not misleading. No member of the
UHC Group has received any advice or notification from its independent
certified public accountants that the UHC Group has used any improper
accounting practice that would have the effect of not reflecting or
incorrectly reflecting in the EDI Financial Statements any properties,
assets, liabilities, revenues or expenses. The EDI Financial Statements do
not contain any items of special or nonrecurring income, or other income not
earned in the ordinary course of business, individually or in the aggregate
in excess of $5,000.
(d) The Company owns all of the assets reflected in the EDI
Financial Statements and the EDI Financial Statements reflect all of the
assets currently used by EDI in connection with the Company Business.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
Liabilities that are not reflected on the EDI Financial Statements, other
than Liabilities for the performance by the Company after the Closing Date of
the contracts assigned to the Company as set forth on the Schedules hereto.
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<PAGE>
4.8 NO LIABILITIES AS GUARANTOR. The Company is not directly or
indirectly liable, by guaranty, indemnity, or otherwise, upon or with respect
to, or obligated, by discount or repurchase agreement or in any other way, to
provide funds in respect to, or obligated to guarantee or assume any debt,
dividend or other obligation of any person, corporation, association,
partnership or other entity.
4.9 ABSENCE OF CHANGES. Except as disclosed on SCHEDULE 4.9, and
except as contemplated by this Agreement, since December 31, 1995, the
business and operations of the Company have been carried on only in the
ordinary course, and there has not been any transaction or occurrence,
whether or not in the ordinary course, in which the Company (and, with
respect to (e), (f), (h), (i) and (n), any other member of the UHC Group in
connection with the Hired Employees) has:
(a) suffered or experienced any event or condition materially and
adversely affecting the business, operations, assets, properties or condition
of the Company, financial or otherwise;
(b) declared, set aside or made, or agreed to declare, set aside
or make any payments or dividends or any distribution to shareholders, or
purchased, redeemed or otherwise acquired, directly or indirectly, or agreed
to purchase, redeem or acquire, any shares of capital stock or other
securities;
(c) effected any changes in its capital structure, or issued, sold
or otherwise transferred any equity or other interest in itself or any other
securities, or granted or agreed to grant any options or rights to purchase
any securities;
(d) suffered any damage, destruction or loss, whether or not
covered by insurance, which materially and adversely affected the properties
or business of the Company, or suffered any extraordinary losses or waived
any rights of substantial value;
(e) increased the rate of compensation payable or to become
payable by it to any of its officers, directors, employees or agents over the
rate being paid to them as of December 31, 1995, or agreed so to do, except
general hourly rate increases and normal merit increases for employees other
than officers;
(f) hired, committed to hire, terminated or received the
resignation of any Hired Employee;
(g) suffered any loss or termination, or threatened loss or
termination, of any material customer or supplier;
(h) through negotiation or otherwise, made any commitment or
incurred any Liability, whether or not enforceable, to any labor organization;
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<PAGE>
(i) directly or indirectly paid or entered into a Contract to pay
any severance or termination pay to any officer, director, employee or agent;
(j) changed any of the accounting principles followed by it or the
methods of applying such principles;
(k) offered or extended more favorable prices, discounts or
advertising, promotional, display or other allowances than were offered or
extended regularly as of the date of the most recently dated EDI Financial
Statements;
(l) entered into any commitment or transaction not in the ordinary
course of business involving aggregate value in excess of $10,000 or made or
approved the making of any capital expenditure exceeding the amount of
$10,000 in any instance;
(m) paid, discharged or satisfied any material liability other
than the payment, discharge or satisfaction of liabilities in the ordinary
course of business;
(n) except in the ordinary course of business and consistent with
past practice, canceled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any
of its properties or assets;
(o) incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of $10,000, except for accounts payable incurred in the
ordinary course of business;
(p) mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any Lien, except for Liens for current
property taxes not yet due and payable;
(q) terminated or amended any material Contract, License or other
instrument to which the Company is a party or suffered any loss or
termination or threatened loss or termination of any existing business
arrangement or material supplier, the termination or loss of which could
materially and adversely affect the Company;
(r) paid or agreed to pay any service charge, interest charge,
investment charge, intercompany charge or similar fee to any member of the
UHC Group that is not reflected in the Transition Services Agreement or
entered into any other transactions other than in the ordinary course of
business;
(s) charged off any bad debts or increased its bad debt reserve;
(t) experienced any significant development, quality assurance or
network operations problems.
4.10 INDEBTEDNESS. The Company has no indebtedness for money borrowed.
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4.11 TAX MATTERS.
(a) The Company has filed all Tax returns and information returns
required to be filed, taking into account any extensions of the filing
deadlines which have been validly granted to the Company, and such returns
are and will be true and correct in all material respects and properly
reflect the Tax liabilities of the Company for the periods, property or
events covered thereby, and the Company has paid all Taxes (including
penalties and interest in respect thereof, if any) that are due, whether
shown on such returns or not.
(b) Adequate provision has been made on the EDI Financial
Statements for all accrued Tax liabilities not required to be paid prior to
such date and for all current and deferred Taxes.
(c) The UHC Group has withheld or collected from each of the Hired
Employees the amount of all Taxes required to be withheld or collected
therefrom and has paid the same to the proper tax depositories or collecting
authorities.
(d) All ad valorem property taxes imposed on the Company and each
of its predecessors or its Affiliates to which it has succeeded with respect
to, or which may become a Lien on, its assets have been paid in full.
4.12 REAL PROPERTY. The Company neither owns nor leases (either as
lessee or lessor) any real property.
4.13 PERSONAL PROPERTY.
(a) SCHEDULE 4.13(a) contains a true, complete and correct list of
the material equipment, machinery, or other tangible personal property owned
by the Company, other than inventories held for resale and personal property
of the Hired Employees. The Company has good and marketable title to all of
its equipment, machinery, and items of tangible personal property (whether or
not disclosed in SCHEDULE 4.13(a)), free and clear of any and all Liens of
any kind or nature.
(b) The Company does not lease any of the equipment, machinery or
other items of tangible personal property used or employed in the Company
Business. The Company does not lease any personal property as lessor.
(c) The equipment, machinery, or other tangible personal property
owned or leased by the Company is in good operating condition and in a state
of reasonable maintenance and repair, and is considered adequate and usable
for the continued operation of the business of the Company as the same is
presently conducted.
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4.14 INTELLECTUAL PROPERTY. SCHEDULE 4.14 contains a list of
all material Intellectual Property owned by, registered in the name of, or
used in the Company Business by the UHC Group on the date hereof, or for
which application has been made. All licenses constituting Intellectual
Property are in full force and effect and constitute legal, valid and binding
obligations of the respective parties thereto, and there have not been and
there currently are not any Defaults thereunder by any party. The Company
owns all of such Intellectual Property free and clear of all assignments,
Licenses (or sublicenses), restrictions or Liens, except as set forth on
SCHEDULE 4.14. None of the Intellectual Property rights in the version and
form used on the Closing Date in the Company's Business infringes upon or
otherwise violates the rights of others, nor has any person asserted to UHC
Group a claim of such infringement, and to the knowledge of UHC Group, no
person is infringing upon or otherwise violating the Intellectual Property
rights of the Company. Except as set forth in SCHEDULE 4.14, the Company is
not obligated to pay any royalties to any person or entity with respect to
any Intellectual Property. The Company does not believe it is or will be
necessary to utilize any inventions of any of the employees engaged in the
Company Business (or people the Company currently intends to hire) made prior
to their employment by any member of the UHC Group. To the best knowledge of
the Company, no employee engaged in the Company Business is or has been in
violation of any term of any employment contract, patent disclosure agreement
or any other contract or agreement relating to the Intellectual Property or
the relationship of any such employee with such entity or any other party.
4.15 ACCOUNTS AND NOTES RECEIVABLE. The accounts receivable and notes
receivable of the Company as reflected in the most recently dated balance
sheet included in the EDI Financial Statements, to the extent uncollected on
the date hereof, and the accounts receivable and notes receivable reflected
on the books of the Company are: (a) valid and existing, (b) enforceable by
the Company in accordance with the terms of the instruments or documents
creating them, and (c) collectible within ninety (90) days in an amount not
less than the aggregate face amount thereof (net of reserves for doubtful and
uncollectible accounts) pursuant to the Company's normal collection practices.
4.16 THE PROPRIETARY SOFTWARE.
(a) The proprietary computer software of the Company included in the
Intellectual Property (the "SOFTWARE") performs in accordance with the
documentation and other written material used in connection with the
Software, is in machine-readable form, contains all current revisions of
such software, and includes all computer programs, materials, tapes, object
and source codes and other written materials related to the Software. The
Company has delivered to ActaMed complete and correct copies of all user
and technical documentation related to the Software.
(b) Neither the UHC Group nor, to the best knowledge of the UHC
Group, any employee or agent thereof has developed or assisted in the
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enhancement of the Software except for enhancements included in the
Software as delivered to ActaMed pursuant hereto.
(c) No employee of UHC Group is, or is now expected to be, in default
under any term of any employment contract, agreement or arrangement
relating to the Software or noncompetition arrangement, or any other
Contract or any restrictive covenant relating to the Software or its
development or exploitation. The Software was developed entirely by the
employees of UHC Group during the time they were employees only of UHC
Group or by consultants who assigned in writing all of their rights in the
Software to UHC Group.
(d) All right, title and interest in and to the Software is owned by
the Company, free and clear of all liens, claims, charges or encumbrances,
are fully transferable to the Purchaser, and no party other than the
Company has any interest in the Software, including without limitation, any
security interest, license, contingent interest or otherwise. UHC Group's
development or sale of the Software did and does not violate any rights of
any other person or entity and UHC Group has not received any communication
alleging such a violation. UHC Group does not have any obligation to
compensate any Person for the development, use, sale or exploitation of the
Software nor has UHC Group granted to any other person or entity any
license, option or other right to develop, use, sell or exploit in any
manner the Software, whether requiring the payment of royalties or not.
(e) UHC Group has kept secret and has not disclosed the source code
for the Software to any person or entity other than certain employees of
UHC Group. UHC Group has taken all appropriate measures to protect the
confidential and proprietary nature of the Software. There have been no
patents applied for and no copyrights registered for any part of the
Software. To the knowledge of UHC Group, there are no trademark rights of
any person or entity other than UHC Group in the name "ProviderLink".
(f) Except as set forth in SECTION 6.20, all copies of the Software
embodied in physical form are being delivered to ActaMed at or prior to the
Closing.
4.17 INSURANCE. UHC has maintained all appropriate types of insurance,
relative to its and the Company's Business in order to protect UHC and the
Company's assets and employees.
4.18 COMPLIANCE WITH LAWS.
(a) The Company and, in the operation of the Company Business, the
UHC Group has complied in all material respects with all applicable laws,
Regulations and orders. The Company has obtained all material permits,
licenses, orders, and
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approvals of federal, state and local governmental and regulatory bodies that
are required for the ownership, maintenance and operation of the Company's
premises and facilities and the operation of the Company Business; and no
member of the UHC Group is aware of any pending threat of cancellation,
modification or nonrenewal of any such permits, licenses, orders or
approvals, nor any basis for such cancellation, modification or nonrenewal.
The Company is not presently in material violation or material Default of any
such permit, license, order or approval and the present uses of the Company's
assets do not in any material respect violate any law, Regulation or order.
No notice or warning from any governmental authority with respect to any
failure or alleged failure of the Company to comply with any law, Regulation
or order has been issued or given, nor is any member of the UHC Group aware
that any such notice or warning is proposed or threatened. With the
exception of the acceptance for filing of articles of merger by the
secretaries of state of the States of Georgia and Nevada, respectively, and
as set forth in SECTION 6.18, no consent or approval of, prior filing with or
notice to, or other action by, any governmental body or agency or any other
third party is required in connection with the execution and delivery of this
Agreement or any assignment, agreement or other instrument to be executed and
delivered pursuant to this Agreement by the Company or any of UHC or the
consummation of the transactions provided for herein or therein.
(b) There are no material capital expenditures that the Company
believes are reasonably likely to be required to be made in connection with
the Company Business as now conducted in order to comply with any Regulations
or other governmental requirements applicable to the Company Business as it
is now conducted.
4.19 ENVIRONMENTAL CONDITIONS. Except as set forth in SCHEDULE 4.19,
there are no present or past Environmental Conditions in any way relating to
the business, properties or assets of the Company.
4.20 LITIGATION AND CLAIMS. There are no outstanding Court Orders or
quasi-judicial or administrative decisions to which the Company is subject,
and, except as disclosed on SCHEDULE 4.20, there is no Litigation pending or
to the best knowledge of the UHC Group threatened against or relating to the
Company or its assets or businesses. The UHC Group has not been advised by
any attorney representing it that there are any "loss contingencies" (as
defined in FASB 5), which would be required by FASB 5 to be disclosed or
accrued in financial statements of EDI, were such financial statements
prepared as of the date hereof.
4.21 CONTRACTS AND COMMITMENTS; WARRANTIES.
(a) SCHEDULE 4.21(a) contains a true, correct and complete list of
all Contracts to which the Company is a party or by which the Company
benefits, except for the Contracts that (1) are terminable at will by the
Company without any Liability, (2) are described in any other Schedule
hereto, or (3) do not and can not require payments in excess of $5,000 in the
aggregate following the date hereof.
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(b) Each of the Contracts listed in SCHEDULE 4.21(a), or described
in this SECTION 4.21 but which is included in any other Schedule, is in full
force and effect. No Default under any of the terms or conditions set forth
in any of the Contracts to which the Company is a party or any document or
instrument related thereto has occurred or been asserted by any party which
could result in monetary damages or termination of the Contract or require
payments to cure such Default. Except as reflected in such Schedules,
neither the execution, delivery and performance of this Agreement or any
other agreement or other instrument or document to be executed and delivered
by the Company or UHC pursuant to this Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with, result in a
breach of, or constitute a Default under any Contract to which the Company or
UHC is a party or by which any of them is bound, affect the continuation,
validity and effectiveness of any of such Contracts, or any terms thereof, or
result in the creation of any Lien upon any of the Shares or any of the
Company's assets or properties, or result in the acceleration of the maturity
of any payment date of any of the Company's obligations, or increase or
adversely affect the obligations of the Company thereunder. True, correct
and complete copies of all written Contracts or a written description of all
oral Contracts referred to in SCHEDULE 4.21(a) have been made available to
ActaMed and SubCorp for review.
(c) UHC Group has not given any warranties to any third parties with
respect to the products or services offered by the Company Business.
4.22 POWERS OF ATTORNEY. The Company has not given or granted any power
of attorney, whether limited or general, to any person, firm, corporation or
otherwise that is continuing in effect.
4.23 BENEFIT PLANS. The Company has not at any time sponsored,
contributed to or been obligated to contribute to any Benefit Plan. Neither
the Company nor UHC has at any time sponsored, contributed to or been
obligated to contribute to a "multiemployer pension plan" (as defined in
ERISA Section 4001(a)(3) and 3(37)(A)) or to a "defined benefit plan" (as
defined in ERISA Section 3(35)). Except as provided in SECTION 6.5(b) of
this Agreement, the Company, ActaMed and ActaMed's Affiliates shall have no
liability or obligation with respect to (i) employment related liabilities,
whether contingent or otherwise, arising out of any Hired Employee's or Hired
Hold-Over Employee's employment with UHC or its Affiliates or (ii) any
Benefit Plan sponsored, maintained or contributed to by UHC or its Affiliates.
4.24 REMUNERATION. The Company has provided complete and accurate
information to ActaMed relating to the direct compensation (including wages,
salaries and actual or anticipated bonuses) and benefits paid or provided in
1995, and the direct compensation and benefits (as described in the preceding
clause) to be paid in 1996, to all of the Hired Employees.
4.25 UNION AND EMPLOYMENT AGREEMENTS. The Company does not have any
employees or independent contractors. No member of the UHC Group is a party to
any
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union agreement that covered the Hired Employees or Hired Hold-Over
Employees, nor does any such member have any written or oral agreement that
is not terminable by it at will with any of the Hired Employees or Hired
Hold-Over Employees, relating to their employment by or performance of
service for the Company Business or their compensation therefor. No union
attempts to organize such employees have been made, nor are any such attempts
now threatened so far as is known to UHC or the Company.
4.26 OFFICERS, DIRECTORS, AND BANK ACCOUNTS. The Company has provided
complete and accurate information to ActaMed relating to (a) the names of all
directors and officers of any member of the UHC Group who are Hired Employees
and (b) the name and location of each bank or other institution in which the
Company has an account or safe deposit box, all account numbers and account
names, and names of all persons authorized to draw thereon or to have access
thereto.
4.27 INTERESTED PARTY TRANSACTIONS.
(a) Except as set forth in SCHEDULE 4.27, the Company is not a
party to any Contract, loan or other transaction with any of the following
persons, or in which any of the following persons have any direct or indirect
interest (other than as a Hired Employee):
(1) any director, officer, or employee of any member of the UHC
Group; or
(2) any of the spouses, parents, siblings, children, aunts,
uncles, nieces, nephews, in-laws or grandparents of any of the persons described
in clause (1).
(b) Except as set forth on SCHEDULE 4.27, no member of the UHC Group
is a consultant, partner, principal, director or shareholder of any business
entity (other than the Company or a corporation whose shares are publicly traded
and in which such member of the UHC Group beneficially owns in the aggregate no
more than a 5% equity interest) which is engaged in a business similar to the
Company Business.
4.28 BROKERS AND FINDERS. No third party is entitled to receive any
commission, fees or similar consideration in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
or on behalf of UHC or the Company.
4.29 INVESTMENT REPRESENTATIONS; LEGEND ON SHARES. UHC hereby
acknowledges that the Preferred Shares (or Conversion Shares) delivered
pursuant to the Merger will not be registered under the Securities Act, and
the resale of such shares will therefore be subject to restrictions imposed
by federal and state securities laws. UHC represents to and agrees with
ActaMed and SubCorp as follows with respect to the Preferred Shares (and
Conversion Shares):
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(a) It is acquiring the shares for its own account for investment
purposes only, and not with a view to the distribution, transfer, or assignment
of the same in whole or in part.
(b) ActaMed and SubCorp have advised it, a reasonable time prior
to the execution of this Agreement, that the shares have not been registered
under the Securities Act and, therefore, cannot be sold or otherwise disposed
of except in a transaction which is registered under the Securities Act or
exempted from registration.
(c) It has been represented by counsel and advisers, each of whom
has been previously selected by UHC, as UHC has found necessary to consult
concerning this Agreement and the shares to be issued pursuant to this
Agreement. UHC, either alone or with its representative(s), has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the prospective investment.
(d) UHC and its counsel and other advisers have been provided with
the information described in SECTION 4.30 and with such other information
concerning ActaMed as they have deemed relevant with respect to UHC's
investment decision relating to the shares being delivered to it. UHC has
had a reasonable opportunity to ask questions and receive answers concerning
the terms and conditions of the transactions contemplated by this Agreement,
to discuss ActaMed's business, management and financial affairs with the
management of ActaMed and SubCorp, and to obtain any additional information
which ActaMed or SubCorp possesses or can acquire without unreasonable effort
or expense that is necessary to verify the accuracy of the information
furnished. UHC has received satisfactory responses from management of
ActaMed and SubCorp to UHC's inquiries.
(e) UHC acknowledges that all certificates representing the shares
delivered to UHC shall be stamped or otherwise imprinted with a legend
substantially in the following form (together with any other legend required
by state law), and that stop transfer orders will be given to ActaMed's
transfer agent:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACTS OR
EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE."
4.30 COMPLIANCE WITH REGULATION D INFORMATION REQUIREMENTS.
(a) ActaMed and SubCorp have provided to UHC, a reasonable time
prior to the execution of this Agreement: (1) ActaMed's Financial Statements
for the year
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ended December 31, 1995; (2) a brief description of the Preferred Shares; and
(3) a brief description of the business of ActaMed. The contents of material
exhibits to such materials have been identified and such exhibits have been
made available to UHC, upon its written request, a reasonable time prior to
the execution of this Agreement.
(b) ActaMed and SubCorp have made available to UHC a reasonable
time prior to the execution of this Agreement the opportunity to ask
questions and receive answers concerning the terms and conditions of the
transactions contemplated by this Agreement and to obtain any additional
information which ActaMed or SubCorp possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of
the information furnished pursuant to paragraph (a) above.
(c) ActaMed and SubCorp have advised UHC of the limitations on
resale of Preferred Shares (and Conversion Shares) imposed by Regulation D
promulgated under the Securities Act.
4.31 SCHEDULES. All Schedules referenced in this ARTICLE 4 are true,
correct and complete as of the date of this Agreement, and will be true,
correct and complete as of the Closing. Matters disclosed on each such
Schedule shall be deemed disclosed only for purposes of the matters to be
disclosed on such Schedule and shall not be deemed to be disclosed for any
other purpose unless expressly provided therein.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ACTAMED AND SUBCORP
ActaMed and SubCorp jointly and severally represent and warrant to UHC and
the Company as follows:
5.1 (a) ORGANIZATION AND GOOD STANDING. ActaMed and SubCorp are duly
organized and validly existing corporations in good standing under the laws of
the States of Georgia and have full corporate power to carry on their
businesses, to own and operate their properties and assets, and to consummate
the transactions contemplated by this Agreement.
(b) QUALIFIED TO DO BUSINESS. ActaMed is currently engaged in the
ActaMed Business. ActaMed is qualified to do business as a foreign corporation
in each jurisdiction in which the failure to be so qualified would have a
Material Adverse Effect.
(c) INCORPORATION DOCUMENTS. ActaMed has delivered to UHC and the
Company true, correct and complete copies of the Restated Articles and Bylaws of
ActaMed, including all amendments thereto, as presently in effect.
(d) POWER TO CONDUCT BUSINESS. ActaMed has all corporate power
and all governmental licenses, authorizations, consents and approvals
required to carry on
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the ActaMed Business as now conducted and as proposed to be conducted and to
own, operate and lease its properties and assets, except for those licenses,
authorizations, consents and approvals the failure of which to have would not
have a Material Adverse Effect.
5.2 AUTHORIZATION OF AGREEMENT, NO BREACH. The execution and delivery
of this Agreement have been duly authorized by all necessary corporate action
on the part of ActaMed and SubCorp, and no further corporate action of any
nature is required pursuant to the charter or bylaws of ActaMed or SubCorp.
All persons who have executed or will execute this Agreement, or any other
agreement or document called for by this Agreement, on behalf of ActaMed or
SubCorp have been duly authorized to do so by all necessary corporate action.
This Agreement constitutes, and all of the ActaMed Documents to be executed
and delivered by ActaMed or SubCorp pursuant to this Agreement will
constitute, legal, valid and binding obligations of ActaMed and SubCorp,
enforceable against ActaMed and SubCorp in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles, or by bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect affecting the enforcement of
creditors' rights generally. The execution, delivery and performance of this
Agreement and the other ActaMed Documents and the consummation of the
transactions contemplated hereby and thereby will not (1) violate or result
in a breach of or Default or acceleration under the charter or bylaws of
ActaMed or SubCorp or any material instrument or agreement to which ActaMed
or SubCorp is a party or is bound, (2) violate any Court Order,
quasi-judicial or administrative decision or award of any court, arbitrator,
mediator, tribunal, administrative agency or governmental body applicable to
or binding upon ActaMed or SubCorp or upon the securities, property or
business of ActaMed or SubCorp, or (3) violate any Regulation of any
administrative agency or governmental body relating to ActaMed or SubCorp, or
to the securities, property, or business of ActaMed or SubCorp.
5.3 CORPORATE POWER. ActaMed and SubCorp have the requisite corporate
power to execute and deliver the ActaMed Documents to which either is a party.
5.4 ACTAMED FINANCIAL STATEMENTS.
(a) The Company has set forth as SCHEDULE 5.4(a) hereto the
balance sheets of ActaMed at December 31, 1994 and December 31, 1995 and the
statements of operations, statements of stockholders equity and statements of
cash flows of ActaMed for the years ended December 31, 1994 and December 31,
1995, which have been audited by Deloitte & Touche, LLP independent
accountants; and
(b) The ActaMed Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis during the respective periods covered
thereby. The ActaMed Financial Statements are correct and complete and present
fairly in all material respects the financial position of ActaMed at the date of
the balance sheet included therein and the results of operations and cash flows
of ActaMed
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for the respective periods covered by the statements of operations and cash
flows included therein. Except as set forth on SCHEDULE 5.4(b) hereto,
ActaMed has no material obligations or liabilities of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or not
due) which are required to be disclosed in the ActaMed Financial Statements
in accordance with GAAP and which, either individually or in the aggregate,
would have a Material Adverse Effect and which are not disclosed by the
ActaMed Financial Statements.
5.5 CONSENTS. No consent, approval or authorization of, or
qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of ActaMed is required in connection with
(a) the valid execution and delivery of the ActaMed Documents and (b) the
issuance of the Preferred Shares (and the Conversion Shares, except (1) as
set forth on SCHEDULE 5.5, (2) the filing of the Restated Articles in the
office of the Secretary of State of the State of Georgia, which filings will
be accomplished on or prior to the Closing Date, (3) the filing of a Form D
with the SEC and (4) the qualification (or taking such action as may be
necessary to secure an exemption from qualification, if available) of the
offer and sale of the Preferred Shares (and the Conversion Shares) under any
applicable state securities laws, which qualification, if required, will be
accomplished in a timely manner prior to or promptly upon completion of the
Closing, as required by such laws.
5.6 CAPITALIZATION. After giving effect to the issuance of the
Preferred Shares, the capital stock of ActaMed, as authorized by its Restated
Articles will consist of: (1) 50,000,000 shares of ActaMed Common Stock, no
par value per share, 9,321,250 of which are issued and outstanding,
10,344,828 of which will be reserved for issuance upon conversion of the
Preferred Shares, 8,800,880 of which will be reserved for issuance upon
conversion of issued and outstanding Series A Preferred Stock, 3,448,276 of
which will be reserved for issuance upon conversion of issued and outstanding
Series B Preferred Stock, and 5,624,188 of which will be reserved for
issuance upon exercise of stock options granted or to be granted to officers,
key employees, directors and consultants of ActaMed; (2) 8,800,880 shares of
Series A Preferred Stock all of which are issued and outstanding, and (3)
3,448,276 shares of Series B Preferred Stock, all of which are issued and
outstanding, and 10,344,828 shares of the Preferred Shares, all of which will
be issued and outstanding. As of the Closing Date none of such issued shares
will be held in the treasury of ActaMed. Except as set forth above and on
SCHEDULE 5.6 hereto, as of the Closing Date ActaMed will not have outstanding
any stock or securities convertible into or exchangeable for any shares of
its capital stock and no person will have any right against ActaMed to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance of any capital stock or any stock or
securities convertible into capital stock of ActaMed. All of the outstanding
shares of capital stock of ActaMed are validly issued, fully paid and
nonassessable.
5.7 VALIDITY AND RIGHTS OF THE PREFERRED SHARES. The Preferred Shares,
when issued to UHC pursuant to this Agreement, will be validly issued, fully
paid and nonassessable, will have the designations, preferences, limitations,
and relative rights set
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forth in the Restated Articles and will be free and clear of all liens,
claims and encumbrances. Any and all of the Conversion Shares, when
issuable, will be validly issued, fully paid and nonassessable.
5.8 REGISTRATION RIGHTS. Except as set forth in the Registration
Rights Agreement, as of the Closing Date ActaMed will not be under any
obligation to register under the Securities Act any of its then outstanding
securities or any of its securities which may thereafter be issued.
5.9 OFFERING. Subject to the accuracy of representations and
warranties by UHC and the Company in ARTICLE 4 hereof, the issuance of the
Preferred Shares (and the issuance of the Conversion Shares) constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act, and from the qualification requirements of any applicable
state securities or "blue sky" laws.
5.10 CHANGES. Since the date of the latest ActaMed Financial
Statements, there has not been any adverse change in the assets, liabilities,
financial condition or operations of the ActaMed Business from that reflected
in the ActaMed Financial Statements, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had a
Material Adverse Effect, any adverse change in the prospects of the ActaMed
Business or any other event or condition (or events or conditions) of any
character which, either individually or cumulatively, has had a Material
Adverse Effect.
5.11 SUBSIDIARIES. Other than SubCorp, ActaMed has no Subsidiaries.
Except as set forth in this Agreement, ActaMed does not own, or have the
right to acquire, any securities or other equity or ownership interest in any
corporation, association or other business entity or person.
5.12 PENDING LITIGATION, ETC. Other than as set forth in SCHEDULE 5.12
hereto, there are no actions at law, suits in equity or other proceedings or,
to the best knowledge of ActaMed, investigations in any court, tribunal or by
or before any other governmental or public authority or agency or any
arbitrator or arbitration panel or any governmental or private third-party
insurance agency, pending or, to the best knowledge of ActaMed, threatened
against or affecting ActaMed that:
(a) either individually or in the aggregate, would have a Material
Adverse Effect; or
(b) would question the validity or enforceability of this Agreement,
the ActaMed Documents, or any of the transactions contemplated hereby and
thereby. ActaMed is not in default with respect to any Court Order.
5.13 TITLE TO PROPERTIES. ActaMed has good and marketable title to its
properties and assets and has good title to all its respective leasehold
interests, in each case subject to no Lien, other than as set forth on
SCHEDULE 5.13 hereto. SCHEDULE 5.13
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accurately lists with respect to the personal property owned by ActaMed (a)
each financing statement, deed, agreement or other instrument which has been
filed, recorded or registered pursuant to any United States federal, state or
local law or regulation that names a business entity as debtor or lessee or
as the grantor or the transferor of the interest created thereby, and (b) as
to each such financing statement, deed, agreement or other instrument, the
names of the debtor, lessee, grantor or transferor and the secured party,
lessor, grantee or transferee and the name of the jurisdiction in which such
financing statement, deed, agreement or other instrument has been filed,
recorded or registered. ActaMed has not signed any agreement or instrument
authorizing any secured party thereunder to file any such financing
statement, deed, agreement or other instrument.
5.14 INTELLECTUAL PROPERTY, ETC. ActaMed owns or possesses the rights
to use, free from burdensome restrictions or conflicts with the rights of
others, all copyrights, trademarks, service marks, trade names, patents and
intellectual property licenses, and all rights with respect to the foregoing,
necessary for the conduct of the ActaMed Business as now conducted and as
proposed to be conducted, and is in compliance in all material respects with
the terms and conditions, if any, of all such copyrights, trademarks, service
marks, trade names, patents and intellectual property licenses and the terms
and conditions of any agreements relating thereto. Except as set forth on
SCHEDULE 5.14, there are no outstanding options, licenses, or material
agreements of any kind relating to the foregoing, nor is ActaMed bound by or
a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, proprietary rights and processes of any other
person or entity. ActaMed has not received any communications alleging that
it has violated or, by conducting its business as proposed, would violate any
of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. To
ActaMed's knowledge, none of its employees are obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of their best
efforts to promote the interests of ActaMed or that would conflict with
ActaMed's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of ActaMed's business by the
employees of ActaMed, nor the conduct of ActaMed's business as proposed,
will, to ActaMed's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. ActaMed does not believe it is or will be necessary to utilize any
inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by ActaMed.
5.15 COMPLIANCE WITH OTHER INSTRUMENTS. ActaMed is not in violation of or
in default in any material respect under any term of its organizational
documents, any term or provision of any mortgage, indenture, contract,
agreement, instrument, judgment or decree, and is not in violation in any
material respect of any applicable order, statute, rule or regulation, and to
ActaMed's knowledge there is no state of facts which, with the
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passage of time or giving of notice or both, would constitute any such
violation or default that would in the aggregate have a Material Adverse
Effect. The execution, delivery and performance of and compliance with the
ActaMed Documents, the issuance of the Preferred Shares (and the Conversion
Shares) and the consummation of any other transaction contemplated by the
ActaMed Documents have not resulted and will not result in any such
violation, or be in conflict with, or constitute a default under any of the
foregoing, or result in the creation of any Lien upon any of the properties
or assets of ActaMed.
5.16 COMPLIANCE WITH LAW. ActaMed is in compliance with all statutes,
laws and ordinances and all governmental rules and regulations to which it is
subject, the violation of which, either individually or in the aggregate,
would have a Material Adverse Effect. Neither the execution, delivery or
performance of this Agreement or any of the other ActaMed Documents nor the
consummation of the transactions contemplated by the ActaMed Documents will
cause ActaMed to be in violation of any law or ordinance, or any order, rule
or regulation, of any federal, state, municipal or other governmental or
public authority or agency.
5.17 EMPLOYEES. To the best knowledge of ActaMed, no employee of
ActaMed is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
intellectual property of ActaMed or the relationship of any such employee
with such entity or any other party.
5.18 BENEFIT PLANS. Except as provided in this Agreement, applicable
law and the terms of any Benefit Plan sponsored, maintained or contributed to
by UHC or its Affiliates, neither UHC nor its Affiliates shall have any
liability or obligation with respect to (i) employment related liabilities,
whether contingent or otherwise, arising out of any Hired Employee's or Hired
Hold-Over Employee's employment with the Company, ActaMed or ActaMed's
Affiliates or (ii) any Benefit Plan sponsored, maintained or contributed to
by ActaMed or its Affiliates.
5.19 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) ActaMed is, and will
continue to be, in compliance with all applicable federal, state and local
environmental laws, regulations and ordinances governing the ActaMed Business
with respect to all discharges into the ground and surface water, emissions
into the ambient air and generation, accumulation, storage, treatment,
recycling, transportation, labeling or disposal of waste materials or process
by-products, except violations which, either individually or in the
aggregate, would not have a Material Adverse Effect. ActaMed is not liable
for any material penalties, fines or forfeitures for failure to comply with
any of the foregoing. All licenses, permits or registrations required for
the ActaMed Business as presently conducted and proposed to be conducted,
under any federal, state, or local environmental laws, regulations or
ordinances have been or will, in a timely manner, be obtained or made, other
than such licenses, permits or registrations as to which the failure to
obtain or make, either individually or in the aggregate, will not have a
Material Adverse Effect, and ActaMed is in compliance therewith in all
material respects.
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(b) No release, emission or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental
Response, Compensation, and Liability Act, as amended, or hazardous waste, as
defined under the Resource Conservation and Recovery Act, or air pollutants
as defined under the Clean Air Act, or pollutants, as defined under the Clean
Water Act, by ActaMed has occurred or is presently occurring on or from any
property owned or leased by ActaMed in excess of federal, state or local
permitted releases or reportable quantities, or other concentrations,
standards or limitations under the foregoing laws or any state or local law
governing the protection of health and the environment or under any other
federal, state or local laws or regulations (then or now applicable, as the
case may be) other than such releases, emissions or discharges, either
individually or in the aggregate, would not have a Material Adverse Effect.
(c) To its knowledge, ActaMed has never (1) owned, occupied or
operated a site or structure on or in which any hazardous substance was or is
stored, transported or disposed of in violation of any federal, state or
local environmental laws, regulations or ordinances at such time as such site
or structure was owned, occupied or operated by ActaMed or at any other time,
or (2) transported or arranged for the transportation of any hazardous
substance other than in full compliance with all applicable federal, state
and local environmental laws, regulations and ordinances governing the
ActaMed Business or the storage, transportation or disposal of hazardous
substances except for such violations as, either individually or in the
aggregate, would not have a Material Adverse Effect. ActaMed has never
caused or been held legally responsible for any release or threatened release
of any hazardous substance, or received notification from any federal, state
or other governmental authority of any such release or threatened release, or
that ActaMed may be required to pay any costs or expenses incurred or to be
incurred in connection with any efforts to mitigate the environmental impact
of any release or threatened release, of any hazardous substance from any
site or structure owned, occupied or operated by ActaMed, except such
releases or threatened releases as, either individually or in the aggregate,
would not have a Material Adverse Effect.
5.20 INSURANCE. The ActaMed Business has fire, casualty, liability, and
business interruption insurance policies with recognized insurers, in such
amounts and with such coverage as set forth on SCHEDULE 5.20.
5.21 MATERIAL CONTRACTS AND AGREEMENTS. SCHEDULE 5.21 lists the
parties to, and subject matter of, all material Contracts of the ActaMed
Business, including without limitation, all employment or labor contracts,
leases or compensation plans. Except as set forth on SCHEDULE 5.21, all
material Contracts set forth on such list are valid, binding, and in full
force and effect, without any breach by ActaMed or, to the best of ActaMed's
knowledge, any other party thereto.
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5.22 TAXES. Except as set forth on SCHEDULE 5.22, all federal, state
and other tax returns of ActaMed required by law to be filed have been duly
filed, except for such returns the failure of which to file would not have a
Material Adverse Effect, and all federal, state and other taxes, assessments,
fees and other federal governmental charges upon ActaMed or any of the
properties, incomes or assets of ActaMed that are due and payable have been
paid. No extensions of the time for the assessment of deficiencies have been
granted to ActaMed in connection with any federal tax, assessment, fee or
other federal governmental charge. There are no Liens, on any properties or
assets of the ActaMed Business imposed or arising as a result of the
delinquent payment or the non-payment of any tax, assessment, fee or other
governmental charge that, either individually or in the aggregate, would have
a Material Adverse Effect. ActaMed:
(a) has not assumed and is not liable for any federal, state or
other income tax liability of any other person, including any predecessor
corporation, as a result of any purchase of assets or other business
acquisition transaction; and
(b) has not indemnified any other person or otherwise agreed to
pay on behalf of any other person tax liability growing out of or which may
be asserted on the basis of any tax treatment adopted with respect to all or
any aspect of such a business acquisition transaction.
The charges, accruals and reserves, if any, on the books of ActaMed in
respect of federal, state and local corporate franchise and income taxes for
all fiscal periods to date are adequate in accordance with GAAP, and ActaMed
knows of no additional unpaid assessments for such periods or other
governmental charges payable by ActaMed in connection with the execution and
delivery of this Agreement, the ActaMed Documents or the issuance of the
Preferred Shares by ActaMed, other than stock transfer taxes, recording fees
and filing fees in connection with state securities or "blue sky" filings.
5.23 INVESTMENT COMPANY. ActaMed is not an "investment company", or an
"affiliated person" of an "investment company", or a company "controlled" by
an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended, and ActaMed is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in
the Investment Advisers Act of 1940, as amended.
5.24 LABOR RELATIONS. ActaMed is not engaged in any unfair labor
practices which, either individually or in the aggregate, would have a
Material Adverse Effect. Except as set forth on SCHEDULE 5.24, there is:
(a) no unfair labor practice complaint pending or, to the best of
ActaMed's knowledge, threatened against ActaMed before the National Labor
Relations Board or any court or labor board, and no grievance or arbitration
proceedings arising out of or under collective bargaining agreements is so
pending or, to the best of ActaMed's knowledge, threatened,
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(b) no strike, lock-out, labor dispute, slowdown or work stoppage
pending or, to the best of ActaMed's knowledge, threatened against ActaMed, and
(c) no union representation or certification question existing or
pending with respect to the employees of ActaMed, and, to the best knowledge
of ActaMed, no union organization activity taking place, other than such
actions or proceedings as, either individually or in the aggregate, would not
have a Material Adverse Effect.
5.25 NO CONFLICT OF INTEREST. Except as set forth in SCHEDULE 5.25,
ActaMed is not indebted, directly or indirectly, to any Substantial Holder,
or, to ActaMed's knowledge, to any Affiliate of a Substantial Holder, in any
amount whatsoever. To the best knowledge of ActaMed, and except as set forth
on SCHEDULE 5.25, no Substantial Holders, or any of their Affiliates, are
indebted to any firm or corporation with which ActaMed is affiliated or with
which ActaMed has a business relationship, or any firm or corporation which
competes with ActaMed. Except as contemplated by the ActaMed Documents, no
Substantial Holder, or, to ActaMed's knowledge, any Affiliate of a
Substantial Holder, is directly or indirectly interested in any contract with
ActaMed or any of its Subsidiaries.
5.26 BROKERS OR FINDERS. No broker, agent, finder or consultant or
other person has been retained by or on behalf of ActaMed or SubCorp (other
than legal or accounting advisors), or is may be entitled to be paid based
upon any agreements or understandings made by ActaMed or SubCorp in
connection with the transactions contemplated hereby.
5.27 FULL DISCLOSURE. This Agreement, the other ActaMed Documents, and
any report or financial statement referred to in SECTION 5.4 hereof and any
certificate, report, statement or other writing furnished to UHC or the
Company by or on behalf of ActaMed in connection with the negotiation of this
Agreement and the other ActaMed Documents and the sale of the Preferred
Shares, taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact with respect to which disclosure has
been requested and which is necessary to make the statements contained herein
or therein not misleading.
ARTICLE 6
RELATED AGREEMENTS OF THE PARTIES
6.1 CONDUCT OF BUSINESS. Prior to the Closing Date, except with the
prior written consent of ActaMed and SubCorp and except as necessary to
effect the transactions contemplated in this Agreement, the Company shall and
UHC shall cause the Company to:
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(a) conduct the Company Business in substantially the same manner
as presently being conducted, and refrain from entering into any transaction
or Contract other than in the ordinary course of business, and not make any
change in its methods of management, marketing, or operations other than in
the ordinary course of business;
(b) consult with ActaMed and SubCorp prior to undertaking any new
business opportunity not in the ordinary course of business and not undertake
such new business opportunity without the prior written consent of ActaMed
and SubCorp, which consent will not be unreasonably withheld;
(c) confer on a regular and reasonable basis with one or more
designated representatives of ActaMed and SubCorp to report material
operational matters and to report the general status of ongoing operations;
(d) notify ActaMed and SubCorp of any change in the normal course
of the Company Business or in the operation of its properties, and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings,
budget meetings or submissions involving any material property of the
Company, and keep ActaMed and SubCorp fully informed of such events and
permit its representatives prompt access to all materials prepared in
connection therewith; and
(e) not take any action, or omit to take any action, which would
cause the representations and warranties contained in ARTICLE 4 hereof,
including but not limited to the representations and warranties in SECTION
4.9 of this Agreement, to be untrue or incorrect at any time through and
including the Closing Date.
6.2 ACCESS TO PROPERTIES. At all times prior to the Closing Date,
employees, attorneys, accountants, agents and other authorized and designated
representatives of ActaMed and SubCorp will be allowed reasonable access to
the properties, books and records of the Company and other members of the UHC
Group relating to the Company Business, including without limitation, deeds,
title documents, leases, customer lists, insurance policies, minute books,
share certificate books, share registers, accounts, Tax returns, financial
statements and all other data that, in the reasonable opinion of ActaMed and
SubCorp, are required for ActaMed and SubCorp to make such investigation as
they may desire of the Hired Employees and the properties and business of the
Company and the Company Business. ActaMed and SubCorp shall also be allowed
reasonable access to consult with the officers, employees, accountants,
counsel and agents of the members of the UHC Group in connection with such
investigation. No investigation by ActaMed and SubCorp shall diminish or
otherwise affect any of the representations, warranties, covenants or
agreements of the Company or UHC under this Agreement.
6.3 RELATIONSHIP WITH EMPLOYEES AND CUSTOMERS. At all times prior to
the Closing Date, UHC shall cause each member of the UHC Group to use its
best efforts (without making any commitments other than in the ordinary
course of business), to
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(a) preserve the Company Business organization intact, (b) keep the Hired
Employees available to the Company Business, (c) preserve the present
relationships of the Company Business with its suppliers and customers and
others having business relationships, and (d) take all steps reasonably
necessary to maintain the intangible assets and Intellectual Property of the
Company. Prior to the Closing and for two (2) years thereafter, no member of
the UHC Group shall, directly or indirectly, on its own behalf or on behalf
of others, solicit, divert or take away, or attempt to solicit, divert or
take away, any of the Hired Employees.
6.4 HIRED EMPLOYEES. Immediately after the Closing, the Company will
offer employment (to commence on the Closing Date) to all of the Hired
Employees; provided, however, that, if any Hold-Over Employee presents a
medical release from his or her attending physician which allows such
employee to return to work within nine months after the beginning of his or
her leave of absence, then the Company will offer employment (to commence
immediately) to such Hold-Over Employee on the day he or she returns to work
("HIRED HOLD-OVER EMPLOYEE"), and if any Hold-Over Employee does not have a
medical release to return to work within such nine-month period, then the
Company will not be obligated to offer employment to him or her. UHC shall
cause each member of the UHC Group to terminate the employment of each of the
Hired Employees effective as of the Closing Date; provided, however, that no
member of the UHC Group shall terminate the employment of any Hired Hold-Over
Employee until such employee presents a medical release from his or her
attending physician and will continue to provide each Hired Hold-Over
Employee with benefits in accordance with UHC's standard policies and
procedures until the earlier of (a) the day such employee has a medical
release to return to work, or (b) nine (9) months after the beginning of such
employee's leave of absence.
6.5 EMPLOYEE BENEFITS.
(a) The Company has never been a participating employer in any
Benefit Plan sponsored, maintained or contributed to by UHC or its
Affiliates. Except as provided in SECTION 6.5(B) below, no portion of the
assets of any Benefit Plan heretofore sponsored or maintained by any member
of the UHC Group for the Hired Employees or Hired Hold-Over Employees (and no
amount attributable to any such Benefit Plan) shall be transferred to the
Company, and the Company shall not be required to sponsor or maintain any
such Benefit Plan after the Closing Date. The amounts payable to the Hired
Employees or Hired Hold-Over Employees on account of all benefit arrangements
(including, but not limited to, all accrued, but unpaid, sick leave but
excluding the UHC 401(k) Plan) shall be either maintained in such Benefit
Plan or paid to the Hired Employees and Hired Hold-Over Employees, in each
case in accordance with the applicable Benefit Plan documents, except that
such amounts shall be determined with reference to the date of the event by
reason of which such amounts become payable, without regard to conditions
subsequent.
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(b) Certain Hired Employees and Hired Hold-Over Employees will
have account balances under the UHC 401(k) Plan as of the Closing Date. UHC
warrants that the UHC 401(k) Plan that will make the transfer described below
is "qualified" within the meaning of Section 401(k) of the Internal Revenue
Code, has received a favorable determination letter from the Internal Revenue
Service dated August, 1995 and no event has occurred and no condition exists
that could reasonably be expected to result in the revocation of any such
determination letter. The vested and nonvested account balances under the
UHC 401(k) Plan for those Hired Employees and Hired Hold-Over Employees will
be transferred to the ActaMed 401(k) Plan as soon as administratively
feasible after the Closing Date but (i) for Hired Employees, no later than 60
days after the second "valuation date" (as defined in the UHC 401(k) Plan)
following the Closing Date and (ii) for Hired Hold-Over Employees, no later
than 60 days after the second "valuation date" following the Hired Hold-Over
Employee's initial hire date with the Company. The account balances to be
transferred will include cash and any outstanding participant loans. The
amount transferred will be calculated in accordance with normally accepted
practices by record keepers and ERISA trustees. ActaMed warrants that the
ActaMed 401(k) Plan that will receive the transfer is "qualified" within the
meaning of Section 401(k) of the Internal Revenue Code, has adopted a
standardized prototype plan (as defined in Section 3.08 of Rev. Proc. 89-9,
1989-1 CB 780) with an IRS opinion letter dated November 8, 1993 and no event
has occurred and no condition exists that could reasonably be expected to
result in the ActaMed 401(k) Plan losing its status as a qualified,
standardized prototype plan. The ActaMed 401(k) Plan will be amended to
address the transfer of accounts from the UHC 401(k) Plan including the
preservation of all Section 411(d)(6) optional forms of benefits available to
the Hired Employees or Hired Hold-Over Employees under the UHC 401(k) Plan,
distribution rules under Section 401(k) of the Internal Revenue Code, past
service credit and participation in the ActaMed 401(k) Plan by such Hired
Employees and Hired Hold-Over Employees. United HealthCare Corporation will
assume no liability for the payment of account balances that are transferred
following the date of transfer and ActaMed will assume no liability for the
payment of account balances that are not transferred. However, as provided
in SECTION 5.18 of this Agreement, ActaMed and its Affiliates shall continue
to be liable to UHC and its Affiliates for any other loss suffered by UHC and
its Affiliates arising out of the ActaMed 401(k) Plan. Similarly, as
provided in SECTION 4.23 of this Agreement, UHC and its Affiliates shall
continue to be liable to ActaMed and its Affiliates for any other loss
suffered by ActaMed and its Affiliates arising out of the UHC 401(k) Plan.
(c) The Company, ActaMed and ActaMed's Affiliates shall not be
liable for any claim for insurance, reimbursement or other benefits payable
by reason of any event which occurs prior to the Closing Date.
Notwithstanding the foregoing, prior employment of Hired Employees by the UHC
Group shall be counted for purposes of eligibility for a medical and dental
plan which shall be provided by ActaMed to such Hired Employees without any
limitations based upon pre-existing conditions effective (i) for Hired
Employees and their dependents, as of the first day of the month following
the Closing Date and (ii) for Hired Hold-Over Employees and their dependents,
as of the
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later of the Hired Hold-Over Employee's initial date of employment with the
Company or the first day of the month following the Closing Date.
6.6 OTHER OFFERS AND EXCLUSIVE DEALING. Unless and until this
Agreement is terminated prior to Closing pursuant to ARTICLE 10, UHC shall
not, acting in any capacity, directly or indirectly, through any officer,
director, employee, agent or otherwise of the UHC or any member of the UHC
Group, (a) solicit, initiate or encourage submission of proposals or offers
from any person, corporation or other entity relating to any purchase of the
Shares, or any merger, sale of substantial assets or similar transaction
involving the Company or the Company Business, (b) participate in any
discussions or negotiations regarding, or, except as required by a legal or
judicial process, furnish to any other person, corporation or other entity
any information with respect to, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by
any other person, corporation or other entity to purchase the Shares, or
engage in a merger, purchase of substantial assets or similar transaction
involving the Company or the Company Business, or (c) approve or undertake
any such transaction. UHC shall promptly communicate to ActaMed and SubCorp
the terms of any such proposal or offer upon knowledge or receipt of such
proposal or offer.
6.7 CERTAIN TAX MATTERS. UHC shall cause all Tax returns of the
Company required to be filed on or before the Closing Date, taking into
account any extensions of the filing deadlines granted to the Company that
had not yet been filed prior to the date hereof (including those relating to
periods after the Closing Date), to be prepared by the Company but not to be
filed without prior examination by or on behalf of ActaMed and SubCorp.
6.8 CONSENTS AND APPROVALS. The Company and UHC agree to use their
best efforts to obtain the waiver, consent and approval of all persons whose
waiver, consent or approval (a) is required in order to consummate the
transactions contemplated by this Agreement, or (b) is required by any
Contract, Court Order or License to which the Company or UHC is a party or
subject on the Closing Date, and (1) which would prohibit, or require the
waiver, consent or approval of such transactions, or (2) under which such
transactions would, without such waiver, consent or approval, constitute a
Default under the provisions thereof, result in the acceleration of any
obligation thereunder, or give rise to a right of any party thereto to
terminate its obligations thereunder. All written waivers, consents and
approvals obtained by UHC and the Company shall be produced at the Closing in
form and content reasonably satisfactory to ActaMed and SubCorp.
6.9 QUALIFICATION AND CORPORATE EXISTENCE. The Company shall deliver to
ActaMed and SubCorp (a) a certificate of the Secretary of State of the State of
Nevada, dated as of a date no more than ten (10) business days prior to the
Closing Date, stating that the Company is a corporation in good standing under
the laws of such state and has paid all applicable franchise or other fees and
taxes due to such state and (b) certificates of the appropriate officials of the
State of Minnesota, all dated as of a date no more than
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ten (10) business days prior to the Closing Date, stating that the Company is
duly qualified and in good standing to transact business as a foreign
corporation as stated in SECTION 4.3 of this Agreement in such state and has
paid all applicable franchise or other fees and taxes due to each such state.
6.10 PUBLIC ANNOUNCEMENTS. Each party hereto agrees that neither it,
nor or any of its representatives, shall make any public announcement with
respect to this Agreement or the transactions contemplated hereby without the
prior consent of the other parties hereto unless required by law or judicial
process, in which case notification shall be given to the other parties
hereto prior to such disclosure.
6.11 CONFIDENTIALITY.
(a) Each party hereto agrees not to use, copy or disclose the
trade secrets of any other party, except as permitted by this Agreement.
Each party shall treat any other's trade secrets with at least that degree of
care it uses with respect to its own such trade secrets. Each party will
give access to any other party's trade secrets only to such of its personnel
as have a need to such access and to no other person whatsoever. The
requirements herein contained with respect to non-disclosure and non-use and
protection of each party's trade secrets shall permanently survive
termination of any other provisions of this Agreement. If any party is
ordered by a court, administrative agency, or other governmental body of
competent jurisdiction to disclose trade secrets, or if it is served with or
otherwise becomes aware of a motion or similar request that such an order be
issued, then such party will not be liable to the other party for disclosure
of trade secrets required by such order if the disclosing party complies with
the following requirements: (1) if an already issued order calls for
immediate disclosure, then the disclosing party shall immediately move for or
otherwise request a stay of such order to permit the other party to respond;
(2) the disclosing party promptly notifies the other party of the motion or
order; and (3) the disclosing party not oppose a motion or similar request by
the other party for an order protecting the trade secrets including joining
or agreeing to (or non-opposition to) a motion for leave to intervene by such
other party.
(b) The term "TRADE SECRETS" means information related to a party
(1) which derives economic value, actual or potential, from not being
generally known to or readily ascertainable by other persons who can obtain
economic value from its disclosure or use, and (2) which is the subject of
efforts by said party that are reasonable under the circumstances to maintain
its secrecy.
6.12 COVENANT NOT TO COMPETE. UHC hereby acknowledges and agrees that
the exclusivity and noncompetition provisions of the Services and License
Agreement are an important and substantial part of the consideration to
ActaMed for the consummation of the transactions contemplated hereby, and the
parties hereby incorporate by reference those provisions of the Services and
License Agreement.
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6.13 CLOSING CONDITIONS. ActaMed, SubCorp, the Company and UHC each
agree to use its best efforts to satisfy the closing conditions set forth in
ARTICLES 1, 7 and 8 of this Agreement.
6.14 EXPENSES. Except as otherwise provided herein and except that UHC
shall pay all of the expenses of the Company (including, but not limited to,
the audit by Deloitte & Touche, LLP of the books and records of the Company
and the Company Business), the parties to this Agreement shall each bear its
respective expenses incurred in connection with the preparation, execution
and performance of this Agreement and the transactions contemplated hereby,
including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants.
6.15 REPAYMENT OF DEBTS TO COMPANY. On or before the Closing Date, all
loans and advances from the Company to any member of the UHC Group, whether
or not disclosed in SCHEDULE 4.27, shall be repaid to the Company in full and
the Company shall have delivered to ActaMed and SubCorp appropriate
instruments or writings to evidence the receipt of such repayments, and all
guaranties by the Company of loans obtained by any member of the UHC Group,
from third parties shall have been released.
6.16 COMPLIANCE WITH REGULATION D. ActaMed shall file five copies of a
notice on SEC Form D no later than fifteen (15) days after the execution of
this Agreement.
6.17 VOTING FOR MERGER. UHC agrees to vote for and approve the Merger
and the transactions contemplated by this Agreement and waives its
dissenter's rights under the General Corporation Law of the State of Nevada.
6.18 ANTITRUST NOTIFICATION. Each of the parties will promptly file
with the United States Federal Trade Commission and the United States
Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental or additional
information which may reasonably be requested in connection therewith
pursuant to the HSR Act and will comply in all material respects with the
requirements of the HSR Act. UHC and ActaMed shall each pay fifty percent
(50%) of the applicable filing fees.
6.19 REVIEW OF REGISTRATION STATEMENT. ActaMed shall give UHC the
opportunity to review and comment upon those portions of any Registration
Statement or amendment thereto prepared by ActaMed in connection with a
proposed initial public offering which describe UHC and ActaMed's
relationship therewith, prior to filing such Registration Statement or
amendment thereto with the Securities and Exchange Commission, and shall
cooperate with UHC and use its reasonable efforts to accommodate the
reasonable comments of UHC.
6.20 ESCROW OF SOFTWARE. On the Closing Date, the Company shall deliver
to one copy of the Software to Fort Knox (the "ESCROW AGENT"), which copy shall
serve as a
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prototype of the Software delivered to ActaMed on the Closing Date and which
copy shall be made available to UHC for the defense of any claims by ActaMed
or others regarding the functionality and performance of the Software.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED AND SUBCORP
The obligations of ActaMed and SubCorp to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions,
all or any of which may be waived, in whole or in part, by ActaMed and
SubCorp for purposes of consummating such transactions, but without prejudice
to any other right or remedy which ActaMed and SubCorp may have hereunder as
a result of any misrepresentation by, or breach of any agreement, covenant or
warranty of, UHC or the Company contained in this Agreement or any schedule,
certificate or instrument furnished or caused to be furnished by UHC or the
Company hereunder.
7.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by UHC or the Company in the UHC
Documents shall be true and correct in all material respects as of the
Closing Date, with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date.
7.2 COVENANTS. All of the terms, covenants and conditions in the UHC
Documents to be complied with or performed by UHC or the Company on or prior
to the Closing shall have been complied with and performed in all material
respects.
7.3 NO INJUNCTION, ETC. No action, proceeding, investigation,
Regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin,
restrain, prohibit, or obtain substantial damages in respect of, or which is
related to, or arises out of, this Agreement or the consummation of the
transactions contemplated hereby, or which is related to or arises out of the
Company Business, if such action, proceeding, investigation, regulation or
legislation, in the reasonable judgment of ActaMed and SubCorp, would make it
inadvisable to consummate such transactions.
7.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments
and documents deemed necessary or appropriate by ActaMed and SubCorp or their
counsel to effectuate this Agreement and the consummation of the transactions
contemplated hereby, or incidental thereto, and all other related legal
matters, shall have been approved by such counsel.
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7.5 GOVERNMENTAL APPROVALS. All governmental and other consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received by ActaMed and SubCorp.
7.6 NO MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in the financial condition, operating results or assets of the
Company or EDI between the date of the EDI Financial Statements and the Closing
Date, and UHC shall have delivered to ActaMed a certificate dated as of the
Closing Date certifying to such effect.
ARTICLE 8
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF UHC AND THE COMPANY
The obligations of UHC and the Company to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions,
all or any of which may be waived, in whole or in part, by UHC and the
Company for purposes of consummating such transactions, but without prejudice
to any other right or remedy which they may have hereunder as a result of any
misrepresentation by, or breach of any agreement, covenant or warranty of
ActaMed or SubCorp contained in this Agreement, or any certificate or
instrument furnished by it hereunder.
8.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by ActaMed or SubCorp in the ActaMed
Documents shall be true and correct in all material respects as of the Closing
Date, with the same force and effect as if such representations and warranties
had been made on and as of the Closing Date.
8.2 COVENANTS. All of the terms, covenants and conditions in the ActaMed
Documents to be complied with or performed by ActaMed or SubCorp on or prior to
the Closing shall have been complied with and performed in all material
respects.
8.3 NO INJUNCTION, ETC. No action, proceeding, investigation, Regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit, or
obtain substantial damages in respect of, or which is related to, or arises out
of, this Agreement or the consummation of the transactions contemplated hereby,
or which is related to or arises out of the business of ActaMed or SubCorp, if
such action, proceeding, investigation, Regulation or legislation, in the
reasonable judgment of UHC, would make it inadvisable to consummate such
transactions.
8.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and
documents deemed necessary or appropriate by UHC or their counsel to effectuate
this
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Agreement and the consummation of the transactions contemplated hereby, or
incidental hereto, and all other related legal matters, shall have been approved
by such counsel.
8.5 GOVERNMENTAL APPROVALS. All governmental and other consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received by UHC and the Company.
8.6 NO MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in the financial condition, operating results or assets of
ActaMed between the date of the ActaMed Financial Statements and the Closing
Date, and ActaMed shall have delivered to UHC a certificate dated as of the
Closing Date certifying to such effect.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES AND INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF UHC AND THE COMPANY.
ActaMed, SubCorp, UHC and the Company acknowledge and agree that, as
contemplated by SECTION 6.2, prior to the Closing Date, ActaMed and SubCorp
intend to perform such investigation of the Company as they may deem
appropriate; provided, however, no investigation by ActaMed and SubCorp shall
diminish or otherwise affect any of the representations, warranties, covenants
or agreements made or to be performed by UHC or the Company pursuant to this
Agreement or ActaMed's and SubCorp's right to rely fully upon such
representations, warranties, covenants and agreements. All such
representations, warranties, covenants and agreements made or to be performed by
UHC or the Company pursuant to this Agreement shall survive the execution and
delivery hereof and the Closing hereunder. The representations and warranties
shall thereafter terminate and expire (a) with respect to any General Claim with
respect to which a Claims Notice has not been given, on the later of (i)
eighteen months after the Closing Date or (ii) the first anniversary of the date
on which such covenant is to be performed hereunder; and (b) with respect to any
Tax Claim, on the later of (i) the ninetieth (90th) day after the date upon
which the Liability to which any such Tax Claim may relate is barred by all
applicable statutes of limitation and (ii) the ninetieth (90th) day after the
date upon which any claim for refund or credit related to such Tax Claim is
barred by all applicable statutes of limitation. With respect to any Ownership
Claim, Undisclosed Liability Claim or any type of claim not specifically
addressed above, such representations, warranties, covenants and agreements
shall survive without limit of time.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF ACTAMED AND SUBCORP.
Except for the covenants and agreements contained in ARTICLES 12 and 13, which
shall survive termination of this Agreement in accordance with their respective
terms, all the representations, warranties, covenants and agreements, made or to
be performed by ActaMed and SubCorp pursuant to this Agreement shall be
considered to have been relied upon by UHC and shall survive the delivery to UHC
of the Preferred
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Shares (and the Conversion Shares) and shall terminate and expire, with
respect to any Claim for which a Claims Notice has not been given, on the
first anniversary of the Closing Date.
9.3 OBLIGATION OF UHC TO INDEMNIFY. Subject to the limitations of
SECTIONS 9.1 and 9.8, UHC agrees to indemnify and hold harmless each ActaMed
Indemnitee against and in respect of:
(a) all Losses, asserted against, imposed upon or incurred by any
ActaMed Indemnitee by reason of or resulting from:
(1) a breach of any representation or warranty of UHC or the
Company contained in or made pursuant to this Agreement; or
(2) any nonfulfillment of any covenant or agreement of UHC or
the Company contained in or made pursuant to this Agreement;
(b) any and all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs and other expenses
(including, without limitation, reasonable legal fees and expenses) incident to
any Loss in connection with SECTION 9.3(a) or to the enforcement of this SECTION
9.3;
(c) all Losses asserted against, imposed upon or incurred by any
ActaMed Indemnitee by reason or resulting from:
(1) any and all costs, judgments, claims, actions at law or in
equity, interest charges and reasonable attorneys' fees with respect to any
cause of action or proceeding, by any participant or dependent or beneficiary of
any participant, arising out of or by reason of the sponsorship by any member of
the UHC Group of any Benefit Plan prior to the Effective Time;
(2) any Environmental Condition, and arising out of or in
connection with any event or events which occurred prior to the Effective Time;
and
(3) any Litigation pending or threatened as of the Closing Date,
or Litigation arising out of events which occurred prior to the Effective Time,
against or affecting the Company regardless of whether it is disclosed on
SCHEDULE 4.20 or any other Schedule attached to ARTICLE 4 hereto.
9.4 OBLIGATION OF ACTAMED AND SUBCORP TO INDEMNIFY. Subject to the
limitations of SECTIONS 9.1 and 9.8, ActaMed and SubCorp agree to indemnify and
hold harmless each UHC Indemnitee against and in respect of:
(a) all Losses asserted against, imposed upon or incurred by any UHC
Indemnitee by reason of or resulting from:
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(1) a breach of any representation or warranty of ActaMed or
SubCorp contained in or made pursuant to this Agreement; or
(2) any nonfulfillment of any covenant or agreement of the
ActaMed or SubCorp contained in or made pursuant to this Agreement; and
(b) any and all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs and other expenses
(including, without limitation, reasonable legal fees and expenses) incident to
any Loss in connection with SECTION 9.4(a) or to the enforcement of this SECTION
9.4.
9.5 CLAIMS NOTICE. A Claim shall be made by any Indemnitee by delivery
of a Claims Notice to any Indemnifying Party requesting indemnification and
specifying the basis on which indemnification is sought and the amount of
asserted Losses and, in the case of a Third Party Claim, containing (by
attachment or otherwise) such other information as such Indemnitee shall have
concerning such Third Party Claim.
9.6 PROCEDURES INVOLVING NON-THIRD PARTY CLAIMS. If the Claim
involves a matter other than a Third Party Claim, the Indemnifying Party
shall have forty-five (45) days to object to such Claim by delivery of a
written notice of such objection to such Indemnitee specifying in reasonable
detail the basis for such objection. If an objection is timely interposed by
the Indemnifying Party, the Indemnifying Party and the Indemnitee shall
cooperate in the compromise of the Claim. Failure to object in a timely
manner shall constitute a final and binding acceptance of the Claim by the
Indemnifying Party on behalf of all Indemnitors, and the Claim shall be paid
in accordance with SECTION 9.10 hereof.
9.7 PROCEDURES INVOLVING THIRD PARTY CLAIMS.
The obligations and liabilities of the parties hereunder with respect to a
Third Party Claim shall be subject to the following terms and conditions:
(a) The Indemnitee shall give the Indemnifying Party written notice
of a Third Party Claim promptly after receipt by the Indemnitee of notice
thereof, and the Indemnifying Party may undertake the defense, compromise and
settlement thereof by representatives of its own choosing reasonably acceptable
to the Indemnitee. The failure of the Indemnitee to notify the Indemnifying
Party of such claim shall not relieve the Indemnifying Party of any liability
that they may have with respect to such claim except to the extent the
Indemnifying Party demonstrates that the defense of such claim is prejudiced by
such failure. The assumption of the defense, compromise and settlement of any
such Third Party Claim by the Indemnifying Party shall be an acknowledgment of
the obligation of the Indemnifying Party to indemnify the Indemnitee with
respect to such claim hereunder. If the Indemnitee desires to participate in,
but not control, any such defense, compromise and settlement, it may do so at
its sole cost and expense. If,
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however, the Indemnifying Party fails or refuses to undertake the defense of
such Third Party Claim within ten (10) days after written notice of such
claim has been given to the Indemnifying Party by the Indemnitee, the
Indemnitee shall have the right to undertake the defense, compromise and
settlement of such claim with counsel of its own choosing. In the
circumstances described in the preceding sentence, the Indemnitee shall,
promptly upon its assumption of the defense of such claim, make a Claim as
specified in SECTION 9.5 which shall be deemed a Claim that is not a Third
Party Claim for the purposes of the procedures set forth herein.
(b) If, in the reasonable opinion of the Indemnitee, any Third
Party Claim or the litigation or resolution thereof involves an issue or
matter which could have a material adverse effect on the business,
operations, assets, properties or prospects of the Indemnitee (including,
without limitation, the administration of the tax returns and
responsibilities under the tax laws of the Indemnitee), the Indemnitee shall
have the right to control the defense, compromise and settlement of such
Third Party Claim undertaken by the Indemnifying Party, and the reasonable
costs and expenses of the Indemnitee in connection therewith shall be
included as part of the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnitee shall elect to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control,
the defense, compromise and settlement of such Third Party Claim at its sole
cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of the Indemnifying Party under this Article shall be made without the
prior written consent by or on behalf of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed. If the Indemnifying Party
assumes the defense of such a Third Party Claim, (1) no compromise or settlement
thereof may be effected by the Indemnifying Party without the Indemnitee's
consent unless (A) there is no finding or admission of any violation of law or
any violation of the rights of any person and no effect on any other claim that
may be made against the Indemnitee (B) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party and (C) the compromise
or settlement includes, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnitee of a release, in form and substance
satisfactory to the Indemnitee, from all liability in respect of such Third
Party Claim, and (2) the Indemnitee shall have no liability with respect to any
compromise or settlement thereof effected without its consent.
9.8 LIMITATIONS ON INDEMNIFICATION.
(a) No party to this Agreement shall be entitled to indemnification
under this Agreement to the extent that such party's Losses are increased or
extended by the willful misconduct, violation of law or bad faith of such party.
(b) No Indemnifying Party shall be required to indemnify an
Indemnitee with respect to any Loss arising out of or with respect to a General
Claim unless the amount of such Loss, when aggregated with all other such
Losses, shall exceed
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the Threshold Amount (as defined below), at which time Claims may be asserted
to the extent that all Losses or Asserted Liabilities are in excess of the
Threshold Amount; provided, however, that the Threshold Amount shall not
apply to any Loss: (A) which results from or arises out of an Ownership
Claim, Tax Claim or Undisclosed Liability Claim, (B) which results from or
arises out of fraud or intentional misrepresentation or an intentional breach
of a representation, warranty, covenant or agreement in this Agreement; or
(C) which results from or arises out of any Litigation incident to any of the
matters referred to in the foregoing clauses (A) and (B). The Threshold
Amount shall be One Hundred Thousand Dollars ($100,000). Notwithstanding the
foregoing, for any breach of SECTION 4.13, UHC shall indemnify each ActaMed
Indemnitee for any individual Loss in excess of $10,000 per item of tangible
personal property and any aggregate Loss exceeding $50,000 for items of
tangible personal property.
(c) In no event shall the aggregate liability of the Indemnifying
Party for any General Claim under this ARTICLE 9 exceed $10 million.
9.9 NO RELEASE FOR FRAUD. Nothing contained in this Agreement shall
relieve or limit the liability of any party or any officer or director of such
party from any Liability arising out of or resulting from common law fraud or
intentional misrepresentation in connection with the transactions contemplated
by this Agreement or in connection with the delivery of any of the Transaction
Documents. Each party shall have a right to indemnification for any Loss
incurred as the result of any common law fraud or intentional misrepresentation
by any other party or any officer or director of such other party without regard
to the Threshold Amount, the maximum liability or any period of limitation.
9.10 PAYMENT.
(a) If any party is required to make any payment under this
ARTICLE 9, such party shall promptly pay the Indemnified Party the amount so
determined. If there is a dispute as to the amount or manner of determination
of any indemnity obligation owed under this ARTICLE 9, the Indemnifying Party
shall nevertheless pay when due such portion, if any, of the obligation as shall
not be subject to dispute. The difference, if any, between the amount of the
obligation ultimately determined as properly payable under this ARTICLE 9 and
the portion, if any, theretofore paid shall bear interest as provided in
SECTION 9.10(c).
(b) Any items as to which an Indemnified Party is entitled to payment
under this ARTICLE 9 may be paid by set-off against amounts payable to the
Indemnifying Party to the extent that such amounts are sufficient to pay such
items.
(c) If all or part of any indemnification obligation under this
Agreement is not paid when due, then the Indemnifying Party shall pay the
Indemnified Party interest on the unpaid principal amount of the obligation from
the date the amount
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became due until payment in full, at the per annum rate of interest announced
from time to time by NationsBank South, N.A., to be its "prime rate."
9.11 EXCLUSIVE REMEDY. Except for equitable remedies and any action for
common law fraud, the remedies provided in this ARTICLE 9 constitute the sole
and exclusive remedies for recovery against the Indemnifying Party based upon
this Agreement.
9.12 ARBITRATION. All disputes arising under this ARTICLE 9 (other than
claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by UHC and ActaMed in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The arbitration shall be held in
such place in Atlanta, Georgia as may be specified by the arbitrator (or any
place agreed to by UHC, ActaMed and the arbitrator). The decision of the
arbitrator shall be final and binding as to any matters submitted under this
ARTICLE 9; provided, however, if necessary, such decision and satisfaction
procedure may be enforced by either UHC or ActaMed in any court of record having
jurisdiction over the subject matter or over any of the parties to this
Agreement. All costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys' fees) shall be borne by
the party against which the decision is rendered, or, if no decision is
rendered, such costs and expenses shall be borne equally by the Indemnifying
Party as one party and the Indemnitees as the other party. If the arbitrator's
decision is a compromise, the determination of which party or parties bears the
costs and expenses incurred in connection with any such arbitration proceeding
shall be made by the arbitrator on the basis of the arbitrator's assessment of
the relative merits of the parties' positions.
ARTICLE 10
TAX MATTERS
10.1. TAX INDEMNITIES.
(a) From and after the Closing Date, UHC shall indemnify ActaMed and
the Company against all Taxes (i) imposed on the Company with respect to any
taxable period or portion thereof that ends before or on (but includes) the
Closing Date (ii) imposed on UHC or any member of an affiliated group with which
UHC files a consolidated or combined income tax return (other than the Company)
with respect to any taxable period.
(b) From and after the Closing Date, ActaMed and Company shall
indemnify UHC against all Taxes imposed on the Company with respect to its
income, business, property or operations for any taxable period or portion
thereof that begins after the Closing Date.
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(c) For purposes of Sections 10.01(a) and (b), in the case of
Taxes that are payable with respect to a taxable period that begins before
the Closing Date and ends after the closing Date, the portion of any such Tax
that is allocable to the portion of the period ending on the Closing Date
shall: (i) in the case of Taxes that are either (x) based upon or related to
income or receipts of (y) imposed in connection with any sale, other transfer
or assignment or any deemed sale, transfer or assignment of property (real or
personal, tangible or intangible), be deemed equal to the amount which would
be payable if the taxable year ended on the Closing Date, and (ii) in the
case of Taxes imposed on a periodic basis with respect to the assets of the
Company or otherwise measured by the level of any item, be deemed to be the
amount of such Taxes for the entire period (or, in the case of such Taxes
determined on an arrears basis, the amount of such Taxes for the immediately
preceding period) multiplied by a fraction the numerator of which is the
number of calendar days in the portion of such period ending on the Closing
Date and the denominator of which is the number of calendar days in the
entire period. For purposes of clause (i) above, any exemption, deduction,
credit or other item that is calculated on an annual basis shall be allocated
to the period beginning before the Closing Date and, pursuant to clause (i)
treated as ending on the Closing Date, based on the pro rata portion of such
item determined by multiplying the total amount of such item times a
fraction, the numerator of which is the number of calendar days in the period
up to and including the Closing Date and the denominator of which is the
total number of calendar days in the entire period.
10.2. RETURNS AND PAYMENTS.
(a) From the date of this Agreement through and after the Closing
Date, UHC shall prepare and file or otherwise furnish to the appropriate party
(or cause to be prepared and filed or so furnished) in a timely manner all Tax
returns, reports and forms ("RETURNS") with respect to the Company for any
taxable period ending on or before the Closing Date, and ActaMed shall do the
same for any taxable period ending after the Closing Date. With respect to any
Return required to be filed with respect to the Company after the Closing Date
and as to which an amount of Tax is allocable to UHC under Section 10.01(c),
ActaMed shall provide UHC and its authorized representatives with a copy of such
completed Return and a statement (including all necessary supporting schedules
and information required to support such statement) that certifies and sets
forth the calculation of the amount of Tax shown on such Return that is
allocable to UHC pursuant to Section 10.01(c) at least 30 days prior to the due
date (including any extension thereof) for the filing of such Return, and UHC
and its authorized representatives shall have the right to review such Return
and statement (including any supporting Schedules or other documents relevant
thereto) prior to the filing of such Return. UHC and ActaMed agree to consult
and to attempt in good faith to resolve any issues arising as a result of the
review of such Return and statement by UHC or its authorized representatives.
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(b) UHC and ActaMed shall each pay or cause to be paid when due and
payable all Taxes that have not been paid as of the Closing Date that are
allocable to them pursuant to the provisions of Section 10.01.
(c) Payment of any amounts due under this Article 10 shall be made
(i) with respect to agreed amounts, at least three calendar days before the
payment of any such Tax is due, provided that no such payment shall be due prior
to 10 business days following receipt of written notice that payment of such Tax
is due, or (ii) within 10 business days following either an agreement between
UHC and ActaMed that an amount is payable by UHC or ActaMed to the other or
within 10 business days of a "determination" as defined in section 1313(a) of
the Internal Revenue Code.
10.3 TAX AUDIT
(a) After the Closing, ActaMed shall promptly notify UHC in writing
of the commencement of any Tax audit or administrative or judicial proceeding
and shall also separately notify UHC in writing of any demand or claim on
ActaMed or the Company which, if determined adversely to the taxpayer or after
the lapse of time would be grounds for indemnification by UHC under this Article
10. Such notice shall contain factual information (to the extent known to
ActaMed or the Company) describing the asserted Tax liability in reasonable
detail and shall include copies of any notice or other document received from
any taxing authority in respect of any such asserted Tax liability. If ActaMed
fails to give UHC prompt notice of an asserted Tax liability as required by this
Section 10.03, then (a) if UHC is precluded by the failure to give prompt notice
from contesting the asserted Tax liability in the appropriate administrative or
judicial forums, then UHC shall not have any obligation to indemnify ActaMed for
any loss or damage arising out of such asserted Tax liability, and (b) if UHC is
not so precluded from contesting but such failure to give prompt notice results
in a detriment to UHC, then any amount which UHC is otherwise required to pay
ActaMed pursuant to this Article 10 with respect to such liability shall be
reduced by the amount of such detriment.
(b) UHC may elect to direct, through counsel of its own choosing and
at its own expense, any audit, or administrative or judicial proceeding
involving any asserted liability with respect to which indemnity may be sought
under this Article 10 (any such audit or proceeding relating to an asserted Tax
liability are referred to herein collectively as a "CONTEST"). If UHC elects to
direct the Contest of an asserted Tax liability, it shall within 30 calendar
days of receipt of the notice of an asserted Tax liability notify ActaMed of its
intent to do so, and ActaMed shall cooperate in good faith and shall cause the
Company or its successor to cooperate in good faith, at UHC's expense, in each
phase of such Contest. If UHC elects not to direct the Contest, fails to notify
ActaMed of its election as herein provided or contests its obligation to
indemnify under Section 10.01, ActaMed or the Company may pay, compromise or
contest, at its own expense, such asserted liability. However, in such case,
neither ActaMed nor the Company (including any designated representative of
either) may settle or compromise any asserted liability over the objection of
UHC; PROVIDED, HOWEVER, that UHC's consent
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to settlement or compromise shall not be unreasonably withheld. In any
event, each of ActaMed (or the Company) and UHC may participate, at its own
expense, in the Contest. If UHC chooses to direct the Contest, ActaMed shall
promptly empower and shall cause the Company or its successor promptly to
empower (by power of attorney and such other documentation as may be
appropriate) such representatives of UHC as it may designate to represent
ActaMed or the Company or its successor in the Contest insofar as the Contest
involves an asserted Tax liability for which UHC would be liable under this
Article 10.
10.4. COOPERATION AND EXCHANGE OF INFORMATION. UHC and ActaMed will
provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax return, amended return or
claim for refund, determining a liability for Taxes or a right to a refund of
Taxes or participating in or conducting any audit or other proceeding in respect
of Taxes. Such cooperation and information shall include providing copies of
relevant Tax returns or portions thereof, together with accompanying schedules
and related work papers and documents relating to rulings or other
determinations by taxing authorities, but in no event shall UHC or ActaMed be
required to disclose to the other any information relating to the operations of
either, as the case may be, other than information relating to the Company. The
Seller and ActaMed shall make its employees available on a mutually convenient
basis to provide explanations of any documents or information provided
hereunder. UHC and ActaMed will retain all returns, schedules and work papers
and all material records or other documents relating to Tax matters of the
Company for its taxable period first ending after the Closing Date and for all
prior taxable periods until the later of: (i) the expiration of the statute of
limitations of the taxable periods to which such returns and other documents
relate, without regard to extensions except to the extent notified by the other
party in writing of such extensions for the respective Tax periods; or (ii)
eight years following the due date (without extension) for such returns. After
such time, before ActaMed shall dispose of any of such books and records, at
least 90 calendar days prior written notice to such effect shall be given by
ActaMed to UHC, and UHC shall be given an opportunity, at its cost and expense,
to remove and retain all or any part of such books and records as UHC may
select. Any information obtained under this Section 10.05 shall be kept
confidential, except as may be otherwise necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
10.5. TAX SHARING AGREEMENTS. UHC shall cause any tax-sharing agreements
or arrangements with the Company to be terminated as of the Closing Date, with
no amounts payable thereunder after the Closing other than those amounts payable
thereunder in respect of current tax payable accounts.
10.6. ARTICLE 9. The provisions of this Article 10 shall supersede the
provisions of Article 9 with respect to the matters set forth herein, except to
the extent explicitly referenced in this Article 10.
ARTICLE 11
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TERMINATION
11.1 METHOD OF TERMINATION. This Agreement and the transactions
contemplated by it may be terminated at any time prior to the Closing Date:
(a) by the mutual consent of UHC and ActaMed;
(b) by UHC, if ActaMed and SubCorp shall (1) fail to perform in any
material respect their agreements contained herein required to be performed by
any of them on or prior to the Closing Date, or (2) materially breach any of
their representations, warranties or covenants contained herein;
(c) by ActaMed, if UHC or the Company shall (1) fail to perform in
any material respect their agreements contained herein required to be performed
by any of them on or prior to the Closing Date, or (2) materially breach any of
their representations, warranties or covenants contained herein;
(d) by either UHC or ActaMed if there shall be any order, writ,
injunction or decree of any court or governmental or regulatory agency binding
on ActaMed, SubCorp, the Company or UHC, which prohibits or restrains ActaMed,
SubCorp, the Company and/or UHC from consummating the Merger, provided that
ActaMed, SubCorp, the Company and UHC shall have used their best efforts to have
any such order, writ, injunction or decree lifted and the same shall not have
been lifted within thirty (30) days after entry, by any such court or
governmental or regulatory agency;
(e) pursuant to SECTION 11.4; or
(f) without action of either party if the Closing has not occurred on
or before April 30, 1996.
11.2 NOTICE OF TERMINATION. Notice of termination of this Agreement, as
provided for in this ARTICLE 11, shall be given by the parties so terminating to
the other parties hereto in accordance with SECTION 14.1 of this Agreement.
11.3 EFFECT OF TERMINATION. If this Agreement terminates pursuant to
SECTION 11.1 (a), (d), (e) or (f), then this Agreement shall become void and of
no further force and effect, and each party shall pay the costs and expenses
incurred by it in connection with this Agreement as set forth in SECTION 6.14
and no party (nor any of its officers, directors, employees, agents,
representatives or shareholders) shall be liable to any other party for any
costs, expenses, damages (direct or indirect) or loss of anticipated profits.
11.4 RISK OF LOSS. The Company and UHC assume all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement until the Closing. If the condemnation, destruction, loss, or damage
is such that the business of the Company is interrupted or curtailed or the
assets of the Company are
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materially affected, then ActaMed and SubCorp shall have the right to
terminate this Agreement. If ActaMed and SubCorp nonetheless elect to close,
the Company and UHC shall remit all net condemnation proceeds or third party
insurance proceeds to ActaMed and SubCorp and the number of shares of Series
C Preferred Stock to be delivered to UHC at the Closing shall be adjusted to
reflect such condemnation, destruction, loss, or damage to the extent that
insurance or condemnation proceeds are not sufficient to cover such
destruction, loss or damage. If ActaMed and SubCorp and UHC are unable to
agree upon the amount of such adjustment, the dispute shall be resolved
jointly by the independent accounting firms then employed by ActaMed and
SubCorp and the Company, and if said accounting firms do not agree, they
shall appoint a nationally recognized accounting firm, whose determination of
the dispute shall be final and binding.
ARTICLE 12
ADDITIONAL COVENANTS OF ACTAMED
ActaMed covenants and agrees that, except as provided in SECTION 12.1
below, until such time as ActaMed has consummated a Public Offering:
12.1 SECURITIES LAW FILINGS. Upon consummation of a Public Offering and
for so long as the UHC holds the Conversion Shares, ActaMed will timely file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder, to the extent
required from time to time to enable the UHC to sell the Conversion Shares
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any UHC, ActaMed will deliver a written
statement as to whether it has complied with such requirements.
12.2 TRANSACTIONS WITH SUBSTANTIAL HOLDERS. ActaMed shall not, directly
or indirectly, knowingly enter into any material transaction or agreement with
any of its Substantial Holders or any Affiliate or officer of ActaMed or a
Substantial Holder, or a material transaction or agreement in which a
Substantial Holder or Affiliate or officer of ActaMed or a Substantial Holder
has a direct or indirect interest, unless such transaction or agreement is on
terms and conditions no less favorable to ActaMed or any of its Subsidiaries
than could be obtained at the time in an arm's length transaction with a third
person that is not such a Substantial Holder or Affiliate or officer of ActaMed
or a Substantial Holder, and such transaction or agreement has been reviewed and
approved by a majority of those members of ActaMed's Board of Directors who have
no such interest in the transaction. Except as provided in SECTION 14.4, this
SECTION 12.2 shall not be enforceable against ActaMed by any person or entity
not a party to this Agreement.
12.3 BUSINESS AND FINANCIAL COVENANTS. ActaMed covenants that:
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(a) MERGER, ACQUISITIONS, SALE OF ASSETS. Without the prior written
consent of the holders of a majority interest of the Series A Preferred Stock,
Series B Preferred Stock and the Series C Preferred Stock, each voting
separately as a class:
(1) ActaMed shall not merge, effect a statutory share exchange,
or consolidate with any entity at a price per preferred share less than the
Series C Conversion Price.
(2) ActaMed shall not sell, assign, lease or otherwise dispose
of all or substantially all of its assets (whether now owned or hereafter
acquired) in a transaction that would result in a price per preferred share less
than the Series C Conversion Price.
(b) MERGER, ACQUISITIONS, SALE OF ASSETS. Without the prior written
consent of the holders of a majority interest of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock, voting as a
single class:
(1) ActaMed shall not merge, effect a statutory share exchange,
or consolidate with any entity at a price per Preferred Share equal to or
greater than the Series C Conversion Price.
(2) ActaMed shall not sell, assign, lease or otherwise dispose
of all or substantially all of its assets (whether now owned or hereafter
acquired) in a transaction that would result in a price per preferred share
equal to or greater than the Series C Conversion Price.
(3) The Company shall not permit any of its Subsidiaries to
merge, effect a statutory share exchange, or consolidate with any entity other
than ActaMed, or to sell, assign, lease or otherwise dispose of, all or
substantially all of its assets (whether now owned or hereafter acquired) except
to ActaMed.
(4) Except for (A) up to 500,000 shares of ActaMed Common Stock
which may be issued pursuant to ActaMed's 1996 Stock Option Plan approved by the
Board of Directors, (B) up to 100,000 shares of ActaMed Common Stock which may
be issued pursuant to ActaMed's 1996 Directors Stock Option Plan approved by the
Board of Directors, (C) up to 975,000 shares of ActaMed Common Stock which may
be issued pursuant to ActaMed's 1995 Stock Option Plan approved by the Board of
Directors, (D) any remaining shares which may be issued under ActaMed's 1994
Stock Option Plan, 1993 Stock Option Plan and 1992 Stock Option Plan, (E) the
reissuance of any unvested options that terminate under such option plans,
(F) the issuance of shares of ActaMed Common Stock pursuant to additional stock
option plans that may be established from time to time by the Board of Directors
of ActaMed in its discretion, and (E) the conversion of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, ActaMed
will not, and will not permit any of its Subsidiaries, to hereafter issue or
sell any shares of any securities convertible into, or any warrants, rights,
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or options to purchase shares of, the capital stock of ActaMed or such
Subsidiary to any person or entity other than ActaMed, and ActaMed will not
pledge any of the capital stock of any Subsidiary to any person or entity.
(c) LOANS TO AND INVESTMENTS IN OTHERS. ActaMed shall not (except
for the advancement of money for expenses in the ordinary course of business)
make, or permit any of its Subsidiaries to make, any loans or advances to any
person or entity or have outstanding any investment in any entity, whether by
way of loan or advance to, or by the acquisition of the capital stock, assets or
obligations of or any interest in, any person or entity.
(d) RESTRICTED PAYMENTS, REPURCHASE OF ACTAMED COMMON STOCK. Except
as expressly permitted herein or by the Restated Articles, neither ActaMed nor
any of its Subsidiaries shall declare or make any Restricted Payments.
(e) ARTICLES OF INCORPORATION. Neither ActaMed nor any of its
Subsidiaries will amend or change its Articles of Incorporation or Bylaws, or
violate or breach any of the provisions thereof.
(f) Without the consent of a majority of the Board of Directors:
(1) DEBT. ActaMed shall not create, incur or suffer to exist,
or permit any Subsidiary to create, incur or suffer to exist, any debt other
than:
(A) debt existing on the date hereof and included in the
ActaMed Financial Statements or incurred in the
ordinary course of business between the date of the
ActaMed Financial Statements and the date hereof, and
any renewals or replacements of such debt not exceeding
the principal amount of the debt being replaced or
renewed; and
(B) debt not in excess of $1,000,000 in the aggregate in
any one calendar year.
(2) LEASE OBLIGATIONS. ActaMed shall not create or suffer to
exist, or permit any Subsidiary to create or suffer to exist, any obligations
for the payment of rent for any property under leases or agreements to lease,
other than obligations for (A) the payment of rent which, in the aggregate, do
not exceed $1,000,000 annually and (B) payments under leases set forth on
SCHEDULE 5.21.
(3) ACQUISITIONS. ActaMed shall not acquire, or permit any
Subsidiary to acquire, directly or indirectly, the assets of or equity interests
in any other business or entity, whether by purchase, merger consolidation or
otherwise in excess of $1,000,000.
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(4) PUBLIC OFFERING. ActaMed shall not effect an initial public
offering of any equity securities, other than equity securities issued in a
merger, less than $15,000,000 at a per share price of less than 2.5 times the
then existing conversion price of the Series A Preferred Stock.
12.4 CORPORATE EXISTENCE, BUSINESS, MAINTENANCE, INSURANCE.
(a) ActaMed will at all times preserve and keep in full force and
effect its corporate existence and rights and franchises deemed material to its
business and those of its Subsidiaries, except any Subsidiary of ActaMed may be
merged into ActaMed or another Subsidiary.
(b) ActaMed shall engage solely in the business of developing
information networks and businesses closely related thereto. ActaMed (and any
Subsidiary) will not purchase or acquire any property other than property useful
in and related to such business.
(c) ActaMed will maintain or cause to be maintained in good repair,
working order and condition all properties used or useful in the business of
ActaMed and any Subsidiary and from time to time will make or cause to be made
all appropriate repairs, renewals and replacements thereof. ActaMed and any
Subsidiary will at all times comply in all material respects with the provisions
of all material leases to which it is a party or under which it occupies
property so as to prevent any loss or forfeiture thereof or thereunder.
(d) ActaMed will maintain or cause to be maintained, with financially
sound and reputable insurers, appropriate insurance with respect to its
properties and business and the properties and business of any Subsidiary
against loss or damage.
12.5 PAYMENT OF TAXES, ETC.; ERISA.
(a) ActaMed will pay, and will cause any of its Subsidiaries to pay,
all taxes, assessments and other governmental charges imposed upon it or any of
its properties or assets or in respect of any of its franchises, business,
income or profits before any penalty or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a lien or charge upon any of its properties or assets, PROVIDED
that no such charge or claim need be paid if being contested in good faith by
appropriate proceedings and if such reserve or other appropriate provisions, if
any, as shall be required by generally accepted accounting principles shall have
been made therefor.
(b) ActaMed and any of its Subsidiaries will comply in all material
respects with the ERISA.
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12.6 BOOKS AND RECORDS, COMPLIANCE.
(a) ActaMed and any of its Subsidiaries will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with GAAP applied on a consistent basis.
(b) ActaMed and any of its Subsidiaries shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
12.7 REPURCHASE OF PREFERRED SHARES. Except as provided in the Restated
Articles, ActaMed shall not, and shall not permit any of its Subsidiaries or any
Affiliate of ActaMed to, directly or indirectly, redeem or repurchase or make
any offer to redeem or repurchase any Preferred Shares, unless ActaMed, such
Subsidiary or such Affiliate has offered to repurchase Preferred Shares PRO
RATA, from all holders of outstanding Preferred Shares) upon the same terms.
12.8 COMPENSATION. All awards of compensation, including, but not
limited to, salary, bonus and awards of stock options made to executive officers
and/or directors of ActaMed shall be determined by ActaMed in accordance with
the terms of the Stockholders' Agreement.
ARTICLE 13
INFORMATIONAL COVENANTS OF ACTAMED
ActaMed covenants and agrees that it shall deliver the following
information to UHC (including permitted transferees in accordance with SECTION
14.4, except as set forth in SECTION 13.6), for so long as UHC (or such
transferees) shall hold at least 5% of the aggregate outstanding Preferred
Shares and Conversion Shares (considered as a single class), or until such time
as ActaMed shall have consummated a Public Offering:
13.1 AUDITED ANNUAL FINANCIAL STATEMENTS. As soon as practicable and, in
any case, within one hundred and twenty (120) days after the end of each fiscal
year, financial statements of ActaMed, consisting of the balance sheet of
ActaMed as of the end of such fiscal year and the statements of operations,
statements of shareholders, equity and statements of cash flows of ActaMed for
such fiscal year, setting forth in each case, in comparative form, the figures
for the preceding fiscal year, all in reasonable detail and fairly presented in
accordance with GAAP applied on a consistent basis throughout the periods
reflected therein, except as stated therein, and accompanied by an opinion
thereon of Deloitte & Touche, or other independent certified public accountants
selected by ActaMed of good and recognized national standing in the United
States.
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13.2 QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As soon as practicable
and, in any case, within forty-five (45) days after the end of each of the
first three fiscal quarters in each fiscal year, unaudited financial
statements of ActaMed setting forth the balance sheet of ActaMed at the end
of each such fiscal quarter and the statements of operations and statements
of cash flows of ActaMed for each such fiscal quarter and for the year to
date, and setting forth in comparative form figures as of the corresponding
date and for the corresponding periods of the preceding fiscal year, all in
reasonable detail and certified by an accounting officer of ActaMed as
complete and correct, as having been prepared in accordance with GAAP
consistently applied (except as otherwise disclosed therein) and as
presenting fairly, in all material respects, the financial position of
ActaMed and any of its Subsidiaries and results of operations and cash flows
thereof subject, in each case, to customary exceptions for interim unaudited
financial statements.
13.3 MONTHLY UNAUDITED FINANCIAL STATEMENTS. As soon as available,
but in any event within thirty (30) days after the end of each calendar
month, copies of the unaudited balance sheet of ActaMed as at the end of such
calendar month and the related unaudited statements of operations and cash
flows for such calendar month and the portion of the calendar year through
such calendar month, in each case setting forth in comparative form the
figures for the corresponding periods of (a) the previous calendar year and
(b) the budget for the current year, prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as otherwise disclosed therein) and certified by the chief
financial officer of ActaMed as presenting fairly the financial condition and
results of operations of ActaMed and any of its Subsidiaries (subject to
customary exceptions for interim unaudited financial statements).
13.4 MANAGEMENT'S ANALYSIS. All the financial statements delivered
pursuant to SECTIONS 13.1 and 13.2 shall be accompanied by an informal
narrative description of material business and financial trends and
developments and significant transactions that have occurred in the
appropriate period or periods covered thereby.
13.5 BUDGETS. As soon as practicable, but in any event within thirty
(30) days prior to the commencement of a fiscal year, an annual operating
budget for such fiscal year, approved by the Board of Directors, including
monthly income and cash flow projections and projected balance sheets as of
the end of each quarter within such fiscal year. Extensions of such due date
shall not be unreasonably withheld.
13.6 INSPECTION. Upon reasonable notice, ActaMed shall, and shall
cause any of its Subsidiaries to, permit UHC (so long as it owns 5% more of
the outstanding capital stock of ActaMed) by its representatives, agents or
attorneys:
(a) to examine all books of account, records, reports and other
papers of ActaMed or such Subsidiary except to the extent that such action
would, in the reasonable opinion of counsel, constitute a waiver of the
attorney/client privilege,
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(b) to make copies and take extracts from any thereof, except for
information which is confidential or proprietary,
(c) to discuss the affairs, finances and accounts of ActaMed or such
Subsidiary with ActaMed's or such Subsidiary's officers and independent
certified public accountants (and by this provision ActaMed hereby authorizes
said accountants to discuss with UHC and its representatives, agents or
attorneys the finances and accounts of ActaMed or such Subsidiary), and
(d) to visit and inspect, at reasonable times and on reasonable
notice during normal business hours, the properties of ActaMed and such
Subsidiary. Notwithstanding any provision herein to the contrary, the
provisions of this SECTION 13.6 are in addition to any rights of UHC under
the Georgia Business Corporation Code and shall in no way limit such rights.
The expenses of UHC in connection with any such inspection shall be for
the account of UHC. Notwithstanding the foregoing sentence, it is understood
and agreed by ActaMed that all reasonable expenses incurred by ActaMed or
such Subsidiary, any officers, employees or agents thereof or the independent
certified public accountants therefor, shall be expenses payable by ActaMed
and shall not be expenses of UHC making the inspection.
Notwithstanding anything to the contrary, no member of the UHC Group
shall be permitted access to any information of, or related to, any
competitor of UHC.
13.7 OTHER INFORMATION. ActaMed shall deliver the following provided
that in the reasonable opinion of counsel to ActaMed such disclosure will not
constitute a waiver of the attorney/client privilege, the breach of any
secrecy covenant or the release of information regarding competitors of UHC:
(a) promptly after the submission thereof to ActaMed, copies of
any detailed reports (including the auditors' comment letter to management,
if any such letter is prepared) submitted to ActaMed by its independent
auditors in connection with each annual or interim audit of the accounts of
ActaMed made by such accountants;
(b) promptly, and in any event within ten (10) days after
obtaining knowledge thereof, notice of the institution of any suit, action or
proceeding (other than a proceeding of general application which is not
directly against ActaMed or one or more of the Subsidiaries), the happening
of any event or, to the best knowledge of ActaMed, the assertion or threat of
any claim against ActaMed or any of the Subsidiaries which, either
individually or in the aggregate, would have a Material Adverse Effect;
(c) promptly upon, and in any event within thirty (30) days after
obtaining knowledge thereof, notice of any breach of, default under or
failure to comply with any material term under SECTIONS 12 or 13 of this
Agreement or any material adverse
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change in ActaMed's relationship with its major customers, suppliers,
employees or other entity with which ActaMed has a business relationship;
(d) with reasonable promptness, a notice of any default by ActaMed
or any of its Subsidiaries under any material agreement to which it is a
party;
(e) with reasonable promptness, copies of all written materials
furnished to directors;
(f) promptly (but in any event within ten (10) days) after the
filing of any document or material with the SEC, a copy of such document or
material;
(g) promptly after the record date set by the Board of Directors
to determine the stockholders entitled to vote at ActaMed's annual meeting of
stockholders (but in any event ten (10) days prior to such meeting), a list
of all stockholders of ActaMed and their respective holdings; and
(h) promptly upon request therefor, such other data, filings and
information as any UHC may from time to time reasonably request.
ARTICLE 14
GENERAL PROVISIONS
14.1 NOTICES.
(a) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if (1)
delivered by hand or if mailed by United States registered or certified mail,
return receipt requested, first class postage prepaid, (2) sent by Federal
Express or similar overnight courier service to the parties or their
assignees, or (3) sent by telecopy to the number set forth below and promptly
followed by a written copy sent by any other means specified herein,
addressed as follows:
If to UHC or the Company:
United Healthcare Corporation Inc.
9900 Bren Road East
Minneapolis, Minnesota 55440-1459
Attention: Chief Information Officer
Telephone: (___)____________
Telecopy: (___)_____________
If to ActaMed and/or SubCorp:
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ActaMed Corporation
Suite 600
7000 Central Parkway
Atlanta, Georgia 30328
Attention: Chief Financial Officer
Telephone: (770) 551-1600
Telecopy: (770) 551-1815
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: J. Vaughan Curtis, Esq.
Telephone: (404) 881-7000
Telecopy Number: (404) 881-7777
(b) If delivered personally, the date on which a notice, request,
instruction or document is delivered shall be the date on which such delivery
is made and, if delivered by mail, telecopy, Federal Express or other
overnight courier, the date on which such notice, request, instruction or
document is first received shall be the date of delivery.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this
SECTION 14.1.
(d) Failure of any party to send a copy of any notice to counsel
for the other party shall not affect in any way the validity of such notice
to other party.
14.2 FURTHER ASSURANCES. Each party covenants that at any time, and
from time to time, after the Closing Date, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and
purposes of this Agreement.
14.3 WAIVER. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived
by any other party to whom such compliance is owed. No waiver of any
provision of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute
a continuing waiver.
14.4 ASSIGNMENT. This Agreement shall not be assignable by any of the
parties hereto without the written consent of the other parties hereto, and
no rights under this Agreement may be transferred, except that:
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(a) the rights of ActaMed under this Agreement may be transferred
to any successor, by purchase of assets, merger or other corporate
reorganization;
(b) the rights of UHC under this Agreement may be transferred
after the Closing in connection with a transfer of Preferred Shares made in
accordance with the provisions of the Stockholders' Agreement (other than a
transfer pursuant to a registration statement under the Securities Act or a
transfer pursuant to Rule 144 thereunder); and
(c) all the rights of UHC may be transferred to an Affiliate of
UHC; PROVIDED, that any such transferee of UHC shall execute and deliver to
ActaMed an instrument satisfactory to it agreeing to be bound by the
provisions hereof and of the Stockholders' Agreement and the Registration
Rights Agreement.
14.5 BINDING EFFECT. Subject to the limitations on transfer set forth
in SECTION 14.4, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
14.6 KNOWLEDGE. The use of the terms "to ActaMed's knowledge" or "to
the best of ActaMed's knowledge" shall mean the facts known to P.E. Sadler,
Michael K. Hoover, and Nancy J. Ham after reasonable inquiry.
14.7 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a
part of this Agreement.
14.8 ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates and other documents delivered pursuant hereto or incorporated
herein by reference, contain and constitute the entire agreement among the
parties hereto and supersede and cancel any prior agreements,
representations, warranties, or communications, whether oral or written,
among the parties hereto relating to the transactions contemplated hereby or
the subject matter herein. This Agreement may be changed, waived, discharged
or terminated only by an agreement in writing signed by (A) ActaMed and (B)
UHC or, after the Closing Date, the holder(s) of a majority of the Preferred
Shares and any Conversion Shares considered as a single class.
14.9 GOVERNING LAW. Except as set forth in SECTION 6.12, this
Agreement shall be governed by and construed in accordance with the laws of
the State of Georgia.
14.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.11 PRONOUNS. All pronouns used herein shall be deemed to refer to
the masculine, feminine or neutral gender as the context requires.
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14.12 TIME OF ESSENCE. Time is of the essence in this Agreement.
14.13 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to
this Agreement are by this reference made a part hereof.
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[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER DATED MARCH 1, 1996 BY AND AMONG
ACTAMED CORPORATION, SUBCORP, INC., UHC GREEN ACQUISITION, INC. AND UNITED
HEALTHCARE CORPORATION]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the day and year first above written.
ACTAMED CORPORATION EDI ACQUISITION, INC.
By : /s/ MICHAEL K. HOOVER By: /s/ MICHAEL K. HOOVER
--------------------------- ----------------------------
Name: Michael K. Hoover Name: Michael K. Hoover
-------------------- ---------------------
Title: President Title: President
------------------- --------------------
UNITED HEALTHCARE UHC GREEN ACQUISITION, INC.
CORPORATION
By : /s/ TRAVERS H. WILLS By: /s/ TRAVERS H. WILLS
--------------------------------- -------------------------------
Name: Travers H. Wills Name: Travers H. Wills
-------------------------- ---------------------------
Title: Chief Operating Officer Title: Chief Operating Officer
-------------------------- ---------------------------
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EXHIBIT A
DEFINED TERMS
"ACTAMED" - ActaMed Corporation, a Georgia corporation.
"ACTAMED BUSINESS" - The business of selling and developing information
systems and related technology for the healthcare industry.
"ACTAMED COMMON STOCK" - The $.01 par value common stock of ActaMed.
"ACTAMED DOCUMENTS" - All of the Transaction Documents to which either
ActaMed or SubCorp is a party.
"ACTAMED FINANCIAL STATEMENTS" - The materials described in SECTION 5.4(a)
of this Agreement.
"ACTAMED INDEMNITEE" - ActaMed and SubCorp and their respective
directors, officers, employees, affiliates and assigns.
"AFFILIATE" - Any person, firm, corporation, partnership or association
controlling, controlled by or under common control with another person, firm,
corporation, partnership or association.
"AGREEMENT" - This Agreement and Plan of Merger, including the Exhibits
and Schedules delivered pursuant hereto.
"BENEFIT PLAN" - An employee benefit plan or agreement of a person for
the benefit of its shareholders, officers, directors, employees, or
independent contractors, including, without limitation, (a) any affirmative
action plans or programs, (b) any current and deferred compensation,
severance, vacation, stock purchase, stock option, bonus and incentive
compensation benefits, (c) any "employee benefit plan" (as defined in ERISA
Section 3(3)) and (d) any medical, hospital, life, health, accident,
disability, death and other fringe and welfare benefits, including any
split-dollar life insurance policies, all of which plans, programs,
practices, policies and other individual and group arrangements and
agreements, including any unwritten compensation, fringe benefit, payroll or
employment practices, procedures or policies of any kind or description.
"CLAIM" - Any claim for indemnification under ARTICLE 9, including but
not limited to a General Claim, a Tax Claim or an Ownership Claim.
"CLAIMS NOTICE" - A written notice of an indemnification claim delivered
pursuant to SECTION 9.5 hereof.
"CLOSING" - The closing referred to in SECTION 1.2 hereof.
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"CLOSING DATE" - The date referred to in SECTION 1.2 hereof for the
closing of the transactions contemplated by this Agreement.
"CODE" - The Internal Revenue Code of 1986, as amended.
"COMPANY" - UHC Green Acquisition, Inc., a Nevada corporation.
"COMPANY BUSINESS" - The business of providing electronic data
interchange products and services to the health care industry, excluding
EmployerLink and LaborLink, whether conducted by the Company or any other
member of the UHC Group.
"COMPANY COMMON STOCK" - The common stock, $.01 par value, of the Company.
"CONTRACT" - Any written or oral contract, agreement, lease, plan,
instrument or other document, commitment, arrangement, undertaking, practice
or authorization that is or may be binding on any person or its property
under applicable law.
"CONVERSION SHARES" - The shares of ActaMed Common Stock issued or
issuable upon the conversion of the Preferred Shares.
"COURT ORDER" - Any judgment, decree, writ, injunction, order or ruling
of any federal, state or local court or governmental or regulatory body or
authority that is binding on any person or its property under applicable law.
"DEFAULT" - (a) a breach of or default under any Contract or License,
(b) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract or
License, or (c) the occurrence of an event that with or without the passage
of time or the giving of notice or both would give rise to a right of
termination, renegotiation or acceleration under any Contract or License.
"EDI FINANCIAL STATEMENTS" - The materials described in SECTION 4.6(a)
of this Agreement.
"EFFECTIVE TIME" - The date and time at which the Merger becomes
effective pursuant to SECTION 1.3 of this Agreement.
"ENVIRONMENTAL CONDITION" - (a) The introduction into the environment of
any pollution, including without limitation any contaminant, irritant or
pollutant or other toxic or hazardous substance (whether or not such
pollution constituted at the time thereof a violation of any federal, state
or local law, ordinance or governmental rule or Regulation) as a result of
any spill, discharge, leak, emission, escape, injection, dumping or release
of
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any kind whatsoever of any substance or exposure of any type in any work
places or to any medium, including without limitation air, land, surface
waters or ground waters, or from any generation, transportation, treatment,
discharge, storage or disposal of waste materials, raw materials, hazardous
materials, toxic materials or products of any kind or from the storage, use
or handling of any hazardous or toxic materials or other substances, as a
result of which the Company has or may become liable to any person by any
reason of which any of the assets of the Company may suffer or be subjected
to any Lien, or (b) any noncompliance with any federal, state or local
environmental law, rule, Regulation or order as a result of or in connection
with any of the foregoing.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended.
"EXCHANGE ACT" - The Securities Exchange Act of 1934, as amended.
"FASB 5" - Statement of Financing Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975.
"GAAP" - Generally accepted accounting principles.
"GENERAL CLAIM" - Any claim other than a Tax Claim, Ownership Claim or
Undisclosed Liability Claim based upon, arising out of or otherwise in
respect of: any inaccuracy in any representation or warranty or any breach of
any covenant or agreement made or to be performed by a party pursuant to this
Agreement.
"HIRED EMPLOYEES" - The employees assigned to the Company Business and
identified on SCHEDULE 6.5.
"HIRED HOLD-OVER EMPLOYEE" - See SECTION 6.4 of this Agreement.
"HSR ACT" - Section 7A of the Clayton Act, as added by Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder.
"INDEMNITEE" - A party seeking indemnification under SECTIONS 9.3 or 9.4.
"INDEMNIFYING PARTY" - The party obligated to provide indemnification
pursuant to SECTIONS 9.3 or 9.4.
"INTELLECTUAL PROPERTY" - Copyrights, trademarks, service marks, trade
names, patents, applications therefor, technology rights and licenses,
computer software (including, without limitation, any source or object codes
therefor or documentation relating thereto), trade secrets, franchises,
know-how, inventions and intellectual property rights.
A-3
<PAGE>
"IRS" - The Internal Revenue Service.
"LIABILITY" - Any direct or indirect liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of or by any
person (other than endorsements of notes, bills and checks presented to banks
for collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute, contingent, matured, unmatured or other.
"LICENSE" - Any license, franchise, notice, permit, easement, right,
authorization or filing.
"LIEN" - Any mortgage, lien, security interest, pledge, encumbrance,
restriction on transferability, defect of title, charge or claim of any
nature whatsoever on any property or property interest.
"LITIGATION" - Any lawsuit, action, claim, arbitration, administrative
or other proceeding, criminal prosecution or governmental investigation or
inquiry involving or affecting the Company or its business, assets or
Contracts to which the Company is a party or by which it or its business,
assets or Contracts may be bound or affected.
"LOSSES" - Any and all demands, claims, actions or causes of action,
assessments, losses, diminution in value, damages (including special and
consequential damages), liabilities, costs, and expenses, including without
limitation, interest, penalties, cost of investigation and defense, and
reasonable attorneys' and other professional fees and expenses.
"MATERIAL ADVERSE EFFECT" - With respect to ActaMed, a material adverse
effect on the ability of ActaMed to conduct the ActaMed Business or the
impairment of ActaMed's ability to perform its obligations under the ActaMed
Documents.
"MERGER" - The merger of SubCorp with and into the Company pursuant to
this Agreement.
"OWNERSHIP CLAIM" - Any claim arising out of or otherwise in respect of
any inaccuracy in the representations and warranties set forth in SECTIONS 4.1,
4.2, 4.3, 4.4 or 4.16 or 5.2 or 5.7 of this Agreement.
"PUBLIC OFFERING" - A bona fide firm commitment underwritten offering of
ActaMed Common Stock pursuant to a registration statement filed with and
declared effective by the SEC.
"PREFERRED SHARES" - The shares of Series C Preferred Stock issued to
UHC pursuant to SECTION 3.1(a).
A-4
<PAGE>
"REGISTRATION RIGHTS AGREEMENT" - The Registration Rights Agreement
dated May 3, 1994, by and among ActaMed and the signatures thereto, as
amended.
"REGISTRATION RIGHTS AGREEMENT AMENDMENT" - The agreement referenced in
SECTION 1.4(a)(2) hereof.
"REGULATION" - Any statute, law, ordinance, regulation, order or rule of
any federal, state, local or other governmental agency or body or of any
other type of regulatory body, including, without limitation, those covering
environmental, energy, safety, health, transportation, bribery,
recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, and
price and wage control matters.
"RESTATED ARTICLES" Before the Closing, the Second Amended and Restated
Articles of Incorporated of ActaMed and, after the Closing, the Third Amended
and Restated Articles of Incorporation of ActaMed.
"RESTRICTED PAYMENT" means (a) any payment or the incurrence of any
liability to make any payment in cash, property or other assets as a dividend
or other distribution in respect of any shares of capital stock of ActaMed or
any Subsidiary, excluding, however, any dividends payable to ActaMed by a
Subsidiary or dividends which may be payable solely in ActaMed Common Stock
of ActaMed or any Subsidiary and (b) except as otherwise permitted by the
Transaction Documents or a stock option agreement under the Stock Option
Plans, any payment or the incurrence of any liability to make any payment in
cash, property or other assets for the purposes of purchasing, retiring or
redeeming any shares of any class of capital stock of ActaMed or any
Subsidiary or any warrants, options or other rights to purchase any such
shares.
"SCHEDULE" - Any of the disclosure schedules referred to in ARTICLES 4 or
5.
"SEC" - The Securities and Exchange Commission.
"SECURITIES ACT" - The Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" - The Series A Convertible Preferred Stock of
ActaMed.
"SERIES B PREFERRED STOCK" - The Series B Convertible Preferred Stock of
ActaMed.
"SERIES C PREFERRED STOCK" - The Series C Convertible Preferred Stock of
ActaMed.
"SERVICES AND LICENSE AGREEMENT" - The agreement referenced in SECTION
1.4(a)(1) hereof.
A-5
<PAGE>
"SHAREHOLDERS' AGREEMENT AMENDMENT" - The agreement referenced in
SECTION 1.4(a)(3) hereof.
"SHARES" - The total of 1,000 shares of Company Common Stock
constituting in the aggregate one hundred percent (100%) of the issued and
outstanding common stock of the Company.
"STANDSTILL AGREEMENT AMENDMENT" - The agreement referenced in
SECTION 1.4(a)(4) hereof.
"SUBCORP" - EDI Acquisition, Inc., a Georgia corporation.
"SUBSIDIARY" - A corporation, limited liability company, partnership,
association, trust, joint venture or other entity in which ActaMed or the
Company, as the case may be, has, directly or indirectly, an equity,
ownership or proprietary interest of greater than ten percent (10%).
"SUBSTANTIAL HOLDER" - An officer or employee of ActaMed or SubCorp who
is the beneficial owner of one percent (1%) or more of the outstanding voting
power or the outstanding equity (on a fully diluted basis) of ActaMed.
"SURVIVING CORPORATION" - The Company, as the surviving corporation of
the Merger, after the Merger.
"TAX CLAIM" - Any claim based upon, arising out of or otherwise in
respect of any inaccuracy in any representation or warranty or breach of any
covenant or agreement made or to be performed by a party pursuant to this
Agreement related to any Taxes.
"TAXES" - Any federal, state, county, local and other taxes, including
without limitation, income taxes, estimated taxes, excise taxes, sales taxes,
use taxes, gross receipts taxes, franchise taxes, taxes on earnings and
profits, employment and payroll related taxes, property taxes, real property
transfer taxes, Federal Insurance Contributions Act taxes, taxes on value
added and import duties, whether or not measured in whole or in part by net
income, imposed by the United States or any political subdivision thereof or
by any jurisdiction other than the United States or any political subdivision
thereof.
"THIRD PARTY CLAIM" - Any claim, suit or proceeding (including, without
limitation, a binding arbitration or an audit by any taxing authority) that
is instituted against an Indemnitee by a person or entity other than an
Indemnitor and which, if prosecuted successfully, would result in a Loss for
which such Indemnitee is entitled to indemnification hereunder.
A-6
<PAGE>
"TRANSACTION DOCUMENTS" - This Agreement and the documents exchanged by
the parties at the Closing.
"TRANSITION SERVICES AGREEMENT" - The agreement referenced in SECTION
1.4(a)(5) hereof.
"UHC" - United Healthcare Corporation, a Minnesota corporation.
"UHC DOCUMENTS" - All of the Transaction Documents to which either UHC
or the Company is a party.
"UHC GROUP" - UHC and its Affiliates.
"UHC INDEMNITEE" - UHC and its directors, officers, employees,
affiliates and assigns.
"UNDISCLOSED LIABILITY CLAIM" - Any claim arising out of or otherwise in
respect of any inaccuracy in the representations and warranties set forth in
SECTIONS 4.7, 4.8, 4.10, 4.20 or 4.23.
A-7
<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT (this "Amendment") to the Agreement and Plan of Merger
dated March 1, 1996 (the "Plan of Merger") is entered into this 4th day of
April, 1996, by and among ActaMed Corporation, EDI Acquisition, Inc., United
HealthCare Corporation and EDI Services, Inc. (formerly UHC Green
Acquisition, Inc.). Capitalized terms used herein but not otherwise defined
shall have the meanings ascribed to them in the Plan of Merger.
WHEREAS, the parties hereto desire to amend the Plan of Merger as set
forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. SECTION 1.2. The second sentence of Section 1.2 of the Plan of
Merger is hereby deleted and is replaced in its entirety by the following
sentence:
"Notwithstanding the foregoing, if the Closing does not occur on the
first day of a month, then solely for financial accounting and reporting
purposes, the parties hereto agree that the transactions contemplated
herein shall be deemed to have closed as of the first day of the month
in which the Closing occurs or the last day of the preceding month, as
appropriate; provided that the parties hereto agree that for all other
purposes, including, without limitation, risk of loss, the Closing shall
occur, and shall be deemed to have occurred on the actual date of the
Closing."
3. SECTION 3.3. The following Section 3.3 is hereby added to the Plan
of Merger:
"3.3 BASIS OF ASSETS OF THE COMPANY. Actamed and UHC recognize and
agree that the prearranged transfer by UHC of the assets to the Company
in contemplation of and in connection with the sale of the stock of the
Company to Actamed is not a transaction described in Section 351 of the
Internal Revenue Code, that such transfer to the Company is taxable to
UHC as a taxable transfer of assets to the Company and the Company has a
fair market value basis in the assets received in the transfer from UHC
immediately prior to the time of the transaction contemplated hereby.
UHC and Actamed agree to report the foregoing transactions in a manner
consistent herewith. In addition, and in order to assure that Actamed
shall have a basis in the assets of the Company equal to the amount paid
pursuant to this Agreement, in lieu of the foregoing reporting and at
Actamed's request, Actamed and UHC will make a timely election under
Section 338(h)(10) of the Internal Revenue Code and any corresponding
elections under state or local tax law. Actamed and UHC shall cooperate
in taking all actions necessary to report the transaction as described
above, or at Actamed's request to effect the election, including the
execution and preparation of all forms, returns, elections and schedules
and other documents and instruments. Any allocation of basis among the
assets of the Company shall be initially prepared by UHC and consented
to by Actamed. Any such allocation shall, for tax purposes, be binding
on Actamed and UHC and no party shall take any position inconsistent
with such allocation. UHC and Actamed agree
<PAGE>
that any liability for Tax arising out of or in any way attributable to
the sale or deemed sale of assets by UHC shall be for the sole account
of the UHC."
2. SECTION 4.1. The last sentence of Section 4.1 of the Plan of Merger is
hereby deleted and is replaced in its entirety by the following sentence:
"Substantially all of the assets required for the operation of the
Company Business were transferred to the Company on December 15, 1995,
and the Company did not have any operations prior to such date."
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment as
of the day and year first above written.
ACTAMED CORPORATION
By: /S/ MICHAEL K. HOOVER
------------------------------
Michael K. Hoover, President
EDI ACQUISITION, INC.
By: /S/ MICHAEL K. HOOVER
------------------------------
Michael K. Hoover, President
UNITED HEALTHCARE CORPORATION
By: /s/ TRAVERS H. WILLS
------------------------------
Title: Chief Operating Officer
---------------------------
EDI SERVICES, INC.
By: /s/ TRAVERS H. WILLS
------------------------------
Title: Chief Operating Officer
---------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
HEALTHEON CORPORATION
METIS ACQUISITION CORP.
AND
METIS, LLC
DATED AS OF JUNE 25, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . 1
1.1 Purchase of Assets . . . . . . . . . . . . . . . . . . . 1
1.2 Retained Assets. . . . . . . . . . . . . . . . . . . . . 3
1.3 Assumed Liabilities. . . . . . . . . . . . . . . . . . . 3
1.4 Retained Liabilities . . . . . . . . . . . . . . . . . . 3
1.5 Purchase Price . . . . . . . . . . . . . . . . . . . . . 4
1.6 Cash Payment . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Closing. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Execution and Delivery of Documents of Title by the
Company; Further Assurances . . . . . . . . . . . . . . 4
1.9 Tax Free Reorganization. . . . . . . . . . . . . . . . . 4
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . 5
2.1 Organization of the Company. . . . . . . . . . . . . . . 5
2.2 Company Capital Structure. . . . . . . . . . . . . . . . 5
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Financial Statements . . . . . . . . . . . . . . . . . . 6
2.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . 6
2.7 No Changes . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 Tax and Other Returns and Reports. . . . . . . . . . . . 8
2.9 Restrictions on Business Activities. . . . . . . . . . . 9
2.10 Title to Properties; Absence of Liens and Encumbrances .10
2.11 Intellectual Property. . . . . . . . . . . . . . . . . .10
2.12 Agreements, Contracts and Commitments. . . . . . . . . .11
2.13 Interested Party Transactions. . . . . . . . . . . . . .13
2.14 Compliance with Laws . . . . . . . . . . . . . . . . . .13
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . .13
2.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . .13
2.17 Minute Books . . . . . . . . . . . . . . . . . . . . . .13
2.18 Environmental Matters. . . . . . . . . . . . . . . . . .13
2.19 Brokers' and Finders' Fees; Third Party Expenses . . . .14
2.20 Employee Matters and Benefit Plans . . . . . . . . . . .14
2.21 Representations Complete . . . . . . . . . . . . . . . .17
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF HEALTHEON
AND ACQUISITION SUB . . . . . . . . . . . . . . . . . . . . .17
3.1 Organization of Healtheon and Acquisition Sub. . . . . .17
3.2 Healtheon and Acquisition Sub Capital Structure. . . . .18
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . .18
3.4 Authority. . . . . . . . . . . . . . . . . . . . . . . .18
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.5 Financial Statements . . . . . . . . . . . . . . . . . .19
3.6 No Undisclosed Liabilities . . . . . . . . . . . . . . .19
3.7 No Changes . . . . . . . . . . . . . . . . . . . . . . .19
3.8 Tax and Other Returns and Reports. . . . . . . . . . . .21
3.9 Restrictions on Business Activities. . . . . . . . . . .22
3.10 Title to Properties; Absence of Liens and Encumbrances .22
3.11 Intellectual Property. . . . . . . . . . . . . . . . . .22
3.12 Agreements, Contracts and Commitments. . . . . . . . . .23
3.13 Interested Party Transactions. . . . . . . . . . . . . .24
3.14 Compliance with Laws . . . . . . . . . . . . . . . . . .25
3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . .25
3.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . .25
3.17 Minute Books . . . . . . . . . . . . . . . . . . . . . .25
3.18 Environmental Matters. . . . . . . . . . . . . . . . . .25
3.19 Brokers' and Finders' Fees; Third Party Expenses . . . .26
3.20 Employee Matters and Benefit Plans . . . . . . . . . . .26
3.21 Representations Complete . . . . . . . . . . . . . . . .28
ARTICLE IV - CONDUCT PRIOR TO THE CLOSING. . . . . . . . . . . . .29
4.1 Conduct of Business of the Company . . . . . . . . . . .29
4.2 No Company Solicitation. . . . . . . . . . . . . . . . .31
ARTICLE V - ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . .31
5.1 Company Member Approvals . . . . . . . . . . . . . . . .31
5.2 Access to Information. . . . . . . . . . . . . . . . . .32
5.3 Confidentiality. . . . . . . . . . . . . . . . . . . . .32
5.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . .32
5.5 Public Disclosure. . . . . . . . . . . . . . . . . . . .32
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . .33
5.7 Reasonable Efforts . . . . . . . . . . . . . . . . . . .33
5.8 Notification of Certain Matters. . . . . . . . . . . . .33
5.9 Certain Benefit Plans. . . . . . . . . . . . . . . . . .33
5.10 Additional Documents and Further Assurances. . . . . . .33
5.11 Company's Auditors . . . . . . . . . . . . . . . . . . .33
5.12 Mutual Release . . . . . . . . . . . . . . . . . . . . .33
ARTICLE VI - CONDITIONS TO THE ASSET PURCHASE. . . . . . . . . . .34
6.1 Conditions to Obligations of Each Party to Effect
the Asset Purchase . . . . . . . . . . . . . . . . . . .34
6.2 Additional Conditions to Obligations of the Company. . .34
6.3 Additional Conditions to the Obligations of Healtheon
and Acquisition Sub. . . . . . . . . . . . . . . . . . .35
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW .36
7.1 Survival of Representations and Warranties . . . . . . .36
7.2 Escrow Arrangements and Indemnification. . . . . . . . .37
7.3 Indemnification by Healtheon and Acquisition Sub . . . .42
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER . . . . . . . . .43
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . .43
8.2 Effect of Termination. . . . . . . . . . . . . . . . . .44
8.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . .44
8.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . .44
ARTICLE IX - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . .44
9.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . .44
9.2 Interpretation . . . . . . . . . . . . . . . . . . . . .45
9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . .45
9.4 Transfer Taxes . . . . . . . . . . . . . . . . . . . . .45
9.5 Entire Agreement; Assignment . . . . . . . . . . . . . .46
9.6 Severability . . . . . . . . . . . . . . . . . . . . . .46
9.7 Other Remedies . . . . . . . . . . . . . . . . . . . . .46
9.8 Governing Law. . . . . . . . . . . . . . . . . . . . . .46
9.9 Rules of Construction. . . . . . . . . . . . . . . . . .46
9.10 Specific Performance . . . . . . . . . . . . . . . . . .46
-iii-
<PAGE>
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
Exhibit A Assignment and Assumption Agreement
Exhibit B Bill of Sale
Exhibit C Legal Opinion of Counsel to Healtheon
Exhibit D Legal Opinion of Counsel to the Company
Exhibit E Noncompetition Agreement
INDEX OF SCHEDULES
Schedule Description
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of June 25, 1998 among Healtheon Corporation, a Delaware corporation
("HEALTHEON"), Metis Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Healtheon ("ACQUISITION SUB"), Metis, LLC, a
California limited liability company (the "COMPANY"), and, with respect to
Article VII, Edward J. Fotsch, M.D., as Securityholder Agent and U.S. Bank
Trust National Association, as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Healtheon and
Acquisition Sub believe it is in the best interests of each organization and
their respective securityholders that Healtheon acquire certain assets and
assume certain liabilities of the Company (the "ASSET PURCHASE") and, in
furtherance thereof, have approved the Asset Purchase.
B. A portion of the shares of Healtheon Common Stock otherwise
issuable by Healtheon in connection with the Asset Purchase shall be placed
in escrow by Healtheon, the release of which amount shall be contingent upon
certain events and conditions, all as set forth in Article VII hereof.
C. The Company, Healtheon and Acquisition Sub desire to make certain
representations and warranties and other agreements in connection with the
Asset Purchase.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
ARTICLE I
THE ASSET PURCHASE
1.1 PURCHASE OF ASSETS. Upon the terms and subject to the conditions
contained in this Agreement, at the Closing (as defined in Section 2.7
below), the Company shall sell, assign, transfer and convey to Buyer, and
Buyer shall purchase, acquire and accept from the Company, the assets
comprising the Healthcare Internet/Intranet business of the Company (the
"Business"), including all of the Company's assets of every kind and
description relating to the Business (other than those assets included in
the Retained Assets as defined in Section 2.2 below) (the "Purchased
Assets"), and subject only to the liabilities and obligations of the Company
which are defined in Section 2.3 (the "Assumed Liabilities"). The Purchased
Assets include, without limitation, the following assets and properties
(other than those assets included in the Retained Assets as defined in
Section 2.2):
(a) all trade and other accounts receivable and other
Indebtedness owing to the Company with respect to the Business and including
the benefit of all collateral, security, guaranties, and similar undertakings
received or held in connection therewith (the "Accounts Receivable");
(b) all inventories with respect to the Business wherever
located, including raw materials, goods consigned to vendors or
subcontractors, work in process, finished goods and goods in transit;
<PAGE>
(c) all prepaid expenses, deposits and rights to refunds from
customers and suppliers with respect to the Business;
(d) all machinery, equipment, fixtures and furniture used in
the Business and identified on Schedule 1.1
(e) all motor vehicles;
(f) all supplies owned by the Company;
(g) all rights and interests of the Company in and to any
leases, subleases, licenses, loan agreements, mortgages, notes, indentures,
restrictions, wills, trusts, commitment obligations or other contracts,
agreements or instruments, whether written or oral or other similar
agreements ("Contracts"), and rights thereunder, including without
limitation, the designated Contracts relating to the Company set forth on
Schedule 2.12 including contracts for the purchase of materials, supplies and
services and the sale of products and services, equipment leases, and any
other contract of the Company relating to the Business;
(h) all business and financial records, books, ledgers, files,
plans, documents, correspondence, lists, plots, architectural plans,
drawings, notebooks, specifications, creative materials, advertising and
promotional materials, marketing materials, studies, reports, equipment
repair, maintenance or service records of the Company, whether written or
electronically stored or otherwise recorded in each case, relating to the
Business;
(i) all of the Company's goodwill, dealer and customer lists
and all other sales and marketing information, and all knowhow, technology,
drawings, engineering specifications, bills of materials, software and other
intangible assets of the Company in each case, relating to the Business;
(j) all patents, patent applications, copyrights, trademarks,
service marks, trade names, trade secrets, proprietary information,
technology rights and licenses, proprietary rights and processes, know-how,
research and development in progress, and any and all other intellectual
property including, without limitation, the Company Intellectual Property
Rights, the Company's name, all things authored, discovered, developed, made,
perfected, improved, designed, engineered, devised, acquired, produced,
conceived or first reduced to practice and that pertain to or are used in the
Business or that are relevant to an understanding or to the development of
the Business or to the performance by the products of the Business of their
intended functions or purposes, whether tangible or intangible, in any stage
of development, including without limitation, enhancements, designs,
technology, improvements, inventions, works or authorship, formulas,
processes, routines, subroutines, techniques, concepts, object code, flow
charts, diagrams, coding sheets, source code, listings and annotations,
programmers' notes, information, work papers, work product and other
materials or any types whatsoever, and all rights of any kind in or to any of
the foregoing including all goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder,
remedies against infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions;
(k) all permits, licenses, orders, ratings and approvals of
all federal, state, local or foreign governmental or regulatory authorities
or industrial bodies that are held by the Company and relate to the Business,
to the extent the same are transferable;
-2-
<PAGE>
(l) all rights of the Company to causes of action, lawsuits,
judgments, claims and demands of any nature which would relate to the
Business or constitute counterclaims, rights of setoff, and affirmative
defenses to any claims brought against Buyer by third parties relating to the
Business;
(m) all present and future insurance proceeds which may be
payable under the insurance policies listed on Schedule 2.16 attached hereto
to the extent that such proceeds relate to the future loss of asset value of
the Purchased Assets;
(n) except for Retained Assets described in Section 1.2 below,
all other items of property, real or personal, tangible or intangible,
including, without limitation, all restrictive and negative covenant
agreements with employees and others, including, without limitation,
nondisclosure agreements, computer programs, tapes, discs and timesharing
files, owned, used by or accruing to the benefit of the Company in each case,
used in the Business; and
(o) Intellectual property and associated html code that is
transferable by the Company, as well as the exclusive rights to operate the
Company's website located at www.metisllc.com.
1.2 RETAINED ASSETS. The Company will retain ownership of the assets
of the Company listed on Schedule 1.2 attached hereto (collectively, the
"Retained Assets").
1.3 ASSUMED LIABILITIES. The Acquisition Sub shall assume and agree
to pay, perform and discharge only the Assumed Liabilities, and will pay,
perform and discharge the Assumed Liabilities as they become due. The
Assumed Liabilities shall consist of only those liabilities of the Company
listed on Schedule 1.3 attached hereto or otherwise specifically provided for
in this Agreement.
1.4 RETAINED LIABILITIES. The liabilities and obligations which
shall be retained by the Company (the "Retained Liabilities") shall consist
of all liabilities of the Company other than Assumed Liabilities, including,
without limitation, the following:
(a) all liabilities of the Company relating to indebtedness
for borrowed money;
(b) all liabilities of the Company resulting from,
constituting or relating to a breach of any of the representations,
warranties, covenants or agreements of the Company under this Agreement in
accordance with the indemnification provisions of this Agreement;
(c) all liabilities of the Company for federal, state, local
or foreign Taxes, including Taxes incurred in respect of or measured by the
income of the Company earned on or realized prior to the Closing Date,
including any gain and income from the sale of the Purchased Assets and other
transactions contemplated herein;
(d) all liabilities for all environmental, ecological, health
or safety claims to the extent arising out of the operation of the Business
or the Purchased Assets by the Company on or before the Closing Date;
(e) all liabilities of the Company arising in connection with
its operations unrelated to the Business except as otherwise specifically
provided in Schedule 1.3;
(f) any liability of the Company based on its tortious or
illegal conduct;
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(g) any liability or obligation incurred by the Company in
connection with the negotiation, execution or performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
legal, accounting, brokers', finders' and other professional fees and
expenses other than through Healtheon's or Acquisition Sub's breach of this
Agreement;
(h) any liability or obligation incurred by the Company in
connection with the negotiation, execution or performance of, and settlement
of any claims pertaining to, the Netsource Agreement (as defined herein) and
the transactions contemplated thereby, including, without limitation, all
legal, accounting, brokers', finders' and other professional fees and
expenses; and
(i) all liabilities incurred by the Company after the Closing
Date other than through Healtheon's or Acquisition Sub's breach of this
Agreement (except to the extent such liability is specifically assumed by
Acquisition Sub); and
1.5 PURCHASE PRICE. Upon the terms and subject to the conditions
contained in this Agreement, in reliance upon the representations, warranties
and agreements of the Company contained herein, and in consideration of the
sale, assignment, transfer and delivery of the Transferred Assets and the
Noncompetition Agreements received from the Company, Acquisition Sub will
assume the Assumed Liabilities and Healtheon will deliver (a) (i) to the
Company, a stock certificate representing 1,400,000 shares of Healtheon
Common Stock, (ii) the Cash Payment, and (b) to the Escrow Agent, for the
benefit of the Company, a stock certificate representing 200,000 shares of
Healtheon Common Stock (the "Escrow Amount").
1.6 CASH PAYMENT. In the event that on the Closing Date, the Company
shall have a cash balance that is less than $654,112, Healtheon shall pay to
the Company on the Closing Date, as additional consideration, an amount of
money (the "Cash Payment") equal to (a)$654,112, LESS (b) such cash balance.
Notwithstanding the foregoing, in the event that the Company shall have
failed to conduct its business in the ordinary course and in compliance with
the provisions of this Agreement, including without limitation, Section 4.1,
an adjustment shall be made to the purchase price to reflect the extent to
which the Company's cash and accounts receivable balance is less than
$654,112 on the Closing Date.
1.7 CLOSING. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the
offices of Wilson Sonsini Goodrich & Rosati ("WSGR"), 650 Page Mill Road,
Palo Alto, California, unless another place or time is agreed to by Parent
and the Company. The date upon which the Closing actually occurs is herein
referred to as the "CLOSING DATE." The parties currently intend that the
Closing Date will occur on or prior to August 15, 1998.
1.8 EXECUTION AND DELIVERY OF DOCUMENTS OF TITLE BY THE COMPANY;
FURTHER ASSURANCES. At the Closing, the parties hereto shall have entered
into the Assignment and Assumption Agreement in the form attached hereto as
Exhibit A and the Company shall execute and deliver to Buyer the Bill of Sale
in the form attached hereto as Exhibit B and such deeds, conveyances, bills
of sale, certificates of title, assignments, assurances and other instruments
and documents as Buyer may reasonably request in order to effect the sale,
conveyance, and transfer of the Purchased Assets from the Company to the
Buyer. Such instruments and documents shall be sufficient to convey to Buyer
good and merchantable title in all of the Purchased Assets. The Company
will, from time to time after the Closing Date, take such additional actions
and execute and deliver such further documents as Buyer may reasonably
request in order more effectively to sell, transfer and convey the Purchased
Assets to Buyer and to place Buyer in position to operate and control all of
the Purchased Assets. To
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the extent any of such assets are, by nature or terms, not transferrable, the
Company shall hold, provide, and make such assets available for the use and
benefit of Buyer as Buyer's agent.
1.9 TAX FREE REORGANIZATION. The parties hereto intend that this
Agreement shall constitute a plan of reorganization pursuant to the Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, and agree to
report the transactions contemplated by this Agreement as such for all
purposes. Each party has consulted with its own tax advisors as to the tax
consequences of the transactions contemplated by this Agreement and no party
makes any representation or warranty with respect to such consequences.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Healtheon and Acquisition
Sub, subject to such exceptions as are specifically disclosed in the
disclosure letter (referencing the appropriate section number or subsection,
as the case may be) supplied by the Company to Healtheon (the "COMPANY
SCHEDULES") and dated as of the date hereof, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws
of the State of California. The Company has the power to own its properties
and to carry on its business as now being conducted. The Company is duly
qualified to do business and in good standing as a foreign limited liability
company in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business, assets (including intangible
assets), financial condition or results of operations of the Company
(hereinafter referred to as a "COMPANY MATERIAL ADVERSE EFFECT"). The
Company has delivered a true and correct copy of its Organizational
Documents, each as amended to date, to Healtheon.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capitalization of the Company consists of
183,050 authorized Class A units (the "Class A units"), of which 183,050
units are issued and outstanding, and 300,000 authorized Class B units (the
"Class B units", and together with the Class A units, the Company Capital
Stock), of which 225,123 units are issued and outstanding. The Company
Capital Stock is held of record by the persons, with the addresses of record
and in the amounts set forth on Schedule 2.2(a). With respect to each holder
of Class B Units, Schedule 2.2(a) contains an identification of each such
holder's vesting provisions and vesting start date. All outstanding Company
Capital Stock is duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
First Amended and Restated Operating Agreement of Metis, LLC and the Articles
of Organization (together, the "Organizational Documents) of the Company or
any agreement to which the Company is a party or by which it is bound. All
of the Company Capital Stock has been issued in compliance with the terms of
the Company's Organizational Documents.
(b) There are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which the Company is a
party or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any ownership interests of the Company (each, a "Company Capital
Stock Equivalent") or obligating the Company
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to grant, extend, accelerate the vesting of, change the price of, otherwise
amend or enter into any such Company Common Stock Equivalent.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated organizations and does not otherwise own and has
never otherwise owned any shares of capital stock or any interest in, or
control, directly or indirectly, any other corporation, partnership, limited
liability company, association, joint venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Asset
Purchase and this Agreement by the Company's Members, the Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The vote required of the
Company's Members to duly approve the Asset Purchase and this Agreement is a
Majority in Interest of the Members (as defined in the Organizational
Documents) and a Majority in Interest of the Class A Members (as defined in
the Organizational Documents). The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company, subject only
to the approval of the Asset Purchase by the Company's Members. The
Company's Board of Directors has unanimously approved the Asset Purchase and
this Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms. Except as set forth on Schedule
2.4, subject only to the approval of the Asset Purchase and this Agreement by
the Company's Members, the execution and delivery of this Agreement by the
Company does not, and, as of the Closing, the consummation of the
transactions contemplated hereby (including the Asset Purchase) will not,
conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "COMPANY CONFLICT") (i) any provision of the
Organizational Documents of the Company or (ii) any mortgage, indenture,
lease, Contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other federal, state, county, local or foreign governmental authority,
instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any third
party (so as not to trigger any Company Conflict) is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (ii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 FINANCIAL STATEMENTS. Section 2.5 sets forth the Company's
audited balance sheets as of December 31, 1997 and the related audited
statement of income and cash flow for the period from inception to December
31, 1997 (the "COMPANY AUDITED FINANCIALS") and the Company's unaudited
balance sheet as of May 31, 1998 and the related unaudited statements of
income and cash flow for the five months then ended (the "COMPANY UNAUDITED
FINANCIALS") (collectively, such financial statements are sometimes referred
to herein as "COMPANY FINANCIAL STATEMENTS"). The Company Audited Financials
and the Company Unaudited Financials are correct in all material respects and
have been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other (except that
the Company Unaudited Financials do not contain all the notes that may be
required by GAAP). The Company Audited Financials and Company Unaudited
Financials present fairly the financial condition, operating results and cash
flows of the Company as of the dates and during the periods indicated
therein, subject in the case of the Company Unaudited Financials,
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to normal year-end adjustments, which will not be material in amount or
significance. The Company's unaudited balance sheet dated as of May 31, 1998
shall be referred to as the "COMPANY CURRENT BALANCE SHEET". The Company's
cash and accounts receivable balance as of May 15, 1998 was $654,112, and the
Company's accounts receivable are fully collectible. Since December 31,
1997, the Company has not changed its methodology for valuation of accounts
receivable.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6,
the Company does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not
been reflected in the Company Current Balance Sheet, or (ii) has not arisen
in the ordinary course of the Company's business since the date of the
Company Current Balance Sheet, consistent with past practices.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date
of the Company Current Balance Sheet, there has not been, occurred or arisen
any:
(a) transaction by the Company except in the ordinary course
of business as conducted as of the date of the Company Current Balance Sheet
and consistent with past practices;
(b) amendments or changes to the Organizational Documents of
the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to any units of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of
its units;
(i) increase in the salary or other compensation payable or to
become payable to any of its officers, directors, employees or advisors, or
the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
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(k) any Lien placed on any of the Transferred Assets which
remains in existence on the date hereof;
(l) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
(m) loan by the Company to any person or entity, the
incurrence by the Company of any indebtedness, the guaranty by the Company of
any indebtedness, issuance or sale of any debt securities of the Company or
the guaranty of any debt securities of others, except for advances to
employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(n) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(o) any contingent liabilities incurred by the Company with
respect to the obligations of any other person that would be assumed
hereunder;
(p) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(q) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(r) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(s) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property to the Company;
(t) event or condition of any character that has or could be
reasonably expected to have a Company Material Adverse Effect on the Company;
or
(u) any postponement or delay in payment of any accounts
payable or other liability of the Company that will be included as Assumed
Liabilities;
(v) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (r) (other than negotiations with Healtheon and its
representatives regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES", means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts
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and any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of
a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company as of the Closing will have prepared
and filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns
are true and correct and have been completed in accordance with applicable
law.
(ii) The Company as of the Closing: (A) will have paid
or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute
of limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the
Company is currently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against on the Company Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has no knowledge of any
basis for the assertion of any such liability attributable to the Company,
its assets or operations.
(vi) The Company has made available to Healtheon copies
of all federal and state income and all state sales and use Tax Returns for
all periods since the date of Company's incorporation.
(vii) There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS") on the assets of the
Company relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Closing, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
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(xi) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's tax books and records.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
to which the Company is a party or otherwise binding upon the Company which
has or reasonably could be expected to have the effect of prohibiting or
impairing the ability of Acquisition Sub to operate the Business after the
Closing Date, any acquisition of property (tangible or intangible) by the
Company or the conduct of the Business. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is
restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period
of time or in any segment of the market that would be applicable to the
Business after the Closing Date.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned
any real property. Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past, leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable
under any such lease and any security interest in the Company's assets
created by such lease. All such current leases are in full force and effect,
are valid and effective in accordance with their respective terms, and there
is not, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default). All such current leases will be assigned by the Company to
Acquisition Sub as of the Closing Date.
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of the
Purchased Assets, real, personal and mixed, used or held for use in the
Business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financial Statements or in Schedule
2.10(b) and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code
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and object code form), and tangible or intangible proprietary information or
material that are used in the Business as currently conducted and as proposed
to be conducted by the Company (the "COMPANY INTELLECTUAL PROPERTY
RIGHT(S)"). Schedule 2.11(a) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the
Company Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 2.11(b) sets forth a complete list of all
licenses, sublicenses and other agreements as to which the Company is a party
and pursuant to which the Company or any other person is authorized to use
any Company Intellectual Property Right (excluding object code end-user
licenses granted to end-users in the ordinary course of business that permit
use of software products without a right to modify, distribute or sublicense
the same ("END-USER LICENSES")) or trade secret of the Company, and includes
the identity of all parties thereto, a description of the nature and subject
matter thereof, the applicable royalty or other fees and the term thereof.
Each license, sublicense and other agreement will be transferred or assigned
to Acquisition Sub as of and effective upon the Closing. The execution and
delivery of this Agreement by the Company, and the consummation of the
transactions contemplated hereby, including, without limitation, the transfer
or assignment of the Company Intellectual Property Rights, will neither cause
the Company to be in violation or default under any such license, sublicense
or agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement.
Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is the sole
and exclusive owner or licensee of, with all right, title and interest in and
to (free and clear of any liens or encumbrances), the Company Intellectual
Property Rights, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect thereof) to
the use thereof or the material covered thereby in connection with the
services or products in respect of which the Company Intellectual Property
Rights are being used.
(c) No claims with respect to the Company Intellectual
Property Rights have been asserted or are, to the Company's knowledge,
threatened by any person, nor are there any valid grounds for any claims, (i)
to the effect that the manufacture, sale, licensing or use of any of the
products of the Company infringes on any copyright, patent, trade mark,
service mark, trade secret or other proprietary right, (ii) against the use
by the Company of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in the Business as currently conducted or as
proposed to be conducted by the Company, or (iii) challenging the ownership
by the Company, validity or effectiveness of any of the Company Intellectual
Property Rights. All registered trademarks, service marks and copyrights
held by the Company are valid and subsisting. The Company has not infringed,
and the Business as currently conducted or as proposed to be conducted does
not infringe, any copyright, patent, trademark, service mark, trade secret or
other proprietary right of any third party. There is no material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by the Company. Each current and former employee,
consultant or contractor of the Company has executed a proprietary
information and confidentiality agreement substantially in the Company's
standard forms. All software included in the Company Intellectual Property
Rights is original with the Company and has been either created by employees
of the Company on a work-for-hire basis or by consultants or contractors who
have created such software themselves and have assigned all rights they may
have had in such software to the Company.
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2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it
bound by, and neither Healtheon nor the Acquisition Sub will be bound, by
virtue of the transactions contemplated hereby, by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company,
(v) any operating agreement or other agreement relating
to the operations of any business organization, including the Company,
(vi) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,
(vii) any fidelity or surety bond or completion bond,
(viii) any lease of personal property having a value
individually in excess of $15,000,
(ix) any agreement of indemnification or guaranty,
(x) any agreement, contract or commitment containing
any covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person,
(xi) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $15,000,
(xii) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xiii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating
to the borrowing of money or extension of credit, including guaranties
referred to in clause (viii) hereof,
(xiv) any purchase order or contract for the purchase of
raw materials involving $15,000 or more,
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(xv) any construction contracts,
(xvi) any distribution, joint marketing or development
agreement,
(xvii) any agreement pursuant to which the Company has
granted or may grant in the future, to any party, a source-code license or
option or other right to use or acquire source-code, or
(xviii) any other agreement, contract or commitment
that involves $15,000 or more or is not cancelable without penalty within
thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 2.12(b), the Company
has not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule
2.12(a) or Schedule 2.11(b) (any such agreement, contract or commitment, a
"COMPANY CONTRACT"). Each Company Contract is in full force and effect and,
except as otherwise disclosed in Schedule 2.12(b), is not subject to any
default thereunder of which the Company has knowledge by any party obligated
to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
2.13, no officer, director or Member of the Company (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an economic interest
in any entity which furnished or sold, or furnishes or sells, services or
products that the Company furnishes or sells, or proposes to furnish or sell,
(ii) an economic interest in any entity that purchases from or sells or
furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Schedule 2.12(a) or
Schedule 2.11(b); provided, that ownership of no more than one percent (1%)
of the outstanding voting stock of a publicly traded corporation shall not be
deemed an "economic interest in any entity" for purposes of this Section
2.13. Except as disclosed on Schedule 2.13, all interested party
transactions were made on terms no more favorable to such interested party
than could have been obtained on an arms'-length basis.
2.14 COMPLIANCE WITH LAWS. To the Company's knowledge, it has
complied in all material respects with, is not in material violation of, and
has not received any notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to the Company's
knowledge threatened against the Company, its properties or any of its
officers or directors, in their respective capacities as such. Except as set
forth in Schedule 2.15, to the Company's knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its
officers or directors (in their respective capacities as such) by or before
any governmental entity. Schedule 2.15 sets forth, with respect to any
pending or threatened action, suit, proceeding or investigation, the forum,
the parties thereto, the subject matter thereof and the amount of damages
claimed or other remedy requested. No Governmental Entity has at any time
challenged or questioned the legal right of the Company to manufacture, offer
or sell any of its products in the present manner or style thereof.
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2.16 INSURANCE. Set forth on Schedule 2.16 is a list of all of the
Company's insurance policies and fidelity bonds. With respect to the
insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company, there is no claim by the Company pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under
all such policies and bonds have been paid and the Company is otherwise in
material compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage). The
Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Healtheon are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees
thereof) and Members or actions by written consent since the time of
organization of the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, at any
time, of any underground storage tank (or related piping or pumps), at any
property that the Company has at any time owned, operated, occupied or
leased. The Company has not released any amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state or
local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, oil and
petroleum products, urea-formaldehyde and all substances listed as a
"hazardous substance," "hazardous waste," "hazardous material" or "toxic
substance" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act, as amended; the
Clean Air Act, as amended, and the regulations promulgated pursuant to said
laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present as a
result of the actions or omissions of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on
or under any property, including the land and the improvements, ground water
and surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all
of the foregoing being collectively referred to as "HAZARDOUS MATERIALS
ACTIVITIES") in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment, procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity
of the Company. The Company
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is not aware of any fact or circumstance which could involve the Company in
any environmental litigation or impose upon the Company any environmental
liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on Schedule 2.19, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees,
investment banking fees, consulting fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.19 also sets forth the Company's current reasonable estimate of
all Company Third Party Expenses (as defined in Section 5.4) expected to be
incurred by the Company in connection with the negotiation and effectuation
of the terms and conditions of this Agreement and the transactions
contemplated hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (which definition shall
apply only to this Section 2.20), for purposes of this section, the following
terms shall have the meanings set forth below:
(i) "COMPANY AFFILIATE" shall mean any other person or
entity under common control with the Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, unit or
unit related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan", within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by the
Company or any Company Affiliate for the benefit of any "Company Employee"
(as defined below), and pursuant to which the Company or any Company
Affiliate has or may have any material liability contingent or otherwise;
(iv) "COMPANY EMPLOYEE" shall mean any current, former,
or retired employee, officer, or director of the Company or any Company
Affiliate;
(v) "COMPANY EMPLOYEE AGREEMENT" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract between the
Company or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan", as defined in Section
3(37) of ERISA; and
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(viii) "COMPANY PENSION PLAN" shall refer to each Company
Employee Plan which is an "employee pension benefit plan", within the meaning
of Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and
complete list of each Company Employee Plan and each Company Employee
Agreement, together with a schedule of all liabilities, whether or not
accrued, under each such Company Employee Plan or Company Employee Agreement.
The Company does not have any plan or commitment, whether legally binding or
not, to establish any new Company Employee Plan or Company Employee
Agreement, to modify any Company Employee Plan or Company Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Company Employee Agreement to the requirements of any applicable law,
or as required by this Agreement), or to enter into any Company Employee Plan
or Company Employee Agreement, nor does it have any intention or commitment
to do any of the foregoing.
(c) DOCUMENTS. The Company has made available to Healtheon
(i) correct and complete copies of all documents embodying or relating to
each Company Employee Plan and each Company Employee Agreement including all
amendments thereto and written interpretations thereof; (ii) the most recent
annual actuarial valuations, if any, prepared for each Company Employee Plan;
(iii) the most recent annual report (Series 5500 and all schedules thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan or related trust; (iv) if the Company Employee Plan is funded,
the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the most
recent summary of material modifications, if any, required under ERISA with
respect to each Company Employee Plan; (vi) all IRS determination letters and
rulings relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any Company Employee Plan; (vii) all communications material to
any Company Employee or Company Employees relating to any Company Employee
Plan and any proposed Company Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to the Company; and (viii) all registration
statements and prospectuses prepared in connection with each Company Employee
Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
2.20(d), (i) the Company has performed in all material respects all
obligations required to be performed by it under each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred
with respect to any Company Employee Plan; (iii) there are no actions, suits
or claims pending, or, to the knowledge of the Company, threatened or
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; and (iv)
each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Closing in accordance with its terms, without
liability to the Company, Healtheon or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event);
(v) there are no inquiries or proceedings pending or, to the knowledge of the
Company or any affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
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(e) PENSION PLANS. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company
contributed to or been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Schedule 2.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Company
Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Company Employee (either individually or to Company Employees as a group)
that such Company Employee(s) would be provided with life insurance, medical
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 2.20(h)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company
Employee Plan, Company Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Company Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no
payment or benefit which will or may be made by the Company or Healtheon or
any of their respective affiliates with respect to any Employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. The Company (i) to its knowledge, is
in compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each
case, with respect to Company Employees; (ii) has withheld all amounts
required by law or by agreement to be withheld from the wages, salaries and
other payments to Company Employees; (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Company Employees (other than routine payments to be made in
the normal course of business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against the
Company is pending or, to the best knowledge of the Company, threatened.
Except as set forth in Schedule 2.20(j), the Company is not involved in or,
to the knowledge of the Company, threatened with, any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Company Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in liability to
the Company. Neither the Company nor any of its subsidiaries has engaged in
any unfair labor practices within the meaning of the National Labor Relations
Act which would, individually or in the aggregate, directly or indirectly
result in a liability to the Company. Except as set forth in Schedule
2.20(j), the Company is not presently, nor has it been in the past, a party
to, or bound by, any collective
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bargaining agreement or union contract with respect to Company Employees and
no collective bargaining agreement is being negotiated by the Company.
2.21 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor
any statement made in any schedule or certificate furnished by the Company
pursuant to this Agreement, or furnished in or in connection with documents
mailed or delivered to the shareholders of the Company in connection with
soliciting their consent to this Agreement and the Asset Purchase, contains
or will contain at the Closing, any untrue statement of a material fact, or
omits or will omit at the Closing to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HEALTHEON AND ACQUISITION SUB
Healtheon and Acquisition Sub hereby represent and warrant to the
Company, subject to such exceptions as are specifically disclosed in the
disclosure letter (referencing the appropriate section number or subsection,
as the case may be) supplied by the Healtheon and Acquisition Sub to the
Company (the "HEALTHEON AND ACQUISITION SUB SCHEDULES") and dated as of the
date hereof, as follows:
3.1 ORGANIZATION OF HEALTHEON AND ACQUISITION SUB. Healtheon is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Acquisition Sub is a corporation duly
organized and in good standing under the laws of the State of Delaware.
Healtheon has the corporate power to own its properties and to carry on their
business as now being conducted. Healtheon is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or
results of operations of Healtheon (hereinafter referred to as a "HEALTHEON
MATERIAL ADVERSE EFFECT"). Healtheon has delivered a true and correct copy of
its Certificate of Incorporation and Bylaws, each as amended to date, to the
Company. Acquisition Sub has delivered a true and correct copy of its
Certificate of Incorporation and Bylaws, each as amended to date, to the
Company.
3.2 HEALTHEON AND ACQUISITION SUB CAPITAL STRUCTURE.
(a) The authorized capital stock of Healtheon consists of
75,000,000 shares of authorized Common Stock, of which 49,774,826 shares are
issued and outstanding. The shares of the capital stock of Healtheon are
held of record by the persons, with the addresses of record and in the
amounts set forth on Schedule 3.2(a). All outstanding shares of Healtheon
capital stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of Healtheon or any agreement to which
Healtheon is a party or by which it is bound.
(b) The authorized capital stock of Acquisition Sub consists
of 1,000 shares of authorized Common Stock, all of which are issued and
outstanding and held of record by Healtheon. All outstanding shares of the
capital stock of Acquisition Sub are duly authorized, validly issued, fully
paid and non-assessable and not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of Acquisition Sub or any
agreement to which the Acquisition Sub is a party or by which it is bound.
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(c) Healtheon has reserved 10,000,000 shares of Common Stock
for issuance to employees and consultants pursuant to Healtheon's 1996 Stock
Plan ("HEALTHEON STOCK PLAN"), of which 6,464,426 shares are subject to
outstanding, unexercised options ("HEALTHEON OPTIONS") and 52,023 shares
remain available for future grant. Schedule 3.2(b) sets forth for each
outstanding Healtheon Option the name of the holder of such option, the
domicile address of such holder, the number of shares of Common Stock subject
to such option, the exercise price of such option and the vesting schedule
for such option, including the extent vested to date and whether the
exercisability of such option will be accelerated and become exercisable by
reason of the transactions contemplated by this Agreement. Except as set
forth in Schedule 3.2(b), there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which
Healtheon is a party or by which it is bound obligating Healtheon to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of Healtheon or
obligating Healtheon to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement.
3.3 SUBSIDIARIES. Other than Acquisition Sub, Healtheon does not
have any subsidiaries or affiliated companies and does not otherwise own and
has never otherwise owned any shares of capital stock or any interest in, or
control, directly or indirectly, any other corporation, partnership, limited
liability company, association, joint venture or other business entity.
3.4 AUTHORITY. Each of Healtheon and Acquisition Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Company and Acquisition Sub. Each of Healtheon's Board of
Directors and Acquisition Sub's Board of Directors have unanimously approved
the Asset Purchase and this Agreement. This Agreement has been duly executed
and delivered by Healtheon and Acquisition Sub and constitutes the valid and
binding obligation of Healtheon and Acquisition Sub, enforceable in
accordance with its terms. Except as set forth on Schedule 3.4, the
execution and delivery of this Agreement by Healtheon and Acquisition Sub
does not, and, as of the Closing, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of,
or default under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of any benefit under (any such event, a "HEALTHEON
CONFLICT") (i) any provision of the Certificate of Incorporation or Bylaws of
Healtheon, (ii) any provision of the Certificate of Incorporation or Bylaws
of Acquisition Sub, or (iii) any mortgage, indenture, lease, contract, or
other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Healtheon or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity or any third party (so as not to trigger any
Healtheon Conflict) is required by or with respect to Healtheon or
Acquisition Sub in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (ii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 3.4.
3.5 FINANCIAL STATEMENTS. Section 3.5 sets forth the Healtheon's
audited balance sheets as of December 31, 1996 and draft balance sheets as of
December 31, 1997 and the related audited and draft statement of income and
cash flow for the twelve-month periods ended December 31, 1996 and December
31, 1997 (the "HEALTHEON AUDITED FINANCIALS") and Healtheon's unaudited
balance sheet of May 31, 1998 and the related unaudited statements of income
and cash flow for the five months then ended (the "HEALTHEON UNAUDITED
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FINANCIALS") (collectively, such financial statements are sometimes referred
to herein as "HEALTHEON FINANCIAL STATEMENTS"). The Healtheon Audited
Financials and the Healtheon Unaudited Financials are correct in all material
respects and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other
(except that the Healtheon Unaudited Financials do not contain all the notes
that may be required by GAAP). The Healtheon Audited Financials and
Healtheon Unaudited Financials present fairly the financial condition,
operating results and cash flows of Healtheon as of the dates and during the
periods indicated therein, subject in the case of the Healtheon Unaudited
Financials, to normal year-end adjustments, which will not be material in
amount or significance. Healtheon's unaudited balance sheet dated as of May
31, 1998 shall be referred to as the "HEALTHEON CURRENT BALANCE SHEET".
3.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 3.6,
Healtheon does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not
been reflected in the Healtheon Current Balance Sheet, or (ii) has not arisen
in the ordinary course of Healtheon's business since the date of the
Healtheon Current Balance Sheet, consistent with past practices.
3.7 NO CHANGES. Except as set forth in Schedule 3.7 or in the
ordinary course of its business, since the date of the Healtheon Current
Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by Healtheon except in the ordinary course of
business as conducted as of the date of the Healtheon Current Balance Sheet
and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation
or Bylaws of Healtheon;
(c) capital expenditure or commitment by Healtheon, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of Healtheon (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Healtheon;
(g) revaluation by Healtheon of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of Healtheon, or any
direct or indirect redemption, purchase or other acquisition by Healtheon of
any of its capital stock;
(i) increase in the salary or other compensation payable or to
become payable to any of Healtheon's officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment of a bonus or other additional salary or compensation to any
such person except as otherwise contemplated by this Agreement;
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(j) sale, lease, license or other disposition of any of the
assets or properties of Healtheon, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract,
agreement or license to which Healtheon is a party or by which it is bound;
(l) loan by Healtheon to any person or entity, incurring by
Healtheon of any indebtedness, guaranteeing by Healtheon of any indebtedness,
issuance or sale of any debt securities of Healtheon or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(m) waiver or release of any right or claim of Healtheon,
including any write-off or other compromise of any account receivable of
Healtheon;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of Healtheon or its affairs;
(o) notice of any claim of ownership by a third party of
Healtheon's Intellectual Property (as defined in Section 3.11 below) or of
infringement by Healtheon's of any third party's Intellectual Property rights;
(p) issuance or sale by Healtheon of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(q) change in pricing or royalties set or charged by Healtheon
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to Healtheon;
(r) event or condition of any character that has or could be
reasonably expected to have a Healtheon Material Adverse Effect on Healtheon;
or
(s) negotiation or agreement by Healtheon or any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (r) (other than negotiations with the Company and its
representatives regarding the transactions contemplated by this Agreement).
3.8 TAX AND OTHER RETURNS AND REPORTS.
(a) TAX RETURNS AND AUDITS. Except as set forth in Schedule
3.8:
(i) Healtheon as of the Closing will have prepared and
filed all required Returns relating to any and all Taxes concerning or
attributable to Healtheon or its operations and such Returns are true and
correct and have been completed in accordance with applicable law.
(ii) Healtheon as of the Closing: (A) will have paid or
accrued all Taxes it is required to pay or accrue and (B) will have withheld
with respect to its employees all federal and state income taxes, FICA, FUTA
and other Taxes required to be withheld.
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(iii) Healtheon has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against Healtheon, nor has Healtheon executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of
Healtheon is currently in progress, nor has Healtheon been notified of any
request for such an audit or other examination.
(v) Healtheon does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or
reserved against on the Healtheon Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and Healtheon has no knowledge of any
basis for the assertion of any such liability attributable to the Company,
its assets or operations.
(vi) Healtheon has provided to the Company copies of all
federal and state income and all state sales and use Tax Returns for all
periods since the date of Healtheon's incorporation.
(vii) There are (and as of immediately following the
Effective Date there will be) no Liens on the assets of Healtheon relating to
or attributable to Taxes.
(viii) Healtheon has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of Healtheon.
(ix) None of Healtheon's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Closing, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of Healtheon
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(xi) Healtheon has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by Healtheon.
(xii) Healtheon is not a party to a tax sharing or
allocation agreement nor does Healtheon owe any amount under any such
agreement.
(xiii) Healtheon is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) Healtheon's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Healtheon's tax books and
records.
3.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
to which Healtheon is a party or otherwise binding upon Healtheon which has
or reasonably could be expected to have the effect of prohibiting or
impairing any business practice of Healtheon, any acquisition of property
(tangible or intangible) by Healtheon or the conduct of business
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by Healtheon. Without limiting the foregoing, Healtheon has not entered into
any agreement under which Healtheon is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
3.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Healtheon owns no real property, nor has it ever owned any
real property. Schedule 3.10(a) sets forth a list of all real property
currently, or at any time in the past, leased by Healtheon, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable
under any such lease and any security interest in Healtheon's assets created
by such lease. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a
default).
(b) Healtheon has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
Healtheon Financial Statements or in Schedule 3.10(b) and except for liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
3.11 INTELLECTUAL PROPERTY.
(a) Healtheon owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material that are used in the business
of Healtheon as currently conducted or as proposed to be conducted by
Healtheon (the "HEALTHEON INTELLECTUAL PROPERTY RIGHTS"). Schedule 3.11(a)
sets forth a complete list of all patents, registered and material
unregistered trademarks, registered copyrights, trade names and service
marks, and any applications therefor, included in the Healtheon Intellectual
Property Rights, and specifies, where applicable, the jurisdictions in which
each such Healtheon Intellectual Property Right has been issued or registered
or in which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners.
(b) Schedule 3.11(b) sets forth a complete list of all
licenses, sublicenses and other agreements as to which Healtheon is a party
and pursuant to which Healtheon or any other person is authorized to use any
Healtheon Intellectual Property Right (excluding End-User Licenses) or trade
secret of Healtheon, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty
or other fees and the term thereof. The execution and delivery of this
Agreement by Healtheon, and the consummation of the transactions contemplated
hereby, will neither cause Healtheon to be in violation or default under any
such license, sublicense or agreement, nor entitle any other party to any
such license, sublicense or agreement to terminate or modify such license,
sublicense or agreement. Except as set forth in Schedules 3.11(a) or
3.11(b), Healtheon is the sole and exclusive owner or licensee of, with all
right, title and interest in and to (free and clear of any liens or
encumbrances), the Healtheon Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation
to any third party in respect thereof) to the use
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thereof or the material covered thereby in connection with the services or
products in respect of which the Healtheon Intellectual Property Rights are
being used.
(c) No claims with respect to the Healtheon Intellectual
Property Rights have been asserted or are, to Healtheon's knowledge,
threatened by any person, nor are there any valid grounds for any claims, (i)
to the effect that the manufacture, sale, licensing or use of any of the
products of Healtheon infringes on any copyright, patent, trade mark, service
mark, trade secret or other proprietary right, (ii) against the use by
Healtheon of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in Healtheon's business as currently conducted
or as proposed to be conducted by Healtheon, or (iii) challenging the
ownership by Healtheon, validity or effectiveness of any of the Healtheon
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by Healtheon are valid and subsisting. Healtheon has not
infringed, and the business of Healtheon as currently conducted or as
proposed to be conducted does not infringe, any copyright, patent, trademark,
service mark, trade secret or other proprietary right of any third party.
There is no material unauthorized use, infringement or misappropriation of
any of the Healtheon Intellectual Property Rights by any third party,
including any employee or former employee of Healtheon. No Healtheon
Intellectual Property Right or product of Healtheon or any of its
subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by Healtheon.
Each employee, consultant or contractor of Healtheon has executed a
proprietary information and confidentiality agreement substantially in the
Healtheon's standard forms. All software included in the Healtheon
Intellectual Property Rights is original with Healtheon and has been either
created by employees of Healtheon on a work-for-hire basis or by consultants
or contractors who have created such software themselves and have assigned
all rights they may have had in such software to Healtheon.
3.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 3.12(a) or in the ordinary course of its business, Healtheon does
not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to Healtheon,
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,
(vi) any fidelity or surety bond or completion bond,
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(vii) any lease of personal property having a value
individually in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of Healtheon to engage in any line of
business or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000,
(xi) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any business
enterprise,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating
to the borrowing of money or extension of credit, including guaranties
referred to in clause (viii) hereof,
(xiii) any purchase order or contract for the purchase of
raw materials involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement,
(xvi) any agreement pursuant to which Healtheon has
granted or may grant in the future, to any party, a source-code license or
option or other right to use or acquire source-code, or
(xvii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty
(30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 3.12(b),Healtheon has
not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule
3.12(a) or Schedule 3.11(b) (any such agreement, contract or commitment, a
"HEALTHEON CONTRACT"). Each Healtheon Contract is in full force and effect
and, except as otherwise disclosed in Schedule 3.12(b), is not subject to any
default thereunder of which Healtheon has knowledge by any party obligated to
Healtheon pursuant thereto.
3.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
3.13, no officer, director or shareholder of Healtheon (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an economic interest
in any entity which furnished or sold, or furnishes or sells, services or
products that Healtheon furnishes or sells, or proposes to furnish or sell,
(ii) an economic interest in any entity that purchases from or sells or
furnishes to, Healtheon, any goods or services or (iii) a beneficial interest
in any contract or agreement set forth in Schedule 3.12(a) or Schedule
3.11(b); provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed
an "economic interest in any entity" for purposes of this Section 3.13.
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3.14 COMPLIANCE WITH LAWS. Healtheon has complied in all material
respects with, is not in material violation of, and has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation.
3.15 LITIGATION. Except as set forth in Schedule 3.15, there is no
action, suit or proceeding of any nature pending or to Healtheon's knowledge
threatened against Healtheon, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 3.15, to the Healtheon's knowledge, there is no investigation
pending or threatened against Healtheon, its properties or any of its
officers or directors (in their respective capacities as such) by or before
any governmental entity. Schedule 3.15 sets forth, with respect to any
pending or threatened action, suit, proceeding or investigation, the forum,
the parties thereto, the subject matter thereof and the amount of damages
claimed or other remedy requested. No Governmental Entity has at any time
challenged or questioned the legal right of Healtheon to manufacture, offer
or sell any of its products in the present manner or style thereof.
3.16 INSURANCE. Set forth on Schedule 3.16 is a list of all of
Healtheon's insurance policies and fidelity bonds. With respect to the
insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of
Healtheon, there is no claim by Healtheon pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under
all such policies and bonds have been paid and Healtheon is otherwise in
material compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage).
Healtheon has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
3.17 MINUTE BOOKS. The minute books of Healtheon made available to
counsel for the Company are the only minute books of Healtheon and contain a
reasonably accurate summary of all meetings of directors (or committees
thereof) and stockholders or actions by written consent since the time of
incorporation of Healtheon.
3.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Healtheon has not operated any
underground storage tanks, and has no knowledge of the existence, at any
time, of any underground storage tank (or related piping or pumps), at any
property that Healtheon has at any time owned, operated, occupied or leased.
Healtheon has not released any amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state or
local law to be a Hazardous Material. No Hazardous Materials are present as
a result of the actions or omissions of Healtheon, or, to Healtheon's
knowledge, as a result of any actions of any third party or otherwise, in, on
or under any property, including the land and the improvements, ground water
and surface water thereof, that Healtheon has at any time owned, operated,
occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Healtheon has not engaged
in any Hazardous Materials Activities in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to
or as of the date hereof to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all Environmental
Permits necessary for the conduct of Healtheon's Hazardous Material
Activities and other businesses of Healtheon as such activities and
businesses are currently being conducted.
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(d) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment, procedure, writ, injunction or claim is
pending, or to Healtheon's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of Healtheon.
Healtheon is not aware of any fact or circumstance which could involve
Healtheon in any environmental litigation or impose upon Healtheon any
environmental liability.
3.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on Schedule 3.19, Healtheon has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees,
investment banking fees, consulting fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 3.19 sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
Schedule 3.19 also sets forth Healtheon's current reasonable estimate of all
Third Party Expenses (as defined in Section 5.4) expected to be incurred by
Healtheon in connection with the negotiation and effectuation of the terms
and conditions of this Agreement and the transactions contemplated hereby.
3.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"Affiliate" set forth in Section 3.20(a)(i) below (which definition shall
apply only to this Section 3.20), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "HEALTHEON AFFILIATE" shall mean any other person
or entity under common control with Healtheon within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "HEALTHEON EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan", within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by the
Company or any Healtheon Affiliate for the benefit of any "Healtheon
Employee" (as defined below), and pursuant to which Healtheon or any
Healtheon Affiliate has or may have any material liability contingent or
otherwise;
(iii) "HEALTHEON EMPLOYEE" shall mean any current,
former, or retired employee, officer, or director of Healtheon or any
Healtheon Affiliate;
(iv) "HEALTHEON EMPLOYEE AGREEMENT" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract between
Healtheon or any Healtheon Affiliate and any Healtheon Employee or consultant;
(v) "HEALTHEON PENSION PLAN" shall refer to each
Healtheon Employee Plan which is an "employee pension benefit plan", within
the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 3.20(b) contains an accurate and
complete list of each Healtheon Employee Plan and each Healtheon Employee
Agreement, together with a schedule of all liabilities, whether or not
accrued, under each such Healtheon Employee Plan or Healtheon Employee
Agreement. Healtheon does not
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have any plan or commitment, whether legally binding or not, to establish any
new Healtheon Employee Plan or Healtheon Employee Agreement, to modify any
Healtheon Employee Plan or Healtheon Employee Agreement (except to the extent
required by law or to conform any such Healtheon Employee Plan or Healtheon
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Healtheon in writing, or as required by this
Agreement), or to enter into any Healtheon Employee Plan or Healtheon
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) DOCUMENTS. Healtheon has provided to Company (i) correct
and complete copies of all documents embodying or relating to each Healtheon
Employee Plan and each Healtheon Employee Agreement including all amendments
thereto and written interpretations thereof; (ii) the most recent annual
actuarial valuations, if any, prepared for each Healtheon Employee Plan;
(iii) the three most recent annual reports (Series 5500 and all schedules
thereto), if any, required under ERISA or the Code in connection with each
Healtheon Employee Plan or related trust; (iv) if the Healtheon Employee Plan
is funded, the most recent annual and periodic accounting of Healtheon
Employee Plan assets; (v) the most recent summary plan description together
with the most recent summary of material modifications, if any, required
under ERISA with respect to each Healtheon Employee Plan; (vi) all IRS
determination letters and rulings relating to Healtheon Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Healtheon Employee Plan;
(vii) all communications material to any Healtheon Employee or Healtheon
Employees relating to any Healtheon Employee Plan and any proposed Healtheon
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments
or vesting schedules or other events which would result in any material
liability to Healtheon; and (viii) all registration statements and
prospectuses prepared in connection with each Healtheon Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
3.20(d), (i) Healtheon has performed in all material respects all
obligations required to be performed by it under each Healtheon Employee
Plan, and each Healtheon Employee Plan has been established and maintained in
all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred
with respect to any Healtheon Employee Plan; (iii) there are no actions,
suits or claims pending, or, to the knowledge of Healtheon, threatened or
anticipated (other than routine claims for benefits) against any Healtheon
Employee Plan or against the assets of any Healtheon Employee Plan; and (iv)
each Healtheon Employee Plan can be amended, terminated or otherwise
discontinued after the Closing in accordance with its terms, without
liability to the Company, Healtheon or any Healtheon Affiliates (other than
ordinary administration expenses typically incurred in a termination event);
(v) there are no inquiries or proceedings pending or, to the knowledge of
Healtheon or any affiliates, threatened by the IRS or DOL with respect to any
Healtheon Employee Plan; and (vi) neither Healtheon nor any Healtheon
Affiliate is subject to any penalty or tax with respect to any Healtheon
Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of
the Code.
(e) PENSION PLANS. Healtheon does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has Healtheon contributed
to or been requested to contribute to any Multiemployer Plan.
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(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Schedule 3.20(g), no Healtheon Employee Plan provides, or has any liability
to provide, life insurance, medical or other employee benefits to any
Healtheon Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and Healtheon has never
represented, promised or contracted (whether in oral or written form) to any
Healtheon Employee (either individually or to Employees as a group) that such
Healtheon Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 3.20(h)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Healtheon
Employee Plan, Healtheon Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Healtheon Employee.
(ii) Except as set forth on Schedule 3.20(h)(ii), no
payment or benefit which will or may be made by Healtheon or Company or any
of their respective affiliates with respect to any Employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. Healtheon (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Healtheon Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Healtheon Employees; (iii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Healtheon Employees (other than routine payments to be made in the normal
course of business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against Healtheon
is pending or, to the best knowledge of Healtheon, threatened. Except as set
forth in Schedule 3.20(j),Healtheon is not involved in or, to the knowledge
of Healtheon, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Healtheon
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability to Healtheon. Neither
Healtheon nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act which would,
individually or in the aggregate, directly or indirectly result in a
liability to Healtheon. Except as set forth in Schedule 3.20(j),Healtheon is
not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Healtheon
Employees and no collective bargaining agreement is being negotiated by
Healtheon.
3.21 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Healtheon or Acquisition Sub (as modified by the Healtheon
and Acquisition Sub Schedules), nor any statement made in any schedule or
certificate furnished by Healtheon or Acquisition Sub pursuant to this
Agreement, or furnished in or in connection with documents mailed or
delivered to the stockholders of Healtheon or Acquisition Sub in
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connection with soliciting their consent to this Agreement and the Asset
Purchase, contains or will contain at the Closing, any untrue statement of a
material fact, or omits or will omit at the Closing to state any material
fact necessary in order to make the statements contained herein or therein,
in the light of the circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 CONDUCT OF BUSINESS OF THE COMPANY.
During the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement and the Closing, the
Company agrees (except to the extent that Healtheon shall otherwise consent
in writing) to carry on its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, to pay its
debts and Taxes when due, to pay or perform other obligations when due, and,
to the extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers
and key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, all with the goal of preserving unimpaired its goodwill and ongoing
businesses at the Closing. The Company shall promptly notify Healtheon of
any event or occurrence or emergency not in the ordinary course of its
business, and any material event involving or adversely affecting the Company
or its business. Except as expressly contemplated by this Agreement, the
Company shall not, without the prior written consent of Healtheon:
(i) Enter into any commitment, activity or transaction
not in the ordinary course of business.
(ii) Transfer to any person or entity any rights to any
Company Intellectual Property Rights (other than pursuant to End-User
Licenses in the ordinary course of business);
(iii) Enter into or amend any agreements pursuant to
which any other party is granted manufacturing, marketing, distribution or
similar rights of any type or scope with respect to any products of the
Company;
(iv) Amend or otherwise modify (or agree to do so),
except in the ordinary course of business, or violate the terms of, any of
the agreements set forth or described in the Company Schedules;
(v) Commence any litigation;
(vi) Declare, set aside or pay any dividends on or make
any other distributions (whether in cash, equity interests or property) in
respect of any of its units or other evidences of ownership, or split,
combine or reclassify any of its units or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for units
or other evidences of ownership of the Company, or repurchase, redeem or
otherwise acquire, directly or indirectly, any Company Capital Stock (or
Company Capital Stock Equivalents);
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(vii) Issue, grant, deliver or sell or authorize or
propose the issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any units or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such units or other convertible
securities;
(viii) Cause or permit any amendments to its
Organizational Documents;
(ix) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of the Company;
(x) Sell, lease, license or otherwise dispose of any of
its properties or assets, except in the ordinary course of business and
consistent with past practice;
(xi) Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others;
(xii) Grant any severance or termination pay to any
director, officer, employee or consultant, except payments made pursuant to
standard written agreements outstanding on the date hereof (which such
agreements are disclosed on Schedule 4.1(a)(xii));
(xiii) Adopt or amend any employee benefit plan, program,
policy or arrangement, or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees (other than the two employees of the
Company currently under review);
(xiv) Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable in excess of $10,000 in the aggregate;
(xv) Pay, discharge or satisfy, in an amount in excess
of $10,000, in any one case, or $25,000, in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business of liabilities reflected or reserved
against in the Company Financial Statements;
(xvi) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(xvii) Enter into any strategic alliance, joint
development or joint marketing arrangement or agreement;
(xviii) Fail to pay or otherwise satisfy its
monetary obligations as they become due, except such as are being contested
in good faith;
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(xix) Waive or commit to waive any rights with a value
in excess of $10,000, in any one case, or $25,000, in the aggregate;
(xx) Cancel, materially amend or renew any insurance
policy other than in the ordinary course of business;
(xxi) Alter, or enter into any commitment to alter, its
interest in any corporation, association, joint venture, partnership or
business entity in which the Company directly or indirectly holds any
interest on the date hereof; or
(xxii) Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(i) through (xxii) above, or any
other action that would prevent the Company from performing or cause the
Company not to perform its covenants hereunder.
4.2 NO COMPANY SOLICITATION. Until the earlier of the Closing and
the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, the Company will not (nor will the Company permit any of
the Company's officers, directors, Members, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than Healtheon and its designees: (a) solicit, initiate,
entertain, or encourage any proposals or offers from, or conduct discussions
with or engage in negotiations with, any person relating to any possible
acquisition of the Company or any of its subsidiaries (whether by way of
Merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity
interest in the Company or any of its subsidiaries, (b) provide information
with respect to it to any person, other than Healtheon, relating to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by
any such person with regard to, any possible acquisition of the Company
(whether by way of Merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or
any equity interest in the Company or any of its subsidiaries, (c) enter into
an agreement with any person, other than Healtheon, providing for the
acquisition of the Company (whether by way of Merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its or their
capital stock or assets or any equity interest in the Company or any of its
subsidiaries, or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company or any of
its subsidiaries (whether by way of Merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their
capital stock or assets or any equity interest in the Company or any of its
subsidiaries by any person, other than by Healtheon. The Company shall
immediately cease and cause to be terminated any such contacts or
negotiations with third parties relating to any such transaction or proposed
transaction. In addition to the foregoing, if the Company receives prior to
the Closing or the termination of this Agreement any offer or proposal
relating to any of the above, the Company shall immediately notify Healtheon
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Healtheon may reasonably request. Except as contemplated by this Agreement,
disclosure by the Company of the terms hereof (other than the prohibition of
this section) shall be deemed to be a violation of this Section 4.2.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 COMPANY MEMBER APPROVALS. As promptly as practicable:
(a) Prior to the execution of this Agreement, Healtheon and
the Company have prepared the necessary documentation for, and as soon as
reasonably practicable following the execution of this Agreement they shall
apply to obtain, a permit (a "CALIFORNIA PERMIT") from the Commissioner of
Corporations of the State of California (after a hearing before the
California Department of Corporations) pursuant to Section 25121 of the
California Corporate Securities Law of 1968, so that the issuance of
Healtheon Common Stock in the Asset Purchase shall be exempt from
registration under Section 3(a)(10) of the Securities Act of 1933, as amended
(the "SECURITIES ACT") and California blue sky laws. The Company and
Healtheon will respond to any comments from the California Department of
Corporations and use their commercially reasonable effort to have the
California Permit granted as soon as practical after such filing. As
promptly as practical after the date of this Agreement, Healtheon shall
prepare and make such filings as are required under applicable Blue Sky laws
relating to the transactions contemplated by this Agreement.
(b) As promptly as practicable after the receipt of a
California Permit, the Company shall submit this Agreement and the
transactions contemplated hereby, including without limitation the sale, to
the Company's Members for approval and adoption as provided by California
Corporate Code and the Company's Organizational Documents. The materials
submitted to the Company's Members shall be subject to review and approval by
Healtheon and include information regarding Healtheon and the Company, the
terms of the Asset Purchase and this Agreement and the unanimous
recommendation of the Board of Directors of the Company in favor of the Asset
Purchase, this Agreement and the transactions contemplated hereby.
5.2 ACCESS TO INFORMATION. Each party shall afford the other and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Closing to (a) all of
its properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request, subject, in the case of Healtheon, to reasonable limits on access to
its technical and other nonpublic information. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to
keep the terms of this Agreement (except to the extent contemplated hereby)
and such information or knowledge obtained in any investigation pursuant to
Section 5.2, or pursuant to the negotiation and execution of this Agreement
or the effectuation of the transactions contemplated hereby, confidential;
PROVIDED, HOWEVER, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any
violation of law, (c) became known to the public through no fault of such
party, (d) is later lawfully acquired by such party without confidentiality
restrictions from other sources, (e) is required to be disclosed by order of
court or government agency with subpoena powers (provided that such party
shall have provided the other party with prior notice of such order or
subpoena and an opportunity to object or take other available action) or (f)
which is disclosed in the course of any litigation between any of the parties
hereto.
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5.4 EXPENSES. Whether or not the Asset Purchase is consummated, all
fees and expenses incurred in connection with the Asset Purchase including,
without limitation, all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties ("THIRD PARTY EXPENSES")
incurred by a party in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby, shall be the obligation of the respective party incurring such fees
and expenses.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, federal and state securities laws) prior to the Closing,
no disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement shall be made by any party hereto unless approved by
Healtheon and the Company prior to release.
5.6 CONSENTS. Healtheon and the Company shall use commercially
reasonable efforts to obtain the consents, waivers, assignments and approvals
under any of the Healtheon Contracts and Company Contracts as may be required
in connection with the Asset Purchase (all of such consents, waivers and
approvals are set forth in the Company Schedules and Healtheon and
Acquisition Sub Schedules) so as to preserve and transfer all rights of and
benefits to Acquisition Sub thereunder.
5.7 REASONABLE EFFORTS. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable
efforts to ensure that its representations and warranties remain true and
correct in all material respects, and to take promptly, or cause to be taken,
all actions, and to do promptly, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated hereby, to obtain all necessary
waivers, consents, assignments and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments
or delays, legal or otherwise, to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to
the parties hereto the benefits contemplated by this Agreement; PROVIDED,
that Healtheon shall not be required to agree to any divestiture by Healtheon
or the Company or any of Healtheon's subsidiaries or affiliates of equity
interests or of any business, assets or property of Healtheon or its
subsidiaries or affiliates or the Company or its affiliates, or the
imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
5.8 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Healtheon, and Healtheon shall give prompt notice to the Company,
of (i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of
the Company, Healtheon or Acquisition Sub, respectively, contained in this
Agreement to be untrue or inaccurate at or prior to the Closing and (ii) any
failure of the Company or Healtheon, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant
to this Section 5.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.9 CERTAIN BENEFIT PLANS. Healtheon shall take such reasonable
actions as are necessary to allow eligible employees of the Company to
participate in the benefit programs of Healtheon, or alternative benefits
programs substantially comparable to those applicable to employees of
Healtheon on similar terms, as soon as practicable after the Closing.
5.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto,
at the request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as
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may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
5.11 COMPANY'S AUDITORS. The Company will use its commercially
reasonable efforts to cause its management and its independent auditors to
facilitate on a timely basis (i) the review of any Company audit or review
work papers for up to the past three years, including the examination of
selected interim financial statements and data and (ii) the delivery of such
representations from the Company's independent accountants as may be
reasonably requested by Healtheon or its accountants to enable Healtheon's
accountants to render the opinion called for by Section 6.3(j) hereof.
5.12 MUTUAL RELEASE. The Company shall use its commercially
reasonable best efforts with and Netsource Communications, Inc. ("Netsource")
to enter into a mutual settlement and release with Netsource relating to any
and all disputes arising from or related to the transactions contemplated by
the Asset Purchase Agreement among Netsource, the Company and Edward Fotsch,
M.D. dated March 20, 1997.
ARTICLE VI
CONDITIONS TO THE ASSET PURCHASE
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ASSET
PURCHASE. The respective obligations of each party to this Agreement to
effect the Asset Purchase shall be subject to the satisfaction at or prior to
the Closing of the following conditions:
(a) COMPANY MEMBER APPROVAL. This Agreement and the Asset
Purchase shall have been approved and adopted by the Members of the Company
by the requisite vote under applicable law and the Company's Organizational
Documents.
(b) CALIFORNIA PERMIT. The Commissioner of Corporations for
the State of California shall have approved the terms and conditions of the
transactions contemplated by this Agreement, and the fairness of such terms
and conditions pursuant to Section 25142 of the California Corporations Code
("CALIFORNIA CODE") following a hearing for such purpose, and shall have
issued a Permit under Section 25121 of the California Code.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal or regulatory restraint
or prohibition preventing the consummation of the Asset Purchase shall be in
effect.
(d) TAX OPINIONS. Healtheon and the Company shall each have
received substantially identical written opinions from their counsel in form
and substance reasonably satisfactory to them, to the effect that the Asset
Purchase will constitute a reorganization within the meaning of Section
368(a) of the Code. The parties to this Agreement agree to make reasonable
representations as requested by such counsel for the purpose of rendering
such opinions.
(e) PERMITS. All approvals from government authorities,
including any requisite Blue Sky approvals, which are appropriate or
necessary for the consummation of the Asset Purchase, shall have been
obtained.
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(f) LITIGATION. There shall be no BONA FIDE action, suit,
claim or proceeding of any nature pending, or overtly threatened, against
Healtheon or the Company, their respective properties or any of their
officers or directors, arising out of, or in any way connected with, the
Asset Purchase or other transactions contemplated by the terms of this
Agreement.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Asset Purchase and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Healtheon and Acquisition Sub contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date,
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all
such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would be
expected to have a Material Adverse Effect on Healtheon; and the Company
shall have received a certificate to such effect signed on behalf of
Healtheon by a duly authorized officer of Healtheon.
(b) AGREEMENTS AND COVENANTS. Healtheon and Acquisition Sub
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Healtheon.
(c) THIRD PARTY CONSENTS. The Company shall have been
furnished with evidence satisfactory to it that Healtheon has obtained the
consents, approvals, assignments and waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Healtheon, in substantially the form attached hereto as EXHIBIT C.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), liabilities, financial condition or results of operations of
Healtheon since the date of the Balance Sheet.
(f) HEALTHEON CAPITALIZATION. At the Closing, Healtheon shall
have only a single class of Common Stock outstanding and shall have no other
class or series of capital stock issued or outstanding.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF HEALTHEON AND
ACQUISITION SUB. The obligations of Healtheon and Acquisition Sub to
consummate the Asset Purchase and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Healtheon:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations
and warranties which address
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matters only as of a particular date (which shall remain true and correct as
of such date), with the same force and effect as if made on and as of the
Closing Date, except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on the Company
or Healtheon; and Healtheon and Acquisition Sub shall have received a
certificate to such effect signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing, and Healtheon and Acquisition Sub shall have
received a certificate to such effect signed by a duly authorized officer of
the Company;
(c) THIRD PARTY CONSENTS. Healtheon shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) LEGAL OPINION. Healtheon shall have received a legal
opinion from Cooley Godward LLP, legal counsel to the Company, in
substantially the form attached hereto as EXHIBIT D.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets) financial condition or results of operations of the Company since the
date of the Company Balance Sheet.
(f) NONCOMPETITION AGREEMENTS. Each of the persons listed on
Schedule 6.3(g) shall have executed and delivered to Healtheon a
Noncompetition Agreement in substantially the form of EXHIBIT E, and all of
the Noncompetition Agreements shall be in full force and effect.
(g) NO DISSENTERS. Holders of more than 10% of the
outstanding units of Company Capital Stock shall not have exercised, nor
shall they have any continued right to exercise, appraisal, dissenters' or
similar rights under applicable law with respect to their shares by virtue of
the Asset Purchase.
(h) EMPLOYMENT AGREEMENTS. Edward J. Fotsch, M.D., Deb Del
Guidice, Fel Bautista, Jeff Nelson and Terry McMann shall have entered into
an Employment Agreement in form and substance reasonably satisfactory to
Healtheon.
(i) MEMBER LOANS. At the Closing, all loans from Members of
the Company ("Member Loans") shall have been repaid or canceled.
(j) STOCK TRANSFER AGREEMENTS. The Company and each Member of
the Company shall have entered into an agreement providing for the
restriction on sales of Healtheon Common Stock received in connection with
this transaction until 180 days after completion of a public offering of
Healtheon Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission; provided,
however, that no Member shall be required to sign such agreement unless
Healtheon's executive officers and directors sign similar agreements.
(k) BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT. The
Company shall have delivered the Bill of Sale and the parties hereto shall
have entered into the Assignment and Assumption Agreement.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Company, Healtheon and Acquisition Sub
contained in this Agreement or in any instrument delivered pursuant to this
Agreement (each as modified by the corresponding Schedules thereto) shall
survive the Asset Purchase and continue until 5:00 p.m., California time, on the
date which is one year following the date of this Agreement (the "EXPIRATION
DATE").
7.2 ESCROW ARRANGEMENTS AND INDEMNIFICATION.
(a) ESCROW FUND AND INDEMNIFICATION. At the Closing, the Company
will be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Healtheon after the
Closing). As soon as practicable after the Closing, the Escrow Amount will be
deposited with U.S. Bank Trust National Association, (or other institution
acceptable to Healtheon and the Securityholder Agent (as defined in
Section 7.2(g) below)) as Escrow Agent (the "ESCROW AGENT"), such deposit to
constitute an escrow fund (the "ESCROW FUND") to be governed by the terms set
forth herein and at Healtheon's cost and expense. The Escrow Fund shall be
available to compensate Healtheon, Acquisition Sub and their affiliates for any
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense (hereinafter individually a "LOSS" and collectively "LOSSES")
incurred by Healtheon, Acquisition Sub, their officers, directors, or affiliates
directly or indirectly as a result of (a) any inaccuracy or breach of a
representation or warranty of the Company contained in Article II herein (as
modified by the Company Schedules), or any failure by the Company to perform or
comply with any covenant contained herein and (b) any Loss arising out of a
claim by Netsource or any trustee in bankruptcy or creditor relating the Asset
Purchase Agreement dated March 20, 1997 (the "Netsource Agreement"). Healtheon
and the Company each acknowledge that such Losses, if any, would relate to
unresolved contingencies existing at the Closing, which if resolved at the
Closing would have led to a reduction in the aggregate consideration. Nothing
herein shall limit the liability of the Company for any breach of any
representation, warranty or covenant if the Asset Purchase does not close.
Healtheon may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in paragraph (d) below) identifying Losses,
the aggregate amount of which exceed $50,000, which, for purposes of aggregating
such amount, shall not include the value of any Healtheon shares transferred to
Netsource, have been delivered to the Escrow Agent as provided in paragraph (e);
in such case, Healtheon may recover from the Escrow Fund the total of its
Losses, including the first $50,000; provided, however, in the event that such
Losses arise from, or relate to, Retained Liabilities of the Company, Healtheon
shall be entitled to immediate indemnification from the Company without regard
to such $50,000 threshold. The indemnification provisions in this Section 7.2
shall be the sole remedy and recourse of Healtheon against the Company or any of
its respective directors, officers, representatives, agents or Members for any
Losses incurred by Healtheon; PROVIDED, HOWEVER, that nothing herein shall limit
any remedy for fraud.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Closing and shall terminate at 5:00 p.m.,
California time, on the later to occur of (i) the first anniversary of the
Closing and (ii) [the final resolution of all claim, made by or on behalf of
Netsource and relating to the Netsource Agreement] (the "ESCROW PERIOD");
PROVIDED, that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof), that together with the aggregate amount remaining in
the Escrow Fund is necessary in the
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reasonable judgment of Healtheon, subject to the objection of the
Securityholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period specified in any Officer's Certificate delivered to the Escrow
Agent prior to termination of such Escrow Period. As soon as all such claims
have been resolved, the Escrow Agent shall deliver to the Company, or its
transferees, the remaining portion of the Escrow Fund not required to satisfy
such claims. Deliveries of Escrow Amounts to the Members of the Company
pursuant to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Healtheon
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Healtheon Common Stock or other equity
securities issued or distributed by Healtheon (including shares issued upon a
stock split) ("NEW SHARES") in respect of Healtheon Common Stock in the Escrow
Fund which have not been released from the Escrow Fund shall be added to the
Escrow Fund and become a part thereof. New Shares issued in respect of shares
of Healtheon Common Stock which have been released from the Escrow Fund shall
not be added to the Escrow Fund but shall be distributed to the recordholders
thereof. Cash dividends on Healtheon Common Stock shall not be added to the
Escrow Fund but shall be distributed to the recordholders thereof.
(iii) The Company shall have voting rights with respect to
the shares of Healtheon Common Stock contributed to the Escrow Fund (and on any
voting securities added to the Escrow Fund in respect of such shares of
Healtheon Common Stock).
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Healtheon (an "OFFICER'S CERTIFICATE"): (A) stating that Healtheon has paid
or properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(e) hereof,
deliver to Healtheon out of the Escrow Fund, as promptly as practicable, shares
of Healtheon Common Stock held in the Escrow Fund in an amount equal to such
Losses.
(ii) For the purposes of determining the number of shares
of Healtheon Common Stock to be delivered to Healtheon out of the Escrow Fund
pursuant to Section 7.2(d)(i) hereof, the value of the shares of Healtheon
Common Stock shall be deemed to be equal to $5.20 per share of Healtheon Common
Stock.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Securityholder Agent and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Healtheon
of any Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent
shall have received written authorization from the Securityholder Agent to make
such delivery. After the expiration of such thirty (30) day period, the Escrow
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Agent shall make delivery of shares of Healtheon Common Stock from the Escrow
Fund in accordance with Section 7.2(d) hereof; PROVIDED, that no such payment or
delivery may be made if the Securityholder Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Healtheon shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Healtheon should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Healtheon Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Healtheon or the Securityholder Agent may demand arbitration
of the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. Healtheon and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys' fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Clara County, California under the rules then in effect of the
American Arbitration Association. For purposes of this Section 7.2(f), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Healtheon shall be deemed to be the
Non-Prevailing Party in the event that the arbitrators award Healtheon less than
the sum of one-half (1/2) of the disputed amount plus any amounts not in
dispute; otherwise, the Members of the Company as represented by the
Securityholder Agent shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
(g) SECURITYHOLDER AGENT OF THE MEMBERS; POWER OF ATTORNEY.
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(i) In the event that the Asset Purchase is approved,
effective upon such vote, and without further act of any Member, Edward Fotsch,
M.D. shall be appointed as agent and attorney-in-fact (the "SECURITYHOLDER
AGENT") for the Company to give and receive notices and communications, to
authorize delivery to Healtheon of shares of Healtheon Common Stock from the
Escrow Fund in satisfaction of claims by Healtheon, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the Company from time to time upon
not less than thirty (30) days prior written notice to Healtheon; PROVIDED that
the Securityholder Agent may not be removed unless holders of a two-thirds
interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Securityholder Agent may be
filled by approval of the holders of a majority in interest of the Escrow Fund.
No bond shall be required of the Securityholder Agent, and the Securityholder
Agent shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to or
from the Company.
(ii) The Securityholder Agent shall not be liable for any
act done or omitted hereunder as Securityholder Agent while acting in good faith
and in the exercise of reasonable judgment. The Members of the Company and the
Company shall severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Securityholder Agent and
arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act,
consent or instruction of the Securityholder Agent shall constitute a decision
of the holders in interest in the Escrow Fund and shall be final, binding and
conclusive upon each of each such holder, and the Escrow Agent and Healtheon may
rely upon any such decision, act, consent or instruction of the Securityholder
Agent as being the decision, act, consent or instruction of each and every such
holder. The Escrow Agent and Healtheon are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(i) THIRD-PARTY CLAIMS. In the event Healtheon becomes aware of
a third-party claim which Healtheon believes may result in a demand against the
Escrow Fund, Healtheon shall notify the Securityholder Agent of such claim, and
the Securityholder Agent, as representative for the Company, shall be entitled,
at their expense, to participate in any defense of such claim. Healtheon shall
have the right in its sole discretion to settle any such claim; PROVIDED,
HOWEVER, that except with the consent of the Securityholder Agent, no settlement
of any such claim with third-party claimants shall alone be determinative of the
amount of any claim against the Escrow Fund. In the event that the
Securityholder Agent has consented to any such settlement, the Securityholder
Agent shall have no power or authority to object under any provision of this
Article VII to the amount of any claim by Healtheon against the Escrow Fund with
respect to such settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Healtheon and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument
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reasonably believed to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be liable for any act
done or omitted hereunder as Escrow Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warnings or other communications from any party or
any other person to the contrary. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Healtheon Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Healtheon Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon
initiating such action, the Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and
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expenses, including reasonable costs of investigation, counsel fees, and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent
in connection with the performance of his/her duties under this Agreement,
including but not limited to any litigation arising from this Agreement or
involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; PROVIDED, HOWEVER, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
California. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. The Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Healtheon. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Healtheon promises to pay these sums upon demand.
7.3 INDEMNIFICATION BY HEALTHEON AND ACQUISITION SUB.
(a) SCOPE OF INDEMNIFICATION. Subject to the limitations set
forth in this Section 7.3, Healtheon will indemnify and hold harmless for any
Losses (as defined in Section 7.2(a) above) incurred by the Company directly or
indirectly as a result of any inaccuracy or breach of a representation or
warranty of Healtheon or Acquisition Sub contained in Article III herein (as
modified by the Healtheon and Acquisition Sub Schedules), or any failure by
Healtheon or Acquisition Sub to perform or comply with any covenant contained
herein. Healtheon and the Company each acknowledge that such Losses, if any,
would relate to unresolved contingencies existing at the Closing, which if
resolved at the Closing would have led to an increase in the aggregate Asset
Purchase consideration. Nothing herein shall limit the liability of the
Healtheon for any breach of any representation, warranty or covenant if the
Asset Purchase does not close. The indemnification provisions in this
Section 7.3 shall be the sole remedy and recourse of the Company against
Healtheon or any of its respective directors, officers, representatives, agents,
shareholders or subsidiaries for any Losses incurred by such Indemnified
Members; PROVIDED, HOWEVER, that nothing herein shall limit any remedy for
fraud.
(b) LIMITATION OF LIABILITY. The maximum aggregate liability of
Healtheon with respect to the indemnification provided in this Section 7.3 shall
be limited solely to the number of newly issued shares of Healtheon Common Stock
equal to the Escrow Amount. Healtheon shall not be obligated to issue any
shares of Healtheon Common Stock to the Company unless and until the
Securityholder Agent, on behalf of the Company, delivers a certificate
("SECURITYHOLDER CERTIFICATE") that identifies Losses, the aggregate amount of
which exceed $50,000; in such case, the Company shall be entitled to shares of
Healtheon Common Stock for the total of its Losses, including the first $50,000.
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(c) PROCEDURE FOR INDEMNIFICATION. The Company shall give
written notice to Healtheon of its claim for indemnification as promptly as
practicable whenever the Securityholder Agent shall have determined that there
are facts or circumstances which render or would reasonably and forseeably
render Healtheon liable for indemnification under this Section 7.3; PROVIDED,
HOWEVER, that the failure to give a timely notice of a claim for indemnification
shall not limit the indemnification obligations of Healtheon. The notice shall
set forth in reasonable detail the basis for the claim, the nature of the Losses
and the monetary amount thereof.
(d) VALUE OF HEALTHEON COMMON STOCK. For the purposes of
determining the number of shares of Healtheon Common Stock to be delivered to
the Company in satisfaction of Healtheon's indemnity obligations under this
Section 7.3, the value of the shares of Healtheon Common Stock shall be deemed
to be $5.20 per share of Healtheon Common Stock.
(e) THIRD-PARTY BENEFICIARY. Each of the parties to this
Agreement specifically intends that the benefits of the indemnification
provisions of this Section 7.3 shall accrue to the Company and that the Company
and its authorized representatives shall be entitled to take any necessary
action to enforce the remedy set forth in this Section 7.3.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Asset Purchase abandoned at any time prior
to the Closing:
(a) by mutual consent of the Company and Healtheon;
(b) by Healtheon or the Company if: (i) the Closing has not
occurred before 5:00 p.m. (Pacific time) on August 15, 1998 (provided that the
right to terminate this Agreement under this clause 8.1(b)(i) shall not be
available to any party whose willful failure to fulfill any obligation hereunder
has been the cause of, or resulted in, the failure of the Closing to occur on or
before such date); (ii) there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Asset Purchase; or
(iii) there shall be any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Asset Purchase by any governmental entity
that would make consummation of the Asset Purchase illegal;
(c) by Healtheon if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Asset Purchase, by any Governmental Entity, which would: (i)
prohibit Healtheon's or the Company's ownership or operation of all or any
portion of the business of the Company or (ii) compel Healtheon or the Company
to dispose of or hold separate all or a portion of the business or assets of the
Company or Healtheon as a result of the Asset Purchase;
(d) by Healtheon if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and (i) such breach has not been cured within five (5)
business days after written notice to the Company (provided that, no cure period
shall be required for a breach which by its nature cannot be cured), and (ii) as
a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as
the case may be, would not then be satisfied; or
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(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Healtheon or Acquisition Sub and (i) such breach has not been cured
within five (5) business days after written notice to Healtheon (provided that,
no cure period shall be required for a breach which by its nature cannot be
cured), and (ii) as a result of such breach the conditions set forth in Section
6.2(a) or 6.2(b), as the case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this Section 8.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Healtheon,
Acquisition Sub or the Company, or their respective officers, directors,
shareholders or Members; PROVIDED, that each party shall remain liable for any
breaches of this Agreement prior to its termination; and PROVIDED FURTHER, that,
the provisions of Sections 5.3 and 5.4 and Article VIII of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law after
the Members of the Company approve this Agreement, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Closing, Healtheon and
Acquisition Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to Healtheon or Acquisition Sub, to:
Healtheon Corporation
4600 Patrick Henry Drive
Santa Clara, CA 95054
Attention: W. Michael Long
Telephone No.: (408) 876-5000
Facsimile No.: (408) 876-5010
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with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven E. Bochner, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(ii) if to the Company, to:
Metis, LLC
444 Spear Street, Suite 205
San Francisco, CA 94105
Attention: Edward Fotsch, M.D.
Telephone No.: (415) 537-7400
Facsimile No.: (415) 357-5919
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Peter M. Wong
Telephone No.: (415) 693-2198
Facsimile No.: (415) 951-3699
(c) if to the Securityholder Agent:
------------------------------
------------------------------
------------------------------
(d) if to the Escrow Agent:
U.S. Bank Trust National Association
San Francisco, CA
Attention: Cora Murphy
Telephone No.: (415) 273-4534
Facsimile No.: (415) 273-4593
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 TRANSFER TAXES. The Company shall pay all real property transfer
Taxes, sales Taxes, stock transfer Taxes, documentary stamp Taxes, recording
charges and other similar Taxes resulting from, arising under or in connection
with the transfer of the Purchased Assets or any other related transaction under
the Agreement.
9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Healtheon and Acquisition Sub may assign their respective rights and
delegate their respective obligations hereunder to their respective affiliates;
PROVIDED, that such affiliates agree to be bound by the terms hereof, including
without limitation, the provisions of 6.3(k) hereof.
9.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to
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prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
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IN WITNESS WHEREOF, Healtheon, Acquisition Sub and the Company and, with
respect to Article VII, the Securityholder Agent and Escrow Agent, have caused
this Agreement to be signed by their duly authorized respective officers and
representatives, all as of the date first written above.
METIS, LLC HEALTHEON CORPORATION
By: /s/ Edward Fotsch By: /s/ W. Michael Long
----------------------------- -------------------------
Name: Name:
Title: Title:
SECURITYHOLDER AGENT: METIS ACQUISITION CORP.
By: /s/ Edward Fotsch By: /s/ W. Michael Long
---------------------------- -------------------------
Name: Name:
Title:
ESCROW AGENT
By: /s/ Ann Gadsby
----------------------------
Name: Ann Gadsby
Title: Vice President
***ASSET PURCHASE AGREEMENT***
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HEALTHEON CORPORATION
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Healtheon Corporation, a corporation organized and existing under the
General Corporation law of the State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on December 26,
1995 under the name Healthscape Corporation, pursuant to the General Corporation
Law. The corporation changed its name to "Healtheon Corporation" on June 17,
1996.
SECOND: The Amended and Restated Certificate of Incorporation (the
"Amended Certificate") of Healtheon Corporation, in the form set forth below,
has been duly adopted in accordance with the provisions of Sections 288, 242,
and 245 of the General Corporation Law by the directors and the stockholders of
the corporation.
THIRD: The Amended Certificate, as so adopted, reads in full as set forth
below:
ARTICLE I
The name of this corporation is Healtheon Corporation.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is 1209 Orange Street, Corporation Trust Center, in the City of
Wilmington, County of New Castle, State of Delaware. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that this corporation is authorized to issue is one hundred
fifty-eight million two hundred eighty-five thousand seven (158,285,007) with a
par value of $0.0001 per share. The number of shares of Preferred Stock
<PAGE>
authorized to be issued is eight million two hundred eighty-five thousand seven
(8,285,007), all of which are designated "Series A Preferred Stock." The number
of shares of Common Stock authorized to be issued is one hundred fifty million
(150,000,000).
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes and series of shares of capital stock or the
holders thereof are as set forth below.
1. DIVIDEND PROVISIONS
(a) The holders of the Preferred Stock shall be entitled to receive
dividends, out of funds legally available therefor, prior and in preference to
any declaration or payment of any dividend (payable other than in Common Stock
or other securities and rights convertible into or entitling the holder thereof
to receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of $0.405 per
share per annum, with respect to the Series A Preferred Stock (as adjusted to
reflect any recapitalizations, stock combinations, stock dividends, stock splits
and the like with respect to a series of Preferred Stock), payable when, as, and
if declared by the Board of Directors. Such dividends shall not be cumulative,
and no right shall accrue to holders of the Series A Preferred Stock by reason
of the fact that dividends on such shares are not declared or paid in any year.
After payment of such dividend to the holders of the Series A Preferred Stock
any additional dividends declared shall be distributed pro rata among the
holders of the Common Stock and the Preferred Stock on an as-converted to Common
Stock basis.
(b) Notwithstanding paragraph (a) of Section 1 hereof, the
corporation may at any time, out of funds legally available therefor, repurchase
shares of Common Stock of the corporation (i) issued to or held by employees,
directors or consultants of the corporation or its subsidiaries upon termination
of their employment or services, provided the repurchase price does not exceed
the original purchase price for such shares (appropriately adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like) or (ii) issued to or held by any person subject to the corporation's right
of first refusal to purchase such shares provided that the purchase is pursuant
to the exercise of such right of first refusal and is approved by a majority of
the disinterested members of the corporation's Board of Directors, in any case
whether or not dividends on the Preferred Stock shall have been declared and
paid or funds set aside therefor.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock, shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of the
Common Stock by reason of their ownership thereof, an amount per share equal to
the sum of (A) $6.00 for each outstanding share of Series A Preferred Stock (as
adjusted to reflect any recapitalizations, stock combinations, stock dividends,
stock splits and the like), and (B) an amount equal to declared but unpaid
dividends on the Series A Preferred Stock. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts,
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then, the entire assets and funds of this corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
(b) After payment has been made to the holders of the Preferred Stock
of the full amounts to which they shall be entitled as provided in Section 2(a),
the remaining assets and funds of the corporation available for distribution to
stockholders shall be distributed ratably among the holders of Preferred Stock
and Common Stock in proportion to the number of shares of Common Stock held by
them or issuable to them upon conversion of their shares of Preferred Stock.
(c) A consolidation or merger of this corporation, with or into any
other corporation, or a sale, conveyance or disposition of all or substantially
all of the assets of this corporation, or the effectuation by this corporation
of a transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of this corporation is disposed of, shall be
deemed to be a liquidation, dissolution or winding up of the corporation.
3. CONVERSION. The holders of the Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this corporation or any transfer agent
for such Preferred Stock, into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the Original Issue Price by
the Conversion Price (as hereinafter defined) at the time in effect for a share
of such series of Preferred Stock. The Original Issue Price per share of Series
A Preferred Stock is $6.00. The Conversion Price per share of Series A
Preferred Stock initially shall be $6.00. The Conversion Price of each series
of Preferred Stock (the "Conversion Price") shall be subject to adjustment from
time to time as provided below.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect immediately upon the earlier of (A) the consummation of
this corporation's sale of its Common Stock in a firm commitment underwriting
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Act"), the aggregate proceeds of which are not less than
$10,000,000 at a public offering price of not less than $10.00 per share (as
adjusted for any recapitalizations, stock combinations, stock dividends, stock
splits and the like) or (B) the date upon which this corporation obtains the
consent of the holders of a majority of the then outstanding shares of Preferred
Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Preferred Stock, and
shall give written notice by mail, postage prepaid, to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued; provided, however, that in the event of an
automatic conversion pursuant to paragraph (b) of Section 3 hereof,
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the outstanding shares of Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not
the certificates representing such shares are surrendered to the corporation
or its transfer agent; and provided further that the corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless and until the certificates
evidencing such shares of Preferred Stock are either delivered to the
corporation or its transfer agent as provided above, or the holder notifies
the corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the corporation
to indemnify the corporation from any loss incurred by it in connection with
such certificates. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid and a check payable to the holder in the
amount of any declared and unpaid dividends payable pursuant to paragraph (a)
of Section 3 hereof, if any. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Preferred Stock to be converted, or, in the case of
automatic conversion, immediately prior to the occurrence of the event
leading to such automatic conversion, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Act, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale
of securities pursuant to such offering; in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The Conversion
Price of the Series A Preferred Stock shall be subject to adjustment from time
to time as follows:
(i) SPECIAL DEFINITIONS. For purposes of this Section 3(d), the
following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(3) "Additional Shares of Common" shall mean all shares of
Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be issued) by
the corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(A) upon conversion of shares of the Preferred Stock;
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(B) to officers, directors or employees of, or
consultants to, the corporation pursuant to a stock grant, stock option,
restricted stock purchase agreement, stock appreciation right, option plan,
purchase plan or other employee stock incentive program or agreement approved by
the Board;
(C) as a dividend or distribution on Preferred Stock;
or
(D) upon exercise or conversion of options or warrants
to purchase shares of Common Stock or Preferred Stock issued in connection with
equipment lease financing transactions or bank financing transactions approved
by the Board of Directors, where the issuance of such options or warrants is not
principally for the purpose of raising additional equity capital for the
corporation.
(E) in a transaction described in Section 3(d)(vi).
(4) "ORIGINAL ISSUE DATE" with respect to each series of
Preferred Stock shall mean the date on which the first share of such series of
Preferred Stock was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common unless the consideration per share (determined pursuant to Section
3(d)(v) hereof) for an Additional Share of Common issued or deemed to be issued
by the corporation is less than the Conversion Price in effect on the date of,
and immediately prior to, such issue.
(iii)DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON. In the
event the corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the exercise of such Options and
conversion or exchange of such Convertible Securities shall be deemed to be
Additional Shares of Common issued as of the time of such issue or, in case such
a record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common shall not be deemed to have been
issued unless the consideration per share (determined pursuant to
Section 3(d)(v) hereof) of such Additional Shares of Common would be less than
the Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
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(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease the consideration payable to the corporation, or increase or decrease
in the number of shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (other than under or by reason of provisions designed to
protect against dilution), the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof or
upon the occurrence of a record date with respect thereto, and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options
for Common Stock, the only additional shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, and the consideration
received therefor was the consideration actually received by the corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the corporation upon such exercise, or for the issue of all
such Convertible Securities, whether or not converted or exchanged, plus the
additional consideration, if any, actually received by the corporation upon such
conversion or exchange; and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options and the consideration
received by the corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the corporation
for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the corporation upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clauses (2) and (3) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (1) the Conversion Price on the original adjustment date or
(2) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common between the original adjustment date and such
readjustment date; and
(5) in the case of any Option or Convertible Security with
respect to which the maximum number of shares of Common Stock issuable upon
exercise or conversion or exchange thereof is not determinable, no adjustment to
the Conversion Price shall be made until such number becomes determinable.
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(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON. In the event this corporation shall issue Additional Shares
of Common (including Additional Shares of Common deemed to be issued pursuant to
Section 3(d)(iii)) without consideration or for a consideration per share less
than the Conversion Price in effect on the date of and immediately prior to such
issue, then and in each such event such Conversion Price shall be reduced to a
price (calculated to the nearest cent) determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
corporation for the total number of Additional Shares of Common so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common so issued; provided that,
for the purposes of this Section 3(d)(iv), all shares of Common Stock issuable
upon conversion of all outstanding Preferred Stock, all outstanding Options and
all outstanding Convertible Securities shall be deemed to be outstanding, and,
immediately after any Additional Shares of Common are deemed issued pursuant to
Section 3(d)(iii), such Additional Shares of Common shall be deemed to be
outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Section 3(d), the consideration received by the corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in the good faith by the Board of Directors ; and
(C) in the event Additional Shares of Common are
issued together with other shares or securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the corporation for Additional Shares of Common deemed to
have been issued pursuant to Section 3(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable
by the corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the corporation upon the exercise of such Options or the conversion or
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exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) OTHER ADJUSTMENTS TO CONVERSION PRICE. The Conversion
Prices shall be subject to adjustments from time to time as follows:
(1) ADJUSTMENTS FOR SUBDIVISIONS OR COMBINATIONS OF COMMON
STOCK. In the event the outstanding shares of Common Stock shall be subdivided
by stock split, stock dividend or otherwise, into a greater number of shares of
Common Stock, the Conversion Price of each series of Preferred Stock then in
effect shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated into a lesser number of shares of Common
Stock, the Conversion Price of each series of Preferred Stock then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased.
(2) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER
DISTRIBUTIONS. In the event the corporation makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, any
distribution (excluding repurchases of securities by the corporation not made on
a pro rata basis) payable in property or in securities of the corporation other
than shares of Common Stock, and other than as otherwise adjusted for in this
Section 3 or as provided in Section 1 in connection with a dividend, then and in
each such event the holders of Preferred Stock shall receive, at the time of
such distribution, the amount of property or the number of securities of the
corporation that they would have received had their Preferred Stock been
converted into Common Stock on the date of such event.
(3) ADJUSTMENTS FOR REORGANIZATIONS, RECLASSIFICATIONS OR
SIMILAR EVENTS. Except as provided in Section 2 upon any liquidation,
dissolution or winding up of the corporation, if the Common Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock or other securities or property, whether by capital
reorganization, reclassification or otherwise, then each share of Preferred
Stock shall thereafter be convertible into the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the corporation deliverable upon conversion of such shares of Preferred
Stock shall have been entitled upon such reorganization, reclassification or
other event.
(vii)MISCELLANEOUS.
(1) All calculations under this Section 3(d) shall be made
to the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
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(2) No adjustment in the Conversion Prices need be made if
such adjustment would result in a change in such Conversion Price of less than
$0.01. Any adjustment of less than $0.01 which is not made shall be carried
forward and shall be made at the time of and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or
more in such Conversion Price.
(e) NO IMPAIRMENT. This corporation will not, by amendment of this
Amended Certificate or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 3 and in the taking of all such actions as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(f) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of the
Preferred Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Prices pursuant to this Section 3, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of such holder's Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event that this corporation shall
propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
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(iii)to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge with or into any other corporation (other than a
merger in which the holders of the outstanding voting equity securities of the
corporation immediately prior to such merger hold more than fifty percent (50%)
of the voting power of the surviving entity immediately following such merger),
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the
holders of the Preferred Stock:
(1) at least twenty (20) days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which holders of Common Stock
shall be entitled thereto) or for determining rights to vote in respect of the
matters referred to in (i) and (ii) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least twenty (20) days' prior written notice of the date when the
same shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
(h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(i) NOTICES. Any notice required by the provisions of this Section 3
to be given to the holders of shares of Preferred Stock shall be deemed given if
delivered by confirmed facsimile or electronic transmission (with duplicate
original sent by United States mail) or three business days after such notice is
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
4. VOTING RIGHTS. Except as otherwise required by law, each holder of
Common Stock shall have one vote for each share of Common Stock so held, and
each holder of Preferred Stock shall be entitled to the number of votes equal
to the number of shares of Common Stock into which the share of Preferred
Stock could then be converted at the record date for determination of the
stockholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. Except as required by law or
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as otherwise set forth herein, all shares of all series of Preferred Stock
and all shares of Common Stock shall vote together as a single class.
Fractional votes by holders of Preferred Stock shall not, however, be
permitted, and any fractional voting rights shall (after aggregating all
shares into which shares of Preferred Stock held by each holder could be
converted) be rounded to the nearest whole number.
5. PROTECTIVE PROVISIONS. So long as any shares of Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of at least a majority of the then
outstanding shares of Preferred Stock, voting together as a single class, on an
as-converted basis:
( ) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of this corporation is disposed of;
(a) create any new class or series of stock or any other securities
convertible into equity securities of the corporation having a preference over,
or being on a parity with, the Preferred Stock with respect to voting, dividends
or upon liquidation;
(b) amend or repeal any provision of, or add any provision to, this
corporation's Amended Certificate if such action would change adversely the
preferences rights, privileges or powers of, or restrictions provided for the
benefit of, the Preferred Stock.
6. STATUS OF CONVERTED STOCK. In the event any shares of Preferred Stock
shall be converted into Common Stock pursuant to Section 3 hereof, the shares of
Preferred Stock so converted shall be canceled and shall not be issuable by this
corporation. This Amended Certificate shall be appropriately amended to effect
the corresponding reduction in this corporation's authorized capital stock.
ARTICLE V
To the fullest extent permitted by the General Corporation Law as the same
exists or as may hereafter be amended, a director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary damages
for breach fiduciary duty as a director.
The corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director or officer of the corporation or
any predecessor of the corporation or serves or served at any other enterprise
as a director, officer or employee at the request of the corporation or any
predecessor to the corporation.
Neither any amendment nor repeal of this Article V, nor the adoption of any
provision of this Amended Certificate inconsistent with this Article V, shall
eliminate or reduce the effect of this Article V, in respect of any matter
occurring, or any cause of action, suit, claim or proceeding that,
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but for this Article V, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE VI
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended Certificate, in the manner now or hereafter
prescribed by statute or this Amended Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE VIII
The number of directors which constitute the whole Board of Directors of
the corporation shall be as specified in the Bylaws of the corporation.
ARTICLE IX
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE XI
This corporation is to have perpetual existence.
* * *
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
I hereby further declare and certify under penalty of perjury under the
laws of the State of Delaware that the facts set forth in the foregoing
certificate are true and correct of my own knowledge and that this certificate
is my act and deed.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed by the President of this corporation this ____ day of October
1998.
Healtheon Corporation
By: /s/ W. Michael Long
-------------------------------
W. Michael Long
Chief Executive Officer
Attest:
By: /s/ Jack Dennison
-------------------------------
Jack Dennison
Assistant Secretary
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EXHIBIT 3.2
HEALTHEON CORPORATION
a Delaware corporation
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
(PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Healtheon Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation
Law")
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on December
26, 1995 under the name Healthscape Corporation, pursuant to the General
Corporation Law. The corporation changed its name to "Healtheon Corporation"
on June 17, 1996.
SECOND: The Restated Certificate of Incorporation of Healtheon
Corporation, in the form set forth below, has been duly adopted in accordance
with the provisions of Sections 228, 242, and 245 of the General Corporation
Law by the directors and the stockholders of the corporation.
THIRD: The Restated Certificate of Incorporation, as so adopted, reads
in full as set forth below:
ARTICLE I
The name of this corporation is Healtheon Corporation.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
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This corporation is authorized to issue one class of stock to be
designated "Common Stock" and another class of stock to be designated
"Preferred Stock," the rights, preferences and privileges of which may from
time to time be determined by the Board of Directors. The total number of
shares of Common Stock that this corporation is authorized to issue is
150,000,000 with a par value of $0.0001 per share. The total number of
shares of Preferred Stock that this corporation is authorized to issue is
5,000,000 with a par value of $0.0001 per share.
ARTICLE V
To the fullest extent permitted by the General Corporation Law as the
same exists or as may hereafter be amended, a director of the corporation
shall not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
The corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the
fact that he, his testator or intestate is or was a director or officer of
the corporation or any predecessor or the corporation or serves or served at
any other enterprise as a director, officer or employee at the request of the
corporation or any predecessor to the corporation.
Neither any amendment nor repeal of this Article V, nor the adoption of
any provision of this Restated Certificate of Incorporation inconsistent with
this Article V, shall eliminate or reduce the effect of this Article V, in
respect of any matter occurring, or any cause of action, suit, claim or
proceeding that, but for this Article V, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VI
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute or this Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ARTICLE VII
In furtherance and not in limitation of powers conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE VIII
Section 1. At any time following the closing of the first sale of
Common Stock of the Corporation pursuant to a registration statement declared
effective by the Securities and Exchange Corporation under the Securities Act
of 1933, as amended, stockholders of the Corporation may not take any action
by written consent in lieu of a meeting and any action contemplated by
stockholders after such time must be taken at a duly called annual or special
meeting of stockholders.
<PAGE>
Section 2. The number of directors which constitute the whole Board
of Directors of the Corporation shall be fixed exclusively by one or more
resolution adopted from time to time by the Board of Directors. The Board of
Directors shall be divided into three classes designated as Class I, Class
II, and Class III, respectively. Directors shall be assigned to each class
in accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the date
hereof, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the date hereof, the term of office
of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the date hereof, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full
term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Section 3. Advance notice of new business and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
ARTICLE IX
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be
kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of this corporation.
ARTICLE XI
This corporation is to have perpetual existence.
***
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
I hereby further declare and certify under penalty of perjury under the
laws of the State of Delaware that the facts set forth in the foregoing
certificate are true and correct of my own knowledge and that this
certificate is my act and deed.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by the President of this corporation this ___ day of _______ 1998.
Healtheon Corporation
<PAGE>
By: /s/ W. Michael Long
---------------------------------
W. Michael Long
Chief Executive Officer
Attest:
By: /s/ John L. Westermann III
--------------------------------
John L. Westermann III
Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
HEALTHSCAPE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . .1
2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . .2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . .2
2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.7 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . . . . .2
2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. . . . . . .4
2.12 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE. . . . . . . . . . . . . . . . . .5
ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE
OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . . . . . .6
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . .7
3.6 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.7 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.8 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . .8
3.9 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.11 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . . . . .8
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . . . . . .9
3.13 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . .9
3.14 APPROVAL OF LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . .9
3.15 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IV - COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 COMMITTEE MINUTES. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . . . . . 11
<PAGE>
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . . . . . 12
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . 12
5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.10 TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 ASSISTANT TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.13 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI - INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . 15
6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . . . . . . 15
6.3 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII - RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS. . . . . . . . . . . . . . . . . 16
7.2 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . 17
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS . . . . . . . . . . . 18
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . . . . . . . . 18
8.4 SPECIAL DESIGNATION ON CERTIFICATES. . . . . . . . . . . . . . . . . . 18
8.5 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.6 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 19
8.7 DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.8 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.9 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.10 TRANSFER OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.11 STOCK TRANSFER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 20
8.12 REGISTERED STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE X - DISSOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XI - CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES. . . . . . . . . . . . . . 22
<PAGE>
11.2 DUTIES OF CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE>
BYLAWS
OF
HEALTHSCAPE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
corporation at such location is Incorporating Services, Ltd.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday of April in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called, at any time for any
purpose or purposes, by the board of directors or by such person or persons as
may be authorized by the certificate of incorporation or the bylaws.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
<PAGE>
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such
-2-
<PAGE>
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
-3-
<PAGE>
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than three (3)
nor more than five (5). The exact number of directors shall be four (4). This
number may be changed, within the limits specified above, by a duly adopted
amendment to the certificate of incorporation or by an amendment to this bylaw
duly adopted by the vote or written consent of the holders of a majority of the
stock issued and outstanding and entitled to vote or by resolution of a majority
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-4-
<PAGE>
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
-5-
<PAGE>
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors may be called by the president
on three (3) days' notice to each director, either personally or by mail,
telegram, telex, or telephone; special meetings shall be called by the president
or secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one (1) director, in which case
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
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3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously
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appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the board of directors or in the bylaws
of the corporation, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and affairs of
the corporation, and may authorize the seal of the corporation to be affixed
to all papers that may require it; but no such committee shall have the power
or authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of
directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement
of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property
and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
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5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
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5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
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5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any
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such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
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The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
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The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include
but not be limited to equalizing dividends, repairing or maintaining any
property of the corporation, and meeting contingencies.
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8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The seal of the corporation shall be such as from time to time may be
approved by the board of directors.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
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DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
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11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
HEALTHSCAPE CORPORATION
ADOPTION BY INCORPORATOR
The undersigned person appointed in the Certificate of Incorporation to
act as the Incorporator of HealthScape Corporation hereby adopts the
foregoing bylaws, comprising twenty-two (22) pages, as the Bylaws of the
corporation.
Executed this 1st day of January 1996.
/s/ Ivan J. Brockman
------------------------------
Ivan J. Brockman, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of HealthScape Corporation and that the foregoing
Bylaws, comprising twenty-two (22) pages, were adopted as the Bylaws of the
corporation on January 1, 1996, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 1st day of January 1996.
/s/ Michael Curry
------------------------------
Michael Curry, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
HEALTHEON CORPORATION
Section 2.3 of the Bylaws of this corporation was amended, effective
April 22, 1996, by the Board of Directors and a majority of the stockholders
to provide in its entirety as follows:
"ARTICLE II
MEETING OF STOCKHOLDERS
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or
by one or more stockholders holding shares in the aggregate entitled to cast
not less than ten percent (10%) of the votes at the meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled
to vote, in accordance with the provisions of Section 2.4 and 2.5 of these
bylaws, that a meeting will be held at the time requested by the person or
persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of
the request, then the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the board of directors may be held."
Dated: April 22, 1996
/s/ Michael S. Curry
------------------------------
Michael S. Curry, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
HEALTHEON CORPORATION
Section 3.2 of the Bylaws of this corporation was amended, effective May
19, 1998, by the Board of Directors and a majority of the stockholders to
provide in its entirety as follows:
"ARTICLE III
DIRECTORS
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than six
(6) nor more than eight (8). The exact number of directors shall be eight
(8). This number may be changed, within the limits specified above, by a duly
adopted amendment to the certificate of incorporation or by an amendment to
this bylaw duly adopted by the vote or written consent of the holders of a
majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires."
Dated: May 19, 1998
/s/ Kallen Chan
--------------------------------
Kallen Chan, Assistant Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
HEALTHEON CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I
CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
ARTICLE II
MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
2.2 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . .-2-
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. . . . . . . . . . . . . .-2-
2.6 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-2-
2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . .-2-
2.8 VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-2-
2.9 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .-3-
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . .-3-
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . .-3-
2.12 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-4-
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . . . . . . .-4-
ARTICLE III
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-5-
3.1 POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-5-
3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . .-5-
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . . . . . . .-5-
3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . . . . . . .-6-
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. . . . . . . . . . . . . . . .-6-
3.6 FIRST MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-6-
3.7 REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .-6-
3.8 SPECIAL MEETINGS; NOTICE. . . . . . . . . . . . . . . . . . . . . . . .-6-
3.9 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-6-
3.10 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .-7-
3.11 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . .-7-
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . .-7-
3.13 FEES AND COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . .-7-
3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . .-7-
3.15 REMOVAL OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . .-8-
ARTICLE IV
COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . .-8-
4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . . . . . . .-9-
4.4 ADVISORY COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
ARTICLE V
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
5.1 OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
5.2 ELECTION OF OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . .-9-
5.3 SUBORDINATE OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . .-9-
5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . . . . . . -10-
5.5 VACANCIES IN OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . -10-
5.6 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . -10-
5.7 CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . . . . . . . -10-
5.8 PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
5.9 VICE PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
5.10 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
5.11 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . -11-
5.13 ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.14 ASSISTANT TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.15 AUTHORITY AND DUTIES OF OFFICERS. . . . . . . . . . . . . . . . . . . -12-
ARTICLE VI
INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . -12-
6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . . . . . . -12-
6.3 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
ARTICLE VII
RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . . . . . . -13-
7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . -14-
7.3 ANNUAL STATEMENT TO STOCKHOLDERS. . . . . . . . . . . . . . . . . . . -14-
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. . . . . . . . . . . . -14-
ARTICLE VIII
GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
8.1 CHECKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. . . . . . . . . . . -14-
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. . . . . . . . . . . . . . . . -15-
8.4 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . . . . . . . . . . . . -15-
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
8.5 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
8.6 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . -16-
8.7 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
8.8 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
8.9 SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
8.10 TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
8.11 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . -16-
8.12 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . -16-
ARTICLE IX
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
ARTICLE X
DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
ARTICLE XI
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES . . . . . . . . . . . . . -17-
11.2 DUTIES OF CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . -18-
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
HEALTHEON CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be at Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle,
State of Delaware. The name of the registered agent of the corporation at
such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence
of any such designation, stockholders' meetings shall be held at the
principal office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called, at any time by the
board of directors, or by the president, or by one or more stockholders
holding shares in the aggregate entitled to cast not less than ten percent
(10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the
<PAGE>
chairman of the board, the president, any vice president or the secretary of
the corporation. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be
held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five nor more than sixty (60) days
after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when
a meeting of stockholders called by action of the board of directors may be
held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice
shall specify the place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
An affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction
of business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.8 VOTING
<PAGE>
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Section 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING of
the Bylaws of this corporation was removed, in its entirety, effective as of
the initial public offering of the corporation, by the Board of Directors.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the board of directors may fix, in advance, a
record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
<PAGE>
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by a written proxy,
signed by the stockholder and filed with the secretary of the corporation,
but no such proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period. A proxy shall be deemed
signed if the stockholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.14 NOMINATIONS AND PROPOSALS
Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at any meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in these bylaws, who
is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.14.
For nominations or other business to be properly brought before a
stockholders meeting by a stockholder pursuant to clause (c) of the preceding
sentence, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the meeting; provided,
however, that in the event that less than 65 days notice of the meeting is
given to stockholders, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the seventh (7th) day
following the day on which the notice of meeting was mailed. In no event
shall the public announcement of an adjournment of a stockholders meeting
commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for
<PAGE>
election of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (or any successor thereto) and Rule 14a-11 thereunder (or
any successor thereto) (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such
beneficial owner, and (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. Notwithstanding any provision herein to the contrary, no
business shall be conducted at a stockholders meeting except in accordance
with the procedures set forth in this Section 2.14.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than six
(6) nor more than eight (8). The exact number of directors shall be eight
(8). This number may be changed, within the limits specified above, by a duly
adopted amendment to the certificate of incorporation or by an amendment to
this bylaw duly adopted by the vote or written consent of the holders of a
majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
The Board of Directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following
the date hereof, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the date hereof, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the date hereof, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full
term of three years. At each succeeding annual meeting of stockholders,
directors shall be
<PAGE>
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Section 3.3, each
director shall serve until his or her successor is duly elected and qualified
or until his or her death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of
any incumbent director.
3.4 RESIGNATION AND VACANCIES
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall, unless the
Board of Directors determines by resolution that any such vacancies or newly
created directorships shall be filled by stockholders, except as otherwise
provided by law, be filled only by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Board of Directors and not by the stockholders. Newly created directorships
resulting from any increase in the number of directors shall, unless the
Board of Directors determines by resolution that any such newly created
directorship shall be filled by the stockholders, be filled only by the
affirmative vote of the directors then in office, even though less than a
quorum of the Board of Directors and not by the stockholders. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be determined by the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors may be called by the chief
executive officer on three (3) days' notice to each director, either
personally or by mail, telegram, telex, or telephone; special meetings shall
be called by the president or secretary in like manner and on like notice on
the written request of two (2) directors unless the board consists of only
one (1) director, in which case
<PAGE>
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except as may
be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in
<PAGE>
such manner as the board of directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in this
section contained shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers
that may require it; but no such committee shall have the power or authority
to (i) amend the certificate of incorporation (except that a committee may,
to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes of
stock of the corporation), (ii) adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware, (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
<PAGE>
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.7
(regular meetings), Section 3.8 (special meetings and notice), Section 3.9
(quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and
notice of adjournment), and Section 3.12 (action without a meeting), with
such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members;
provided, however, that the time of regular meetings of committees may also
be called by resolution of the board of directors and that notice of special
meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
4.4 ADVISORY COMMITTEES
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more advisory committees, with each committee to
consist of one or more of the directors of the corporation or any other such
persons as the board may appoint. The board may designate one or more
persons as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Members who are not
board members shall not have the responsibilities or obligations of board
members nor be deemed directors of the corporation for any other purpose.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chief executive officer
("CEO"), a president, one or more vice presidents, a secretary, a chief
financial officer ("CFO") and a treasurer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or
more assistant vice presidents, assistant secretaries, assistant treasurers,
and any such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held
by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
<PAGE>
The board of directors may appoint, or empower the CEO to appoint, such
other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and
perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or by any officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and
perform such other powers and duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these bylaws. If
there is no CEO, then the chairman of the board shall also be the CEO of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these bylaws.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
CEO of the corporation shall, subject to the control of the board of
directors, have general supervision, direction, and control of the business
and the officers of the corporation. He shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board,
at all meetings of the board of directors. He shall have the general powers
and duties of management usually vested in the CEO of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
5.8 PRESIDENT
The president may assume and perform the duties of the chief executive
officer in the absence or disability of the chief executive officer or
whenever the office of the chief executive officer is vacant. The president
of the corporation shall exercise and perform such powers and duties as may
from time to time be assigned to him by the board of directors, the CEO or as
may be prescribed by these bylaws. The president shall have authority to
execute in the name of the corporation bonds, contracts, deeds, leases and
other written instruments to be executed by the corporation. In the absence
or nonexistence of the chairman of the board and chief executive officer,
<PAGE>
he shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board and the chief executive officer, at
all meetings of the board of directors and shall perform such other duties as
the board of directors may from time to time determine.
5.9 VICE PRESIDENT
In the absence or disability of the CEO and the president, the vice
presidents, if any, in order of their rank as fixed by the board of directors
or, if not ranked, a vice president designated by the board of directors,
shall perform all the duties of the president and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by
the board of directors, these bylaws, the president or the chairman of the
board.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors,
committees of directors, and shareholders. The minutes shall show the time
and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law
or by these bylaws. He shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these
bylaws.
5.11 CHIEF FINANCIAL OFFICER
The CFO shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained
earnings, and shares. The books of account shall at all reasonable times be
open to inspection by any director. The CFO shall have such other powers and
perform such other duties as may be prescribed by the board of directors or
these bylaws.
5.12 TREASURER
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or these bylaws.
<PAGE>
5.13 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers
as the board of directors or the stockholders may from time to time prescribe.
5.14 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the treasurer and shall perform such other duties and have such other powers
as the board of directors or the stockholders may from time to time prescribe.
5.15 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors
and officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was
an agent of the corporation. For purposes of this Section 6.1, a "director"
or "officer" of the corporation includes any person (i) who is or was a
director or officer of the corporation or any subsidiary of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was
a predecessor corporation of the corporation or any of its subsidiaries or of
another enterprise at the request of such predecessor corporation or
subsidiary.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of
its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising
by reason
<PAGE>
of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the corporation or any subsidiary of the corporation,
(ii) who is or was serving at the request of the corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was
a predecessor corporation of the corporation or any of its subsidiaries or of
another enterprise at the request of such predecessor corporation or
subsidiary.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation or its
subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record
of its shareholders listing their names and addresses and the number and
class of shares held by each shareholder, a copy of these bylaws as amended
to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other
books and records and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the corporation at its registered office in
Delaware or at its principal place of business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
<PAGE>
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine
whether a director is entitled to the inspection sought. The Court may
summarily order the corporation to permit the director to inspect any and all
books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such
other and further relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the CEO, the CFO or any other person
authorized by the board of directors or the CEO, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to
any and all shares of any other corporation or corporations standing in the
name of this corporation. The authority granted herein may be exercised
either by such person directly or by any other person authorized to do so by
proxy or power of attorney duly executed by such person having the authority.
ARTICLE VII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
<PAGE>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not
apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the board of directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation
by the chairman or vice-chairman of the board of directors, or the president
or vice-president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of such corporation representing the
number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon
a certificate has ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may
be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests
the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter
is surrendered to the corporation and cancelled at the same time. The
corporation may issue a new certificate of stock or uncertificated shares in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may
be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate or
uncertificated shares.
<PAGE>
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and
a natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of
Delaware. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include
but not be limited to equalizing dividends, repairing or maintaining any
property of the corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The seal of the corporation shall be such as from time to time may be
approved by the board of directors.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction in
its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of another person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
<PAGE>
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders or the board of directors.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
<PAGE>
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the stockholders are
so divided that they have failed to elect successors to directors whose terms
have expired or would have expired upon qualification of their successors; or
(ii) the business of the corporation is suffering or is threatened with
irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
<PAGE>
COMMON STOCK COMMON STOCK
NUMBER SHARES
HLT
HEALTHEON
SEE REVERSE FOR CERTAIN DEFINITIONS
AND A STATEMENT AS TO THE RIGHTS,
INCORPORATED UNDER THE LAWS OF PREFERENCES, PRIVILEGES AND
THE STATE OF DELAWARE RESTRICTIONS ON SHARES
CUSIP 422209 10 6
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.0001 PAR VALUE, OF
HEALTHEON CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ John L. Westermann III [HEALTHEON CORPORATE /s/ W. Michael Long
SECRETARY SEAL] CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
designation, and the number of shares constituting each class and series and
the designations thereof, may be obtained by the holder hereof upon request
and without charge from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- _______________ Custodian _______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________________
(State)
UNIF TRF MIN ACT -- _______________ Custodian (until age_____)
(Cust)
___________________under Uniform Transfers
([ILLEGIBLE])
to Minors Act ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ___________________
__________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By _______________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO [THE REST OF THIS IS ILLEGIBLE].
<PAGE>
EXHIBIT 5.1
, 1999
Healtheon Corporation
4600 Patrick Henry Drive
Santa Clara, CA 95054
RE: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on , 199 (Registration No.
333- ), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to
shares of your common stock (the "Shares"), including an over-allotment option
granted to the underwriters of the offering to purchase up to
shares. We understand that you are selling the Shares to the underwriters for
resale to the public as described in the Registration Statement. As your legal
counsel, we have examined the proceedings taken, and are familiar with the
proceedings proposed to be taken, by you in connection with the sale and
issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
proposed to be taken by us, as your legal counsel, prior to the issuance of the
Shares, the Shares will be legally issued, fully paid and non-assessable when
sold in the manner described in the Registration Statement.
We are members of the Bar of the State of California only and express no
opinion as to any matter relating to the laws of any jurisdiction other than the
laws of the State of California and the federal laws of the United States.
Without limiting the foregoing, we express no opinion as to the securities laws
of the State of Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
--------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
Exhibit 10.1
HEALTHEON CORPORATION
a Delaware corporation
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
___________, 1998 by and between Healtheon Corporation, a Delaware
corporation (the "Company"), and ___________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and
its related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of
such insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been
severely limited;
WHEREAS, the Company and Indemnitee desire to continue to have in place
the additional protection provided by an indemnification agreement and to
provide indemnification and advancement of expenses to the Indemnitee to the
maximum extent permitted by Delaware law;
NOW, THEREFORE, the Company and Indemnitee hereby agree to the following:
1. CERTAIN DEFINITIONS.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock
of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing more than 50% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at
<PAGE>
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination
for election by the Company's stockholders was approved by a vote of at least
two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series
of related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Healtheon Corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which Healtheon
Corporation (or any of its wholly owned subsidiaries) is a party which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that
if Indemnitee is or was a director, officer, employee, agent or fiduciary of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, agent or fiduciary
of another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, Indemnitee shall stand in the same position under
the provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending,
-2-
<PAGE>
being a witness in or participating in (including on appeal), or preparing to
defend, to be a witness in or to participate in, any action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation), judgments, fines, penalties and amounts paid in settlement
(if such settlement is approved in advance by the Company, which approval
shall not be unreasonably withheld), actually and reasonably incurred, of any
Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant
to Section 3 of Expenses in advance of the settlement of or final judgement
in any action, suit, proceeding or alternative dispute resolution mechanism,
hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning
the rights of Indemnitee under this Agreement, or of other indemnitees under
similar indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed
on Indemnitee with respect to an employee benefit plan; and references to
"serving at the request of the Company" shall include any service as a
director, officer, employee, agent or fiduciary of the Company which imposes
duties on, or involves services by, such director, officer, employee, agent
or fiduciary with respect to an employee benefit plan, its participants or
its beneficiaries; and if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder
and under applicable law, which may include a member or members of the
Company's Board of Directors, Independent Legal Counsel or any other person
or body not a party to the particular Claim for which Indemnitee is seeking
indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
-3-
<PAGE>
2. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to
the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, any Claim (whether by reason of
or arising in part out of a Covered Event), including all interest,
assessments and other charges paid or payable in connection with or in
respect of such Expenses.
(b) REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a
written opinion, in any case in which Independent Legal Counsel is the
Reviewing Party) that Indemnitee is not entitled to be indemnified
hereunder under applicable law, (i) the Company shall have no further
obligation under Section 2(a) to make any payments to Indemnitee not made
prior to such determination by such Reviewing Party, and (ii) the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all Expenses theretofore paid in indemnifying
Indemnitee; PROVIDED, HOWEVER, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee is entitled to be indemnified hereunder under
applicable law, any determination made by any Reviewing Party that Indemnitee
is not entitled to be indemnified hereunder under applicable law shall not be
binding and Indemnitee shall not be required to reimburse the Company for any
Expenses theretofore paid in indemnifying Indemnitee until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for any Expenses shall be unsecured and no interest
shall be charged thereon.
(c) INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING
EFFECT. If any Reviewing Party determines that Indemnitee substantively is
not entitled to be indemnified hereunder in whole or in part under applicable
law, Indemnitee shall have the right to commence litigation seeking an
initial determination by the court or challenging any such determination by
such Reviewing Party or any aspect thereof, including the legal or factual
bases therefor, and, subject to the provisions of Section 15, the Company
hereby consents to service of process and to appear in any such proceeding.
Absent such litigation, any determination by any Reviewing Party shall be
conclusive and binding on the Company and Indemnitee.
(d) SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has
not been a Change in Control, any Reviewing Party shall be selected by the
Board of Directors, and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such
Change in Control), any Reviewing Party with respect to all matters
thereafter arising concerning the rights of Indemnitee to indemnification of
Expenses under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in
-4-
<PAGE>
effect, or under any other applicable law, if desired by Indemnitee, shall be
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee
as to whether and to what extent Indemnitee would be entitled to be
indemnified hereunder under applicable law and the Company agrees to abide by
such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. EXPENSE ADVANCES.
(a) OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts
if it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified therefor by the Company, the Company shall make Expense
Advances to Indemnitee.
(b) FORM OF UNDERTAKING. Any written undertaking by the
Indemnitee to repay any Expense Advances hereunder shall be unsecured and no
interest shall be charged thereon.
(c) DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has
made written demand to the Company in accordance with this Agreement, all
Expenses included in such Expense Advance that are certified by affidavit of
Indemnitee's counsel as being reasonable shall be presumed conclusively to be
reasonable.
4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES.
(a) TIMING OF PAYMENTS. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee
pursuant to this Agreement shall be made to the fullest extent permitted by
law as soon as practicable after written demand by
-5-
<PAGE>
Indemnitee therefor is presented to the Company, but in no event later than
forty-five (45) business days after such written demand by Indemnitee is
presented to the Company, except in the case of Expense Advances, which shall
be made no later than twenty (20) business days after such written demand by
Indemnitee is presented to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company
notice in writing as soon as practicable of any Claim made against Indemnitee
for which indemnification will or could be sought under this Agreement.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). In
addition, Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by this Agreement or applicable law. In addition, neither the
failure of any Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by any Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to
the commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under this Agreement or
applicable law, shall be a defense to Indemnitee's claim or create a
presumption that Indemnitee has not met any particular standard of conduct or
did not have any particular belief. In connection with any determination by
any Reviewing Party or otherwise as to whether the Indemnitee is entitled to
be indemnified hereunder, the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such Claim in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense
Advances with respect to the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of
-6-
<PAGE>
such Claim with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld) upon the delivery to Indemnitee of written notice of
the Company's election to do so. After delivery of such notice, approval of
such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any
fees or expenses of separate counsel subsequently employed by or on behalf of
Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's separate counsel in any such
Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's separate
counsel shall be Expenses for which Indemnitee may receive indemnification or
Expense Advances hereunder.
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by statute. In the event of
any change after the date of this Agreement in any applicable law, statute or
rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, employee, agent or fiduciary, it is
the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not
otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
(b) NONEXCLUSIVITY. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any
rights to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of
Delaware, or otherwise. The indemnification and the payment of Expense
Advances provided under this Agreement shall continue as to Indemnitee for
any action taken or not taken while serving in an indemnified capacity even
though subsequent thereto Indemnitee may have ceased to serve in such
capacity.
6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable
hereunder.
-7-
<PAGE>
7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be
required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy
to indemnify Indemnitee.
9. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are provided to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key
employee, agent or fiduciary.
10. EXCEPTIONS. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or
applicable law; PROVIDED, HOWEVER, that notwithstanding any limitation set
forth in this Section 10(a) regarding the Company's obligation to provide
indemnification, Indemnitee shall be entitled under Section 3 to receive
Expense Advances hereunder with respect to any such Claim unless and until a
court having jurisdiction over the Claim shall have made a final judicial
determination (as to which all rights of appeal therefrom have been exhausted
or lapsed) that Indemnitee has engaged in acts, omissions or transactions for
which Indemnitee is prohibited from receiving indemnification under this
Agreement or applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or
crossclaim, except (i) with respect to actions or proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Covered Events, (ii) in specific cases if the Board of
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Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to
such indemnification or insurance recovery, as the case may be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each
of the material assertions made by the Indemnitee as a basis for such action
was not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each
of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous.
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute; PROVIDED,
HOWEVER, that notwithstanding any limitation set forth in this Section 10(d)
regarding the Company's obligation to provide indemnification, Indemnitee
shall be entitled under Section 3 to receive Expense Advances hereunder with
respect to any such Claim unless and until a court having jurisdiction over
the Claim shall have made a final judicial determination (as to which all
rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has
violated said statute.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs
and personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as a director, officer, employee, agent or fiduciary (as
applicable) of the Company or of any other enterprise at the Company's
request.
13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR
INTERPRETATION. In the event that any action is instituted by Indemnitee
under this Agreement or under any liability
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insurance policies maintained by the Company to enforce or interpret any of
the terms hereof or thereof, Indemnitee shall be entitled to be indemnified
for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether
Indemnitee is ultimately successful in such action, unless as a part of such
action a court having jurisdiction over such action makes a final judicial
determination (as to which all rights of appeal therefrom have been exhausted
or lapsed) that each of the material assertions made by Indemnitee as a basis
for such action was not made in good faith or was frivolous; provided,
however, that until such final judicial determination is made, Indemnitee
shall be entitled under Section 3 to receive payment of Expense Advances
hereunder with respect to such action. In the event of an action instituted
by or in the name of the Company under this Agreement to enforce or interpret
any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material defenses asserted by
Indemnitee in such action was made in bad faith or was frivolous; provided,
however, that until such final judicial determination is made, Indemnitee
shall be entitled under Section 3 to receive payment of Expense Advances
hereunder with respect to such action.
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and signed for by the party addressed, on the date of
such delivery, or (ii) if mailed by domestic certified or registered mail
with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the Court of Chancery of the State of Delaware in and for New Castle
County, which shall be the exclusive and only proper forum for adjudicating
such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the
provisions of this Agreement (including without limitation each portion of
this Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
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construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of
Delaware without regard to principles of conflicts of laws.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
HEALTHEON CORPORATION
By:
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Name:
----------------------------
Title:
---------------------------
Address:
AGREED TO AND ACCEPTED
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EXHIBIT 10.2
HEALTHEON CORPORATION
1996 STOCK PLAN
AS AMENDED ON MARCH 1, 1998 AND JULY 8, 1998
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants
of the Company and its Subsidiaries and to promote the success of the
Company's business. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Administrator at
the time of grant of an Option and subject to the applicable provisions of
Section 422 of the Code and the regulations promulgated thereunder. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Healtheon Corporation, a Delaware corporation.
(g) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of
any equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services
or are paid only a Director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that
the employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of (i)
any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary,
or any successor. A leave of absence approved by the Company shall include
sick
<PAGE>
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no
such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option
and shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading
day prior to the time of determination and reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
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(o) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTIONED STOCK" means the Common Stock subject to an Option
or a Stock Purchase Right.
(r) "OPTIONEE" means an Employee or Consultant who receives an
Option or Stock Purchase Right.
(s) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(t) "PLAN" means this 1996 Stock Plan.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(v) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(w) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(x) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 11 below.
(y) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be Optioned
Stock and sold under the Plan is 15,000,000 Shares. The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an option exchange program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). However, Shares that have actually
been issued under the Plan, upon exercise of either an Option or Stock
Purchase Right, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if either (i)
Shares of Restricted Stock or (ii) Shares issued upon exercise of unvested
Options and subject to a repurchase right at cost, are repurchased by the
Company at their original purchase
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price, and the original purchaser of such Shares under clause (i) or (ii) did
not receive any benefits of ownership of such Shares, such Shares shall
become available for future grant under the Plan. For purposes of the
preceding sentence, voting rights shall not be considered a benefit of Share
ownership.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or a Committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY
BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers and Employees who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Options and Stock Purchase Rights to Employees who
are also Officers or Directors of the Company, the Plan shall be administered
by (A) the Board if the Board may administer the Plan in compliance with the
rules under Rule 16b-3 promulgated under the Exchange Act or any successor
thereto ("Rule 16b-3") relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt discretionary grants
and awards of equity securities are to be made, or (B) a Committee designated
by the Board to administer the Plan, which Committee shall be constituted to
comply with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the
extent permitted by the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made.
(iii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES AND
CONSULTANTS. With respect to grants of Options and Stock Purchase Rights to
Employees or Consultants who are neither Directors nor Officers of the
Company, the Plan shall be administered by (A) the Board or (B) a Committee
designated by the Board, which committee shall be constituted in such a
manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of Delaware corporate and securities
laws, of the Code, and of any applicable stock exchange (the "Applicable
Laws"). Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may
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increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the
extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority
in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each
such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award
granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock
Purchase Rights.
5. ELIGIBILITY.
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(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option
or Stock Purchase Right may, if otherwise eligible, be granted additional
Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with
or without cause.
(d) Upon the Company or a successor corporation issuing any class
of common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class
of common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 500,000
Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options and Stock Purchase Rights to purchase up to
an additional 500,000 Shares which shall not count against the limit set
forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 12.
(iv) If an Option or Stock Purchase Right is cancelled in
the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option
or Stock Purchase Right shall be counted against the limit set forth in
subsection (i) above. For this purpose, if the exercise price of an Option
or Stock Purchase Right is reduced, such reduction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new
Option or Stock Purchase Right.
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6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 18 of the Plan. It
shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. In the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant.
(B) granted to any other person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share
on the date of grant.
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(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1)
cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (y) have a
Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which such Option shall be exercised, (5) delivery
of a properly executed exercise notice together with such other documentation
as the Administrator and a broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price, or (6) any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan, but in no case at a rate of less than 20% per
year over five (5) years from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 8(b) hereof. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote, receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such stock certificate promptly upon exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is
prior to the date the stock certificate is issued, except as provided in
Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
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(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from
Employee to Consultant (in which case an Employee's Incentive Stock Option
shall automatically convert to a Nonstatutory Stock Option on the date three
(3) months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three
(3) months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his
or her disability, the Optionee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date
of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of
such termination. If such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option on the day three months and one day following such
termination. To the extent that the Optionee was not entitled to exercise
the Option at the date of termination, or if the Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised at any time within twelve (12) months following
the date of death (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant) by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option on the date of death, or such greater extent as the
Administrator may determine. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option and the Administrator does not
determine a greater extent to which such Option may be exercised, the Shares
covered by the unexercisable portion of the Option shall immediately revert
to the Plan. If, after the Optionee's death, the Optionee's estate or a
person who acquires the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or
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restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer, which shall in no event
exceed thirty (30) days from the date upon which the Administrator makes the
determination to grant the Stock Purchase Right. The offer shall be accepted
by execution of a Restricted Stock purchase agreement in the form determined
by the Administrator. Shares purchased pursuant to the grant of a Stock
Purchase Right shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's employment with the Company for any reason (including
death or disability). The purchase price for Shares repurchased pursuant to
the Restricted Stock purchase agreement shall be the original price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as
the Administrator may determine, but in no case at a rate of less than 20%
per year over five years from the date of purchase.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock purchase
agreements need not be the same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a
shareholder and shall be a shareholder when
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his or her purchase is entered upon the records of the duly authorized
transfer agent of the Company. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the Stock Purchase
Right is exercised, except as provided in Section 12 of the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Stock Purchase Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company. The conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase
Right shall terminate immediately prior to the consummation of such proposed
action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in
such event, an Option or Stock Purchase Right is not assumed or substituted,
the Option or Stock Purchase Right shall terminate as of the date of the
closing of the merger. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger,
the Option or Stock Purchase Right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase
Right immediately prior to the merger, the consideration (whether stock,
cash, or other securities or property) received in the merger by holders of
Common Stock for each Share held on the effective date of the transaction
(and if the holders are offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares).
If such
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<PAGE>
consideration received in the merger is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option or Stock Purchase Right, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in
the merger.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option
or Stock Purchase Right, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Employee
or Consultant to whom an Option or Stock Purchase Right is so granted within
a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent.
In addition, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act or with Section 422 of the Code (or any other
applicable law or regulation, including the requirements of the NASD or an
established stock exchange), the Company shall obtain shareholder approval of
any Plan amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the
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Company, such a representation is required by any of the aforementioned
relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced
by written agreements in such form as the Administrator shall approve from
time to time.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any stock exchange upon which the Common Stock is listed.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and,
in the case of an individual who acquires Shares pursuant to the Plan, during
the period such individual owns such Shares, copies of annual financial
statements. The Company shall not be required to provide such statements to
key employees whose duties in connection with the Company assure their access
to equivalent information.
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HEALTHEON CORPORATION
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
____________________________
____
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share $
Total Number of Shares Granted
Total Exercise Price $
Type of Option: X Incentive Stock Option
---
--- Nonstatutory Stock Option
Term/Expiration Date:
VESTING SCHEDULE:
You may exercise this Option, in whole or in part, according to the
following vesting schedule:
<PAGE>
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48th of the Shares subject to the Option
shall vest each month thereafter.
TERMINATION PERIOD:
You may exercise this Option for three (3) months after your employment
or consulting relationship with the Company terminates, or for such longer
period upon your death or disability as provided in the Plan. If your status
changes from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no case may you exercise this Option
after the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. Healtheon Corporation, a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase the total number of shares
of Common Stock (the "Shares") set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1996 Stock
Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be
treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement. In
the event of Optionee's death, disability or other termination of the
employment or consulting relationship, this Option shall be exercisable in
accordance with the applicable provisions of the Plan and this Option
Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in the form attached as EXHIBIT A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may
be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares
shall be considered transferred to the Optionee on the date on which the
Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her
Investment Repre-sentation Statement in the form attached hereto as EXHIBIT
B, and shall read the applicable rules of the Commissioner of Corporations
attached to such Investment Representation Statement.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) if, at the time of exercise, the Company has registered its
Common Stock under the Exchange Act, by surrender of other shares of Common
Stock of the Company which (A) in the case of Shares acquired pursuant to the
exercise of a Company option, have been owned by the Optionee for more than
six (6) months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the Exercise Price of the Shares as to which
the Option is being exercised; or
(d) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company
of the sale or loan proceeds required to pay the Exercise Price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including
any rule under Part 207 of Title 12 of the Code of Federal Regulations
("Regulation G") as promulgated by the Federal Reserve Board.
6. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the
Notice of Grant. To the extent that Optionee was not entitled to exercise
this Option at the
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<PAGE>
date of such termination, or if Optionee does not exercise this Option within
the time specified herein, the Option shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section
6 above, in the event of termination of an Optionee's consulting relationship
or Continuous Status as an Employee as a result of his or her disability,
Optionee may, but only within twelve (12) months from the date of such
termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term
is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such termination. To
the extent that Optionee was not entitled to exercise the Option at the date
of termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
8. DEATH OF OPTIONEE. In the event of termination of Optionee's
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee could
exercise the Option at the date of death.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
10. Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act;
provided, however, that such restriction shall only apply to the first
registration statement of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company
to the public in an underwritten public offering under the Securities Act.
The Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such 180-day period.
11. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set
out in Section 7 of the Plan regarding Options designated as
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<PAGE>
Incentive Stock Options and Options granted to more than ten percent (10%)
stockholders shall apply to this Option.
12. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) EXERCISE OF ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or California income tax
liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject the Optionee to the alternative minimum
tax in the year of exercise.
(b) EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within three months of such termination for the
ISO to be qualified as an ISO.
(c) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular
federal income tax liability and California income tax liability upon the
exercise of a Nonstatutory Stock Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on the
date of exercise over the Exercise Price. If Optionee is an Employee or a
former Employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities including, if required, withholding for FICA, FUTA and similar
statutes an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) DISPOSITION OF SHARES. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal and California income
tax purposes. In the case of an ISO, if Shares transferred pursuant to the
Option are held for at least one year after exercise and are disposed of at
least two years after the Date of Grant, any gain realized on disposition of
the Shares will also be treated as long-term capital gain for federal and
California income tax purposes. If Shares purchased under an ISO are
disposed of within such one-year period or within two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares.
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<PAGE>
(e) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
13. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by California
law except for that body of law pertaining to conflict of laws.
HEALTHEON CORPORATION
a Delaware corporation
By: ____________________________________
Its: ____________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES
AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION
PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE
ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the
residence address indicated below.
Dated: _____________________ ____________________________
Optionee
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<PAGE>
Residence Address:
_____________________________
_____________________________
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<PAGE>
EXHIBIT A
---------
1996 STOCK PLAN
EXERCISE NOTICE
Healtheon Corporation
87 Encina Avenue
Palo Alto, CA 94301
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of Healtheon
Corporation (the "Company") under and pursuant to the 1996 Stock Plan, as
amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option
Agreement dated ________, 19 ___ (the "Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions.
3. RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock
certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
Optionee shall enjoy rights as a stockholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s)
exercises the Right of First Refusal hereunder. Upon such exercise, Optionee
shall have no further rights as a holder of the Shares so purchased except
the right to receive payment for the Shares so purchased in accordance with
the provisions of this Agreement, and Optionee shall forthwith cause the
certificate(s) evidencing the Shares so purchased to be surrendered to the
Company for transfer or cancellation.
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
<PAGE>
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not
less than all, of the Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or
by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares
described in the Notice are not transferred to the Proposed Transferee within
such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the
provisions of this Section. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
<PAGE>
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares 90 days after the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by the Company or
by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING
ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO
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<PAGE>
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted
by Section 260.141.11 of the Rules of the California Corporations Commissioner,
a copy of which is attached to EXHIBIT B, the Investment Representation
Statement.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instruc-tions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Agreement shall be
binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
8. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or committee shall be final and
binding on the Company and on Optionee.
9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by
and construed in accordance with the laws of the State of California excluding
that body of law pertaining to conflicts of law. Should any provision of
this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
10. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail by certified mail, with postage and
fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.
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<PAGE>
11. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
13. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement
are incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee
Submitted by: Accepted by:
OPTIONEE: HEALTHEON CORPORATION
By: ______________________
(Signature) Its: _____________________
ADDRESS: ADDRESS:
___________________________ 87 Encina Avenue
___________________________ Palo Alto, CA 94301
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<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : HEALTHEON CORPORATION
SECURITY : COMMON STOCK
AMOUNT : SHARES
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities.
Optionee is acquiring these Securities for investment for Optionee's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities, or for a period of one
year or any other fixed period in the future. Optionee further understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the Securities. Optionee understands that
the certificate evidencing the Securities will be imprinted with a legend
which prohibits the transfer of the Securities unless they are registered or
such registration is not required in the opinion of counsel satisfactory to
the Company, a legend prohibiting their transfer without the consent of the
Commissioner of Corporations of the State of California and any other legend
required under applicable state securities laws.
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the
Optionee, the exercise will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including:
(1) the resale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month
period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
the resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by
an affiliate of the Company, within the meaning of Rule 144; and, in the case
of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee hereby agrees that if so requested by the Company or
any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the Securities Act,
Optionee shall not sell or otherwise transfer any Shares or other securities
of the Company during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act;
provided, however, that such restriction shall only apply to the first
registration statement of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company
to the public in an underwritten public offering under the Securities Act.
The Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such
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<PAGE>
transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of
the Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with
respect to such restriction, a copy of which is attached.
Signature of Optionee:
___________________________________
Date:_______________________, 19___
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<PAGE>
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security
upon which a restriction on transfer has been imposed pursuant to Sections
260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be
delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant
to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
<PAGE>
ACTAMED CORPORATION
1997 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN.
The purpose of the ActaMed Corporation 1997 Stock Option Plan (the "Plan")
is to assist ActaMed Corporation (the "Company") in securing and retaining Key
Employees and Consultants of outstanding ability by making it possible to offer
them an increased incentive to advise, join or continue in the service of the
Company and to increase their efforts for its welfare through participation or
increased participation in the ownership and growth of the Company.
1.2 DEFINITIONS.
(a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means the committee referred to in Section 1.3.
(d) "COMMON STOCK" means the common stock of the Company.
(e) "CONSULTANT" means any person not employed by the Company
rendering consulting or advisory services to the Company who is expected or
determined by the Committee to contribute significantly to the management,
growth or direction of some part or all of the business of the Company or its
subsidiaries. The power to determine who is and who is not a Consultant for
purposes of this Plan is reserved solely for the Committee.
(f) "FAIR MARKET VALUE" means the closing price of the shares on a
national securities exchange on which the Common Stock is primarily traded on
the day on which such value is to be determined or, if no shares were traded on
such day, on the next preceding day on which shares were traded, as reported by
National Quotation Bureau, Inc. or other national quotation service. If the
shares of Common Stock are traded in the over-the-counter market, "fair market
value" means the closing "asked" price of the shares in the over-the-counter
market on the day on which such value is to be determined or, if such "asked"
price is not available, the last sales price on such day or, if no shares were
traded on such day, on the next preceding day on which the shares were traded,
as reported by the National Association of Securities Dealers Automatic
Quotation System (NASDAQ) or other national quotation service. Nevertheless, if
the Board of Directors determines that the fair market value of the Common Stock
cannot be accurately determined
<PAGE>
pursuant to the methodologies described above or if shares of Common Stock
are not traded on an exchange or in the over-the-counter market, Fair Market
Value shall be the value determined by the Board of Directors or Committee
administering the Plan, taking into consideration those factors affecting or
reflecting value which they deem appropriate.
(g) "INCENTIVE STOCK OPTION" means an option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted solely to a Key
Employee.
(h) "KEY EMPLOYEE" means any person, including officers and directors
in the regular employment of the Company or its subsidiaries, who is designated
a Key Employee by the Committee and is or is expected to be primarily
responsible for or to contribute significantly to the management, growth, or
supervision of some part or all of the business of the Company or its
subsidiaries. The power to determine who is and who is not a Key Employee is
reserved solely for the Committee.
(i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of
Common Stock which is not intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted to Key Employees and
Consultants.
(j) "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
(k) "OPTIONEE" means a Key Employee or Consultant to whom an Option
is granted under the Plan.
(l) "PARENT" means any corporation which qualifies as a parent of a
corporation under the definition of "parent corporation" contained in Section
424(e) of the Code.
(m) "SUBSIDIARY" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary corporation
contained in Section 424(f) of the Code.
(n) "TERM" means the period during which a particular Option may be
exercised as determined by the Committee and as provided in the option
agreement.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors consisting of at least three
members from the Board of Directors. In the absence of an appointment of a
Committee, the Board shall serve as the Committee. Subject to the control of
the Board, and without limiting the control over decisions described in Section
1.7, the Committee shall have the power to interpret and apply the Plan and to
make regulations for carrying out its purpose. More particularly, the Committee
shall determine which Key Employees and Consultants shall be granted Options and
the terms of such Options. When granting Options, the Committee shall designate
the Option as either an Incentive Stock
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<PAGE>
Option or a Nonqualified Stock Option. Determinations by the Committee under
the Plan (including, without limitation, determinations of the person to
receive Options, the form, amount and timing of such Options, and the terms
and provisions of such Options and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, Options under the Plan, whether or not such persons
are similarly situated. In serving on the Committee, members thereof shall
be considered to be acting in their capacity as members of the Board of
Directors and shall be entitled to all rights of indemnification provided by
the Bylaws of the Company or otherwise to members of the Board of Directors.
1.4 SHARES SUBJECT TO THE PLAN.
The total number of shares that may be purchased pursuant to Options
under the Plan shall not exceed 500,000 shares of Common Stock. Shares subject
to the Options which terminate or expire prior to exercise shall be available
for future Options under the Plan without being charged against the limitation
of 500,000 shares set forth above. Shares issued pursuant to the Plan may be
either unissued shares of Common Stock or reacquired shares of Common Stock held
in treasury.
1.5 TERMS AND CONDITIONS OF OPTIONS.
All Options shall be evidenced by option agreements in such form as
the Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following provisions:
(a) EXERCISE PRICE. Except as provided in Section 3.1, the exercise
price of the Option shall not be less than the Fair Market Value (as determined
by the Committee) of the Common Stock at the time the Option is granted. In
making such determination, if the Board of Directors believes that the Company
will engage in an initial public offering within 90 days of the date an Option
is granted, the Board of Directors may designate the Fair Market Value as the
initial offering price in such public offering after finding that such initial
offering price will reflect an amount no less than the fair market value of the
Common Stock on the date of Option grant. If the anticipated public offering
does not occur within such 90 day period, the Board of Directors shall determine
the Fair Market Value as of the date of the grant in the manner set forth in
Section 1.2 hereof.
(b) EXERCISE. The Committee shall determine whether the Option shall
be exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire on
the expiration of the Term specified in Section 2.1 or 3.1, as the case may be,
or upon the occurrence of such events as are specified in the option agreement.
If the option agreement permits exercise of the Option after termination of
employment, the Optionee may exercise the Option only with respect to the shares
which could have been purchased by the Optionee at the date of termination of
employment. However, the Committee may, but is not required to, waive any
requirements made
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<PAGE>
pursuant to Section 1.5(b) so that some or all of the shares subject to the
Option may be exercised within the time limitation described in this
subsection. An Optionee's employment shall be deemed to terminate on the
last date for which he receives a regular wage or salary payment. Whether
military, government or other service or other leave of absence shall
constitute a termination of employment shall be determined in each case by
the Committee at its discretion, and any determination by the Committee shall
be final and conclusive. A termination of employment shall not occur where
the Optionee transfers from the Company to one of its Subsidiaries or
transfers from a Subsidiary to the Company or transfers between Subsidiaries.
(d) DEATH OR DISABILITY. Upon termination of an Optionee's
employment by reason of death or disability (as determined by the Committee
consistent with the definition of Section 422(c)(6) of the Code), the Option
shall expire on the earlier of the expiration of (i) the date specified in the
option agreement which in no event shall be later than 12 months after the date
of such termination, or (ii) the Term specified in Section 2.1 or 3.1, as the
case may be. The Optionee or his successor in interest, as the case may be, may
exercise the Option only as to the shares that could have been purchased by the
Optionee at the date of his termination of employment. However, the Committee
may, but is not required to, waive any requirements made pursuant to Section
1.5(b) so that some or all of the shares subject to the Option may be exercised
within the time limitation described in this subsection.
(e) PAYMENT. Payment for shares as to which an Option is exercised
shall be made in such manner and at such time or times as shall be provided in
the option agreement, including cash, Common Stock of the Company which was
previously acquired by the Optionee, or any combination thereof. The Fair
Market Value of the surrendered Common Stock as of the date of exercise shall be
determined in valuing Common Stock used in payment for Options.
(f) NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, an Option shall be exercisable only by the
Optionee.
(g) CHANGE IN CONTROL. In the discretion of the Committee, an option
agreement may contain provisions providing that in the event of a "change in
control" of the Company, such Option shall become immediately exercisable in
full notwithstanding any provisions in the option agreement to the contrary.
For the purposes of this paragraph (g), a "change in control" of the Company
shall be deemed to occur if (i) the Company is a party to a merger, share
exchange or other business combination pursuant to which the Company does not
survive or survives only as a subsidiary of another corporation; or (ii) all or
substantially all of the assets of the Company are sold or otherwise disposed
of.
(h) ADDITIONAL PROVISIONS. Each option agreement may contain such
other terms and conditions not inconsistent with the provisions of the Plan as
the Committee may deem appropriate from time to time, including cash awards for
such purposes as the Committee may determine, including but not limited to cash
awards for the payment of any income or excise tax
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<PAGE>
directly or indirectly attributable to the exercise or acceleration of
exercise of an Option (including, without limitation, any tax under Code
Section 280G).
1.6 STOCK ADJUSTMENTS; MERGERS.
(a) GENERALLY. Notwithstanding Section 1.4, in the event the
outstanding shares of Common Stock are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of any other corporation by reason of any merger, sale of stock,
consolidation, liquidation, recapitalization, reclassification, stock split up,
combination of shares, share exchange, stock dividend, or transaction having
similar effect, the total number of shares of Common Stock set forth in Section
1.4 shall be proportionately and appropriately adjusted by the Committee.
(b) OPTIONS. Following a transaction described in subsection (a)
above, if the Company continues in existence, the number and kind of shares that
are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the aggregate
price to be paid therefor upon exercise of the Option. If the Company will not
remain in existence or substantially all of its Common Stock will be purchased
by a single purchaser or group of purchasers acting together, then the Committee
may (i) declare that all Options shall terminate 30 days after the Committee
gives written notice to all Optionees of their immediate right to exercise all
Options then outstanding (without regard to limitations on exercise otherwise
contained in the Options), or (ii) notify all Optionees that all Options granted
under the Plan shall apply with appropriate adjustments as determined by the
Committee to the securities of the successor corporation to which holders of the
numbers of shares subject to such Options would have been entitled, or (iii)
take action that is some combination of aspects of (i) and (ii). Except as
provided in the last sentence of this paragraph (b), the determination by the
Committee as to the terms of any of the foregoing adjustments shall be
conclusive and binding. Any fractional shares resulting from any of the
foregoing adjustments under this paragraph shall be disregarded and eliminated.
Notwithstanding anything else contained in this Section 1.6(b), if an option
agreement permits the immediate exercise in full of an Option upon a change in
control as provided in Section 1.5(g) above, the provisions of such option
agreement may not be revised by the Committee pursuant to this Section 1.6(b)
without the consent of the Optionee.
1.7 NOTIFICATION OF EXERCISE.
Options shall be exercised by written notice directed to the Secretary
of the Company at the principal executive offices of the Company. Such written
notice shall be accompanied by any payment required pursuant to Section 1.5(e)
and shall be effective upon receipt by the Secretary of the Company received
during normal business hours or if not so received, such exercise shall be
effective on the next regular business day of the Company. Exercise by an
Optionee's heir or the representative of his estate shall be accompanied by
evidence of his authority to so act in form reasonably satisfactory to the
Company.
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ARTICLE II
INCENTIVE STOCK OPTIONS
2.1 TERMS OF INCENTIVE STOCK OPTIONS.
Each Incentive Stock Option granted under the Plan to a Key Employee
shall be exercisable only during a Term fixed by the Committee; provided,
however, that the Term shall end no later than 10 years after the date the
Incentive Stock Option is granted.
2.2 LIMITATION ON OPTIONS.
The aggregate Fair Market Value of Common Stock (determined at the
time the Incentive Stock Option is granted) subject to Incentive Stock
Options granted to a Key Employee under all plans of the Key Employee's
employer corporation and its Parent or Subsidiary corporations and that
become exercisable for the first time by such Key Employee during any
calendar year may not exceed $100,000.
2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER.
If at the time an Incentive Stock Option is granted, an employee owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of his employer corporation or of its Parent or any of its
Subsidiaries, as determined using the attribution rules of Section 424(d) of the
Code, then the terms of the Incentive Stock Option shall specify that the option
price shall be at least 110% of the Fair Market Value of the stock subject to
the Incentive Stock Option, and such Incentive Stock Option shall not be
exercisable after the expiration of five years from the date such Incentive
Stock Option is granted.
2.4 INTERPRETATION.
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee shall be governed by the principles
and requirements of Sections 421, 422 and 424 of the Code, and applicable
Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 TERMS AND CONDITIONS OF OPTIONS.
In addition to the requirements of Section 1.5, each Nonqualified
Stock Option granted under the Plan to a Key Employee or Consultant shall be
subject to the following provisions:
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(a) TERM. Each Nonqualified Stock Option granted under the plan
shall be exercisable only during a term fixed by the Committee.
(b) EXERCISE PRICE. The Company may elect to grant Nonqualified
Stock Options at a price less than the Fair Market Value of the Common Stock at
the time the Option is granted.
3.2 SECTION 83(b) ELECTION.
The Company recognizes that certain persons who receive Nonqualified
Stock Options may be subject to restrictions regarding their right to trade
Common Stock under applicable securities laws. Such restrictions may cause
Optionees exercising such Options not to be taxable under the provisions of
Section 83(c) of the Code. Accordingly, Optionees exercising such Nonqualified
Stock Options may consider making an election to be taxed upon exercise of the
Option under Section 83(b) of the Code and to effect such election will file
such election with the Internal Revenue Service within thirty (30) days of
exercise of the Option and otherwise in accordance with applicable Treasury
Regulations.
ARTICLE IV
ADDITIONAL PROVISIONS
4.1 STOCKHOLDER APPROVAL.
The Plan shall be submitted for the approval of the stockholders of
the Company as soon as reasonably practicable following the adoption of the Plan
by the Board of Directors or the Compensation Committee and in all events within
one year of its approval by such Board or Committee. If the stockholders of the
Company do not approve the Plan as provided in this Section 4.1, the Plan shall
terminate.
4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable Federal and state laws, rules, and regulations and
to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
shares of Common Stock prior to (a) the listing of such shares on any stock
exchange on which the Common Stock may then be listed and (b) the completion of
any registration or qualification (or determination of the availability of an
exemption therefrom) of such shares under any Federal or state law, or any
ruling or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
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<PAGE>
4.3 AMENDMENTS.
The Board of Directors may discontinue the Plan at any time, and may
amend it from time to time. However, except as permitted under Section 1.6, no
amendment, without approval by stockholders, may (a) increase the total number
of shares which may be issued under the Plan or to any individual under the
Plan, (b) extend the date on which the Plan will terminate, (c) reduce the
Option price for shares which may be purchased pursuant to Options under
Articles II or III of the Plan, (d) extend the period during which Options may
be granted, (e) change the class of eligible persons to whom Options may be
granted under the Plan, or (f) change the provisions of the Plan in such a
manner so as to increase materially the benefits accruing under the Plan. Other
than as expressly permitted under the Plan, no outstanding Option may be revoked
or altered in a manner unfavorable to the Optionee without the consent of the
Optionee.
4.4 NO RIGHTS AS SHAREHOLDER.
No Optionee shall have any rights as a shareholder with respect to any
share subject to his Option prior to the date of issuance to him of a
certificate or certificates for such shares.
4.5 WITHHOLDING.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax liability in such form as the Company
may determine or accept in its sole discretion, including payment by surrender
or retention of shares of Common Stock prior to the delivery of any certificate
or certificates for such shares. Whenever under the Plan payments are to be
made in cash, such payments shall be made net of an amount sufficient to satisfy
any Federal, state, or local withholding tax liability.
4.6 CONTINUED EMPLOYMENT NOT PRESUMED.
This Plan and any document describing this Plan and the grant of any
Option hereunder shall not give any Optionee or other employee or Director a
right to continued employment by the Company or its Subsidiaries or affect the
right of the Company or its Subsidiaries to terminate the employment of any such
person with or without cause.
4.7 EFFECTIVE DATE; DURATION.
The Plan shall become effective as of February 9, 1997, subject to
stockholder approval pursuant to Section 4.1, and shall expire at midnight
(eastern standard time) on February 9, 2006. No Options may be granted under
the Plan after February 9, 2006, but Options granted on or before that date may
be exercised according to the terms of the related agreements and shall continue
to be governed by and interpreted consistent with the terms hereof.
* * *
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<PAGE>
The foregoing Plan was approved and adopted by the Board of Directors of
the Company on December 31, 1997.
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<PAGE>
ACTAMED CORPORATION
1996 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN.
The purpose of the ActaMed Corporation 1996 Stock Option Plan (the
"Plan") is to assist ActaMed Corporation (the "Company") in securing and
retaining Key Employees and Consultants of outstanding ability by making it
possible to offer then an increased incentive to advise, join or continue in
the service of the Company and to increase their efforts for its welfare
through participation or increased participation in the ownership and growth
of the Company.
1.2 DEFINITIONS.
(a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors
of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means the committee referred to in Section 1.3.
(d) "COMMON STOCK" means the common stock of the Company.
(e) "CONSULTANT" means any person not employed by the Company
rendering consulting or advisory services to the Company who is expected or
determined by the Committee to contribute significantly to the management,
growth or direction of some part or all of the business of the Company or its
subsidiaries. The power to determine who is and who is not a Consultant for
purposes of this Plan is reserved solely for the Committee.
(f) "FAIR MARKET VALUE" means the closing price of the shares on a
national securities exchange on which the Common Stock is primarily traded on
the day on which such value is to be determined or, if no shares were traded
on such day, on the next preceding day on which shares were traded, as
reported by National Quotation Bureau, Inc. or other national quotation
service. If the shares of Common Stock are traded in the over-the-counter
market, "fair market value" means the closing "asked" price of the shares in
the over-the-counter market on the day on which such value is to be
determined or, if such "asked" price is not available, the last sales price
on such day or, if no shares were traded on such day, on the next preceding
day on which the shares were traded, as reported by the National Association
of Securities Dealers Automatic Quotation System (NASDAQ) or other national
quotation service. Nevertheless, if the Board of Directors determines that
the fair market value of the Common Stock cannot be accurately determined
<PAGE>
pursuant to the methodologies described above or if shares of Common Stock
are not traded on an exchange or in the over-the-counter market, Fair Market
Value shall be the value determined by the Board of Directors or Committee
administering the Plan, taking into consideration those factors affecting or
reflecting value which they deem appropriate.
(g) "INCENTIVE STOCK OPTION" means an option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted solely to a Key
Employee.
(h) "KEY EMPLOYEE" means any person, including officers and
directors in the regular employment of the Company or its subsidiaries, who
is designated a Key Employee by the Committee and is or is expected to be
primarily responsible for or to contribute significantly to the management,
growth, or supervision of some part or all of the business of the Company or
its subsidiaries. The power to determine who is and who is not a Key
Employee is reserved solely for the Committee.
(i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares
of Common Stock which is not intended to qualify as an incentive stock option
as defined in Section 422 of the Code and which may be granted to Key
Employees and Consultants.
(j) "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option.
(k) "OPTIONEE" means a Key Employee or Consultant to whom an
Option is granted under the Plan.
(l) "PARENT" means any corporation which qualifies as a parent of
a corporation under the definition of "parent corporation" contained in
Section 424(e) of the Code.
(m) "SUBSIDIARY" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary corporation"
contained in Section 424(f) of the Code.
(n) "TERM" means the period during which a particular Option may
be exercised as determined by the Committee and as provided in the option
agreement.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors consisting of at least three
members from the Board of Directors. In the absence of an appointment of a
Committee, the Board shall serve as the Committee. Subject to the control of
the Board, and without limiting the control over decisions described in
Section 1.7, the Committee shall have the power to interpret and apply the
Plan and to make regulations for carrying out its purpose. More
particularly, the Committee shall determine which Key Employees and
Consultants shall be granted Options and the terms of such Options. When
granting Options, the Committee shall designate the Option as either an
Incentive Stock
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<PAGE>
Option or a Nonqualified Stock Option. Determinations by the Committee under
the Plan (including, without limitation, determinations of the person to
receive Options, the form, amount and timing of such Options, and the terms
and provisions of such Options and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, Options under the Plan, whether or not such persons
are similarly situated. In serving on the Committee, members thereof shall
be considered to be acting in their capacity as members of the Board of
Directors and shall be entitled to all rights of indemnification provided by
the Bylaws of the Company or otherwise to members of the Board of Directors.
1.4 SHARES SUBJECT TO THE PLAN.
The total number of shares that may be purchased pursuant to Options
under the Plan shall not exceed 500,000 shares of Common Stock. Shares
subject to the Options which terminate or expire prior to exercise shall be
available for future Options under the Plan without being charged against the
limitation of 500,000 shares set forth above. Shares issued pursuant to the
Plan may be either unissued shares of Common Stock or reacquired shares of
Common Stock held in treasury.
1.5 TERMS AND CONDITIONS OF OPTIONS.
All Options shall be evidenced by option agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following provisions:
(a) EXERCISE PRICE. Except as provided in Section 3.1, the
exercise price of the Option shall not be less than the Fair Market Value (as
determined by the Committee) of the Common Stock at the time the Option is
granted. In making such determination, if the Board of Directors believes
that the Company will engage in an initial public offering within 90 days of
the date an Option is granted, the Board of Directors may designate the Fair
Market Value as the initial offering price in such public offering after
finding that such initial offering price will reflect an amount no less than
the fair market value of the Common Stock on the date of Option grant. If
the anticipated public offering does not occur within such 90 day period, the
Board of Directors shall determine the Fair Market Value as of the date of
the grant in the manner set forth in Section 1.2 hereof.
(b) EXERCISE. The Committee shall determine whether the Option
shall be exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire
on the expiration of the Term specified in Section 2.1 or 3.1, as the case
may be, or upon the occurrence of such events as are specified in the option
agreement. If the option agreement permits exercise of the Option after
termination of employment, the Optionee may exercise the Option only with
respect to the Shares which could have been purchased by the Optionee at the
date of termination of employment. However, the Committee may, but is not
required to, waive any requirements made
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<PAGE>
pursuant to Section 1.5(b) so that some or all of the shares subject to the
Option may be exercised within the time limitation described in this
subsection. An Optionee's employment shall be deemed to terminate on the
last date for which he receives a regular wage or salary payment. Whether
military, government or other service or other leave of absence shall
constitute a termination of employment shall be determined in each case by
the Committee at its discretion, and any determination by the Committee shall
be final and conclusive. A termination of employment shall not occur where
the Optionee transfers from the Company to one of its Subsidiaries or
transfers from a Subsidiary to the Company or transfers between Subsidiaries.
(d) DEATH OR DISABILITY. Upon termination of an Optionee's
employment by reason of death or disability (as determined by the Committee
consistent with the definition of Section 422(c)(6) of the Code), the Option
shall expire on the earlier of the expiration of (i) the date specified in
the option agreement which in no event shall be later than 12 months after
the date of such termination, or (ii) the Term specified in Section 2.1 or
3.1, as the case may be. The Optionee or his successor in interest, as the
case may be, may exercise the Option only as to the shares that could have
been purchased by the Optionee at the date of his termination of employment.
However, the Committee may, but is not required to, waive any requirements
made pursuant to Section 1.5(b) so that some or all of the shares subject to
the Option may be exercised within the time limitation described in this
subsection.
(e) PAYMENT. Payment for shares as to which an Option is
exercised shall be made in such manner and at such time or times as shall be
provided in the option agreement, including cash, Common Stock of the Company
which was previously acquired by the Optionee, or any combination thereof.
The Fair Market Value of the surrendered Common Stock as of the date of
exercise shall be determined in valuing Common Stock used in payment for
Options.
(f) NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee.
(g) CHANGE IN CONTROL. In the discretion of the Committee, an
option agreement may contain provisions providing that in the event of a
"change in control" of the Company, such Option shall become immediately
exercisable in full notwithstanding any provisions in the option agreement to
the contrary. For the purposes of this paragraph (g), a "change in control"
of the Company shall be deemed to occur if (i) the Company is a party to a
merger, share exchange or other business combination pursuant to which the
Company does not survive or survives only as a subsidiary of another
corporation; or (ii) all or substantially all of the assets of the Company
are sold or otherwise disposed of.
(h) ADDITIONAL PROVISIONS. Each option agreement may contain such
other terms and conditions not inconsistent with the provisions of the Plan
as the Committee may deem appropriate from time to time, including cash
awards for such purposes as the Committee may determine, including but not
limited to cash awards for the payment of any income or excise tax
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<PAGE>
directly or indirectly attributable to the exercise or acceleration of
exercise of an Option (including, without limitation, any tax under Code
Section 280G).
1.6 STOCK ADJUSTMENTS; MERGERS.
(a) GENERAL. Notwithstanding Section 1.4, in the event the
outstanding shares of Common Stock are increased or decreased or changed into
or exchanged for a different number or kind of shares or other securities of
the Company or of any other corporation by reason of any merger, sale of
stock, consolidation, liquidation, recapitalization, reclassification, stock
split up, combination of shares, share exchange, stock dividend, or
transaction having similar effect, the total number of shares of Common Stock
set forth in Section 1.4 shall be proportionately and appropriately adjusted
by the Committee.
(b) OPTIONS. Following a transaction described in subsection (a)
above, if the Company continues in existence, the number and kind of shares
that are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the
aggregate price to be paid therefor upon exercise of the Option. If the
Company will not remain in existence or substantially all of its Common Stock
will be purchased by a single purchaser or group of purchasers acting
together, then the Committee may (i) declare that all Options shall terminate
30 days after the Committee gives written notice to all Optionees of their
immediate right to exercise all Options then outstanding (without regard to
limitations on exercise otherwise contained in the Options), or (ii) notify
all Optionees that all Options granted under the Plan shall apply with
appropriate adjustments as determined by the Committee to the securities of
the successor corporation to which holders of the numbers of shares subject
to such Options would have been entitled, or (iii) take action that is some
combination of aspects of (i) and (ii). Except as provided in the last
sentence of this paragraph (b), the determination by the Committee as to the
terms of any of the foregoing adjustments shall be conclusive and binding.
Any fractional shares resulting from any of the foregoing adjustments under
this paragraph shall be disregarded and eliminated. Notwithstanding anything
else contained in this Section 1.6(b), if an option agreement permits the
immediate exercise in full of an Option upon a change in control as provided
in Section 1.5(g) above, the provisions of such option agreement may not be
revised by the Committee pursuant to this Section 1.6(b) without the consent
of the Optionee.
1.7 NOTIFICATION OF EXERCISE.
Options shall be exercised by written notice directed to the Secretary
of the Company at the principal executive offices of the Company. Such
written notice shall be accompanied by any payment required pursuant to
Section 1.5(e) and shall be effective upon receipt by the Secretary of the
Company received during normal business hours or if not so received, such
exercise shall be effective on the next regular business day of the Company.
Exercise by an Optionee's heir or the representative of his estate shall be
accompanied by evidence of his authority to so act in form reasonably
satisfactory to the Company.
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<PAGE>
ARTICLE II
INCENTIVE STOCK OPTIONS
2.1 TERMS OF INCENTIVE STOCK OPTIONS.
Each Incentive Stock Option granted under the Plan to a Key Employee
shall be exercisable only during a Term fixed by the Committee; provided,
however, that the Term shall end no later than 10 years after the date the
Incentive Stock Option is granted.
2.2 LIMITATION ON OPTIONS.
The aggregate Fair Market Value of Common Stock (determined at the time
the Incentive Stock Option is granted) subject to Incentive Stock Options
granted to a Key Employee under all plans of the Key Employee's employer
corporation and its Parent or Subsidiary corporations and that become
exercisable for the first time by such Key Employee during any calendar year
may not exceed $100,000.
2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER.
If at the time an Incentive Stock Option is granted, an employee owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of his employer corporation or of its Parent or any of its
Subsidiaries, as determined using the attribution rules of Section 424(d) of
the Code, then the terms of the Incentive Stock Option shall specify that the
option price shall be at least 110% of the Fair Market Value of the stock
subject to the Incentive Stock Option, and such Incentive Stock Option shall
not be exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
2.4 INTERPRETATION.
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee shall be governed by the
principles and requirements of Sections 421, 422 and 424 of the Code, and
applicable Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 TERMS AND CONDITIONS OF OPTIONS.
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan to a Key Employee or Consultant shall be
subject to the following provisions:
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<PAGE>
(a) TERM. Each Nonqualified Stock Option granted under the plan
shall be exercisable only during a term fixed by the Committee.
(b) EXERCISE PRICE. The Company may elect to grant Nonqualified
Stock Options at a price less than the Fair Market Value of the Common Stock
at the time the Option is granted.
3.2 SECTION 83(b) ELECTION.
The Company recognizes that certain persons who receive Nonqualified
Stock Options may be subject to restrictions regarding their right to trade
Common Stock under applicable securities laws. Such restrictions may cause
Optionees exercising such Options not to be taxable under the provisions of
Section 83(c) of the Code. Accordingly, Optionees exercising such
Nonqualified Stock Options may consider making an election to be taxed upon
exercise of the Option under Section 83(b) of the Code and to effect such
election will file such election with the Internal Revenue Service within
thirty (30) days of exercise of the Option and otherwise in accordance with
applicable Treasury Regulations.
ARTICLE IV
ADDITIONAL PROVISIONS
4.1 STOCKHOLDER APPROVAL.
The Plan shall be submitted for the approval of the stockholders of the
Company as soon as reasonably practicable following the adoption of the Plan
by the Board of Directors or the Compensation Committee and in all events
within one year of its approval by such Board or Committee. If the
stockholders of the Company do not approve the Plan as provided in this
Section 4.1, the Plan shall terminate.
4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options,
shall be subject to all applicable Federal and state laws, rules, and
regulations and to such approvals by any government or regulatory agency as
may be required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (a) the listing of such
shares on any stock exchange on which the Common Stock may then be listed and
(b) the completion of any registration or qualification (or determination of
the availability of an exemption therefrom) of such shares under any Federal
or state law, or any ruling or regulation of any government body which the
Company shall, in its sole discretion, determine to be necessary or advisable.
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<PAGE>
4.3 AMENDMENTS.
The Board of Directors may discontinue the Plan at any time, and may
amend it from time to time. However, except as permitted under Section 1.6,
no amendment, without approval by stockholders, may (a) increase the total
number of shares which may be issued under the Plan or to any individual
under the Plan, (b) extend the date on which the Plan will terminate, (c)
reduce the Option price for shares which may be purchased pursuant to Options
under Articles II or III of the Plan, (d) extend the period during which
Options may be granted, (e) change the class of eligible persons to whom
Options may be granted under the Plan, or (f) change the provisions of the
Plan in such a manner so as to increase materially the benefits accruing
under the Plan. Other than as expressly permitted under the Plan, no
outstanding Option may be revoked or altered in a manner unfavorable to the
Optionee without the consent of the Optionee.
4.4 NO RIGHTS AS SHAREHOLDER.
No Optionee shall have any rights as a shareholder with respect to any
share subject to his Option prior to the date of issuance to him of a
certificate or certificates for such shares.
4.5 WITHHOLDING.
Whenever the Company proposes or is required to issue or transfer shares
of Common Stock under the Plan, the Company shall have the right to require
the Optionee to remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax liability in such form as the Company
may determine or accept in its sole discretion, including payment by
surrender or retention of shares of Common Stock prior to the delivery of any
certificate or certificates for such shares. Whenever under the Plan
payments are to be made in cash, such payments shall be made net of an amount
sufficient to satisfy any Federal, state, or local withholding tax liability.
4.6 CONTINUED EMPLOYMENT NOT PRESUMED.
This Plan and any document describing this Plan and the grant of any
Option hereunder shall not give any Optionee or other employee or Director a
right to continued employment by the Company or its Subsidiaries or affect
the right of the Company or its Subsidiaries to terminate the employment of
any such person with or without cause.
4.7 EFFECTIVE DATE; DURATION.
The Plan shall become effective as of February 9, 1996, subject to
stockholder approval pursuant to Section 4.1, and shall expire at midnight
(eastern standard time) on February 9, 2006. No Options may be granted under
the Plan after February 9, 2006, but Options granted on or before that date
may be exercised according to the terms of the related agreements and shall
continue to be governed by and interpreted consistent with the terms hereof.
* * *
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<PAGE>
The foregoing Plan was approved and adopted by the Board of Directors of
the Company on February 9, 1996.
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<PAGE>
ACTAMED CORPORATION
1995 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN.
The purpose of the ActaMed Corporation 1995 Stock Option Plan (the
"Plan") is to assist ActaMed Corporation (the "Company") in securing and
retaining Key Employees and Consultants of outstanding ability by making it
possible to offer them an increased incentive to advise, join or continue in
the service of the Company and to increase their efforts for its welfare
through participation or increased participation in the ownership and growth
of the Company.
1.2 DEFINITIONS.
(a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors
of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means the committee referred to in Section 1.3.
(d) "COMMON STOCK" means the common stock of the Company.
(e) "CONSULTANT" means any person not employed by the Company
rendering consulting or advisory services to the Company who is expected or
determined by the Committee to contribute significantly to the management,
growth or direction of some part or all of the business of the Company or its
subsidiaries. The power to determine who is and who is not a Consultant for
purposes of this Plan is reserved solely for the Committee.
(f) "FAIR MARKET VALUE" means the closing price of the shares on a
national securities exchange on which the Common Stock is primarily traded on
the day on which such value is to be determined or, if no shares were traded
on such day, on the next preceding day on which shares were traded, as
reported by National Quotation Bureau, Inc. or other national quotation
service. If the shares of Common Stock are traded in the over-the-counter
market, "fair market value" means the closing "asked" price of the shares in
the over-the-counter market on the day on which such value is to be
determined or, if such "asked" price is not available, the last sales price
on such day or, if no shares were traded on such day, on the next preceding
day on which the shares were traded, as reported by the National Association
of Securities Dealers Automatic Quotation System (NASDAQ) or other national
quotation service. Nevertheless, if the Board of Directors determines that
the fair market value of the Common Stock cannot be accurately determined
<PAGE>
pursuant to the methodologies described above or if shares of Common Stock
are not traded on an exchange or in the over-the-counter market, Fair Market
Value shall be the value determined by the Board of Directors or Committee
administering the Plan, taking into consideration those factors affecting or
reflecting value which they deem appropriate.
(g) "INCENTIVE STOCK OPTION" means an option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted solely to a Key
Employee.
(h) "KEY EMPLOYEE" means any person, including officers and
directors in the regular employment of the Company or its subsidiaries, who
is designated a Key Employee by the Committee and is or is expected to be
primarily responsible for or to contribute significantly to the management,
growth, or supervision of some part or all of the business of the Company or
its subsidiaries. The power to determine who is and who is not a Key
Employee is reserved solely for the Committee.
(i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares
of Common Stock which is not intended to qualify as an incentive stock option
as defined in Section 422 of the Code and which may be granted to Key
Employees and Consultants.
(j) "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option.
(k) "OPTIONEE" means a Key Employee or Consultant to whom an
Option is granted under the Plan.
(l) "PARENT" means any corporation which qualifies as a parent of
a corporation under the definition of "parent corporation" contained in
Section 424(e) of the Code.
(m) "SUBSIDIARY" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary corporation"
contained in Section 424(f) of the Code.
(n) "TERM" means the period during which a particular Option may
be exercised as determined by the Committee and as provided in the option
agreement.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors consisting of at least three
members from the Board of Directors. In the absence of an appointment of a
Committee, the Board shall serve as the Committee. Subject to the control of
the Board, and without limiting the control over decisions described in
Section 1.7, the Committee shall have the power to interpret and apply the
Plan and to make regulations for carrying out its purpose. More
particularly, the Committee shall determine which Key Employees and
Consultants shall be granted Options and the terms of such Options. When
granting Options, the Committee shall designate the Option as either an
Incentive Stock
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Option or a Nonqualified Stock Option. Determinations by the Committee under
the Plan (including, without limitation, determinations of the person to
receive Options, the form, amount and timing of such Options, and the terms
and provisions of such Options and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, Options under the Plan, whether or not such persons
are similarly situated. In serving on the Committee, members thereof shall
be considered to be acting in their capacity as members of the Board of
Directors and shall be entitled to all rights of indemnification provided by
the Bylaws of the Company or otherwise to members of the Board of Directors.
1.4 SHARES SUBJECT TO THE PLAN.
The total number of shares that may be purchased pursuant to Options
under the Plan shall not exceed 975,000 shares of Common Stock. Shares
subject to the Options which terminate or expire prior to exercise shall be
available for future Options under the Plan without being charged against the
limitation of 975,000 shares set forth above. Shares issued pursuant to the
Plan may be either unissued shares of Common Stock or reacquired shares of
Common Stock held in treasury.
1.5 TERMS AND CONDITIONS OF OPTIONS.
All Options shall be evidenced by option agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following provisions:
(a) EXERCISE PRICE. Except as provided in Section 3.1, the
exercise price of the Option shall not be less than the Fair Market Value (as
determined by the Committee) of the Common Stock at the time the Option is
granted. In making such determination, if the Board of Directors believes
that the Company will engage in an initial public offering within 90 days of
the date an Option is granted, the Board of Directors may designate the Fair
Market Value as the initial offering price in such public offering after
finding that such initial offering price will reflect an amount no less than
the fair market value of the Common Stock on the date of Option grant. If
the anticipated public offering does not occur within such 90 day period, the
Board of Directors shall determine the Fair Market Value as of the date of
the grant in the manner set forth in Section 1.2 hereof.
(b) EXERCISE. The Committee shall determine whether the Option
shall be exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire
on the expiration of the Term specified in Section 2.1 or 3.1, as the case
may be, or upon the occurrence of such events as are specified in the option
agreement. If the option agreement permits exercise of the Option after
termination of employment, the Optionee may exercise the Option only with
respect to the shares which could have been purchased by the Optionee at the
date of termination of employment. However, the Committee may, but is not
required to, waive any requirements made
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pursuant to Section 1.5(b) so that some or all of the shares subject to the
Option may be exercised within the time limitation described in this
subsection. An Optionee's employment shall be deemed to terminate on the
last date for which he receives a regular wage or salary payment. Whether
military, government or other service or other leave of absence shall
constitute a termination of employment shall be determined in each case by
the Committee at its discretion, and any determination by the Committee shall
be final and conclusive. A termination of employment shall not occur where
the Optionee transfers from the Company to one of its Subsidiaries or
transfers from a Subsidiary to the Company or transfers between Subsidiaries.
(d) DEATH OR DISABILITY. Upon termination of an Optionee's
employment by reason of death or disability (as determined by the Committee
consistent with the definition of Section 422(c)(6) of the Code), the Option
shall expire on the earlier of the expiration of (i) the date specified in
the option agreement which in no event shall be later than 12 months after
the date of such termination, or (ii) the Term specified in Section 2.1 or
3.1, as the case may be. The Optionee or his successor in interest, as the
case may be, may exercise the Option only as to the shares that could have
been purchased by the Optionee at the date of his termination of employment.
However, the Committee may, but is not required to, waive any requirements
made pursuant to Section 1.5(b) so that some or all of the shares subject to
the Option may be exercised within the time limitation described in this
subsection.
(e) PAYMENT. Payment for shares as to which an Option is
exercised shall be made in such manner and at such time or times as shall be
provided in the option agreement, including cash, Common Stock of the Company
which was previously acquired by the Optionee, or any combination thereof.
The Fair Market Value of the surrendered Common Stock as of the date of
exercise shall be determined in valuing Common Stock used in payment for
Options.
(f) NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee.
(g) CHANGE IN CONTROL. In the discretion of the Committee, an
option agreement may contain provisions providing that in the event of a
"change in control" of the Company, such Option shall become immediately
exercisable in full notwithstanding any provisions in the option agreement to
the contrary. For the purposes of this paragraph (g), a "change in control"
of the Company shall be deemed to occur if (i) the Company is a party to a
merger, share exchange or other business combination pursuant to which the
Company does not survive or survives only as a subsidiary of another
corporation; or (ii) all or substantially all of the assets of the Company
are sold or otherwise disposed of.
(h) ADDITIONAL PROVISIONS. Each option agreement may contain such
other terms and conditions not inconsistent with the provisions of the Plan
as the Committee may deem appropriate from time to time, including cash
awards for such purposes as the Committee may determine, including but not
limited to cash awards for the payment of any income or excise tax
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directly or indirectly attributable to the exercise or acceleration of
exercise of an Option (including, without limitation, any tax under Code
Section 280G).
1.6 STOCK ADJUSTMENTS; MERGERS.
(a) GENERAL. Notwithstanding Section 1.4, in the event the
outstanding shares of Common Stock are increased or decreased or changed into
or exchanged for a different number or kind of shares or other securities of
the Company or of any other corporation by reason of any merger, sale of
stock, consolidation, liquidation, recapitalization, reclassification, stock
split up, combination of shares, share exchange, stock dividend, or
transaction having similar effect, the total number of shares of Common Stock
set forth in Section 1.4 shall be proportionately and appropriately adjusted
by the Committee.
(b) OPTIONS. Following a transaction described in subsection (a)
above, if the Company continues in existence, the number and kind of shares
that are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the
aggregate price to be paid therefor upon exercise of the Option. If the
Company will not remain in existence or substantially all of its Common Stock
will be purchased by a single purchaser or group of purchasers acting
together, then the Committee may (i) declare that all Options shall terminate
30 days after the Committee gives written notice to all Optionees of their
immediate right to exercise all Options then outstanding (without regard to
limitations on exercise otherwise contained in the Options), or (ii) notify
all Optionees that all Options granted under the Plan shall apply with
appropriate adjustments as determined by the Committee to the securities of
the successor corporation to which holders of the numbers of shares subject
to such Options would have been entitled, or (iii) take action that is some
combination of aspects of (i) and (ii). Except as provided in the last
sentence of this paragraph (b), the determination by the Committee as to the
terms of any of the foregoing adjustments shall be conclusive and binding.
Any fractional shares resulting from any of the foregoing adjustments under
this paragraph shall be disregarded and eliminated. Notwithstanding anything
else contained in this Section 1.6(b), if an option agreement permits the
immediate exercise in full of an Option upon a change in control as provided
in Section 1.5(g) above, the provisions of such option agreement may not be
revised by the Committee pursuant to this Section 1.6(b) without the consent
of the Optionee.
1.7 NOTIFICATION OF EXERCISE.
Options shall be exercised by written notice directed to the Secretary
of the Company at the principal executive offices of the Company. Such
written notice shall be accompanied by any payment required pursuant to
Section 1.5(e) and shall be effective upon receipt by the Secretary of the
Company received during normal business hours or if not so received, such
exercise shall be effective on the next regular business day of the Company.
Exercise by an Optionee's heir or the representative of his estate shall be
accompanied by evidence of his authority to so act in form reasonably
satisfactory to the Company.
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ARTICLE II
INCENTIVE STOCK OPTIONS
2.1 TERMS OF INCENTIVE STOCK OPTIONS.
Each Incentive Stock Option granted under the Plan to a Key Employee
shall be exercisable only during a Term fixed by the Committee; provided,
however, that the Term shall end no later than 10 years after the date the
Incentive Stock Option is granted.
2.2 LIMITATION ON OPTIONS
The aggregate Fair Market Value of Common Stock (determined at the time
the Incentive Stock Option is granted) subject to Incentive Stock Options
granted to a Key Employee under all plans of the Key Employee's employer
corporation and its Parent or Subsidiary corporations and that become
exercisable for the first time by such Key Employee during any calendar year
may not exceed $100,000.
2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER.
If at the time an Incentive Stock Option is granted, an employee owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of his employer corporation or of its Parent or any of its
Subsidiaries, as determined using the attribution rules of Section 424(d) of
the Code, then the terms of the Incentive Stock Option shall specify that the
option price shall be at least 110% of the Fair Market Value of the stock
subject to the Incentive Stock Option, and such Incentive Stock Option shall
not be exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
2.4 INTERPRETATION.
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee shall be governed by the
principles and requirements of Sections 421, 422 and 424 of the Code, and
applicable Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 TERMS AND CONDITIONS OF OPTIONS.
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan to a Key Employee or Consultant shall be
subject to the following provisions:
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(a) TERM. Each Nonqualified Stock Option granted under the plan
shall be exercisable only during a term fixed by the Committee.
(b) EXERCISE PRICE. The Company may elect to grant Nonqualified
Stock Options at a price less than the Fair Market Value of the Common Stock
at the time the Option is granted.
3.2 SECTION 83(b) ELECTION.
The Company recognizes that certain persons who receive Nonqualified
Stock Options may be subject to restrictions regarding their right to trade
Common Stock under applicable securities laws. Such restrictions may cause
Optionees exercising such Options not to be taxable under the provisions of
Section 83(c) of the Code. Accordingly, Optionees exercising such
Nonqualified Stock Options may consider making an election to be taxed upon
exercise of the Option under Section 83(b) of the Code and to effect such
election will file such election with the Internal Revenue Service within
thirty (30) days of exercise of the Option and otherwise in accordance with
applicable Treasury Regulations.
ARTICLE IV
ADDITIONAL PROVISIONS
4.1 STOCKHOLDER APPROVAL.
The Plan shall be submitted for the approval of the stockholders of the
Company as soon as reasonably practicable following the adoption of the Plan
by the Board of Directors or the Compensation Committee and in all events
within one year of its approval by such Board or Committee. If the
stockholders of the Company do not approve the Plan as provided in this
Section 4.1, the Plan shall terminate.
4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options,
shall be subject to all applicable Federal and state laws, rules, and
regulations and to such approvals by any government or regulatory agency as
may be required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (a) the listing of such
share on any stock exchange on which the Common Stock may then be listed and
(b) the completion of any registration or qualification (or determination of
the availability of an exemption therefrom) of such shares under any Federal
or state law, or any ruling or regulation of any government body which the
Company shall, in its sole discretion, determine to be necessary or advisable.
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<PAGE>
4.3 AMENDMENTS.
The Board of Directors may discontinue the Plan at any time, and
may amend it from time to time. However, except as permitted under Section
1.6, no amendment, without approval by stockholders, may (a) increase the
total number of shares which may be issued under the Plan or to any
individual under the Plan, (b) extend the date on which the Plan will
terminate, (c) reduce the Option price for shares which may be purchased
pursuant to Options under Articles II or III of the Plan, (d) extend the
period during which Options may be granted, (e) change the class of eligible
persons to whom Options may be granted under the Plan, or (f) change the
provisions of the Plan in such a manner so as to increase materially the
benefits accruing under the Plan. Other than as expressly permitted under
the Plan, no outstanding Option may be revoked or altered in a manner
unfavorable to the Optionee without the consent of the Optionee.
4.4 NO RIGHTS AS SHAREHOLDER.
No Optionee shall have any rights as a shareholder with respect to
any share subject to his Option prior to the date of issuance to him of a
certificate or certificates for such shares.
4.5 WITHHOLDING.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy
any Federal, state or local withholding tax liability in such form as the
Company may determine or accept in its sole discretion, including payment by
surrender or retention of shares of Common Stock prior to the delivery of any
certificate or certificates for such shares. Whenever under the Plan
payments are to be made in cash, such payments shall be made net of an amount
sufficient to satisfy any Federal, state, or local withholding tax liability.
4.6 CONTINUED EMPLOYMENT NOT PRESUMED.
This Plan and any document describing this Plan and the grant of
any Option hereunder shall not give any Optionee or other employee or
Director a right to continued employment by the Company or its Subsidiaries
or affect the right of the Company or its Subsidiaries to terminate the
employment of any such person with or without cause.
4.7 EFFECTIVE DATE; DURATION.
The Plan shall become effective as of November 29, 2005 subject to
stockholder approval pursuant to Section 4.1, and shall expire at midnight
(eastern standard time) on November 29, 2005. No Options may be granted
under the Plan after November 29, 2005 but Options granted on or before that
date may be exercised according to the terms of the related agreements and
shall continue to be governed by and interpreted consistent with the terms
hereof.
* * *
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The foregoing Plan was approved and adopted by the Board of Directors of
the Company on Novemver 29, 1995.
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ACTAMED CORPORATION
1994 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN.
The purpose of the ActaMed Corporation 1994 Stock Option Plan (the "Plan")
is to assist ActaMed Corporation (the "Company") in securing and retaining Key
Employees and Consultants of outstanding ability by making it possible to offer
them an increased incentive to advise, join or continue in the service of the
Company and to increase their efforts for its welfare through participation or
increased participation in the ownership and growth of the Company.
1.2 DEFINITIONS.
(a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means the committee referred to in Section 1.3.
(d) "COMMON STOCK" means the common stock of the Company.
(e) "CONSULTANT" means any person not employed by the Company
rendering consulting or advisory services to the Company who is expected or
determined by the Committee to contribute significantly to the management,
growth or direction of some part or all of the business of the Company or its
subsidiaries. The power to determine who is and who is not a Consultant for
purposes of this Plan is reserved solely for the Committee.
(f) "FAIR MARKET VALUE" means the closing price of the shares on a
national securities exchange on which the Common Stock is primarily traded on
the day on which such value is to be determined or, if no shares were traded on
such day, on the next preceding day on which shares were traded, as reported by
National Quotation Bureau, Inc. or other national quotation service. If the
shares of Common Stock are traded in the over-the-counter market, "fair market
value" means the closing "asked" price of the shares in the over-the-counter
market on the day on which such value is to be determined or, if such "asked"
price is not available, the last sales price on such day or, if no shares were
traded on such day, on the next preceding day on which the shares were traded,
as reported by the National Association of Securities Dealers Automatic
Quotation System (NASDAQ) or other national quotation service. Nevertheless, if
the Board of Directors determines that the fair market value of the Common Stock
cannot be accurately determined
<PAGE>
pursuant to the methodologies described above or if shares of Common Stock
are not traded on an exchange or in the over-the-counter market, Fair Market
Value shall be the value determined by the Board of Directors or Committee
administering the Plan, taking into consideration those factors affecting or
reflecting value which they deem appropriate.
(g) "INCENTIVE STOCK OPTION" means an option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted solely to a Key
Employee.
(h) "KEY EMPLOYEE" means any person, including officers and directors
in the regular employment of the Company or its subsidiaries, who is designated
a Key Employee by the Committee and is or is expected to be primarily
responsible for or to contribute significantly to the management, growth, or
supervision of some part or all of the business of the Company or its
subsidiaries. The power to determine who is and who is not a Key Employee is
reserved solely for the Committee.
(i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of
Common Stock which is not intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted to Key Employees and
Consultants.
(j) "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
(k) "OPTIONEE" means a Key Employee or Consultant to whom an Option
is granted under the Plan.
(l) "PARENT" means any corporation which qualifies as a parent of a
corporation under the definition of "parent corporation" contained in Section
424(e) of the Code.
(m) "SUBSIDIARY" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary corporation"
contained in Section 424(f) of the Code.
(n) "TERM" means the period during which a particular Option may be
exercised as determined by the Committee and as provided in the option
agreement.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors consisting of at least three
members from the Board of Directors. In the absence of an appointment of a
Committee, the Board shall serve as the Committee. Subject to the control of
the Board, and without limiting the control over decisions described in Section
1.7, the Committee shall have the power to interpret and apply the Plan and to
make regulations for carrying out its purpose. More particularly, the Committee
shall determine which Key Employees and Consultants shall be granted Options and
the terms of such Options. When granting Options, the Committee shall designate
the Option as either an Incentive Stock
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Option or a Nonqualified Stock Option. Determinations by the Committee under
the Plan (including, without limitation, determinations of the person to
receive Options, the form, amount and timing of such Options, and the terms
and provisions of such Options and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, Options under the Plan, whether or not such persons
are similarly situated. In serving on the Committee, members thereof shall
be considered to be acting in their capacity as members of the Board of
Directors and shall be entitled to all rights of indemnification provided by
the Bylaws of the Company or otherwise to members of the Board of Directors.
1.4 SHARES SUBJECT TO THE PLAN.
The total number of shares that may be purchased pursuant to Options under
the Plan shall not exceed 2,370,438 shares of Common Stock. Shares subject to
the Options which terminate or expire prior to exercise shall be available for
future Options under the Plan without being charged against the limitation of
2,370,438 shares set forth above. Shares issued pursuant to the Plan may be
either unissued shares of Common Stock or reacquired shares of Common Stock held
in treasury.
1.5 TERMS AND CONDITIONS OF OPTIONS.
All Options shall be evidenced by option agreements in such form as the
Committee shall approve from time to time subject to the provisions of Article
II and Article III, as appropriate, and the following provisions:
(a) EXERCISE PRICE. Except as provided in Section 3.1, the exercise
price of the Option shall not be less than the Fair Market Value (as determined
by the Committee) of the Common Stock at the time the Option is granted. In
making such determination, if the Board of Directors believes that the Company
will engage in an initial public offering within 90 days of the date an Option
is granted, the Board of Directors may designate the Fair Market Value as the
initial offering price in such public offering after finding that such initial
offering price will reflect an amount no less than the fair market value of the
Common Stock on the date of Option grant. If the anticipated public offering
does not occur within such 90 day period, the Board of Directors shall determine
the Fair Market Value as of the date of the grant in the manner set forth in
Section 1.2 hereof.
(b) EXERCISE. The Committee shall determine whether the Option shall
be exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire on
the expiration of the Term specified in Section 2.1 or 3.1, as the case may be,
or upon the occurrence of such events as are specified in the option agreement.
If the option agreement permits exercise of the Option after termination of
employment, the Optionee may exercise the Option only with respect to the Shares
which could have been purchased by the Optionee at the date of termination of
employment. However, the Committee may, but is not required to, waive any
requirements made
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pursuant to Section 1.5(b) so that some or all of the shares subject to the
Option may be exercised within the time limitation described in this
subsection. An Optionee's employment shall be deemed to terminate on the
last date for which he receives a regular wage or salary payment. Whether
military, government or other service or other leave of absence shall
constitute a termination of employment shall be determined in each case by
the Committee at its discretion, and any determination by the Committee shall
be final and conclusive. A termination of employment shall not occur where
the Optionee transfers from the Company to one of its Subsidiaries or
transfers from a Subsidiary to the Company or transfers between Subsidiaries.
(d) DEATH OR DISABILITY. Upon termination of an Optionee's
employment by reason of death or disability (as determined by the Committee
consistent with the definition of Section 422(c)(6) of the Code), the Option
shall expire on the earlier of the expiration of (i) the date specified in the
option agreement which in no event shall be later than 12 months after the date
of such termination, or (ii) the Term specified in Section 2.1 or 3.1, as the
case may be. The Optionee or his successor in interest, as the case may be, may
exercise the Option only as to the shares that could have been purchased by the
Optionee at the date of his termination of employment. However, the Committee
may, but is not required to, waive any requirements made pursuant to Section
1.5(b) so that some or all of the shares subject to the Option may be exercised
within the time limitation described in this subsection.
(e) PAYMENT. Payment for shares as to which an Option is exercised
shall be made in such manner and at such time or times as shall be provided in
the option agreement, including cash, Common Stock of the Company which was
previously acquired by the Optionee, or any combination thereof. The Fair
Market Value of the surrendered Common Stock as of the date of exercise shall be
determined in valuing Common Stock used in payment for Options.
(f) NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, an Option shall be exercisable only by the
Optionee.
(g) CHANGE IN CONTROL. In the discretion of the Committee, an option
agreement may contain provisions providing that in the event of a "change in
control" of the Company, such Option shall become immediately exercisable in
full notwithstanding any provisions in the option agreement to the contrary.
For the purposes of this paragraph (g), a "change in control" of the Company
shall be deemed to occur if (i) the Company is a party to a merger, share
exchange or other business combination pursuant to which the Company does not
survive or survives only as a subsidiary of another corporation; or (ii) all or
substantially all of the assets of the Company are sold or otherwise disposed
of.
(h) ADDITIONAL PROVISIONS. Each option agreement may contain such
other terms and conditions not inconsistent with the provisions of the Plan as
the Committee may deem appropriate from time to time, including cash awards for
such purposes as the Committee may determine, including but not limited to cash
awards for the payment of any income or excise tax
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directly or indirectly attributable to the exercise or acceleration of
exercise of an Option (including, without limitation, any tax under Code
Section 280G).
1.6 STOCK ADJUSTMENTS; MERGERS.
(a) GENERAL. Notwithstanding Section 1.4, in the event the
outstanding shares of Common Stock are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of any other corporation by reason of any merger, sale of stock,
consolidation, liquidation, recapitalization, reclassification, stock split up,
combination of shares, share exchange, stock dividend, or transaction having
similar effect, the total number of shares of Common Stock set forth in Section
1.4 shall be proportionately and appropriately adjusted by the Committee.
(b) OPTIONS. Following a transaction described in subsection (a)
above, if the Company continues in existence, the number and kind of shares that
are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the aggregate
price to be paid therefor upon exercise of the Option. If the Company will not
remain in existence or substantially all of its Common Stock will be purchased
by a single purchaser or group of purchasers acting together, then the Committee
may (i) declare that all Options shall terminate 30 days after the Committee
gives written notice to all Optionees of their immediate right to exercise all
Options then outstanding (without regard to limitations on exercise otherwise
contained in the Options), or (ii) notify all Optionees that all Options granted
under the Plan shall apply with appropriate adjustments as determined by the
Committee to the securities of the successor corporation to which holders of the
numbers of shares subject to such Options would have been entitled, or (iii)
take action that is some combination of aspects of (i) and (ii). Except as
provided in the last sentence of this paragraph (b), the determination by the
Committee as to the terms of any of the foregoing adjustments shall be
conclusive and binding. Any fractional shares resulting from any of the
foregoing adjustments under this paragraph shall be disregarded and eliminated.
Notwithstanding anything else contained in this Section 1.6(b), if an option
agreement permits the immediate exercise in full of an Option upon a change in
control as provided in Section 1.5(g) above, the provisions of such option
agreement may not be revised by the Committee pursuant to this Section 1.6(b)
without the consent of the Optionee.
1.7 NOTIFICATION OF EXERCISE.
Options shall be exercised by written notice directed to the Secretary of
the Company at the principal executive offices of the Company. Such written
notice shall be accompanied by any payment required pursuant to Section 1.5(e)
and shall be effective upon receipt by the Secretary of the Company received
during normal business hours or if not so received, such exercise shall be
effective on the next regular business day of the Company. Exercise by an
Optionee's heir or the representative of his estate shall be accompanied by
evidence of his authority to so act in form reasonably satisfactory to the
Company.
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ARTICLE II
INCENTIVE STOCK OPTIONS
2.1 TERMS OF INCENTIVE STOCK OPTIONS.
Each Incentive Stock Option granted under the Plan to a Key Employee shall
be exercisable only during a Term fixed by the Committee; provided, however,
that the Term shall end no later than 10 years after the date the Incentive
Stock Option is granted.
2.2 LIMITATION ON OPTIONS.
The aggregate Fair Market Value of Common Stock (determined at the time
the Incentive Stock Option is granted) subject to Incentive Stock Options
granted to a Key Employee under all plans of the Key Employee's employer
corporation and its Parent or Subsidiary corporations and that become
exercisable for the first time by such Key Employee during any calendar year
may not exceed $100,000.
2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER.
If at the time an Incentive Stock Option is granted, an employee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of his employer corporation or of its Parent or any of its Subsidiaries,
as determined using the attribution rules of Section 424(d) of the Code, then
the terms of the Incentive Stock Option shall specify that the option price
shall be at least 110% of the Fair Market Value of the stock subject to the
Incentive Stock Option, and such Incentive Stock Option shall not be exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted.
2.4 INTERPRETATION.
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee shall be governed by the principles
and requirements of Sections 421, 422 and 424 of the Code, and applicable
Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 TERMS AND CONDITIONS OF OPTIONS.
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan to a Key Employee or Consultant shall be subject
to the following provisions:
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(a) TERM. Each Nonqualified Stock Option granted under the plan
shall be exercisable only during a term fixed by the Committee.
(b) EXERCISE PRICE. The Company may elect to grant Nonqualified
Stock Options at a price less than the Fair Market Value of the Common Stock at
the time the Option is granted.
3.2 SECTION 83(b) ELECTION.
The Company recognizes that certain persons who receive Nonqualified Stock
Options may be subject to restrictions regarding their right to trade Common
Stock under applicable securities laws. Such restrictions may cause Optionees
exercising such Options not to be taxable under the provisions of Section 83(c)
of the Code. Accordingly, Optionees exercising such Nonqualified Stock Options
may consider making an election to be taxed upon exercise of the Option under
Section 83(b) of the Code and to effect such election will file such election
with the Internal Revenue Service within thirty (30) days of exercise of the
Option and otherwise in accordance with applicable Treasury Regulations.
ARTICLE IV
ADDITIONAL PROVISIONS
4.1 STOCKHOLDER APPROVAL.
The Plan shall be submitted for the approval of the stockholders of the
Company as soon as reasonably practicable following the adoption of the Plan by
the Board of Directors or the Compensation Committee and in all events within
one year of its approval by such Board or Committee. If the stockholders of the
Company do not approve the Plan as provided in this Section 4.1, the Plan shall
terminate.
4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of Options hereunder, and the obligation
of the Company to sell and deliver shares under such Options, shall be subject
to all applicable Federal and state laws, rules, and regulations and to such
approvals by any government or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for shares of
Common Stock prior to (a) the listing of such shares on any stock exchange on
which the Common Stock may then be listed and (b) the completion of any
registration or qualification (or determination of the availability of an
exemption therefrom) of such shares under any Federal or state law, or any
ruling or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
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4.3 AMENDMENTS.
The Board of Directors may discontinue the Plan at any time, and may
amend it from time to time. However, except as permitted under Section 1.6, no
amendment, without approval by stockholders, may (a) increase the total number
of shares which may be issued under the Plan or to any individual under the
Plan, (b) extend the date on which the Plan will terminate, (c) reduce the
Option price for shares which may be purchased pursuant to Options under
Articles II or III of the Plan, (d) extend the period during which Options may
be granted, (e) change the class of eligible persons to whom Options may be
granted under the Plan, or (f) change the provisions of the Plan in such a
manner so as to increase materially the benefits accruing under the Plan. Other
than as expressly permitted under the Plan, no outstanding Option may be revoked
or altered in a manner unfavorable to the Optionee without the consent of the
Optionee.
4.4 NO RIGHTS AS SHAREHOLDER.
No Optionee shall have any rights as a shareholder with respect to any
share subject to his Option prior to the date of issuance to him of a
certificate or certificates for such shares.
4.5 WITHHOLDING.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax liability in such form as the Company
may determine or accept in its sole discretion, including payment by surrender
or retention of shares of Common Stock prior to the delivery of any certificate
or certificates for such shares. Whenever under the Plan payments are to be
made in cash, such payments shall be made net of an amount sufficient to satisfy
any Federal, state, or local withholding tax liability.
4.6 CONTINUED EMPLOYMENT NOT PRESUMED.
This Plan and any document describing this Plan and the grant of any
Option hereunder shall not give any Optionee or other employee or Director a
right to continued employment by the Company or its Subsidiaries or affect the
right of the Company or its Subsidiaries to terminate the employment of any such
person with or without cause.
4.7 EFFECTIVE DATE; DURATION.
The Plan shall become effective as of February 9, 1996, subject to
stockholder approval pursuant to Section 4.1, and shall expire at midnight
(eastern standard time) on February 9, 2006. No Options may be granted under
the Plan after February 9, 2006, but Options granted on or before that date may
be exercised according to the terms of the related agreements and shall continue
to be governed by and interpreted consistent with the terms hereof.
* * *
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The foregoing Plan was approved and adopted by the Board of Directors of
the Company on May 3, 1994.
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ACTAMED CORP.
1993 CLASS B COMMON STOCK OPTION PLAN
The 1993 Class B Common Stock Option Plan (the "Plan") is hereby
adopted as follows:
1. PURPOSE OF PLAN. The purpose of the Plan is to provide
corporate officers and key employees of Actamed Corp. ("Actamed"), and its
Subsidiaries (collectively the "Company"), as the Administrator hereinafter
referred to shall designate, with a strong incentive for individual
creativity and contribution to insure the future growth of the Company. The
Plan is designed to reward those whose ability and diligence permit such
persons to make important contributions to the success of the Company by
enabling such persons to acquire shares of Actamed Common Stock in the manner
contemplated by the Plan. Actamed believes that the Plan will also aid the
Company in attracting and retaining outstanding key employees and in
stimulating the efforts of such employees to work for the success of the
Company. This Plan covers the grant of options [including nonstatutory stock
options and options intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Options")] to acquire shares which may or
may not be subject to restrictions ("Option Stock").
2. DEFINITIONS. For purposes of this Plan, the following terms
where appearing with initial capitalization shall be applicable:
(a) "ADMINISTRATOR" means either the Board of Directors or
the Committee, whichever is so designated by the Board of Directors to
administer the Plan.
(b) "BOARD OF DIRECTORS" means the Board of Directors of
Actamed.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
(d) "COMMITTEE" means a committee appointed by the Board of
Directors and which shall consist of not less than two persons, all of whom
shall be "disinterested persons" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended from time to time, or any law,
rule, regulation or other provisions that may hereafter replace such Rule.
If the Plan is administered by a Committee, the members of the Committee
shall serve at the pleasure of the Board of Directors. Sixty percent (60%)
of the Committee members shall constitute a quorum, and the action of a
majority of the members of the Committee present at any meeting at which a
quorum is present, or acts unanimously adopted in writing without holding a
meeting, shall be the acts of the Committee. The Committee shall report all
actions taken by it to the Board of Directors.
(e) "COMMON STOCK" means Actamed's Class B Common Stock.
<PAGE>
(f) "SUBSIDIARY" means any corporation (other than Actamed)
in an unbroken chain of corporations beginning with Actamed if, at the time
of the sale or award of any shares or the grant of any option under the Plan,
each of the corporations other than the last in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one or the other corporations in such chain.
3. ADMINISTRATION OF PLAN. This Plan shall be administered,
construed and interpreted by the Administrator. The Administrator shall have
full and final authority, in its discretion,
(a) to determine those corporate officers and key employees
who shall be eligible to participate in the Plan and the number of shares to
be covered by any options granted and the time or times at which such options
shall be granted to each participant or exercised by each optionee (it being
understood that more than one option may relate to the same participant),
(b) to determine the terms and provisions of any Stock
Option Agreement (the terms of which need not be identical) and the
restrictions, if any, to be placed upon the shares of Common Stock issued
under the Plan,
(c) to accelerate the date on which any option granted under
the Plan becomes exercisable and to waive (including in the event of a
change-in-control of Actamed) any restriction, term or provision imposed by
any Stock Option Agreement,
(d) to employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and rely upon any
opinions received from any such counsel or consultant and any computation
received from any such consultant or agent, and
(e) to make all other determinations and take all other
actions deemed necessary and advisable for the proper administration of the
Plan.
The Administrator may adopt, alter and repeal such rules and regulations for
the administration of the Plan as it from time to time deems advisable. The
Administrator may act by a meeting in person or by telephone or by written
determinations signed by all of the members of the Administrator. All
actions, interpretations and determinations with respect to the
administration of the Plan taken by the Administrator shall be conclusively
binding for all purposes and upon all persons.
Whether an authorized leave of absence, or absence in military
or government service, shall constitute termination of employment shall be
determined by the Administrator.
4. ELIGIBLE PARTICIPANTS. Employees, including but not limited to
officers and directors who are employees, of the Company as determined by the
Administrator shall be eligible for participation under the Plan. However,
with respect to Incentive Options, persons eligible to receive Incentive
Options shall be limited to key employees (including officers and directors
who are employees) of Actamed and its Subsidiaries.
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5. SHARES SUBJECT TO PLAN. An aggregate of 1,250,000 shares of
Common Stock shall be subject to this Plan either from authorized but
unissued shares or from issued shares reacquired by Actamed, including shares
purchased in the open market, and such number of shares subject to the Plan
shall be appropriately adjusted, in the discretion of the Administrator in
the event of any one or more stock dividends, stock splits or any other forms
of recapitalization, or spin-off, spin-out or other distribution of assets to
shareholders of Actamed. The Administrator in its sole discretion may
provide in any Stock Option Agreement or otherwise for adjustments to be made
with respect to options granted hereunder. If prior to the termination of
the Plan, shares issued pursuant hereto shall have been repurchased by or
redelivered to Actamed in connection with the restrictions imposed on such
shares pursuant to this Plan or any Stock Option Agreement under the Plan,
such repurchase or redelivered shares shall again become available for option
under the Plan. To the extent any options granted hereunder terminate, are
canceled or expire unexercised in whole or in part, the shares with respect
to which such options were not exercised shall again become available for
option under the Plan. Any shares that are reacquired or become available
due to termination, cancellation or expiration of options may be used to
replace options that are canceled by the Administrator (with the consent of
the optionee) due to the fact that the option exercise price is higher than
the then current market value of the Common Stock.
6. PRICE. The Administrator in its absolute discretion shall
determine the price at which any options granted to purchase shares of Option
Stock hereunder shall become exercisable (which price may be less than the
fair market value of a share of Common Stock), provided that such sale or
exercise price with respect to Incentive Options is not less than the fair
market value of a share of Common Stock at the time such option is granted,
except as otherwise provided in Section 8(b)(vii). For the purposes hereof,
fair market value shall be determined by the Administrator and the
Administrator may make such determination:
(a) in case the Common Stock is publicly traded but shall
not then be listed and traded upon a recognized national market system, upon
the basis of the mean between the bid and asked quotations for such stock on
the date of grant of such option as reported by the National Association of
Securities Dealers Automated Quotation system (NASDAQ) or, in the event that
there shall be no bid or asked quotations on the date of grant of such
option, then upon the basis of the mean between the bid and asked quotations
on the date nearest preceding such date of grant, and upon any other factors
which the Administrator shall deem appropriate, or
(b) in case the Common Stock is publicly traded and shall
then be listed and traded upon a recognized securities exchange or shall be
quoted on a recognized national market system, upon the basis of the mean
between the highest and lowest selling prices at which shares of Common Stock
were traded on such recognized securities exchange or national market system
on such date of grant or, if the Common Stock was not traded on said date,
upon the basis of the mean of such prices on the date nearest preceding such
date of grant, and upon any other factors which the Administrator shall deem
appropriate, or
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<PAGE>
(c) in case the Common Stock is not listed or traded as
referred to in Sections 6(a) or 6(b) above, in good faith and taking into
consideration factors which the Administrator determines are applicable in
the determination of such fair market value.
7. PAYMENT.
(a) Payment for shares purchased under this Plan shall be
payable in cash, by check, by promissory note, or in addition to the above,
in shares of Common Stock as provided in 7(d) below, or in any combination
thereof, as shall be determined by the Administrator and provided in the
applicable Stock Option Agreement.
(b) If the payment is made in cash or by check, such payment
shall be made at the time the shares are sold.
(c) If the payment is made by promissory note, such note,
containing terms and conditions satisfactory to the Administrator and
Actamed, shall be delivered at the time the shares are sold and shall bear
interest, if any, at such rate and shall be payable upon such terms as the
Administrator shall determine. Certificates for the purchased shares shall
be registered in the name of the participant and may be delivered to the
purchaser or held by Actamed as security for payment of the promissory note
as determined in the discretion of the Administrator.
(d) In connection with any options granted pursuant to this
Plan, the Administrator, in its discretion, may accept as payment for all or
any portion of the option price of any Option Stock, shares of Common Stock
previously acquired by the participant (including shares received upon the
prior exercise of any options regardless of the amount of time such
previously acquired shares have been held by the participant) having a fair
market value equal to the required payment. The participant shall deliver to
Actamed a certificate or certificates representing such shares duly endorsed
to Actamed or accompanied by a separate stock power so endorsed.
(e) In addition to the foregoing, the exercise price of an
option also may be paid by delivery to Actamed of a written notice of
election to exercise, subject to the approval of the Administrator and in
accordance with the requirements of Regulation T as promulgated by the
Federal Reserve Board.
8. OPTION STOCK.
(a) All options granted pursuant to the Plan shall have such
terms and conditions as the Administrator shall determine, including the
period during which they may be exercised in whole or in part and the
conditions under which they may be terminated or canceled and such other
provisions as may be advisable to comply with the law or the rules of any
such stock exchange, and each option shall have the following additional
conditions:
(i) The options shall not be transferable other than
by will or the laws of descent and distribution and shall be exercisable
during the participant's lifetime only by him and,
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<PAGE>
except as otherwise determined by the Administrator, shall only be
exercisable prior to termination of employment with the Company.
(ii) Actamed shall not issue any fractional shares
upon the exercise of options granted under the Plan.
(iii) No optionee will be deemed to be a holder of any
shares of Common Stock or shall have any rights of a shareholder of Actamed
with respect to the Common Stock until the issuance of certificates after the
exercise thereof. No adjustment shall be made for any dividends or
distributions or other rights for which the record date is prior to the date
of such stock certificates so issued except as provided in 8(a)(iv) below.
(iv) The number of shares subject to an option and the
price per share shall be appropriately adjusted by the Administrator to
reflect any stock splits, stock dividends or other form of recapitalization.
(v) The Administrator shall have sole discretion to
determine in the Stock Option Agreement whether shares of Option Stock
(including any shares received thereon as a result of stock dividends, stock
splits and any other forms of recapitalization) shall be free of any
restrictions (other than those advisable to comply with the law) or shall be
subject to any restrictions as may be determined by the Administrator, in its
sole discretion.
(vi) The granting of an option shall impose no
obligation upon the participant to exercise such option.
(b) All Incentive Options granted hereunder, in addition to
the conditions required by Section 8(a) and the other Sections of the Plan
applicable to Incentive Options, must meet the following additional
conditions where applicable:
(i) The Plan must be approved by the shareholders of
Actamed within 12 months after its adoption by the Board of Directors.
(ii) Any Incentive Option must be granted within 10
years from the date the Plan is adopted by the board of Directors.
(iii) Any Incentive Option must be exercised only
within 10 years of the date it is granted, except as otherwise provided in
8(b)(vii) below.
(iv) A maximum of 1,250,000 shares of Common Stock may
be issued under Incentive Options.
(v) The aggregate fair market value (determined at
the time the option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time
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<PAGE>
by such individual during any calendar year (under all plans of Actamed and
its Subsidiaries) shall not exceed $100,000.
(vi) Any Incentive Option granted hereunder shall be
consistent with the provisions of Sections 421, 422 and 424 and related
Sections of the Code and applicable Treasury Regulations. The Stock Option
Agreements authorized under this Plan in connection with the grant of
Incentive Options may contain other provisions, not inconsistent with the
Plan and Section 422 of the Code, as the Administrator shall deem advisable.
(vii) If the participant owns (subject to applicable
ownership attribution rules of Section 424(d) of the Code and Treasury
Regulations promulgated thereunder) stock possessing more than 10 percent of
the total combined voting power of all classes of stock of Actamed or of
stock of any parent or subsidiary of Actamed at the time the Incentive Option
is granted, the option price shall be not less than 110 percent of the fair
market value of the stock subject to the Incentive Option and the Incentive
Option by its terms shall not be exercisable after the expiration of five
years from the date the Incentive Option is granted.
9. WITHHOLDING OF TAXES.
(a) Upon the grant or exercise of any option hereunder and
should Actamed determine that the participant will be considered to have
received income subject to withholding due to such event and the Company will
be required to withhold amounts for federal and state income tax purposes,
the distribution of any such shares to the participant may be deferred by
Actamed until the participant makes satisfactory arrangements to provide
Actamed with the funds to meet any such tax withholding obligation. If the
participant fails to provide such funds to Actamed the time required to pay
such withholding tax or should Actamed and the participant agree that such
tax withholding obligation may be paid with shares to be distributed to the
participant, Actamed may retain and sell a sufficient number of the
participant's shares which are otherwise to be distributed to the participant
as may be required to discharge, or reimburse Actamed for, the payment of
such withholding obligation and any interest and penalty which may have
accrued in connection therewith. Actamed shall have and retain a security
interest in such shares of the participant for the purpose of securing the
participant's obligation hereunder and the participant shall take such steps
and execute such documents to perfect such security interest as Actamed shall
reasonably request.
(b) In the event a participant makes an election to be taxed
under Section 83(b) of the Code and files such election with the Internal
Revenue Service, the participant shall be required to notify the Company in
writing within 10 days of making such election.
10. COMPLIANCE WITH SECURITIES LAW.
(a) Actamed shall be under no obligation to effect the
registration pursuant to any federal or state securities laws of any shares
of Common Stock to be issued hereunder. Notwithstanding anything herein to
the contrary, Actamed shall not be obligated to issue any shares pursuant to
this Plan unless the shares to be distributed are at that time effectively
registered or
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<PAGE>
exempt from registration, in the opinion of Actamed, under the applicable
federal and state securities laws.
(b) Unless the shares covered by the Plan have been
registered under the applicable federal and state securities laws, or Actamed
has determined that such registration is unnecessary, each person receiving
shares under the Plan may be required by Actamed to give a representation in
writing that he is acquiring such shares for his own account for investment
and not with a view to, or for sale in connection with, the distribution of
any part thereof.
(c) The exercise of any option granted hereunder shall only
be effective at such time as Actamed shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable federal and states securities laws. Actamed
may, in its sole discretion, defer the effectiveness of any exercise of an
option granted hereunder in order to allow the issuance of shares of Common
Stock pursuant thereto to be made pursuant to registration or an exemption
from registration or other methods for compliance available under federal or
state securities laws. Actamed shall inform the participant of its decision
to defer the effectiveness of the exercise of an option granted hereunder.
During the period that the effectiveness of the exercise of an option has
been deferred, the participant may, by written notice, withdraw such exercise
and obtain the refund of any amount paid or consideration tendered with
respect thereto.
11. INDEMNIFICATION. In addition to any other rights of
indemnification that they may have as directors of Actamed or as members of
the Committee, the directors of Actamed and members of the Committee shall be
indemnified by Actamed against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of action taken or failure
to act under or in connection with the Plan, or any securities sold or issued
hereunder, and against all amounts paid by them in settlement thereof
(provided the settlement is approved by Actamed) or paid by them in
satisfaction of a judgment in any action, suit or proceeding; provided that
within 20 days after the institution of any action, suit or proceeding, the
director or the Committee member shall in writing offer Actamed the
opportunity, at its own expense to handle and defend the same.
12. EXPENSES OF PLAN. The expenses of administering the Plan shall
be borne by Actamed.
13. NO EFFECT ON EMPLOYMENT. Nothing herein contained, including
the grant of any option, shall affect the right of the Company to terminate
any participant's employment at any time for any reason.
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14. EXEMPTION FROM PENSION COMPUTATION AND NON-EXCLUSIVITY OF THE
PLAN.
(a) By acceptance of options granted under this Plan, each
participant shall be deemed to agree that it is special incentive
compensation and that it will not be taken into account as "wages" or
"salary" in retirement or deferred profit sharing plans, if any, of the
Company.
(b) In addition, each beneficiary of a deceased participant
shall be deemed to agree that such grant will not affect the amount of any
life insurance coverage available to such beneficiary under any life
insurance plan, if any, covering employees of the Company.
(c) Nothing contained in the Plan is intended to amend,
modify or rescind any previously approved compensation plans or programs
entered into by the Company. This Plan shall be construed to be an addition
to any and all such other plans or programs. Neither the adoption of the
Plan by Actamed nor the submission of the Plan to the shareholders of Actamed
for approval shall be construed as creating any limitations on the power of
authority of Actamed to adopt such additional or other compensation
arrangements as Actamed may deem desirable.
15. LEGEND. In order to enforce the restrictions imposed upon
shares sold or awarded hereunder the Administrator may cause a legend or
legends to be placed on any certificates representing shares sold or awarded
pursuant to this Plan, which legend or legends shall make appropriate
reference to the restrictions imposed hereunder.
16. AMENDMENTS. This Plan may be amended at any time by the Board
of Directors consistent with applicable laws and regulations, provided that
without the approval of the shareholders of Actamed, no such amendment shall
become effective if it would (a) extend the termination date of the Plan set
forth in Section 17, (b) materially increase the number of shares of Common
Stock which may be sold under the Plan, except as provided in Section 5, or
(c) materially modify the requirements as to eligibility for participation in
the Plan. Any amendment to the Plan shall not, without the written consent
of the participant, affect such participant's rights under any Stock Option
Agreement entered into prior to such amendment.
17. TERMINATION. This Plan shall terminate and no further shares
shall be sold or issued hereunder after September 1, 2002, or such earlier
date as may be determined by the Board of Directors. The termination of this
Plan, however, shall not affect any restrictions previously imposed on shares
of Option Stock issued pursuant to this Plan, or alter the rights of
participants with respect to options granted or shares of Option Stock issued
pursuant to this Plan.
18. RIGHTS OF PARTICIPANTS AS SHAREHOLDERS. Each participant
acquiring shares of Option Stock hereunder shall, upon the issuance of
certificates with respect to such shares, be the registered owner of such
shares and, except as otherwise provided herein, in any related Stock Option
Agreement or in the Articles of Incorporation of Actamed, shall be entitled
to full dividend and distribution rights like any other holder of Actamed
Common Stock as long as such participant remains the registered owner thereof.
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<PAGE>
19. GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of Georgia in all respects.
20. CONSTRUCTION. The masculine gender, where appearing in the
Plan, shall be deemed to include the feminine and neuter genders, unless the
context clearly indicates to the contrary; the singular includes the plural,
and the plural shall include the singular.
21. VALIDITY AND LEGALITY. If any provision of this Plan for any
reason is declared invalid, illegal or unenforceable, in whole or in part,
such declaration shall not affect the validity, legality or enforceability of
any remaining provision or portion thereof, which remaining provisions or
portion thereof shall remain in force and effect as if this Plan had been
adopted with the invalid, illegal or, unenforceable provision or portion
thereof eliminated.
22. EFFECTIVE DATE. This Plan shall become effective upon its
adoption by the Board of Directors and approval by the shareholders of
Actamed and the filing of the Articles of Amendment to the Articles of
Incorporation authorizing the Common Stock.
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I. EXHIBIT A
AMENDMENT TO THE 1993 CLASS B COMMON STOCK OPTION PLAN
The Plan is hereby amended as follows:
1. Paragraph 5 is hereby amended by deleting the number
"1,250,000" from the first line of said paragraph and replacing it with the
number "1,500,000."
2. Paragraph 8(b)(iv) is hereby deleted in its entirety and
replaced with the following:
"A maximum of 1,500,000 shares of Common Stock may be
issued under Incentive Options."
3. All other provisions of the Plan shall remain in full force and
effect.
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ACTAMED CORP.
1992 STOCK OPTION PLAN
The 1992 Stock Option Plan (the "Plan") is hereby adopted as follows:
1. PURPOSE OF PLAN. The purpose of the Plan is to provide
corporate officers and key employees of Actamed Corp. ("Actamed"), and its
Subsidiaries (collectively the "Company"), as the Administrator hereinafter
referred to shall designate, with a strong incentive for individual
creativity and contribution to insure the future growth of the Company. The
Plan is designed to reward those whose ability and diligence permit such
persons to make important contributions to the success of the Company by
enabling such persons to acquire shares of Actamed Common Stock in the manner
contemplated by the Plan. Actamed believes that the Plan will also aid the
Company in attracting and retaining outstanding key employees and in
stimulating the efforts of such employees to work for the success of the
Company. This Plan covers the grant of options [including nonstatutory stock
options and options intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Options")] to acquire shares which may or
may not be subject to restrictions ("Option Stock").
2. DEFINITIONS. For purposes of this Plan, the following terms
where appearing with initial capitalization shall be applicable:
(a) "ADMINISTRATOR" means either the Board of Directors or
the Committee, whichever is so designated by the Board of Directors to
administer the Plan.
(b) "BOARD OF DIRECTORS" means the Board of Directors of
Actamed.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
(d) "COMMITTEE" means a committee appointed by the Board of
Directors and which shall consist of not less than two persons, all of whom
shall be "disinterested persons" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended from time to time, or any law,
rule, regulation or other provisions that may hereafter replace such Rule.
If the Plan is administered by a Committee, the members of the Committee
shall serve at the pleasure of the Board of Directors. Sixty percent (60%)
of the Committee members shall constitute a quorum, and the action of a
majority of the members of the Committee present at any meeting at which a
quorum is present, or acts unanimously adopted in writing without holding a
meeting, shall be the acts of the Committee. The Committee shall report all
actions taken by it to the Board of Directors.
(e) "COMMON STOCK" means Actamed's Common Stock.
(f) "SUBSIDIARY" means any corporation (other than Actamed)
in an unbroken chain of corporations beginning with Actamed if, at the time
of the sale or award of any shares or the grant of any option under the Plan,
each of the corporations other than the last in the unbroken chain
<PAGE>
owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one or the other corporations in such
chain.
3. ADMINISTRATION OF PLAN. This Plan shall be administered,
construed and interpreted by the Administrator. The Administrator shall have
full and final authority, in its discretion,
(a) to determine those corporate officers and key employees
who shall be eligible to participate in the Plan and the number of shares to
be covered by any options granted and the time or times at which such options
shall be granted to each participant or exercised by each optionee (it being
understood that more than one option may relate to the same participant),
(b) to determine the terms and provisions of any Stock
Option Agreement (the terms of which need not be identical) and the
restrictions, if any, to be placed upon the shares of Common Stock issued
under the Plan,
(c) to accelerate the date on which any option granted under
the Plan becomes exercisable and to waive (including in the event of a
change-in-control of Actamed) any restriction, term or provision imposed by
any Stock Option Agreement.
(d) to employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and rely upon any
opinions received from any such counsel or consultant and any computation
received from any such consultant or agent, and
(e) to make all other determinations and take all other
actions deemed necessary and advisable for the proper administration of the
Plan.
The Administrator may adopt, alter and repeal such rules and regulations for
the administration of the Plan as it from time to time deems advisable. The
Administrator may act by a meeting in person or by telephone or by written
determinations signed by all of the members of the Administrator. All
actions, interpretations and determinations with respect to the
administration of the Plan taken by the Administrator shall be conclusively
binding for all purposes and upon all persons.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Administrator.
4. ELIGIBLE PARTICIPANTS. Employees, including but not limited to
officers and directors who are employees, of the Company as determined by the
Administrator shall be eligible for participation under the Plan. However,
with respect to Incentive Options, persons eligible to receive Incentive
Options shall be limited to key employees (including officers and directors
who are employees) of Actamed and its Subsidiaries.
5. SHARES SUBJECT TO PLAN. An aggregate of 25,000 shares of
Common Stock shall be subject to this Plan either from authorized but
unissued shares or from issued shares reacquired by Actamed, including shares
purchased in the open market, and such number of shares subject to the
<PAGE>
Plan shall be appropriately adjusted, in the discretion of the Administrator
in the event of any one or more stock dividends, stock splits or any other
forms of recapitalization, or spin-off, spin-out or other distribution of
assets to shareholders of Actamed. The Administrator in its sole discretion
may provide in any Stock Option Agreement or otherwise for adjustments to be
made with respect to options granted hereunder. If prior to the termination
of the Plan, shares issued pursuant hereto shall have been repurchased by or
redelivered to Actamed in connection with the restrictions imposed on such
shares pursuant to this Plan or any Stock Option Agreement under the Plan,
such repurchase or redelivered shares shall again become available for option
under the Plan. To the extent any options granted hereunder terminate, are
canceled or expire unexercised in whole or in part, the shares with respect
to which such options were not exercised shall again become available for
option under the Plan. Any shares that are reacquired or become available
due to termination, cancellation or expiration of options may be used to
replace options that are canceled by the Administrator (with the consent of
the optionee) due to the fact that the option exercise price is higher than
the then current market value of the Common Stock.
6. PRICE. The Administrator in its absolute discretion shall
determine the price at which any options granted to purchase shares of Option
Stock hereunder shall become exercisable (which price may be less than the
fair market value of a share of Common Stock), provided that such sale or
exercise price with respect to Incentive Options is not less than the fair
market value of a share of Common Stock at the time such option is granted,
except as otherwise provided in Section 8(b)(vii). For the purposes hereof,
fair market value shall be determined by the Administrator and the
Administrator may make such determination:
(a) in case the Common Stock is publicly traded but shall
not then be listed and traded upon a recognized national market system, upon
the basis of the mean between the bid and asked quotations for such stock on
the date of grant of such option as reported by the National Association of
Securities Dealers Automated Quotation system (NASDAQ) or, in the event that
there shall be no bid or asked quotations on the date of grant of such
option, then upon the basis of the mean between the bid and asked quotations
on the date nearest preceding such date of grant, and upon any other factors
which the Administrator shall deem appropriate, or
b) in case the Common Stock is publicly traded and shall
then be listed and traded upon a recognized securities exchange or shall be
quoted on a recognized national market system, upon the basis of the mean
between the highest and lowest selling prices at which shares of Common Stock
were traded on such recognized securities exchange or national market system
on such date of grant or, if the Common Stock was not traded on said date,
upon the basis of the mean of such prices on the date nearest preceding such
date of grant, and upon any other factors which the Administrator shall deem
appropriate, or
(c) in case the Common Stock is not listed or traded as
referred to in Sections 6(a) or 6(b) above, in good faith and taking into
consideration factors which the Administrator determines are applicable in
the determination of such fair market value.
7. PAYMENT.
<PAGE>
(a) Payment for shares purchased under this Plan shall be
payable in cash, by check, by promissory note, or in addition to the above,
in shares of Common Stock as provided in 7(d) below, or in any combination
thereof, as shall be determined by the Administrator and provided in the
applicable Stock Option Agreement.
(b) If the payment is made in cash or by check, such payment
shall be made at the time the shares are sold.
(c) If the payment is made by promissory note, such note,
containing terms and conditions satisfactory to the Administrator and
Actamed, shall be delivered at the time the shares are sold and shall bear
interest, if any, at such rate and shall be payable upon such terms as the
Administrator shall determine. Certificates for the purchased shares shall
be registered in the name of the participant and may be delivered to the
purchaser or held by Actamed as security for payment of the promissory note
as determined in the discretion of the Administrator.
(d) In connection with any options granted pursuant to this
Plan, the Administrator, in its discretion, may accept as payment for all or
any portion of the option price of any Option Stock, shares of Common Stock
previously acquired by the participant (including shares received upon the
prior exercise of any options regardless of the amount of time such
previously acquired shares have been held by the participant) having a fair
market value equal to the required payment. The participant shall deliver to
Actamed a certificate or certificates representing such shares duly endorsed
to Actamed or accompanied by a separate stock power so endorsed.
(e) In addition to the foregoing, the exercise price of an
option also may be paid by delivery to Actamed of a written notice of
election to exercise, subject to the approval of the Administrator and in
accordance with the requirements of Regulation T as promulgated by the
Federal Reserve Board.
8. OPTION STOCK.
(a) All options granted pursuant to the Plan shall have such
terms and conditions as the Administrator shall determine, including the
period during which they may be exercised in whole or in part and the
conditions under which they may be terminated or canceled and such other
provisions as may be advisable to comply with the law or the rules of any
such stock exchange, and each option shall have the following additional
conditions:
(i) The options shall not be transferable other than
by will or the laws of descent and distribution and shall be exercisable
during the participant's lifetime only by him and, except as otherwise
determined by the Administrator, shall only be exercisable prior to
termination of employment with the Company.
(ii) Actamed shall not issue any fractional shares
upon the exercise of options granted under the Plan.
<PAGE>
(iii) No optionee will be deemed to be a holder of any
shares of Common Stock or shall have any rights of a shareholder of Actamed
until the issuance of certificates after the exercise thereof. No adjustment
shall be made for any dividends or distributions or other rights for which
the record date is prior to the date of such stock certificates so issued
except as provided in 8(a)(iv) below.
(iv) The number of shares subject to an option and the
price per share shall be appropriately adjusted by the Administrator to
reflect any stock splits, stock dividends or other form of recapitalization.
(v) The Administrator shall have sole discretion to
determine in the Stock Option Agreement whether shares of Option Stock
(including any shares received thereon as a result of stock dividends, stock
splits and any other forms of recapitalization) shall be free of any
restrictions (other than those advisable to comply with the law) or shall be
subject to any restrictions as may be determined by the Administrator, in its
sole discretion.
(vi) The granting of an option shall impose no
obligation upon the participant to exercise such option.
(b) All Incentive Options granted hereunder, in addition to
the conditions required by Section 8(a) and the other Sections of the Plan
applicable to Incentive Options, must meet the following additional
conditions where applicable:
(i) The Plan must be approved by the shareholders of
Actamed within 12 months after its adoption by the Board of Directors.
(ii) Any Incentive Option must be granted within 10
years from the date the Plan is adopted by the board of Directors.
(iii) Any Incentive Option must be exercised only
within 10 years of the date it is granted, except as otherwise provided in
8(b)(vii) below.
(iv) A maximum of 25,000 shares of Common Stock may be
issued under Incentive Options.
(v) The aggregate fair market value (determined at
the time the option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time by such individual during
any calendar year (under all plans of Actamed and its Subsidiaries) shall not
exceed $100,000.
(vi) Any Incentive Option granted hereunder shall be
consistent with the provisions of Sections 421, 422 and 424 and related
Sections of the Code and applicable Treasury Regulations. The Stock Option
Agreements authorized under this Plan in connection with the grant
<PAGE>
of Incentive Options may contain other provisions, not inconsistent with the
Plan and Section 422 of the Code, as the Administrator shall deem advisable.
(vii) If the participant owns (subject to applicable
ownership attribution rules of Section 424(d) of the Code and Treasury
Regulations promulgated thereunder) stock possessing more than 10 percent of
the total combined voting power of all classes of stock of Actamed or of
stock of any parent or subsidiary of Actamed at the time the Incentive Option
is granted, the option price shall be not less than 110 percent of the fair
market value of the stock subject to the Incentive Option and the Incentive
Option by its terms shall not be exercisable after the expiration of five
years from the date the Incentive Option is granted.
9. WITHHOLDING OF TAXES.
(a) Upon the grant or exercise of any option hereunder and
should Actamed determine that the participant will be considered to have
received income subject to withholding due to such event and the Company will
be required to withhold amounts for federal and state income tax purposes,
the distribution of any such shares to the participant may be deferred by
Actamed until the participant makes satisfactory arrangements to provide
Actamed with the funds to meet any such tax withholding obligation. If the
participant fails to provide such funds to Actamed the time required to pay
such withholding tax or should Actamed and the participant agree that such
tax withholding obligation may be paid with shares to be distributed to the
participant, Actamed may retain and sell a sufficient number of the
participant's shares which are otherwise to be distributed to the participant
as may be required to discharge, or reimburse Actamed for, the payment of
such withholding obligation and any interest and penalty which may have
accrued in connection therewith. Actamed shall have and retain a security
interest in such shares of the participant for the purpose of securing the
participant's obligation hereunder and the participant shall take such steps
and execute such documents to perfect such security interest as Actamed shall
reasonably request.
(b) In the event a participant makes an election to be taxed
under Section 83(b) of the Code and files such election with the Internal
Revenue Service, the participant shall be required to notify the Company in
writing within 10 days of making such election.
10. COMPLIANCE WITH SECURITIES LAW.
(a) Actamed shall be under no obligation to effect the
registration pursuant to any federal or state securities laws of any shares
of Common Stock to be issued hereunder. Notwithstanding anything herein to
the contrary, Actamed shall not be obligated to issue any shares pursuant to
this Plan unless the shares to be distributed are at that time effectively
registered or exempt from registration, in the opinion of Actamed, under the
applicable federal and state securities laws.
(b) Unless the shares covered by the Plan have been
registered under the applicable federal and state securities laws, or Actamed
has determined that such registration is unnecessary, each person receiving
shares under the Plan may be required by Actamed to give a
<PAGE>
representation in writing that he is acquiring such shares for his own
account for investment and not with a view to, or for sale in connection
with, the distribution of any part thereof.
(c) The exercise of any option granted hereunder shall only
be effective at such time as Actamed shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable federal and states securities laws. Actamed
may, in its sole discretion, defer the effectiveness of any exercise of an
option granted hereunder in order to allow the issuance of shares of Common
Stock pursuant thereto to be made pursuant to registration or an exemption
from registration or other methods for compliance available under federal or
state securities laws. Actamed shall inform the participant of its decision
to defer the effectiveness of the exercise of an option granted hereunder.
During the period that the effectiveness of the exercise of an option has
been deferred, the participant may, by written notice, withdraw such exercise
and obtain the refund of any amount paid or consideration tendered with
respect thereto.
11. INDEMNIFICATION. In addition to any other rights of
indemnification that they may have as directors of Actamed or as members of
the Committee, the directors of Actamed and members of the Committee shall be
indemnified by Actamed against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of action taken or failure
to act under or in connection with the Plan, or any securities sold or issued
hereunder, and against all amounts paid by them in settlement thereof
(provided the settlement is approved by Actamed) or paid by them in
satisfaction of a judgment in any action, suit or proceeding; provided that
within 20 days after the institution of any action, suit or proceeding, the
director or the Committee member shall in writing offer Actamed the
opportunity, at its own expense, to handle and defend the same.
12. EXPENSES OF PLAN. The expenses of administering the Plan shall
be borne by Actamed.
13. NO EFFECT ON EMPLOYMENT. Nothing herein contained, including
the grant of any option, shall affect the right of the Company to terminate
any participant's employment at any time for any reason.
14. EXEMPTION FROM PENSION COMPUTATION AND NON-EXCLUSIVITY OF THE
PLAN.
(a) By acceptance of options granted under this Plan, each
participant shall be deemed to agree that it is special incentive
compensation and that it will not be taken into account as "wages" or
"salary" in retirement or deferred profit sharing plans, if any, of the
Company.
(b) In addition, each beneficiary of a deceased participant
shall be deemed to agree that such grant will not affect the amount of any
life insurance coverage available to such beneficiary under any life
insurance plan, if any, covering employees of the Company.
<PAGE>
(c) Nothing contained in the Plan is intended to amend,
modify or rescind any previously approved compensation plans or programs
entered into by the Company. This Plan shall be construed to be an addition
to any and all such other plans or programs. Neither the adoption of the
Plan by Actamed not the submission of the Plan to the shareholders of Actamed
for approval shall be construed as creating any limitations on the power of
authority of Actamed to adopt such additional or other compensation
arrangements as Actamed may deem desirable.
15. LEGEND. In order to enforce the restrictions imposed upon
shares sold or awarded hereunder the Administrator may cause a legend or
legends to be placed on any certificates representing shares sold or awarded
pursuant to this Plan, which legend or legends shall make appropriate
reference to the restrictions imposed hereunder.
16. AMENDMENTS. This Plan may be amended at any time by the Board
of Directors consistent with applicable laws and regulations, provided that
without the approval of the shareholders of Actamed, no such amendment shall
become effective if it would (a) extend the termination date of the Plan set
forth in Section 17, (b) materially increase the number of shares of Common
Stock which may be sold under the Plan, except as provided in Section 5, or
(c) materially modify the requirements as to eligibility for participation in
the Plan. Any amendment to the Plan shall not, without the written consent
of the participant, affect such participant's rights under any Stock Option
Agreement entered into prior to such amendment.
17. TERMINATION. This Plan shall terminate and no further shares
shall be sold or issued hereunder after September 1, 2002, or such earlier
date as may be determined by the Board of Directors. The termination of this
Plan, however, shall not affect any restrictions previously imposed on shares
of Option Stock issued pursuant to this Plan, or alter the rights of
participants with respect to options granted or shares of Option Stock issued
pursuant to this Plan.
18. RIGHTS OF PARTICIPANTS AS SHAREHOLDERS. Each participant
acquiring shares of Option Stock hereunder shall, upon the issuance of
certificates with respect to such shares, be the registered owner of such
shares and, except as otherwise provided herein or in any related Stock
Option Agreement, shall be entitled to full voting, dividend and distribution
rights like any other holder of Actamed Common Stock as long as such
participant remains the registered owner thereof.
19. GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of Georgia in all respects.
20. CONSTRUCTION. The masculine gender, where appearing in the
Plan, shall be deemed to include the feminine and neuter genders, unless the
context clearly indicates to the contrary; the singular includes the plural,
and the plural shall include the singular.
21. VALIDITY AND LEGALITY. If any provision of this Plan for any
reason is declared invalid, illegal or unenforceable, in whole or in part,
such declaration shall not affect the validity, legality or enforceability of
any remaining provision or portion
<PAGE>
thereof, which remaining provisions or portion thereof shall remain in force
and effect as if this Plan had been adopted with the invalid, illegal or
unenforceable provision or portion thereof eliminated.
22. EFFECTIVE DATE. This Plan shall become effective upon its
adoption by the Board of Directors and approval by the shareholders of
Actamed.
<PAGE>
AMENDMENT TO ACTAMED CORP.
1992 STOCK OPTION PLAN
Pursuant to paragraph 16 of the 1992 Stock Option Plan, (the "Plan"),
the Plan is hereby amended as follows:
1. Paragraph 2(e) is deleted in its entirety and replaced with the
following:
'"COMMON STOCK" means Actamed's Class A Common Stock."'
2. Paragraph 5 is hereby amended by deleting the number "25,000" from
the first line of said paragraph and replacing it with the number
"1,250,000".
3. Paragraph 8(b)(iv) is hereby deleted in it entirety and replaced
with the following:
"A maximum of 1,250,000 shares of Common Stock may be
issued under Incentive Options."
4. All other provisions of the Plan shall remain in full force and
effect.
<PAGE>
ACTAMED CORPORATION
1996 DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED DECEMBER __, 1997)
ARTICLE I
GENERAL
1.1 PURPOSE OF THE PLAN.
The purpose of the ActaMed Corporation 1996 Director Stock Option Plan (the
"Plan") is to assist ActaMed Corporation (the "Company") in securing and
retaining non-employee directors of outstanding ability by making it possible to
offer them an increased incentive to advise, join or continue in the service of
the Company and to increase their efforts for its welfare through participation
or increased participation in the ownership and growth of the Company by
granting non-employee directors, and Non-Employee Director's Designees (as
defined below), Options under this Plan.
1.2 DEFINITIONS.
(a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means the committee referred to in Section 1.3.
(d) "COMMON STOCK" means the common stock of the Company.
(e) "FAIR MARKET VALUE" means the closing price of the shares on a
national securities exchange on which the Common Stock is primarily traded on
the day on which such value is to be determined or, if no shares were traded
on such day, on the next preceding day on which shares were traded, as
reported by National Quotation Bureau, Inc. or other national quotation
service. If the shares of Common Stock are traded in the over-the-counter
market, "fair market value" means the closing "asked" price of the shares in
the over-the-counter market on the day on which such value is to be
determined or, if such "asked" price is not available, the last sales price
on such day or, if no shares were traded on such day, on the next preceding
day on which the shares were traded, as reported by the National Association
of Securities Dealers Automatic Quotation System (NASDAQ) or other national
quotation service. Nevertheless, if the Board of Directors determines that
the fair market value of the Common Stock cannot be accurately determined
pursuant to the methodologies described above or if shares of Common Stock
are not traded on an exchange or in the over-the-counter market, Fair Market
Value shall be the value determined by the
<PAGE>
Board of Directors or Committee administering the Plan, taking into
consideration those factors affecting or reflecting value which they deem
appropriate.
(f) "NON-EMPLOYEE DIRECTOR'S DESIGNEE" means the corporation,
partnership, proprietorship or other entity (including an investment fund) by
whom the non-employee director is employed or with whom the non-employee
director is affiliated as an officer, partner, director, manager, principal, or
associate, at the time the non-employee director is a director of the
Corporation and is determined by the Committee to receive options under the
Plan.
(g) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of
Common Stock which is not intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted to non-employee
directors and a Non-Employee Director's Designees.
(h) "OPTION" means a Nonqualified Stock Option.
(i) "OPTIONEE" means a non-employee director or a Non-Employee
Director's Designee to whom an Option is granted under the Plan.
(j) "PARENT" means any corporation which qualifies as a parent of a
corporation under the definition of "parent corporation" contained in Section
424(e) of the Code.
(k) "SUBSIDIARY" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary corporation
contained in Section 424(f) of the Code.
(l) "TERM" means the period during which a particular Option may be
exercised as determined by the Committee and as provided in the option
agreement.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors consisting of at least three
members from the Board of Directors. In the absence of such an express
appointment of a Committee, the Board shall serve as the Committee. Subject to
the control of the Board, and without limiting the control over decisions
described in Section 1.7, the Committee shall have the power to interpret and
apply the Plan and to make regulations for carrying out its purpose. More
particularly, the Committee shall determine which non-employee directors shall
be granted Options and the terms of such Options. All Options granted under the
Plan shall be Nonqualified Stock Options. Determinations by the Committee under
the Plan (including, without limitation, determinations of the person to receive
Options, the form, amount and timing of such Options, and the terms and
provisions of such Options and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Options under the Plan, whether or not such persons are
similarly situated. In serving on the Committee, members thereof shall be
considered to be acting in their capacity as members of the Board of Directors
and shall be entitled to all rights of
-2-
<PAGE>
indemnification provided by the Bylaws of the Company or otherwise to members
of the Board of Directors. At the time that the Committee determines that a
non-employee director shall be granted Options under the Plan, the
non-employee director may promptly notify the Committee of the Non-Employee
Director's Designee who shall be granted all or a portion of the Options in
place of the non-employee director. The Committee shall retain at all times,
before the Options are granted, the discretion as to whether or not to grant
the Options to the Non-Employee Director's Designee.
1.4 SHARES SUBJECT TO THE PLAN.
The total number of shares that may be purchased pursuant to Options under
the Plan shall not exceed 100,000 shares of Common Stock. Shares subject to the
Options which terminate or expire prior to exercise shall be available for
future Options under the Plan without being charged against the limitation of
100,000 shares set forth above. Shares issued pursuant to the Plan may be
either unissued shares of Common Stock or reacquired shares of Common Stock held
in treasury.
1.5 TERMS AND CONDITIONS OF OPTIONS.
All Options shall be evidenced by option agreements in such form as the
Committee shall approve from time to time subject to the provisions of Article
II and the following provisions:
(a) EXERCISE PRICE. The exercise price of an Option shall be
determined by the Committee; provided, however, such exercise price shall not be
less than the Fair Market Value (as determined by the Board of Directors) of the
Common Stock at the time the Option is granted without the unanimous approval of
all members of the Board of Directors.
(b) EXERCISE. The Committee shall determine whether the Option shall
be exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) TERMINATION OF DIRECTORSHIP. An Optionee's Option shall
expire on the expiration of the Term specified in Section 2.1 or upon the
occurrence of such events as are specified in the option agreement. If the
option agreement permits exercise of the Option after termination of
directorship (or after the termination of the directorship of the
non-employee director on whose behalf the Non-Employee Director's Designee
has been granted the Option), the Optionee may exercise the Option only with
respect to the shares which could have been purchased by the Optionee at the
date of termination of such directorship. However, the Committee may, but is
not required to, waive any requirements made pursuant to Section 1.5(b) so
that some or all of the shares subject to the Option may be exercised within
the time limitation described in this subsection. An Optionee's directorship
(or the directorship of the non-employee director on whose behalf the
Non-Employee Director's Designee has been granted the Option) shall be deemed
to terminate on the effective date of his or her resignation or removal or,
in the alternative, on the date determined by the Committee to constitute the
date of the termination of directorship of the Optionee (or the non-employee
director on whose behalf the Non-Employee Director's Designee has been
granted the Option). Whether military, government or other service or other
leave of absence shall constitute a termination of
-3-
<PAGE>
directorship shall be determined in each case by the Committee at its
discretion, and any determination by the Committee shall be final and
conclusive.
(d) DEATH OR DISABILITY. Upon termination of the directorship of the
Optionee (or the non-employee director on whose behalf the Non-Employee
Director's Designee has been granted the Option) by reason of death or
disability (as determined by the Committee consistent with the definition of
Section 422(c)(6) of the Code), the Option shall expire on the earlier of the
expiration of (i) the date specified in the option agreement which in no event
shall be later than 12 months after the date of such termination, or (ii) the
Term specified in Section 2.1. The Optionee or his successor in interest, as
the case may be, may exercise the Option only as to the shares that could have
been purchased by the Optionee at the date of the termination of directorship of
the Optionee (or the non-employee director on whose behalf the Non-Employee
Director's Designee has been granted the Option). However, the Committee may,
but is not required to, waive any requirements made pursuant to Section 1.5(b)
so that some or all of the shares subject to the Option may be exercised within
the time limitation described in this subsection.
(e) PAYMENT. Payment for shares as to which an Option is exercised
shall be made in such manner and at such time or times as shall be provided in
the option agreement, including cash, Common Stock of the Company which was
previously acquired by the Optionee, or any combination thereof. The Fair
Market Value of the surrendered Common Stock as of the date of exercise shall be
determined in valuing Common Stock used in payment for Options.
(f) NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution;
provided, however, a non-employee director may designate that his or her
Options be granted to the Non-Employee Director's Designee subject to the
approval by the Committee. During the lifetime of the Optionee (or the
lifetime of the non-employee director on whose behalf the Non-Employee
Director's Designee has been granted the Option), an Option shall be
exercisable only by the Optionee.
(g) CHANGE IN CONTROL. In the discretion of the Committee, an option
agreement may contain provisions providing that in the event of a "change in
control" of the Company, such Option shall become immediately exercisable in
full notwithstanding any provisions in the option agreement to the contrary.
For the purposes of this paragraph (g), a "change in control" of the Company
shall be deemed to occur if (i) the Company is a party to a merger, share
exchange or other business combination pursuant to which the Company does not
survive or survives only as a subsidiary of another corporation; or (ii) all or
substantially all of the assets of the Company are sold or otherwise disposed
of.
(h) ADDITIONAL PROVISIONS. Each option agreement may contain such
other terms and conditions not inconsistent with the provisions of the Plan as
the Committee may deem appropriate from time to time, including cash awards for
such purposes as the Committee may determine, including but not limited to cash
awards for the payment of any income or excise tax directly or indirectly
attributable to the exercise or acceleration of exercise of an Option
(including, without limitation, any tax under Code Section 280G).
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1.6 STOCK ADJUSTMENTS; MERGERS.
(a) GENERAL. Notwithstanding Section 1.4, in the event the
outstanding shares of Common Stock are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of any other corporation by reason of any merger, sale of stock,
consolidation, liquidation, recapitalization, reclassification, stock split up,
combination of shares, share exchange, stock dividend, or transaction having
similar effect, the total number of shares of Common Stock set forth in Section
1.4 shall be proportionately and appropriately adjusted by the Committee.
(b) OPTIONS. Following a transaction described in subsection (a)
above, if the Company continues in existence, the number and kind of shares that
are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the aggregate
price to be paid therefor upon exercise of the Option. If the Company will not
remain in existence or substantially all of its Common Stock will be purchased
by a single purchaser or group of purchasers acting together, then the Committee
may (i) declare that all Options shall terminate 30 days after the Committee
gives written notice to all Optionees of their immediate right to exercise all
Options then outstanding (without regard to limitations on exercise otherwise
contained in the Options), or (ii) notify all Optionees that all Options granted
under the Plan shall apply with appropriate adjustments as determined by the
Committee to the securities of the successor corporation to which holders of the
numbers of shares subject to such Options would have been entitled, or (iii)
take action that is some combination of aspects of (i) and (ii). Except as
provided in the last sentence of this paragraph (b), the determination by the
Committee as to the terms of any of the foregoing adjustments shall be
conclusive and binding. Any fractional shares resulting from any of the
foregoing adjustments under this paragraph shall be disregarded and eliminated.
Notwithstanding anything else contained in this Section 1.6(b), if an option
agreement permits the immediate exercise in full of an Option upon a change in
control as provided in Section 1.5(g) above, the provisions of such option
agreement may not be revised by the Committee pursuant to this Section 1.6(b)
without the consent of the Optionee.
1.7 NOTIFICATION OF EXERCISE.
Options shall be exercised by written notice directed to the Secretary of
the Company at the principal executive offices of the Company. Such written
notice shall be accompanied by any payment required pursuant to Section 1.5(e)
and shall be effective upon receipt by the Secretary of the Company received
during normal business hours or if not so received, such exercise shall be
effective on the next regular business day of the Company. Exercise by an
Optionee which is a corporation, partnership or other entity, or by an
Optionee's heir or the representative of his estate shall be accompanied by
evidence of its or his authority to so act in form reasonably satisfactory to
the Company.
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ARTICLE II
NONQUALIFIED STOCK OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS.
In addition to the requirements of Section 1.5, each Option granted under
the Plan to a non-employee director or a Non-Employee Director's Designee shall
be a Nonqualified Stock Option and subject to the following provisions:
(a) TERM. Each Nonqualified Stock Option granted under the plan
shall be exercisable only during a term fixed by the Committee.
(b) EXERCISE PRICE. Subject to the terms of Section 1.5(a), the
Company may elect to grant Nonqualified Stock Options at a price less than the
Fair Market Value of the Common Stock at the time the Option is granted.
2.2 SECTION 83(b) ELECTION.
The Company recognizes that certain persons who receive Nonqualified Stock
Options may be subject to restrictions regarding their right to trade Common
Stock under Applicable securities laws. Such may cause Optionee's exercising
such Options not to be taxable under the provisions of Section 83(c) of the
Code. Accordingly, Optionees exercising such Nonqualified Stock Options may
consider making an election to be taxed upon exercise of the Option under
Section 83(b) of the Code and to effect such election will file such election
with the Internal Revenue Service within (30) days of exercise of the Option and
otherwise in accordance with applicable Treasury Regulations.
ARTICLE III
ADDITIONAL PROVISIONS
3.1 SHAREHOLDER APPROVAL.
The Plan shall be submitted for the approval of the shareholders of the
Company as soon as reasonably practicable following the adoption of the Plan by
the Board of Directors or the Committee and in all events within one year of its
approval by such Board or Committee. If the shareholders of the Company do not
approve the Plan as provided in this Section 3.1, the Plan shall terminate.
3.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of Options hereunder, and the obligation
of the Company to sell and deliver shares under such Options, shall be subject
to all applicable Federal and state laws, rules, and regulations and to such
approvals by any government or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for shares of
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Common Stock prior to (a) the listing of such share on any stock exchange on
which the Common Stock may then be listed and (b) the completion of any
registration or qualification (or determination of the availability of an
exemption therefrom) of such shares under any Federal or state law, or any
ruling or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
3.3 AMENDMENTS.
The Board of Directors may discontinue the Plan at any time, and may amend
it from time to time. However, except as permitted under Section 1.6, no
amendment, without approval by stockholders, may (a) increase the total number
of shares which may be issued under the Plan or to any individual under the
Plan, (b) extend the date on which the Plan will terminate, (c) reduce the
Option price for shares which may be purchased pursuant to Options under
Articles II of the Plan, (d) extend the period during which Options may be
granted, (e) change the class of eligible persons to whom Options may be granted
under the Plan, or (f) change the provisions of the Plan in such a manner so as
to increase materially the benefits accruing under the Plan. Other than as
expressly permitted under the Plan, no outstanding Option may be revoked or
altered in a manner unfavorable to the Optionee without the consent of the
Optionee.
3.4 NO RIGHTS AS SHAREHOLDER.
No Optionee shall have any rights as a shareholder with respect to any
share subject to his or her Option prior to the date of issuance to him or her
of a certificate or certificates for such shares.
3.5 WITHHOLDING.
Whenever the Company proposes or is required to issue or transfer shares of
Common Stock under the Plan the Company shall have the right to require the
Optionee to remit to the Company an amount sufficient to satisfy any Federal,
state or local withholding tax liability in such form as the Company may
determine or accept in its sole discretion, including payment by surrender or
retention of shares of Common Stock prior to the delivery of any certificate or
certificates for such shares. Whenever under the Plan payments are to be made
in cash, such payments shall be made net of an amount sufficient to satisfy any
Federal, state, or local withholding tax liability.
3.6 CONTINUED SERVICE AS A DIRECTOR NOT PRESUMED.
This Plan and any document describing this Plan and the grant of any Option
hereunder shall not give any Optionee a right to continued service as a director
of the Company or its Subsidiaries.
3.7 EFFECTIVE DATE; DURATION.
The Plan shall become effective as of February 9, 1996, subject to
shareholder approval pursuant to Section 3.1, and shall expire at midnight on
February 9, 2006. No Options may be granted under the Plan after February 9,
2006, but Options granted on or before that date may be
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exercised according to the terms of the related agreements and shall continue
to be governed by and interpreted consistent with the terms hereof.
The foregoing Plan was approved and adopted by the Board of Directors and
the Shareholders of the Company on February 9, 1996 and the Plan was amended and
restated by the Board of Directors of the Company on December __, 1997.
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AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the
"Agreement") is entered into as of May 19, 1998, by and between Healtheon
Corporation, a Delaware corporation (the "Company") and the persons and
entities listed on Schedules A and B hereto.
WHEREAS, the Company and certain of the persons and entities listed on
Schedules A and B hereto entered into certain Securities Purchase Agreements
during the period from January 26, 1996 through December __, 1997 (the
"Securities Purchase Agreements") pursuant to which the Company sold and
issued to such persons and entities (the "Healtheon Investors") shares of its
Common Stock and Series A, Series B, Series C and Series D Preferred Stock
and issued certain warrants with respect thereto; and
WHEREAS, in order to induce the Healtheon Investors to invest funds in
the Company pursuant to the Securities Purchase Agreements, the Company and
the Healtheon Investors entered into certain Investors' Rights Agreements
pursuant to which the Company granted certain rights to the Healtheon
Investors; and
WHEREAS, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with ActaMed Corporation ("ActaMed")
dated February 24, 1998, in connection with the acquisition of ActaMed by the
Company (the "Merger"), pursuant to which the Company will issue and exchange
0.6272 shares of Company Common Stock for each share of ActaMed Capital Stock
outstanding at the time the Merger is consummated; and
WHEREAS, as a condition to closing of the Merger, the Healtheon
Investors have agreed to convert all of their shares of Original Preferred
Stock and warrants to acquire Original Preferred Stock into Common Stock and
warrants to acquire Common Stock; and
WHEREAS, certain shareholders of ActaMed Capital Stock listed on
Schedules A and B hereto possess certain registration and other rights with
respect to their shares of ActaMed Capital Stock, and desire to maintain
certain rights following the Merger with respect to their shares of Company
Common Stock (the "ActaMed Holders"); and
WHEREAS, pursuant to the Merger Agreement, in order to induce the
ActaMed Holders to approve the Merger, the Company and the ActaMed Holders
have entered into this Agreement.
NOW, THEREFORE, in consideration of the premises, covenants, and
conditions set forth herein, the parties agree as follows:
1. REGISTRATION RIGHTS. The parties covenant and agree as follows:
1.1 DEFINITIONS. For purposes of this Agreement:
(a) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933,
as amended (the "Act"), and the declaration or ordering of effectiveness of
such registration statement or document.
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(b) The term "Registrable Securities" means (i) the
Company's Common Stock issued pursuant to the Securities Purchase Agreements,
(ii) the Company's Common Stock issued upon conversion of the Original
Preferred Stock and issued upon the exercise of the warrants issued in
substitution for the Series B Preferred Stock Warrants (together, the
"Conversion Stock"), (iii) the Company's Common Stock issued to the ActaMed
Holders pursuant to the Merger Agreement (the "Merger Stock"), and (iv) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock, Conversion Stock and Merger Stock
described in (i), (ii) and (iii), excluding in all cases, however, (A) any
Registrable Securities sold by a person in a transaction in which such
person's rights under this Section 1 are not assigned or (B) shares of any
Registrable Securities that have been sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction.
(c) The number of shares of "Registrable Securities then
outstanding" shall be equal to the sum of (i) the number of shares of Common
Stock outstanding that are Registrable Securities and (ii) the number of
shares of Common Stock issuable pursuant to then exercisable or convertible
securities that are exercisable or convertible into Registrable Securities.
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any transferee or assignee thereof
in accordance with Section 1.14 hereof.
(e) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") that permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(f) The term "Initial Public Offering" means the first sale
of Common Stock of the Company to the public effected pursuant to a
registration statement (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
plan, stock purchase or similar plan or a SEC Rule 145 transaction) filed
with, and declared effective by, the SEC under the Act on Form S-1 (or any
subsequently adopted similar form).
(g) The term "Original Preferred Stock" shall mean the
Series A Preferred Stock and the Series A-1 Preferred Stock (including Series
A-2, Series A-3, etc.); the Series B Preferred Stock and the Series B-1
Preferred Stock (including Series B-2, Series B-3, etc.); the Series C
Preferred Stock and the Series C-1 Preferred Stock (including Series C-2,
Series C-3, etc.), and the Series D Preferred Stock and the Series D-1
Preferred Stock (including Series D-2, Series D-3, etc.) of the Company
issued and sold to pursuant to the Securities Purchase Agreements or upon the
exercise of the Series B Preferred Stock Warrants.
(h) The term "Principal Holder" shall mean each Holder
which, together with its affiliated entities, holds at least two hundred and
fifty thousand (250,000) shares of Registrable Securities.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the
earlier of (i) January 26, 2001, or (ii) twelve (12) months after
consummation of the Company's Initial Public Offering, a written request from
the Holders of forty percent (40%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of Registrable Securities with an aggregate gross
offering price of at least ten million dollars ($10,000,000), then the
Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations
of subsection 1.2(b), effect as soon as practicable, and in any event shall
use its best efforts to effect within one hundred twenty (120) days of the
receipt of such request, the registration under the Act of all Registrable
Securities that the Holders request
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to be registered within twenty (20) days of the mailing of such notice by the
Company.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter or underwriters will
be selected by the Company and shall be reasonably acceptable to a majority
in interest of the Initiating Holders. In such event, the right of any Holder
to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with
the Company as provided in subsection 1.4(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting. Notwithstanding any other provision of this Section 1.2,
if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities requesting to be included in the underwriting, and the number of
shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders requesting to be included in the
underwriting, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder at the time of
filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall
not be reduced unless all other securities, including, without limitation,
any shares offered by the Company, are first entirely excluded from the
underwriting. No Registrable Securities excluded from the underwriting by
reason of the managing underwriters' marketing limitation shall be included
in such registration. To facilitate the allocation of Shares in accordance
with the above provisions, the Company or the underwriters may round the
number of shares allocated to any Holder to the nearest one hundred (100)
Shares.
(c) The Company is obligated to effect only one (1)
registration pursuant to this Section 1.2 (counting for this purpose only
registrations that have been declared or ordered effective and pursuant to
which Registrable Securities have been sold).
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and that it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may defer its obligations for this reason only once
in any twelve (12) month period.
(e) Notwithstanding anything to the contrary in this Section
1.2, the Company shall not be obligated to take an action to effect such
registration pursuant to this Section 1.2 for a period of six (6) months
following the effective date of a registration statement previously filed by
the Company (other than a registration of securities in a SEC Rule 145
transaction or with respect to an employee benefit plan).
(f) If any registration statement prepared pursuant to this
Section 1.2 is not filed or does not become effective or fails to close as a
result of the decision of the Initiating Holders or any underwriter
designated by them, the obligation of the Company to prepare and file a
registration statement at the request of such Initiating Holders shall
nevertheless have been satisfied unless such Initiating Holders shall
reimburse the Company for its registration expenses set forth in Section 1.6
herein incurred in connection with the preparation and filing of such
registration statement. If the registration statement otherwise fails to
become effective or fails to close, the registration rights of the Holders
provided in Section 1.2 shall remain fully available as if the registration
had not been requested by the Initiating Holders.
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1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
(i) the Company proposes to register any of its Common Stock or other
securities under the Act in connection with a public offering of such
securities solely for cash (including a registration effected by the Company
for stockholders other than the Holders, but not including a registration
relating solely to the Company's employee benefit plans, or a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), and (ii) the Company has consummated its Initial
Public Offering, the Company shall, at such time, promptly give each Holder
written notice of such registration. Upon the written request of each Holder
given within twenty (20) days after mailing of such notice by the Company,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Act all of the Registrable Securities that each such
Holder has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required pursuant to this
Section 1 to effect the registration of any Registrable Securities, the
Company shall perform the following obligations as expeditiously as
reasonably possible:
(a) The Company shall prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective
and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, to keep such registration statement
effective for up to one hundred twenty (120) days.
(b) The Company shall prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) If requested by a selling Holder which holds at least
five percent (5%) of the Registrable Securities then outstanding, the Company
shall provide the underwriters (which term, for purposes of this Agreement,
shall include a person deemed to be an underwriter within the meaning of
Section 2(11) of the Securities Act), if any, of the shares being sold and
counsel for such underwriters and not more than one counsel for all of such
selling Holders (which counsel shall be subject to approval by the Company,
such approval not to be unreasonably withheld) the opportunity to participate
in the preparation of the registration statement, each prospectus included
therein or filed with the Commission, and each amendment or supplement
thereto; and make available for inspection by such underwriters and the
applicable counsel such financial and other information, books and records of
the Company and cause the officers, directors and employees of the Company
and counsel and independent certified public accountants of the Company to
respond to such inquiries as shall be reasonably necessary, in the opinion of
respective counsel to such selling Holders and such underwriters, to conduct
a reasonable investigation within the meaning of the Securities Act.
(d) The Company shall promptly notify (in writing, if so
requested) the selling Holders and the underwriters, if any, (i) when the
registration statement, the prospectus or any prospectus supplement or
post-effective amendment has been filed, and with respect to the registration
statement or any post-effective amendment, when the same has become
effective, (ii) request by the Commission for amendments or supplements to
the registration statement or the prospectus, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose, (iv) of the
receipt of the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose.
(e) The Company shall, if requested by the managing
underwriter or underwriters or by selling Holders, promptly incorporate in a
prospectus, prospectus supplement or post-effective amendment such
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information or such managing underwriter or underwriters as such selling
Holders specify should be included therein relating to the sale of the
Registrable Securities, including, without limitation, information with
respect to the number or amount of Registrable Securities being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus, prospectus
supplement or post-effective amendment promptly after notification of the
matters to be incorporated in such prospectus, prospectus supplement or
post-effective amendment, provided that the Company and its counsel are
reasonably satisfied that such additional information does not constitute an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(f) The Company shall furnish to the Holders such numbers of
copies of the prospectus, including a prospectus subject to completion, in
conformity with the requirements of the Act, and such other documents as they
may reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(g) The Company shall use its best efforts to register and
qualify the securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions.
(h) The Company shall prepare and file with the applicable
exchange or securities market an appropriate listing application with respect
to the Registered Securities.
(i) In the event of any underwritten public offering, the
Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter
into and perform its obligations under such an agreement.
(j) The Company shall notify each Holder of Registrable
Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of
the circumstances then existing.
(k) Notwithstanding the foregoing, the Company shall have no
obligation with respect to any registration requested pursuant to Sections
1.2 or 1.13 if the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does
not equal or exceed the number of shares or the anticipated aggregate
offering price required to trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a) or subsection 1.13(b)(ii), as
applicable.
1.5 OBLIGATIONS OF THE HOLDERS.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of such securities as
shall be required to effect the registration of such Holder's Registrable
Securities.
(b) In the event of any underwritten public offering, each
Holder participating in such
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underwriting shall enter into and perform its obligations under an
underwriting agreement in customary form with the managing underwriter of
such offering.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company and the reasonable fees and disbursements of one counsel for the
selling Holders not to exceed twenty five thousand dollars ($25,000), shall
be borne by the Company. Notwithstanding the foregoing, the Company shall not
be required to pay for expenses of any registration proceeding begun under
Section 1.2, the request for which has been subsequently withdrawn by the
Holders of a majority of the Registrable Securities or is not completed due
to failure to meet the gross offering price requirement set forth in such
section unless Holders representing a majority of Registrable Securities
agree to forfeit their right to a registration under Section 1.2, provided
however, that if at the time of such withdrawal by the Holders of a majority
of the Registrable Securities, the Holders have learned of a material adverse
change in the operating results, financial condition or business of the
Company from that known to the Holders at the time of the request and have
withdrawn the request with promptness following disclosure by the Company of
such material adverse change.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
provided in Section 1.14), including (without limitation) all registration,
filing, and qualification fees, fees and disbursements of Company counsel,
printers' and accounting fees relating or apportionable thereto and the
reasonable fees and disbursements of one counsel for the selling Holders not
to exceed twenty five thousand dollars ($25,000), but excluding underwriting
discounts and commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS.
(a) In connection with any offering involving an
underwriting of shares of the Company's Common Stock, the Company shall not
be required under Section 1.3 to include any of the Holders' securities in
such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity
as the managing underwriter determines in its sole discretion will not, due
to marketing factors, jeopardize the success of the offering by the Company.
(b) If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering
(excluding an offering effected pursuant to Section 1.2) exceeds the amount
of securities sold other than by the Company that the underwriters determine
in their sole discretion is compatible with the success of the offering, then
the Company shall be required to include in the offering only that number of
such securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
Holders requesting inclusion in such registration according to the total
amount of securities entitled to be included therein owned by each such
Holder on a pro rata basis); provided, however, that any such limitation or
"cut-back" shall be first applied to all shares proposed to be sold in such
offering, other than for the account of the Company, which are not
Registrable Securities. In no event shall any securities of the Company be
excluded from such registration prior to the cut back of all shares proposed
to be sold in such offering by the stockholders of the Company.
1.9 WITHDRAWAL RIGHTS AND REALLOCATION. If any Holder disapproves
of the terms of any such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the underwriters. If such
Holder's shares are withdrawn from registration, or if the number of shares
of Registrable
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Securities was previously reduced due to marketing factors, the Company shall
offer to all Holders retaining the right to include securities in the
registration the right to include additional Registrable Securities in the
registration, with such shares being allocated on a pro rata basis among the
Holders of Registrable Securities.
1.10 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.11 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors and general
partners of each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, including any of
the foregoing incurred in settlement of any litigation, commenced or
threatened, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (each of which is referred to
herein as a "Violation"):
(i) any untrue statement or alleged untrue statement
of a material fact contained in such registration statement, including any
prospectus subject to completion or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading; or
(iii) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities laws. In
addition, the Company will promptly reimburse each such Holder, officer,
director or general partner, underwriter or controlling person for any legal
or other expenses reasonably incurred by them, on an as-incurred basis, in
connection with investigating or defending any such loss, claim, damage,
liability, or action.
Notwithstanding the foregoing, the indemnity provisions contained in
this Section 1.11(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the written consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation that results from reliance upon
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, general partner,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
shall indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter and
any Holder selling securities in such registration statement or any of its
directors, officers or general partners or each person, if any, who controls
such Holder, against any losses, claims, damages, or liabilities (joint or
several) to which the Company (or any director, officer, controlling person),
or underwriter (or controlling person), or Holder (or director, officer,
general partner or controlling person thereof) may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or action in respect thereto) arise out of
or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation results from reliance upon written information
furnished by such Holder expressly for use in connection with such
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registration.
Each such Holder will promptly reimburse any legal or other expenses
reasonably incurred, on an as-incurred basis, by the Company (or any
director, officer, controlling person), underwriter (or controlling person),
Holder (or any director, officer, general partner, or controlling person
thereof) in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 1.11(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the written consent of the Holder, which
consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the liability of each Holder under this
Section 1.11(b) shall be limited to an amount equal to the aggregate proceeds
of the shares sold by such Holder in the offering pursuant to which the
Violation is claimed to have occurred, unless such liability arises out of or
is based on willful misconduct of such Holder.
(c) Within a reasonable time after receipt by an indemnified
party of notice of the commencement of any action (including any governmental
action) under this Section 1.11, such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 1.11, deliver to the indemnifying party a written notice of the
commencement thereof. Such indemnifying party shall have the right to
participate in and subject to the consent of the indemnified party, which
consent shall not be unreasonably withheld, the indemnifying party shall have
the right to enter into settlement of such action, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense of such action with counsel approved
by the indemnified party (whose approval shall not be unreasonably withheld);
provided, however, that the indemnified party shall cooperate with the
indemnifying party, and that if representation of an indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding, such
indemnified party shall have the right to retain its own counsel, with the
reasonable fees and reasonable expenses to be paid by the indemnifying party.
The failure of an indemnified party to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if such failure is prejudicial to the indemnifying party, shall
relieve such indemnifying party of any liability to the indemnified party
under this Section 1.11 to the extent such party is prejudiced. However, the
omission of the indemnified party to deliver such written notice to the
indemnifying party will not relieve such indemnifying party of any liability
that it may have to any indemnified party otherwise than under this Section
1.11.
(d) If the indemnification provided for in this Section 1.11
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, liability, or
action referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage, liability or action in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, claim, damage, liability or action as well as any
other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the violation of law or the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to acts of or information supplied by the indemnifying
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 1.11(d) were determined by
pro rata allocation (even if the selling Holders or any underwriters or all
of them were treated as one entity for such purpose) or by any other method
of allocation which does not take
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account of the equitable considerations referred to in the immediately
preceding paragraph. In no event shall the contribution obligations of each
selling Holder exceed the amount of proceeds received by such selling Holder
from the date of his, her or its Registrable Securities covered by the
registration statement. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and of the Holders under
this Section 1.11 shall survive the conversion, if any, of the Series A
Preferred and the completion of any offering of Registrable Securities in a
registration statement under this Section 1 or otherwise.
1.12 REPORTS UNDER THE 1934 ACT. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Act and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration, the Company
agrees:
(a) to make and keep public information available, as those
terms are defined under SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) use its best efforts to file with the SEC all reports
and other documents required of the Company under the Act and the 1934 Act
(at any time after it has become subject to such reporting requirements) in a
timely manner; and
(c) to furnish to any Holder, so long as such Holder owns
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at
any time after it has become subject to such reporting requirements), (ii) a
copy of the Company's most recent annual or quarterly report and (iii) such
other information as may be reasonably requested by such Holder in order to
avail itself of any rule or regulation of the SEC that permits the selling of
any such securities without registration.
1.13 FORM S-3 REGISTRATION. At any time following the second
anniversary of the Company's Initial Public Offering, in case the Company
shall receive from any Holder or Holders holding a written request that the
Company effect a registration on Form S-3 or any successor form and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall
comply with the following obligations:
(a) The Company shall promptly give written notice of the
proposed registration, and any related qualification or compliance, to all
other Holders. In the event the registration is proposed to be part of a
firm commitment underwritten public offering, the substantive provisions of
paragraph (b) of Section 1.2 hereof shall be applicable to each such
registration initiated under this Section 1.13.
(b) As soon as practicable, the Company shall effect such
registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all
or such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such request
as are specified in a written request given within fifteen (15) days after
receipt of such written notice from the Company. Notwithstanding the
foregoing, the Company shall not be obligated to effect any such
registration, qualification
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or compliance, pursuant to this Section 1.13 if: (i) the Company has
previously effected three (3) registrations pursuant to this Section 1.13,
(ii) Form S-3 is not available for such offering by the Holders; (iii) the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than one million dollars ($1,000,000); (iv) the Company
furnishes to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under this
Section 1.13, notwithstanding the foregoing, the Company shall not have the
right to exercise this right more than twice in any twelve (12) month period;
(v) the Company has, within the twelve (12) month period preceding the date
of such request, already effected a registration on Form S-3 for the Holders
pursuant to this Section 1.13; (vi) the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance in a particular
jurisdiction; or (vii) a registration statement respecting securities of the
Company has been declared effective within one hundred eighty (180) days of
such request.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. All expenses incurred in connection with the registrations
requested pursuant to this Section 1.13, including (without limitation) all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the selling Holder or Holders and any
underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the selling Holder or Holders. Registrations
effected pursuant to this Section 1.13 shall not be counted as demands for
registration effected pursuant to Section 1.2.
1.14 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities granted under this Section 1 may
be assigned by a Holder to a transferee or assignee who acquires two hundred
fifty thousand (250,000) shares (as adjusted for stock splits, combinations,
dividends and the like) of the Registrable Securities held by such Holder,
provided the Company is, within a reasonable time prior to such transfer,
furnished with written notice of the name and address of such proposed
transferee or assignee and the securities with respect to which such
registration rights are being assigned; provided further that such assignment
shall be effective only if the transferee enters into a written agreement
providing that such transferee shall be bound by the provisions of Section 1
of this Agreement. Notwithstanding the foregoing or any other provision
contained herein to the contrary, the right to cause the Company to register
Registrable Securities may be assigned by a Holder to any constituent partner
of a partnership Holder and any affiliate, subsidiary or parent of a
corporate Holder provided that such transferee agrees in writing to be bound
by the terms and conditions of this Agreement.
1.15 "MARKET STAND-OFF" AGREEMENT.
Each Holder hereby agrees that it shall not, to the extent specified
by the Company and an underwriter of Common Stock (or other securities) of
the Company, sell, offer to sell, contract to sell (including without
limitation any short sale), grant any option to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any securities of the Company (other than securities already registered)
during a reasonable and customary period of time not to exceed one hundred
and eighty (180) days, as agreed to by the Company and the underwriters,
following the effective date of the Company's Initial Public Offering;
provided, however, that all officers and directors of the Company enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop transfer instructions with respect to the securities of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such one hundred and eighty (180) day period.
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1.16 TERMINATION OF THE COMPANY'S OBLIGATIONS. The rights to cause
the Company to register securities granted to Holders pursuant to Sections
1.2 and 1.3 shall terminate as to any Holder at such time as the Holder has
the ability to sell all of the Registrable Securities owned by such
stockholder under SEC Rule 144 within a three (3) month period.
1.17 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company which would grant rights to have securities
other than Registrable Securities registered under the Act that are PARI
PASSU or senior to the registration rights granted herein.
2. COVENANTS.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall, as soon
as practicable, but in any event within ninety (90) days after the end of
each fiscal year of the Company, furnish to each Principal Holder a
consolidated profit and loss statement for such fiscal year, a consolidated
balance sheet of the Company and a consolidated statement of stockholders'
equity as of the end of such year, and a consolidated statement of cash flows
for such year, such year-end financial reports to be prepared in accordance
with generally accepted accounting principles and audited and certified by
independent public accountants of nationally recognized standing selected by
the Company. In the event that the Company is involved in a material
corporate transaction which is likely to have an effect on the Company's
financial reports, the Company shall have an additional thirty (30) days in
order to fulfill its obligations hereunder.
2.2 DELIVERY OF QUARTERLY FINANCIAL STATEMENTS. The Company shall,
as soon as practicable, but in no event within forty-five (45) days after the
end of each fiscal quarter of the Company (except for the fiscal quarter
ending December 31 of each year) furnish to each Principal Holder a
consolidated profit and loss statement for such quarter and year-to-date, a
consolidated balance sheet of the Company and a consolidated statement of
cash flows for such quarter and year-to-date prepared in accordance with
generally accepted accounting principles consistently applied. In the event
that the Company is involved in a material corporate transaction which is
likely to have an effect on the Company's financial reports, the Company
shall have an additional thirty (30) days in order to fulfill its obligations
hereunder.
2.3 DELIVERY OF MONTHLY FINANCIAL STATEMENTS. The Company shall
furnish each Principal Holder upon request (commencing with the month ending
July 31, 1998), within thirty (30) days of the end of each month, an
unaudited consolidated profit and loss statement, consolidated statement of
cash flows and consolidated balance sheet for and as of the end of such
month, and comparison to year-end results (if any). In the event that the
Company is involved in a material corporate transaction which is likely to
have an effect on the Company's financial reports, the Company shall have an
additional thirty (30) days in order to fulfill its obligations hereunder.
2.4 LIMITATION ON INFORMATION RIGHTS. The rights to receive
financial information set forth in Sections 2.1, 2.2 and 2.3 above may be
assigned by each Principal Holder to a subsequent transferee or assignee of
at least two hundred fifty thousand (250,000) shares (as adjusted for stock
splits, combinations, dividends and the like) of such Principal Holder's
Registrable Securities, provided that the transferee or assignee of such
rights is not deemed by the Board of Directors, in its reasonable judgment,
to be a current or potential competitor of the Company. Notwithstanding the
foregoing or any other provision contained herein to the contrary, the
information rights contained in Section 2.1, 2.2 and 2.3 above may be
assigned by a Holder to any constituent partner of a partnership Holder or
any affiliate, subsidiary or parent of a corporate Holder provided that such
transferee agrees in writing to be bound by the terms and conditions of this
Agreement.
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2.5 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
Principal Holder, the right of first refusal to purchase a pro rata share of
New Securities (as defined in this Section 2.5) which the Company may, from
time to time, propose to sell and issue after the date hereof. A Principal
Holder's pro rata share, for purposes of this right of first refusal, is the
ratio of (i) the number of shares of Registrable Securities held by such
Principal Holder; and (ii) the total number of shares of Registrable
Securities then outstanding. This right of first refusal shall be subject to
the following provisions:
(a) "New Securities" shall mean any capital stock (including
Common Stock and/or preferred stock) of the Company whether now authorized or
not, and rights, options or warrants to purchase such capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
securities issued upon conversion of the any preferred stock; (ii) securities
issued pursuant to the acquisition of another business entity or business
segment of any such entity by the Company by merger, purchase of
substantially all the assets or other reorganization whereby the Company will
own not less than fifty-one percent (51%) of the voting power of such
business entity or business segment of any such entity; (iii) any borrowing,
direct or indirect, from financial institutions or other persons by the
Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided that such
borrowing does not have any equity features including warrants, options or
other rights to purchase capital stock and are not convertible into capital
stock of the Company; (iv) securities issued to employees, consultants,
officers or directors of the Company pursuant to any stock option, stock
purchase or stock bonus plan, agreement or arrangement approved by the Board
of Directors; (v) securities issued in connection with obtaining lease
financing, whether issued to a lessor, guarantor or other person and is for
purposes other than equity financing of the Company; (vi) securities issued
in connection with one or more strategic development, licensing or technology
transactions, up to an aggregate of three million (3,000,000) shares of
Company capital stock or rights to purchase Company capital stock pursuant to
all transactions pursuant to this subsection (vi); (vii) up to one million
three hundred thirty-six thousand four hundred twenty-two (1,336,422) shares
of Company common stock to be issued to SmithKline Beechham Clinical
Laboratories, Inc.(SBLC), issued pursuant to the First Amendment to the Asset
Purchase Agreement dated December 31, 1997 between SBLC and ActaMed; (viii)
securities issued in a firm commitment underwritten public offering pursuant
to a registration under the Act; (ix) securities issued in connection with
any stock split, stock dividend or recapitalization of the Company so long as
such issuance results in adjustments to the conversion rate under the
Restated Certificate of Incorporation of the Company with respect to any
preferred stock; and (x) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Principal Holder written
notice of its intention, describing the type of New Securities, and their
price and the general terms upon which the Company proposes to issue the
same. Each Principal Holder shall have fifteen (15) days after any such
notice is effective to agree to purchase up to such Principal Holder's pro
rata share, as the case may be, of such New Securities for the price and upon
the terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
(c) In the event the Principal Holders fail to exercise the
right of first refusal, in full or in part, within said fifteen (15)-day
period, the Company shall have sixty (60) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of
said agreement) to sell the New Securities respecting which the Principal
Holders' right of first refusal option set forth in this Section 2.4 was not
exercised, at a price and upon terms no more favorable to the purchasers
thereof than specified in the Company's notice to Principal Holders pursuant
to Section 2.5(b). In the event the Company has not sold within said 60-day
period or entered into an agreement to sell the New Securities within said
60-day period (or sold and issued New Securities in accordance with the
foregoing within sixty (60) days from the date of said agreement), the
Company shall not thereafter issue or sell any New Securities, without first
again offering such securities to the Principal Holders in the manner
provided in
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Section 2.5(b) above.
(d) The right of first refusal set forth in this Section 2.5
may be assigned by a Principal Holder to a transferee or assignee who
acquires two hundred and fifty thousand (250,000) shares (as adjusted for
stock splits, combinations, dividends and the like) of such Principal
Holder's Conversion Stock or such Principal Holder's Merger Stock, as the
case may be, provided, the Company is, within a reasonable time prior to such
transfer, furnished with written notice of the name and address of such
proposed transferee or assignee and the securities with respect to which such
rights of first refusal are being assigned; provided further that such
assignment shall be effective only if the transferee enters into a written
agreement providing that such transferee shall be bound by the provisions of
Section 2.5 of this Agreement. Notwithstanding the foregoing or any other
provision contained herein to the contrary, the right of first refusal may be
assigned by a Principal Holder to any constituent partner of a partnership
Principal Holder and any affiliate, subsidiary or parent of a corporate
Principal Holder provided that such transferee agrees in writing to be bound
by the terms and conditions of this Agreement.
2.6 TERMINATION OF COVENANTS. Unless terminated earlier, the
covenants set forth in these Sections 2.1, 2.2, 2.3 and 2.5 shall terminate
and be of no further force or effect upon the consummation of the Company's
Initial Public Offering.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the
State of California.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto (including transferees of any shares of Registrable Securities
sold under their respective stock purchase agreements).
3.3 ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement among the parties with regard to the
subject matter hereof, and no party shall be liable or bound to any other
party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors and assigns, any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided herein.
3.4 SEVERABILITY. Any invalidity, illegality, or limitation of the
enforceability with respect to any Holder of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason
of the law of any such Holder's domicile or otherwise, shall in no way affect
or impair the validity, legality, or enforceability of this Agreement with
respect to any other Holder. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall, to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
3.5 AMENDMENT AND WAIVER. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the Holders
of a majority of the Registrable Securities then outstanding, provided that
the effect of such amendment or waiver is to treat all Holders equally. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder of Registrable Securities at the time outstanding
(including securities exercisable for or convertible into Registrable
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Securities), each future holder of all such securities, and the Company.
3.6 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power, or remedy accruing to any Holder or any permitted transferee
upon any breach, default or noncompliance of the Company under this Agreement
shall impair any such right, power, or remedy, nor shall it be construed to
be a waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on the Holders' part of any breach, default
or noncompliance of this Agreement or any waiver on the Holders' part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing, and that
all remedies, either under this Agreement, by law, or otherwise afforded to
each Holder, shall be cumulative and not alternative.
3.7 NOTICES, ETC. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given to the party to be so
notified in writing and shall be deemed effective upon personal delivery,
upon delivery by confirmed facsimile or electronic transmission (with
duplicate original sent by United States mail), or three business days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on Schedule A hereto (or, if to the Company, at the
address of its principal executive offices), or at such other address as such
party may designate by ten (10) days' advance written notice to the other
parties.
3.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
3.9 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, expenses and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
3.11 AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated
together for the purposes of determining the availability of any right under
this Agreement.
3.12 SPECIFIC PERFORMANCE. The parties hereto agree that
limitations on the purchase and sale of the Registrable Securities of the
Company exist and that, for that reasons, among others, the Holders of the
Registrable Securities may be irreparably damaged in the event of a breach or
prospective breach of the terms and provisions of this Agreement and,
therefore, the parties hereto consent to the application of equitable
remedies, including, without limitation, specific performance, to enforce the
terms and provisions of this Agreement. The rights granted in this Section
3.12 shall be cumulative and not exclusive, and shall be in addition to any
and all other rights which the parties hereto may have hereunder, at law or
in equity.
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Investors' Rights Agreement as of the date first above written.
HEALTHEON CORPORATION
14
<PAGE>
By: /s/ Michael Long
-------------------------------------
Michael Long
President and Chief Executive Officer
Address: 4600 Patrick Henry Drive
Santa Clara, CA 95054
<PAGE>
HEALTHEON CORPORATION
SIGNATURE PAGE
TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned amends the Amended and Restated Investors' Rights
Agreement dated October 13, 1997 and hereby executes and delivers this
Amended and Restated Investors' Rights Agreement dated May ___, 1998 (the
"Agreement") to which this Signature Page is attached, effective as of the
date of the Agreement, which Agreement and Signature Page, together with all
counterparts of said Agreement and Signature Pages of the other parties named
in said Agreement, shall constitute one and the same document in accordance
with the terms of said Agreement.
_____________________________________________________
Name of Stockholder
By:__________________________________________________
Print Name:__________________________________________
Title:_______________________________________________
16
<PAGE>
LEASE
DATED: DECEMBER 2, 1997
BY AND BETWEEN
LARVAN PROPERTIES, A CALIFORNIA GENERAL PARTNERSHIP
AS LANDLORD
AND
HEALTHEON CORPORATION, A DELAWARE CORPORATION
AS TENANT
AFFECTING PREMISES COMMONLY KNOWN AS
4600 PATRICK HENRY DRIVE
SANTA CLARA, CALIFORNIA
[1/15/97 TRIPLE NET INDUSTRIAL/COMMERCIAL LEASE]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 - DEFINITIONS PAGE:
- ----------------------- -----
<S> <C>
1.1 General 1
1.2 Additional Rent 1
1.3 Address for Notices 1
1.4 Agents 1
1.5 Agreed Interest Rate 1
1.6 Base Monthly Rate 1
1.7 Building 1
1.8 Commencement Date 1
1.9 Common Area 1
1.10 Common Operating Expense 1
1.11 Consumer Price Index 1
1.12 Effective Date 1
1.13 Event of Tenant's Default 1
1.14 Hazardous Materials 1
1.15 Insured and Uninsured Peril 1
1.16 Law 1
1.17 Lease 1
1.18 Lease Term 1
1.19 Lender 1
1.20 Permitted Use 2
1.21 Premises 2
1.22 Project 2
1.23 Private Restrictions 2
1.24 Real Property Taxes 2
1.25 Scheduled Commencement Date 2
1.26 Security Instrument 2
1.27 Summary 2
1.28 Tenant's Alterations 2
1.29 Tenant's Share 2
1.30 Trade Fixtures 2
<CAPTION>
ARTICLE 2 - DEMISE, CONSTRUCTION, AND ACCEPTANCE 2
- ------------------------------------------------
<S> <C>
2.1 Demise of Premises 2
2.2 Commencement Date 2
2.3 Construction of Improvements 2
2.4 Delivery and Acceptance of Possession 2
2.5 Early Occupancy 3
<CAPTION>
ARTICLE 3 - RENT 3
- ----------------
<S> <C>
3.1 Base Monthly Rent 3
3.2 Additional Rent 3
3.3 Payment of Rent 3
3.4 Late Charge and Interest on Rent in Default 3
3.5 Security Deposit 3
<CAPTION>
ARTICLE 4 - USE OF PREMISES 3
- ---------------------------
<S> <C>
4.1 Limitation on Use 3
4.2 Compliance with Regulations 4
4.3 Outside Areas 4
4.4 Signs 4
4.5 Parking 4
4.6 Rules and Regulations 4
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE:
-----
<S> <C> <C>
ARTICLE 5 - TRADE FIXTURES AND ALTERATIONS 4
5.1 Trade Fixtures 4
5.2 Tenant's Alterations 4
5.3 Alterations Required by Law 5
5.4 Amortization of Certain Capital Improvements 5
5.5 Mechanic's Liens 5
5.6 Taxes on Tenant's Property 5
ARTICLE 6 - REPAIR AND MAINTENANCE 6
6.1 Tenant's Obligation to Maintain 6
6.2 Landlord's Obligation to Maintain 6
6.3 Control of Common Area 6
ARTICLE 7 - WASTE DISPOSAL AND UTILITIES 7
7.1 Waste Disposal 7
7.2 Hazardous Materials 7
7.3 Utilities 8
7.4 Compliance with Governmental Regulations 8
ARTICLE 8 - COMMON OPERATING EXPENSES 8
8.1 Tenant's Obligation to Reimburse 8
8.2 Common Operating Expenses Defined 8
8.3 Real Property Taxes Defined 9
ARTICLE 9 - INSURANCE 9
9.1 Tenant's Insurance 9
9.2 Landlord's Insurance 10
9.3 Tenant's Obligation to Reimburse 10
9.4 Release and Waiver of Subrogation 10
ARTICLE 10 - LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY 10
10.1 Limitation on Landlord's Liability 10
10.2 Limitation on Tenant's Recourse 11
10.3 Indemnification of Landlord 11
ARTICLE 11 - DAMAGE TO PREMISES 11
11.1 Landlord's Duty to Restore 11
11.2 Landlord's Right to Terminate 11
11.3 Tenant's Right to Terminate 12
11.4 Abatement of Rent 12
ARTICLE 12 - CONDEMNATION 12
12.1 Landlord's Termination Right 12
12.2 Tenant's Termination Right 12
12.3 Restoration and Abatement of Rent 12
12.4 Temporary Taking 12
12.5 Division of Condemnation Award 12
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE:
-----
<S> <C> <C>
ARTICLE 13 - DEFAULT AND REMEDIES 13
13.1 Events of Tenant's Default 13
13.2 Landlord's Remedies 13
13.3 Waiver 14
13.4 Limitation on Exercise of Rights 14
13.5 Waiver by Tenant of Certain Remedies 14
ARTICLE 14 - ASSIGNMENT AND SUBLETTING 14
14.1 Transfer by Tenant 14
14.2 Transfer by Landlord 16
ARTICLE 15 - GENERAL PROVISIONS 16
15.1 Landlord's Right to Enter 16
15.2 Surrender of the Premises 17
15.3 Holding Over 17
15.4 Subordination 17
15.5 Mortgagee Protection and Attornment 17
15.6 Estoppel Certificates and Financial Statements 17
15.7 Reasonable Consent 18
15.8 Notices 18
15.9 Attorney's Fees 18
15.10 Corporate Authority 18
15.11 Miscellaneous 18
15.12 Termination by Exercise of Right 18
15.13 Brokerage Commissions 19
15.14 Force Majeure 19
15.15 Entire Agreement 19
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Site plan of the Project containing a description of the Premises
Exhibit B - Space Plan
Exhibit C - Intentionally Omitted
Exhibit D - Acceptance Agreement
Exhibit E - Intentionally Omitted
Exhibit F - Intentionally Omitted
Exhibit G - Form of Subordination Agreement
Exhibit H - Asbestos Disclosure
</TABLE>
iv
<PAGE>
SUMMARY OF BASIC LEASE TERMS
SECTION TERMS
(LEASE REFERENCE)
A. LEASE REFERENCE DATE: December 3, 1997
(Introduction)
B. LANDLORD: LARVAN PROPERTIES, A CALIFORNIA GENERAL
(Introduction) PARTNERSHIP
C. TENANT: HEALTHEON CORPORATION, A DELAWARE CORPORATION
(Introduction)
D. PREMISES: That area consisting of 49,837 square feet
(Section 1.21) of gross leasable area the address of
which is 4600 PATRICK HENRY DRIVE, SANTA
CLARA, CALIFORNIA, comprising the Building
shown on EXHIBIT A.
E. PROJECT: The land and improvements shown on EXHIBIT
(Section 1.22) A consisting of 1 building the aggregate
gross leasable area of which is 49,837
square feet.
F. BUILDING: The building in which the Premises are
(Section 1.7) located known as 4600 Patrick Henry Drive,
Santa Clara, California containing 49,837
square feet of gross leasable area.
G. TENANT'S SHARE: 100%
(Section 1.29)
H. TENANT'S ALLOCATED PARKING STALLS: TENANT SHALL HAVE
(Section 4.5) THE RIGHT TO ALL
PARKING SPACES
I. SCHEDULED COMMENCEMENT DATE: FEBRUARY 1, 1998,
(Section 1.26) OR THE DATE ON WHICH
TENANT OCCUPIES THE
PREMISES FOR
BUSINESS, WHICHEVER
IS EARLIER.
J. LEASE TERM: 120 calendar months (plus the partial
(Section 1.18) month following the Commencement Date of
such date is not the first day of a
month).
K. BASE MONTHLY RENT:
(Section 3.1)
INCLUSIVE PERIOD BASE MONTHLY RENT
2/1/98 THROUGH 12/31/98 $72,263.69 PER MONTH NNN
1/1/99 THROUGH 12/31/99 $74,257.17 PER MONTH NNN
1/1/2000 THROUGH 12/31/2000 $76,250.65 PER MONTH NNN
1/1/2001 THROUGH 12/31/2001 $78,244.13 PER MONTH NNN
1/1/2002 THROUGH 12/31/2002 $80,237.61 PER MONTH NNN
1/1/2003 THROUGH 12/31/2003 $82,231.09 PER MONTH NNN
1/1/2004 THROUGH 12/31/2004 $84,224.57 PER MONTH NNN
1/1/2005 THROUGH 12/31/2005 $86,218.05 PER MONTH NNN
1/1/2006 THROUGH 12/31/2006 $88,211.53 PER MONTH NNN
1/1/2007 THROUGH 12/31/2008 $90,205.01 PER MONTH NNN
L. PREPAID RENT: $72,263.69
(Section 3.3)
<PAGE>
M. SECURITY DEPOSIT: $72,263.69 (THE "PERMANENT SECURITY
(Section 3.5) DEPOSIT") PLUS A LETTER OF CREDIT
AS SET FORTH IN THE FIRST ADDENDUM
TO LEASE, PARAGRAPH 1.
N. PERMITTED USE: RESEARCH AND DEVELOPMENT, SALES,
(Section 4.1) ADMINISTRATION, GENERAL OFFICE AND
STORAGE, AND OTHER DIRECTLY RELATED
USES AS WELL AS OTHER LEGAL USES IF
APPROVED IN WRITING BY LANDLORD,
APPROVAL NOT TO BE UNREASONABLY
WITHHELD.
O. PERMITTED TENANT'S ALTERATIONS LIMIT: $10,000
(Section 5.2)
P. TENANT'S LIABILITY INSURANCE MINIMUM: $5,000,000
(Section 9.1)
Q. LANDLORD'S ADDRESS: LARVAN PROPERTIES
(Section 1.3) ATTN: DONN BYRNE
1960 THE ALAMEDA
SAN JOSE, CALIFORNIA 95128
R. TENANT'S ADDRESS: HEALTHEON CORPORATION
(Section 1.3) ATTENTION: KALLEN CHEN
4600 PATRICK HENRY DRIVE
SANTA CLARA, CALIFORNIA 95054
S. RETAINED REAL ESTATE BROKERS: Cornish and Carey
(Section 15.13) Commercial (representing only Tenant and not
representing Landlord) shall receive 50% of the
commission, and Cooper-Brady and Colliers Parrish
International (representing only the Landlord and not
representing Tenant) shall receive 50% of the
commission.
T. LEASE: This Lease includes the summary of the Basic
(Section 1.17) Lease Terms, the Lease, and the following
exhibits and addenda: First Addendum to Lease,
EXHIBIT A (site plan of the Project), EXHIBIT
B (Space Plan), EXHIBIT C (intentionally
omitted), EXHIBIT D (acceptance agreement),
EXHIBIT E (intentionally omitted), EXHIBIT F
(intentionally omitted), EXHIBIT G (form of
subordination agreement), EXHIBIT H (asbestos
disclosure).
The foregoing Summary of Basic Lease Terms ("Summary") is incorporated into
and made a part of this Lease. Each initially capitalized word used in this
Lease or any Addendum or Amendment shall have the meaning ascribed to such
words in this Summary, unless the context clearly indicates another meaning.
In the event of any conflict between the Summary and the Lease, the provision
of this Summary shall control.
LANDLORD: TENANT:
LARVAN PROPERTIES, HEALTHEON CORPORATION, A DELAWARE
A CALIFORNIA GENERAL PARTNERSHIP CORPORATION
By: VANDERSON CONSTRUCTION, INC. a By: /s/ Kallen Chan
California corporation, its ---------------------------------
General Partner
KALLEN CHEN, Controller
---------------------------------
By: /s/ George F. Van Sickle [Typed or printed name and title]
----------------------------------
Dated: 12/5/97
------------------------------
George F. Van Sickle-President
----------------------------------
[Typed or printed name and title]
By: Larscom Incorporated, a Delaware
corporation
its General Partner
By: /s/ Bruce Horn
----------------------------------
Bruce Horn VP Finance
----------------------------------
[Typed or printed name and title]
By: /s/ Donn Byrne
----------------------------------
Donn Byrne, General Partner
Dated: 12/8/97
-------------------------------
2
<PAGE>
LEASE
- -------------------------------------------------------------------------------
This Lease is dated as of the lease reference date specified in SECTION
A of the Summary and is made by and between the party identified as Landlord
in SECTION B of the Summary and the party identified as Tenant in SECTION C
of the Summary.
ARTICLE 1
DEFINITIONS
1.1 GENERAL: Any initially capitalized term that is given a special meaning
by this Article 1, the Summary, or by any other provision of this Lease
(including the exhibits attached hereto) shall have such meaning when used in
this Lease or any addendum or amendment hereto unless otherwise clearly
indicated by the context.
1.2 ADDITIONAL RENT: The term "Additional Rent" is defined in PARA 3.2.
1.3 ADDRESS FOR NOTICES: THe term "Address for Notices" shall mean the
addresses set forth in the SECTIONS Q AND R of the Summary; provided,
however, that after the Commencement Date, Tenant's Address for Notices shall
be the address of the Premises.
1.4 AGENTS: The term "Agents" shall mean the following: (i) with respect
to Landlord or Tenant, the agents, employees, contractors, and invitees of
such party; and (ii) in addition with respect to Tenant, Tenant's subtenants
and their respective agents, employees, contractors, and invitees.
1.5 AGREED INTEREST RATE: The term "Agreed Interest Rate" shall mean that
interest rate determined as of the time it is to be applied that is equal to
the lesser of (i) 3% in excess of the discount rate established by the
Federal Reserve Bank of San Francisco as it may be adjusted from time to
time, or (ii) the maximum interest rate permitted by Law.
1.6 BASE MONTHLY RENT: The term "Base Monthly Rent" shall mean the fixed
monthly rent payable by Tenant pursuant to PARA 3.1 which is specified
in SECTION K of the Summary.
1.7 BUILDING: The term "Building" shall mean the building in which the
Premises are located which Building is identified in SECTION F of the
Summary, the gross leasable area of which is referred to herein as the
"Building Gross Leasable Area."
1.8 COMMENCEMENT DATE: The term "Commencement Date" is the date the Lease
Term commences, which term is defined in PARA 2.2.
1.9 COMMON AREA: The term "Common Area" means the area of the Project
outside the walls of the Building.
1.10 COMMON OPERATING EXPENSES: The term "Common Operating Expenses" is
defined in PARA 8.2.
1.11 INTENTIONALLY OMITTED.
1.12 EFFECTIVE DATE: The term "Effective Date" shall mean the date the last
signatory to this Lease whose execution is required to make it binding on the
parties hereto shall have executed this Lease.
1.13 EVENT OF TENANT'S DEFAULT: The term "Event of Tenant's Default" is
defined in PARA 13.1.
1.14 HAZARDOUS MATERIALS: The term "Hazardous Materials" and "Hazardous
Materials Laws" are defined in PARA 7.2E.
1.15 INSURED AND UNINSURED PERIL: The terms "Insured Peril" and "Uninsured
Peril" are defined in PARA 11.2E.
1.16 LAW: The term "Law" shall mean any judicial decision, statutes,
constitution, ordinance, resolution, regulation, rule, administrative order,
or other requirement of any municipal, county, state, federal or other
government agency or authority having jurisdiction over the parties to this
Lease or the Premises, or both, in effect either at the Effective Date or any
time during the Lease Term.
1.17 LEASE: The term "Lease" shall mean the Summary, this Lease which is
attached to the Summary and all elements of this Lease identified in SECTION I
of the Summary, all of which are attached hereto and incorporated herein by
this reference.
1.18 LEASE TERM: The term "Lease Term" shall mean the term of this Lease
which shall commence on the Commencement Date and continue for the period
specified in SECTION J of the Summary.
1.19 LENDER: The term "Lender" shall mean any beneficiary, mortgagee,
secured party, lessor, or other holder of any Security Instrument.
1.20 PERMITTED USE: The term "Permitted Use" shall mean the use specified
in SECTION N of the Summary.
1.21 PREMISES: The term "Premises" shall mean that building area described
in SECTION D of the Summary that is within the Building.
1.22 PROJECT" The term "Project" shall mean that real property and the
improvements thereon which are specified in SECTION E of the Summary the
aggregate gross leasable area of which is referred to herein as the "Project
Gross Leasable Area."
1.23 PRIVATE RESTRICTIONS: The term "Private Restrictions" shall mean all
recorded covenants, conditions and restrictions, private agreements,
reciprocal easement agreements, and any other recorded instruments affecting
the use of the Premises which (i) exists as of the Effective Date, or (ii) are
recorded after the Effective Date and are approved by Tenant.
1.24 REAL PROPERTY TAXES: The term "Real Property Taxes" is defined in
PARA 8.3.
1.25 SCHEDULED COMMENCEMENT DATE: The term "Scheduled Commencement Date"
shall mean the date specified in SECTION I of the Summary.
1.26 SECURITY INSTRUMENT: The term "Security Instrument" shall mean any
underlying lease, mortgage or deed of trust which now or hereafter affects the
<PAGE>
Project, and any renewal, modification, consolidation, replacement or
extension thereof.
1.27 SUMMARY: The term "Summary" shall mean the Summary of Basic Lease
Terms executed by Landlord and Tenant that is part of this Lease.
1.28 TENANT'S ALTERATIONS: The term "Tenant's Alterations" shall mean all
improvements, additions, alterations, and fixtures installed in the Premises
by Tenant at its expense which are not Trade Fixtures.
1.29 TENANT'S SHARE: The term "Tenant's Share" shall mean the percentage
obtained by dividing Tenant's Gross Leasable Area by the Building Gross
Leasable Area, which as of the Effective Date is the percentage identified in
SECTION G of the Summary.
1.30 TRADE FIXTURES: The term "Trade Fixtures" shall mean (i) Tenant's
inventory, furniture, signs, and business equipment, and (ii) anything
affixed to the Premises by Tenant at its expense for purposes of trade,
manufacture, ornament or domestic use (except replacement of similar work or
material originally installed by Landlord) which can be removed without
material injury to the Premises unless such thing has, by the manner in which
it is affixed, become an intregal part of the Premises.
ARTICLE 2
DEMISE, CONSTRUCTION, AND ACCEPTANCE
2.1 DEMISE OF PREMISES: Landlord hereby leases to Tenant, and Tenant
leases from Landlord, for the Lease Term upon the terms and conditions of
this Lease, the Premises for Tenant's own use in the conduct of Tenant's
business together with the right to use all of the Parking Stalls within the
Project (subject to the limitations set forth in PARA 4.5. Landlord reserves
the use of the exterior walls, the roof and the area beneath and above the
Premises, together with the right to install, maintain, use, and replace
ducts, wires, conduits and pipes leading through the Premises in locations
which will not materially interfere with Tenant's use of the Premises.
2.2 COMMENCEMENT DATE: On the Scheduled Commencement Date, the Lease Term
shall commence, and such date shall be referred to herein as the
"Commencement Date."
2.3 INTENTIONALLY OMITTED.
2.4 DELIVERY AND ACCEPTANCE OF POSSESSION: If this Lease provides that
Landlord must deliver possession of the Premises to Tenant on a certain date,
then if Landlord is unable to deliver possession of the Premises to Tenant on
or before such date for any reason whatsoever, this Lease shall not be
voidable for a period of 60 days thereafter, and Landlord shall not be liable
to Tenant for any loss or damage resulting therefrom. If Landlord has not
delivered possession within such 60 day period, Tenant may terminate this
Lease without further liability to Landlord by giving Landlord ten (10) days
written notice to deliver possession or have the Lease terminated. If
Landlord does not deliver possession within such ten (10) day period, then
the Lease shall be terminated, and Landlord shall forthwith return to Tenant
any Rent or Security Deposit which Tenant has paid or provided to Landlord.
Tenant shall accept possession and enter into good faith occupancy of the
entire Premises on the Commencement Date. Tenant acknowledges that it has had
an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the
Premises in its then existing condition, "as-is", including all patent and
latent defects. Tenant's taking possession of any part of the Premises shall
be deemed to be an acceptance by Tenant of the improvements. At the time
Landlord delivers possession of the Premises to Tenant, Landlord and Tenant
shall together execute an Acceptance Agreement in the form attached as
EXHIBIT D, appropriately completed. Landlord shall have no obligation to
deliver possession, nor shall Tenant be entitled to take occupancy, of the
Premises until such Acceptance Agreement has been executed, but Tenant's
obligation to pay Base Monthly Rent and Additional Rent shall not be excused
or delayed because of Tenant's failure to execute such Acceptance Agreement.
2.5 EARLY OCCUPANCY: From the Effective Date to the Commencement Date,
Tenant shall have the right to enter and use the Premises for the purpose of
deliveries, interior renovation and installation of improvements, equipment,
and furniture, phone installation, and general setup (the "Early Occupancy
Period"). Occupancy during the Early Occupancy Period shall be subject to all
of the terms, covenants and conditions of the Lease (including but not limited
to provisions for insurance and indemnity; provided; however, that the rent
payable during the Early Occupancy Period shall be waived. During the Early
Occupancy Period, Tenant shall pay for all utility services for the Premises,
including but not limited to gas, electric, water, cleaning and janitorial,
and trash disposal, and shall have such services billed directly to Tenant
for payment. During the Early Occupancy Period, Tenant shall at all times
make the Project and the Premises available for Landlord's Agents to conduct
needed repair and construction work to carry out Landlord's responsibilities
under the Lease and the First Addendum to Lease, including but not limited to
Landlord's obligation to remove asbestos containing materials under
Paragraph 5 of the First Addendum to Lease, and otherwise to improve the
Building as needed. Neither time required for such matters nor any delays in
Landlord's completion of the improvements to building systems which are
contemplated hereby shall affect, delay, or extend the Commencement Date.
Tenant shall not be entitled to begin early occupancy until the Letter of
Credit required by Paragraph 1 of the First Addendum to Lease is posted as
required therein.
ARTICLE 3
RENT
3.1 BASE MONTHLY RENT: Commencing on the Commencement Date and continuing
throughout the Lease Term. Tenant shall pay to Landlord the Base Monthly
Rent set forth in SECTION K of the Summary.
3.2 ADDITIONAL RENT: Commencing on the Commencement Date and continuing
throughout the
2
<PAGE>
Lease Term, Tenant shall pay the following as additional rent (the
"Additional Rent"): (i) any late charges or interest due Landlord pursuant to
PARA 3.4; (ii) Tenant's Share of Common Operating Expenses as provided in
PARA 8.1; (iii) Landlord's share of any Subrent received by Tenant upon
certain assignments and sublettings as required by PARA 14.1 and any costs
and attorney's fees required by said Paragraph; (iv) any legal fees and costs
due Landlord pursuant to PARA 15.9; and (v) any other charges due Landlord
pursuant to this Lease.
3.3 PAYMENT OF RENT: On or before the Commencement Date, Tenant shall pay
to Landlord the amount set forth in SECTION L of the Summary as prepayment of
rent for credit against the first installment(s) of Base Monthly Rent. All
rent required to be paid in monthly installments shall be paid in advance on
the first day of each calendar month during the Lease Term. If Section K of
the Summary provides that the Base Monthly Rent is to be increased during the
Lease Term and if the date of such increase does not fall on the first day of
a calendar month, such increase shall become effective on the first day of
the next calendar month. All rent shall be paid in lawful money of the United
States, without any abatement, deduction or offset whatsoever (except as
specifically provided in PARA 11.4 and PARA 12.3), and without any prior
demand therefor. Rent shall be paid to Landlord at its address set forth in
Section P of the Summary, or at such other place as Landlord may designate
from time to time. Tenant's obligation to pay Base Monthly Rent and Tenant's
Share of Common Operating Expenses shall be prorated at the commencement and
expiration of the Lease Term.
3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT. If any Base Monthly Rent
or Additional Rent is not received by Landlord from Tenant within five (5)
calendar days after the date on which Landlord gives Tenant written notice
that it is due and unpaid, then Tenant shall immediately pay to Landlord a
late charge equal to Six Percent (6%) of such delinquent rent as liquidated
damages for Tenant's failure to make timely payment (and not in lieu of
interest due thereon). If Landlord gives such a notice on two occasions
within any twenty four (24) month period, then the said late charge shall be
payable thereafter and for the remainder of this Lease without notice, in the
event that such Rent is not received by Landlord from Tenant within five (5)
calendar days after the date on which it is due. In no event shall this
provision for a late charge be deemed to grant to Tenant a grace period or
extension of time within which to pay any rent or prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
pay any rent due under this Lease in a timely fashion, including any right to
terminate this Lease pursuant to PARA 13.2B. If any rent remains delinquent
for a period in excess of 30 days then, in addition to such late charge,
Tenant shall pay to Landlord interest on such rent at the Agreed Interest
Rate from the date on which such amount became due until fully paid.
3.5 SECURITY DEPOSIT: On the Effective Date, Tenant shall deposit with
Landlord the amount set forth in SECTION M of the Summary as security for the
performance by Tenant of its obligation under this Lease, and not as
prepayment of rent, as well as any further Security Deposit required pursuant
to the First Addendum to Lease (collectively the "Security Deposit"); subject
to the provisions of Paragraph 1 of the First Addendum to Lease in regard to
delayed provision of the further Security Deposit required by the First
Addendum to Lease. Landlord may from time to time apply such portion of the
Security Deposit as is reasonably necessary for the following purposes:(i) to
remedy any default by Tenant in the payment of rent; (ii) to repair damage to
the Premises caused by Tenant (provided, that any such application occurring
prior to the expiration or earlier termination of this Lease shall be done
only to remedy an Event of Tenant's default); (iii) to clean, repair, and
restore the Premises upon termination of the Lease to the condition required
hereby; and (iv) to remedy any other default of Tenant to the extent
permitted by Law and, in this regard, Tenant hereby waives any restriction on
the uses to which the Security Deposit may be put contained in California
Civil Code Section 1950.7. In the event the Security Deposit or any portion
thereof is so used, Tenant agrees to pay to Landlord promptly upon demand an
amount in cash sufficient to restore the Security Deposit to the full
original amount. Landlord shall not be deemed a trustee of the Security
Deposit, may use the Security Deposit in business, and shall not be required
to segregate it from its general accounts. Tenant shall not be entitled to
any interest on the Security Deposit. If Landlord transfers the Premises
during the Lease Term, Landlord may pay the Security Deposit to any
transferee of Landlord's interest in conformity with the provisions of
California Civil Code Section 1950.7 and/or any successor statute, in which
event the transferring Landlord will be released from all liability for the
return of the Security Deposit. Upon expiration or sooner termination of the
Lease, Landlord shall return to Tenant the balance of the Security Deposit
held by Landlord on such date of expiration or termination, less any amounts
used by Landlord in accordance with this Lease, within a commercially
reasonable time (and Tenant waives the specific time requirements in regard
to return of the Security Deposit which are contained in Civil Code Section
1950.7). As used in this Paragraph, a "commercially reasonable time" for
return of the Security Deposit shall mean within thirty (30) days after
Landlord recovers possession of the Premises, except that if Landlord in good
faith claims or is investigating a claim to all or any portion of the
Security Deposit by reason of the application thereof to defaults other than
non-payment of Base Monthly Rent or Common Operating Expenses, then Landlord
shall return any remaining portion of the Security Deposit within forty five
(45) days after Landlord recovers possession of the Premises.
ARTICLE 4
USE OF PREMISES
4.1 LIMITATION ON USE: Tenant shall use the Premises solely for the
Permitted Use specified in SECTION N of the Summary. Tenant shall not do
anything in or about the Premises which will (i) cause structural injury to
the Building, or (ii) cause damage to any part of the Building except to the
extent reasonably necessary for the installation of Tenant's Trade Fixtures
and Tenant's Alterations, and then only in a manner which has been first
approved by Landlord in writing. Tenant shall not operate any equipment
within the
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Premises which will (i) materially damage the Building or the Common Area,
(ii) overload existing electrical systems or other mechanical equipment
servicing the Building, (iii) impair the efficient operation of the sprinkler
system or the heating, ventilating or air conditioning ("HVAC") equipment
within or servicing the Building, or (iv) damage, overload or corrode the
sanitary sewer system. Tenant shall not attach, hang or suspend anything from
the ceiling, roof, walls or columns of the Building or set any load on the
floor in excess of the load limits for which such items are designed nor
operate hard wheel forklifts within the Premises. Any dust, fumes, or waste
products generated by Tenant's use of the Premises shall be contained and
disposed so that they do not (i) create an unreasonable fire or health
hazard, (ii) damage the Premises, or (iii) result in the violation of any
Law. Except as approved by Landlord, Tenant shall not change the exterior of
the Building or install any equipment or antennas on or make any penetrations
of the exterior or roof of the Building. Tenant shall not commit any waste in
or about the Premises, and Tenant shall keep the Premises in a neat, clean,
attractive and orderly condition, free of any nuisances. If Landlord
designates a standard window covering for use throughout the Building, Tenant
shall use this standard window covering to cover all windows in the Premises.
Tenant shall not conduct on any portion of the Premises or the Project any
sale of any kind, including any public or private auction, fire sale,
going-out-of-business sale, distress sale or other liquidation sale.
4.2 COMPLIANCE WITH REGULATIONS: Tenant shall not use the Premises in
any manner which violates any Laws or Private Restrictions which affect the
Premises. Tenant shall abide by and promptly observe and comply with all Laws
and Private Restrictions. Tenant shall not use the Premises in any manner
which will cause a cancellation of any insurance policy covering Tenant's
Alterations or any improvements installed by Landlord at its expense or which
poses an unreasonable risk of damage or injury to the Premises. Tenant shall
not sell, or permit to be kept, used, or sold in or about the Premises any
article which may be prohibited by the standard form of fire insurance
policy. Tenant shall comply with all reasonable requirements of any insurance
company, insurance underwriter, or Board of Fire Underwriters which are
necessary to maintain the insurance coverage carried by either Landlord or
Tenant pursuant to this Lease.
4.3 OUTSIDE AREAS: No materials, supplies, tanks or containers,
equipment, finished products or semi-finished products, raw materials,
inoperable vehicles or articles of any nature shall be stored upon or
permitted to remain outside of the Premises except in fully fenced and
screened areas outside the Building which have been designed for such purpose
and have been approved in writing by Landlord for such use by Tenant.
4.4 SIGNS: Tenant shall not place on any portion of the Premises any sign,
placard, lettering in or on windows, banner, displays or other advertising or
communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord. All such approved signs shall
strictly conform to all Laws and shall be installed at the expense of Tenant.
Tenant shall maintain such signs in good condition and repair.
4.5 PARKING: Tenant is allocated and shall have the exclusive right to
use all of the parking stalls contained within the Project for its use and
the use of Tenant's Agents. Tenant shall not at any time park its vehicles or
the vehicles of others in any portion of the Project not designated by
Landlord as a parking area. All trucks and delivery vehicles shall be (i)
parked at the rear of the Building, (ii) loaded and unloaded in a manner
which does not interfere with the businesses of other occupants of the
Project, and (iii) permitted to remain on the Project only so long as is
reasonably necessary to complete loading and unloading, and in no cases
overnight. In the event Landlord elects or is required by any Law to limit or
control parking in the Project or automobile commuting by Tenant's employees,
by whatever method, Tenant agrees to participate in such program under such
reasonable rules and regulations as are from time to time established by
Landlord, and in whatever what is required for Landlord to comply with its
legal obligations.
ARTICLE 5
TRADE FIXTURES AND ALTERATIONS
5.1 TRADE FIXTURES: Throughout the Lease Term, Tenant may provide and
install, and shall maintain in good condition, any Trade Fixtures required in
the conduct of its business in the Premises. All Trade Fixtures shall remain
Tenant's property.
5.2 TENANT'S ALTERATIONS: Construction by Tenant of Tenant's Alterations
shall be governed by the following:
A. Tenant shall not construct any Tenant's Alterations or otherwise
alter the Premises without Landlord's prior written approval, to make
Tenant's Alterations (i) which do not affect the structural or exterior parts
or water tight character of the Building, and (ii) the reasonable estimated
cost of which, plus the original cost of any part of the Premises removed or
materially altered in connection with such Tenant's Alterations, together do
not exceed the Permitted Tenant Alterations Limit specified in SECTION O of
the Summary per work of improvement. In the event that Tenant makes Tenant's
Alterations which do not require Landlord's approval pursuant to the
preceding sentence, Tenant shall supply Landlord with notice of the work which
has been done, and "as-built" drawings which show the work that has been
done. In the event Landlord's approval for any Tenant's Alterations is
required, Tenant shall not construct the Tenant's Alterations until Landlord
has approved in writing the plans and specifications therefor, and such
Tenant's Alterations shall be constructed substantially in compliance with
such approved plans and specifications by a licensed contractor first
approved by Landlord. All Tenant's Alterations constructed by Tenant shall be
constructed by a licensed contractor in accordance with all Laws using new
materials of good quality.
B. Tenant shall not commence
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construction of any Tenant's Alterations until (i) all required governmental
approvals and permits have been obtained, (ii) all requirements regarding
insurance imposed by this Lease have been satisfied, (iii) Tenant has given
Landlord at least five days' prior written notice of its intention to commence
such construction, and (iv) if reasonably requested by Landlord, Tenant has
obtained contingent liability and broad form builders' risk insurance in an
amount reasonably satisfactory to Landlord if there are any perils relating
to the proposed construction not covered by insurance carried pursuant to
Article 9.
C. All Tenant's Alterations shall remain the property of Tenant during
the Lease Term and may be altered or removed from the Premises, during the
Lease Term provided that, in so doing, Tenant complies with all provisions of
this Article 5 in doing so, and provided further that Tenant repairs any
damage to the Premises or the Project caused by such alteration or removal,
restoring the Premises and the Project to their condition prior to the
installation of the removed Tenant's Alterations. At the expiration or sooner
termination of the Lease Term, all Tenant's Alterations shall be surrendered
to Landlord as part of the realty and shall then become Landlord's property,
and Landlord shall have no obligation to reimburse Tenant for all or any
portion of the value or cost thereof, provided, however, that if Landlord
requires Tenant to remove any Tenant's Alterations, Tenant shall so remove
such Tenant's Alterations prior to the expiration or sooner termination of
the Lease Term. Notwithstanding the foregoing, Tenant shall not be obligated
to remove any Tenant's Alterations with respect to which the following is
true: (i) Tenant was required, or elected, to obtain the approval of Landlord
to the installation of the Tenant's Alterations in question; (ii) at the time
Tenant requested Landlord's approval, Tenant requested of Landlord in writing
that Landlord inform Tenant of whether or not Landlord would require Tenant
to remove such Tenant's Alterations at the expiration of the Lease Term; and
(iii) at the time Landlord granted its approval, it did not inform Tenant
that it would require Tenant to remove such Tenant's Alterations at the
expiration of the Lease Term.
5.3 ALTERATIONS REQUIRED BY LAW: Tenant shall make any alteration,
addition or change of any sort to the Premises that is required by any Law
because of (i) Tenant's particular use or change of use of the Premises; (ii)
Tenant's application for any permit or governmental approval; or (iii)
Tenant's construction or installation of any Tenant's Alterations or Trade
Fixtures. Any other alteration, addition, or change required by Law which is
not the responsibility of Tenant pursuant to the foregoing shall be made by
Landlord (subject to Landlord's right to reimbursement from Tenant specified
in this Lease).
5.4 AMORTIZATION OF CERTAIN CAPITAL IMPROVEMENTS: Tenant shall pay
Additional Rent in the event Landlord reasonably elects or is required to
make any of the following kinds of capital improvements to the Project and
the cost thereof is not reimbursable as a Common Operating Expense: (i)
capital improvements required to be constructed in order to comply with any
Law (excluding any Hazardous Materials Law) not in effect or applicable to
the Project as of the Effective Date; (ii) modification of existing or
construction of additional capital improvements or building service equipment
for the purpose of reducing the consumption of utility services or Common
Operating Expenses of the Project; (iii) replacement of capital improvements
or building service equipment existing as of the Effective Date when required
because of normal wear and tear; and (iv) restoration of any part of the
Project that has been damaged by any peril to the extent the cost thereof is
not covered by insurance proceeds (which shall include, for the purposes of
this Paragraph 5.4 only, the amount of any "deductible" (allowed hereby) on
the applicable policy(ies) of insurance) actually recovered by Landlord up to
a maximum amount per occurrence of 10% of the then replacement cost of the
Project. The amount of Additional Rent Tenant is to pay with respect to each
such capital improvement shall be determined as follows:
A. All costs paid by Landlord to construct such improvements (including
commercially reasonable financing costs) shall be amortized over the useful
life of such improvement (as reasonably determined by Landlord in accordance
with generally accepted accounting principles) with interest on the
unamortized balance at the then prevailing market rate Landlord would pay if
it borrowed funds to construct such improvements from an institutional
lender, and Landlord shall inform Tenant of the monthly amortization payment
required to so amortize such costs, and shall also provide Tenant with the
information upon which such determination is made
B. As Additional Rent, Tenant shall pay at the same time the Base
Monthly Rent is due an amount equal to Tenant's Share of that portion of such
monthly amortization payment fairly allocable to the Building (as reasonably
determined by Landlord) for each month after such improvements are completed
until the first to occur of (i) the expiration of the Lease Term (as it may
be extended), or (ii) the end of the term over which such costs were amortized.
5.5 MECHANIC'S LIENS: Tenant shall keep the Project free from any liens
and shall pay when due all bills arising out of any work performed, materials
furnished, or obligations incurred by Tenant or Tenant's Agents relating to
the Project. If any claim of lien is recorded (except those caused by
Landlord or Landlord's Agents), Tenant shall bond against or discharge the
same within 10 days after Tenant has notice that the same has been recorded
against the Project. Should any lien be filed against the Project or any
action be commenced affecting title to the Project, the party receiving
notice of such lien or action shall immediately give the other party written
notice thereof.
5.6 TAXES ON TENANT'S PROPERTY: Tenant shall pay before delinquency any
and all taxes, assessments, license fees and public charges levied, assessed
or imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term.
If any tax or other charge is assessed by any governmental agency because of
the execution of this Lease, such tax shall be paid by Tenant. On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments.
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ARTICLE 6
REPAIR AND MAINTENANCE
6.1 TENANT'S OBLIGATION TO MAINTAIN: Except as otherwise provided in PARA
6.2, PARA 11.1, and PARA 12.3, Tenant shall be responsible for the following
during the Lease Term:
A. Except as to those items which are Landlord's responsibility under
Paragraph 6.2, Tenant shall clean and maintain in good order, condition, and
repair when necessary the Premises and the Building and every part thereof,
through regular inspections and servicing, including, but not limited to: (i)
all plumbing and sewage facilities (including all sinks, toilets, faucets and
drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing
system; (ii) all fixtures, interior and exterior walls, floors, carpets and
ceilings; (iii) all windows, doors, entrances, plate glass, showcases and
skylights (including cleaning both interior and exterior surfaces); (iv) all
electrical facilities and all equipment (including all lighting fixtures,
lamps, bulbs, tubes, fans, vents, exhaust equipment and systems); (vi) any
automatic fire extinguisher equipment on the Project; (vii)the exterior
surfaces (including painting) of the Building, (ix) utility facilities and
other building service equipment; (x) the parking area, including cleaning,
painting, restriping and resurfacing; (xi) the landscaping and other exterior
facilities of the Project, including replacement or installation of lighting
fixtures, directional or other signs and signals, irrigation systems, trees,
shrubs, ground cover and other plant materials; and
B. With respect to utility facilities servicing the Premises (including
electrical wiring and conduits, gas lines, water pipes, and plumbing and
sewage fixtures and pipes), Tenant shall be responsible for the maintenance
and repair of all such facilities, including all such facilities that are
within the walls or floor, or on the roof of the Premises, and any part of
such facility that is within the Project. Tenant shall replace any damaged or
broken glass in the Premises (including all interior and exterior doors and
windows) with glass of the same kind, size and quality. Tenant shall repair
any damage to the Premises or the Project (including exterior doors, walls,
windows, parking areas, trash areas, and landscaping) caused by vandalism or
any unauthorized entry, provided, that if and only to the extent that Tenant
is not covered by insurance for the losses described in this sentence,
Landlord will, at no cost or expense to itself, make a claim against any
applicable policy of insurance carried by the Landlord and covering such
damages from vandalism or unauthorized entry, and provide Tenant with the
benefit of any recovery or payment received in that regard. Landlord shall
have no duty to make any claim unless, in Landlord's reasonable judgment, the
claim is meritorious. In the event that the claim is wholly or partially
denied, Landlord shall not have further responsibility for prosecuting the
claim, but on Tenant's written request, Landlord will assign the claim,
without warranty, to Tenant, which may prosecute the claim (provided further,
that Tenant shall at all times meet any of its own expenses of prosecuting
any assigned claim against any insurance carrier, and hold Landlord harmless
and indemnify Landlord against any damage to Landlord resulting from the
making or prosecution of such a claim).
C. Tenant shall (i) maintain and repair all HVAC equipment for the
Building, and shall keep the same in good condition through regular
inspection and servicing, and (ii) maintain continuously throughout the Lease
Term a service contract for the maintenance of all such HVAC equipment with a
licensed HVAC repair and maintenance contractor approved by Landlord, which
contract provides for the periodic inspection and servicing of the HVAC
equipment at least once every 60 days during the Lease Term. Notwithstanding
the foregoing, Landlord may elect at any time to assume responsibility for
the maintenance, repair and replacement of such HVAC equipment. Tenant shall
furnish Landlord with copies of all such service contracts, which shall
provide that they may not be canceled or changed without at least 30 days'
prior written notice to Landlord.
D. All repairs and replacements required of Tenant shall be promptly
made with new materials of like kind and quality. If the work affects the
structural parts of the Building or if the estimated cost of any item of
repair or replacement is in excess of the Permitted Tenant's Alterations
Limit, then Tenant shall first obtain Landlord's written approval of the
scope of the work, plans therefor materials to be used and the contractor
Notwithstanding anything to the contrary in Paragraph 6.1, Landlord
shall perform and construct, and Tenant shall have no responsibility to
perform or construct, any repair, maintenance or improvement to the Premises
(i) necessitated by the acts or omissions of Landlord, or its Agents, (ii)
required under Landlord's Corrective Responsibility (as defined herein), or
(iii) for which Landlord has a right of reimbursement from others.
Restoration of damage which is covered by Articles 11 or 12 shall be
determined as set forth in such Articles. Whenever the proper repair and
maintenance required of Tenant rises to the level of replacement of the roof,
building systems, HVAC systems, or other matters which are otherwise Tenant's
responsibility, Landlord shall have the responsibility to conduct such
replacement, which shall be (i) treated as a "capital expenditure" if it is a
capital expenditure under generally accepted accounting principles, in which
case the costs thereof shall be amortized and paid by Tenant in accordance
with the provisions of Paragraph 5.4; or (ii) treated as an item of Common
Operating Expenses if it is not a capital expenditure under generally
accepted accounting principles Determination of whether such an item is a
capital expense or not under generally accepted accounting principles shall
be conclusively made by Landlord's certified public accountant.
To the extent that any of Tenant's repair and maintenance
responsibilities involve matters which are wholly or partially covered under
any warranty by a third party to Landlord, Landlord will, at no cost or
expense to itself, make a claim against any applicable warranty available to
Landlord and covering such damages and provide Tenant with the benefit of any
recovery or payment received in that regard. Landlord shall have no duty to
make any claim unless, in Landlord's reasonable judgment, the claim is
meritorious. In the event that the claim is wholly or
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partially denied, Landlord shall not have further responsibility for
prosecuting the claim, but on Tenant's written request, Landlord will assign
the claim, without warranty, to Tenant, which may prosecute the claim
(provided further, that Tenant shall at all times meet any expenses of
prosecuting any assigned claim against any warrantor, and hold Landlord
harmless and indemnify Landlord against any damage to Landlord resulting from
the making or prosecution of such a claim).
6.2 LANDLORD'S OBLIGATION TO MAINTAIN: Landlord shall repair and maintain
in good order and replace when necessary (i) the structural parts of the
Building, including, without limitation, the foundation, load-bearing walls,
the structural members of the roof, and the floor slab, (ii) the plumbing
lines, pipes, and conduits serving the Premises, including the fire
protection loop, to the point of entry into the Building; and (iii) the roof
membrane, so that the same are kept in good order and repair. Landlord shall
further be responsible for the correction of defects in design and
construction of the Project existing as of the Commencement Date (unless
caused by the acts or omissions of Tenant or Tenant's Agents, and in the case
of the roofing system and membrane and the HVAC system, only to the extent
provided in the First Addendum to Lease) and corrections of violations of any
Laws relating to the Premises which were in existence as of the Commencement
Date (except as otherwise provided in this Lease, including, but not limited
to, those provisions which assign responsibility for compliance with the
Americans with Disabilities Act to Tenant as regards the interior of the
Premises). The responsibility for correction of defects and legal violations
set forth in the preceding sentence is referred to herein as "Landlord's
Corrective Responsibility". Landlord shall not be responsible for repairs
required by an accident, fire or other peril or for damage caused to any part
of the Project by any act or omission of Tenant or Tenant's Agents except as
otherwise required by Article 11. Landlord may engage contractors of its
choice to perform the obligations required of it by this Article, and the
necessity of any expenditure to perform such obligations shall be at the
sole, but reasonable, discretion of Landlord. Landlord's expenses in
complying with this Paragraph shall be reimbursed by Tenant according to the
following provisions: (i) such expense shall be treated as a "capital
expenditure" if it is a capital expenditure under generally accepted
accounting principles, in which case the costs thereof shall be amortized and
paid by Tenant in accordance with the provisions of Paragraph 5.4; or (ii)
such expense shall be treated as an item of Common Operating Expenses if it
is not a capital expenditure under generally accepted accounting principles.
Determination of whether such an item is a capital expense or not under
generally accepted accounting principles shall be conclusively made by
Landlord's certified public accountant. Landlord shall be solely responsible
for the expense of complying with Landlord's Corrective Responsibility, and
shall not be entitled to any reimbursement from Tenant with respect to such
matters.
6.3 CONTROL OF EXTERIOR AREA: Landlord shall have the right, without the
same constituting an actual or constructive eviction and without entitling
Tenant to any abatement of rent, to: (i) close any part of the exterior area
of the Project to whatever extent required in the opinion of Landlord's
counsel to prevent a dedication thereof or the accrual of any prescriptive
rights therein so long as the same does not unreasonably and adversely affect
Tenant's access to and use of the Premises and Tenant's parking rights; (ii)
temporarily close all or part of the exterior area of the Project for any
reason deemed sufficient by Landlord so long as the same does not
unreasonably and adversely affect Tenant's access to and use of the Premises
and Tenant's parking rights; (iii) make changes to the exterior area of the
Project, including, without limitation, changes in the location of driveways,
entrances, exits, parking spaces, parking areas, sidewalks or the direction
of the flow of traffic in any reasonable way, so long as same does not
unreasonably and adversely affect Tenant's use and enjoyment of the Premises;
and/or (iv) remove unauthorized persons from the Project. Tenant shall keep
the exterior area of the Project clear of all obstructions created or
permitted by Tenant. If in the opinion of Landlord unauthorized persons are
using any of the exterior area of the Project by reason of the presence of
Tenant in the Building, Tenant, upon demand of Landlord, shall restrain such
unauthorized use by appropriate proceedings. In exercising any such rights
regarding the exterior area of the Project, (i) Landlord shall make a
reasonable effort to minimize any disruption to Tenant's business, and (ii)
Landlord shall not exercise its rights in a manner that would materially
interfere with Tenant's use of the Premises without first obtaining Tenant's
consent. Landlord shall have no obligation to provide guard services or other
security measures for the benefit of the Project or the safety of Tenant,
Tenant's Agents, or others. Tenant assumes all responsibility for the
protection of Tenant and Tenant's Agents, and others on the Project, from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for
the Project.
ARTICLE 7
WASTE DISPOSAL AND UTILITIES
7.1 WASTE DISPOSAL: Tenant shall store its waste either inside the
Premises or within outside trash enclosures that are fully fenced and
screened in compliance with all Private Restrictions, and designed for such
purpose. All entrances to such outside trash enclosures shall be kept closed,
and waste shall be stored in such manner as not to be visible from the
exterior of such outside enclosures. Tenant shall cause all of its waste to
be regularly removed from the Premises at Tenant's sole cost. Tenant shall
keep all fire corridors and mechanical equipment rooms in the Premises free
and clear of all obstructions at all times.
7.2 HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of Hazardous Materials on the Project:
A. Any handling, transportation, storage, treatment, disposal or use of
Hazardous Materials by Tenant and Tenant's Agents after the Effective Date in
or about the Project shall strictly comply with all applicable Hazardous
Materials Laws. Tenant shall indemnify, defend upon demand with counsel
reasonably acceptable to Landlord, and hold harmless Landlord from and
against any liabilities,
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losses, claims, damages, lost profits, consequential damages, interest,
penalties, fines, monetary sanctions, attorneys' fees, experts' fees, court
costs, remediation costs, investigation costs, and other expenses to the
extent the same arise in any manner whatsoever out of the use, storage,
treatment, transportation, release or disposal of Hazardous Materials on or
about the Project by Tenant or Tenant's Agents after the Effective Date.
B. If the presence of Hazardous Materials on the Project caused or
knowingly or actively negligently permitted by Tenant or Tenant's Agents
after the Effective Date results in contamination or deterioration of water
or soil resulting in a level of contamination greater than the levels
established as acceptable by any governmental agency having jurisdiction over
such contamination, then Tenant shall promptly take any and all action
necessary to investigate and remediate such contamination if required by Law
or as a condition to the issuance or continuing effectiveness of any
governmental approval which relates to the use of the Project or any part
thereof. Tenant shall further be solely responsible for, and shall defend,
indemnify and hold Landlord and its agents harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, to the
extent the same arise out of or in connection with any investigation and
remediation required hereunder to return the Project to its condition existing
prior to the appearance of such Hazardous Materials.
C. Landlord and Tenant shall each give written notice to the other as
soon as reasonably practicable of (i) any communication received from any
governmental authority concerning Hazardous Materials which relates to the
Project, and (ii) any contamination of the Project by Hazardous Materials
which constitutes a violation of any Hazardous Materials Law. Tenant may use
small quantities of household chemicals such as adhesives, lubricants, and
cleaning fluids in order to conduct its business at the Premises and such
other Hazardous Materials as are necessary for the operation of Tenant's
business of which Landlord receives notice prior to such Hazardous Materials
being brought onto the Premises and which Landlord consents in writing may be
brought onto the Premises. At any time during the Lease Term, Tenant shall,
within ten (10) business days after written request therefor received from
Landlord, disclose in writing all Hazardous Materials that are being used by
Tenant on the Project, the nature of such use, and the manner of storage and
disposal.
D. Landlord, at its sole cost and expense except as set forth below in
this Subparagraph D, may cause testing wells to be installed on the Project,
and may cause the ground water to be tested to detect the presence of
Hazardous Material by the use of such tests as are then customarily used for
such purposes. If Tenant so requests, Landlord shall supply Tenant with copies
of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Tenant if
such tests disclose the existence of facts which give rise to liability of
Tenant pursuant to its indemnity given in PARA 7.2A and/or PARA 7.2B.
E. As used herein, the term "Hazardous Material," means any hazardous or
toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States
Government. The term "Hazardous Material," includes, without limitation,
petroleum products, asbestos, PCB's, and any material or substance which is
(i) listed under Article 9 or defined as hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20, (ii) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
6901 et seq. (42 U.S.C. 6903), or (iii) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response;
Compensation and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As
used herein, the term "Hazardous Material Law" shall mean any statute, law,
ordinance, or regulation of any governmental body or agency (including the
U.S. Environmental Protection Agency, the California Regional Water Quality
Control Board, and the California Department of Health Services) which
regulates the use, storage, release or disposal of any Hazardous Material.
F. LANDLORD'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Landlord shall
indemnify Tenant from its actual out of pocket cost of complying with any
administrative order (a "Compliance Order") issued by any governmental agency
pursuant to the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. 9601 et seq. or the Carpenter/Presley/Tanner
Hazardous Substances Account Act, California Health and Safety Code Section
25300, et seq., which is issued against Tenant and with which Tenant is
obligated to comply solely because of Tenant's status as an "owner" or
"operator" of the Premises, if such Compliance Order results from the
presence on the Premises of Hazardous Materials which is not caused,
exacerbated, or contributed to by Tenant or Tenant's Agents, provided that
one of the following conditions is met:
1. Tenant proves by clear and convincing evidence that the Compliance
Order arises solely from a release of Hazardous Materials which took place
before the first date on which Tenant occupied the Premises; or
2. Tenant proves by clear and convincing evidence (1) that such
Compliance Order does not result from the presence on the Premises of
Hazardous Materials which was caused, exacerbated, or contributed to by
Tenant or Tenant's Agents, and (2) that such Compliance Order does not result
from a release of Hazardous Materials which was caused, exacerbated, or
contributed to by Tenant or Tenant's Agents.
Landlord's obligation under this indemnity is limited to Tenant's
actual, out of pocket costs incurred in complying with a Compliance Order and
attorney's fees incurred in defending against a proposed Compliance Order,
provided that one of the preceding conditions is met, so long as Landlord may
select the attorney to defend Tenant and have sole authority to make all
settlement and decisions in regard to the proceedings, including the decision
whether to challenge administrative orders by appeal or court challenge.
Landlord shall have no liability under this
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Paragraph for any other claims, costs, damages, or losses incurred by Tenant,
including without limitation personal injury, property damage, punitive damages,
damage to business, lost profits, or other consequential damages incurred by
Tenant or any third party.
G. Except as otherwise disclosed to Tenant in writing prior to the
Effective Date, to the best of Landlord's knowledge (i) no underground storage
tanks are present on the Premises or Project; and (ii) no action or proceeding
is pending or threatened regarding the Premises or Project concerning any
Hazardous Material.
H. The obligations of Landlord and Tenant under this PARA 7.2 shall
survive the expiration or earlier termination of the Lease Term. The rights and
obligations of Landlord and Tenant with respect to issues relating to Hazardous
Materials are exclusively established by this PARA 7.2. In the event of any
inconsistency between any other part of this Lease and this PARA 7.2, the terms
of this PARA 7.2 shall control.
7.3 UTILITIES: Tenant shall promptly pay, as the same become due, all
charges for water, gas, electricity, telephone, sewer service, janitorial and
cleaning services, waste pick-up and any other utilities, materials or
services furnished directly to or used by the Tenant on or about the Premises
during the Lease Term, including, without limitation, (i) meter, use and/or
connection fees, hook-up fees, or standby fee (excluding any connection fees
or hook-up fees which relate to making the existing electrical, gas, and
water service accessible to the Premises as of the Commencement Date), and
(ii) penalties for discontinued to interrupted service. Landlord shall not
have any duty to provide or pay for janitorial, cleaning, or maintenance of
the Premises.
7.4 COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Landlord and Tenant shall
comply with all rules, regulations and requirements promulgated by national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing limitation or other control. Tenant
shall not be entitled to terminate this Lease not to any abatement in rent by
reason of such compliance.
ARTICLE 8
COMMON OPERATING EXPENSES
8.1 TENANT'S OBLIGATION TO REIMBURSE: As Additional Rent, Tenant shall pay
Tenant's Share (specified in SECTION G of the Summary) of all Common
Operating Expenses. Tenant shall pay such share of the actual Common
Operating Expenses incurred or paid by Landlord but not theretofore billed to
Tenant within 30 days after receipt of a written bill therefor from Landlord,
on such periodic basis as Landlord shall designate, but in no event more
frequently than once a month. Alternatively, Landlord may from time to time
require that Tenant pay Tenant's Share of Common Operating Expenses in
advance in estimated monthly installments, in accordance with the following:
(i) Landlord shall deliver to Tenant Landlord's reasonable estimate of the
Common Operating expenses it anticipates will be paid on incurred for the
Landlord's fiscal year in question; (ii) during such Landlord's fiscal year
Tenant shall pay such share of the estimated Common Operating Expenses in
advance in monthly installments as required by Landlord due with the
installments of Base Monthly Rent; and (iii) within 90 days after the end of
each Landlord's fiscal year, Landlord shall furnish to Tenant a statement in
reasonable detail of the actual Common Operating Expenses paid or incurred by
Landlord during the just ended Landlord's fiscal year and thereupon there
shall be an adjustment between Landlord and Tenant, with payment to Landlord
or credit by Landlord against the next installment of Base Monthly Rent (or
payment to Tenant by Landlord if the Lease has terminated or expired and
there are no other or further amounts due from Tenant to Landlord against
which such amounts can be credited),as the case may require, within 10 days
after delivery by Landlord to Tenant of said statement, so that Landlord
shall receive the entire amount of Tenant's Share of all Common Operating
Expenses for such Landlord's Fiscal year and no more. Tenant shall have the
right at its expense, exercisable upon reasonable prior written notice to
Landlord, to inspect the Landlord's office during normal books and records as
they relate to Common Operating Expenses. Such inspection must be within 30
days of Tenant's receipt of Landlord's annual statement for the same (and is
waived as to any year where such an inspection is not timely conducted), and
shall be limited to verification of the charges contained in such statement.
Tenant may not withhold payment of such bill pending completion of such
inspection.
8.2 COMMON OPERATION EXPENSES DEFINED: The term "Common Operating Expenses"
shall mean the following:
A. Except as otherwise provided herein, all costs and expenses paid or
incurred by Landlord in doing the following (including payments to
independent contractors providing services related to the performance of the
following): (i) performing all maintenance required of Landlord under this
Lease and performing any other maintenance which is necessitated by Tenant's
failure to maintain as obliged hereunder;(ii) maintenance of the liability,
fire and property damage insurance covering the Project carried by Landlord
pursuant to PARA 9.2 (including the prepayment of premiums for coverage of up
to one year); (iii) complying with all applicable Laws; and (iv) providing
security to the extent that Landlord may see fit in its sole discretion, to
do so.
B. The following costs, (i) Real Property Taxes as defined in PARA
8.3; (ii) the amount of any "deductible" paid by Landlord with respect to
damage caused by any insured Peril (unless the damage causes termination of
the Lease under the provisions of Article 11 hereof); (iii) the cost to
repair damage caused by an Uninsured Peril up to a maximum amount in any 12
month period equal to 2% of the replacement cost of the buildings or other
improvements damaged; and (iv) that portion of all compensation (including
benefits and premiums for workers' compensation and other insurance) paid to
or on behalf of employees of Landlord but only to the extent they are
involved in the performance of the work described by PARA 8.2A that is fairly
allocable to the Project (and not including compensation of executive
personnel of Landlord).
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C. Fees for management services rendered by either Landlord or a third
party manager engaged by Landlord (which may be a party affiliated with
Landlord), except that the total amount charged for management services and
included in Tenant's Share of Common Operating Expenses shall not exceed the
monthly rate of Two Percent (2%) of the Base Monthly Rent.
D. All additional costs and expenses incurred by Landlord with respect
to the operation, protection, maintenance, repair and replacement of the Project
which are not specified in the preceding Subparagraphs of this Paragraph 8.2 and
which are current expenses, not capital expenses, according to generally
accepted accounting principles as determined conclusively by Landlord's
independent certified public accountant; provided, however, that Common
Operating Expenses shall not include any of the following: (i) payments on any
loans or ground leases affecting the Project; (ii) depreciation of any buildings
or any major systems of building service equipment within the Project; (iii) any
cost incurred in complying with Hazardous Materials Laws, which subject is
governed exclusively by PARA 7.2, (iv) costs (a) for which Landlord has a right
of reimbursement from others, or (b) which Tenant reimburses Landlord directly
or which Tenant pays directly to a third person, or (v) costs to comply with
Landlord's Corrective Responsibility (as defined in Paragraph 6.2).
8.3 REAL PROPERTY TAXES DEFINED; The term "Real Property Taxes" shall mean
all taxes, assessments, levies, and other charges of any kind or nature
whatsoever, general and special, foreseen and unforseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services or benefits,
and any increases resulting from reassessments resulting from a change in
ownership, new construction, or any other cause and including any interest
and/or penalties accruing thereon, except as set forth below), now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct of indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of all or any portion of the Project (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein, the fixtures, equipment
and other property of Landlord, real or personal, that are an integral part
of and located on the Project, the gross receipts, income, or rentals from
the Project, or the use of parking areas, public utilities, or energy within
the Project, or Landlord's business of leasing the Project. If at any time
during the Lease Term the method of taxation or assessment of the Project
prevailing as of the Effective Date shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate
or additional tax or charge (i) on the value, use or occupancy of the Project
of Landlord's interest therein, or (ii) on or measured by the gross receipts,
income or rentals from the Project, on Landlord's business of leasing the
Project, or computed in any manner with respect to the operation of the
Project, then any such tax or charge, however designated, shall be included
within the meaning of the term "Real Property Taxes" for purposes of this
Lease. If any Real Property Tax is based upon property or rents unrelated to
the Project, then only that part of such Real Property Tax that is fairly
allocable to the Project shall be included within the meaning of the term
"Real Property Taxes". Notwithstanding the foregoing, the term "Real Property
Taxes" shall not include (i) estate, inheritance, transfer, gift or franchise
taxes of Landlord (ii) the federal or state net income tax imposed on
Landlord's income from all sources, or (iii) taxes, assessments or any other
governmental levies, or any increases in the foregoing occasioned by or
relating to (a) land and improvements not reserved for Tenant's exclusive or
nonexclusive use, (b) assessments and other fees for improvement and services
which do not benefit the Project, or (c) Hazardous Materials except to the
extent caused by Tenant's storage, use or disposal of Hazardous Materials or
(iv) interest or penalties caused by Landlord's late payment of non-payment
of Real Property Taxes, provided, that on the occasion when such were due to
be paid, Tenant had paid all of its Rent obligations to Landlord.
Notwithstanding any provision to contrary contained herein, if Landlord
elects to pay any tax, assessment or levy in total which Landlord could have
elected to pay in installments without incurring any additional expense, but
Landlord does not make such election, Tenant shall be required to pay only
Tenant's Share of each installment payable with respect to the period of time
covered by the Lease Term, as each such installment would have become due.
Additionally, Tenant shall have the right, by appropriate proceedings, to
protest or contest any assessment, reassessment or allocation of property taxes
or any change therein. Landlord shall notify Tenant in writing of any change in
property taxes within sufficient time to allow Tenant to review and, if it so
desires, to contest or protest such change. In the contest or proceedings,
Tenant may act in its own name and/or the name of the Landlord and Landlord
will, at Tenant's request and expense cooperate with Tenant in any way Tenant
may reasonably require in connection with such contest, provided that Landlord
shall not be required to incur any expense (unless Tenant agrees to reimburse
Landlord for such expense) or to incur any risks (unless Tenant agrees to
indemnify against such risks). If Tenant does not pay the property taxes when
due which are the subject of such protest or contest, Tenant shall post a bond
in lieu thereof in an amount reasonably determined by Landlord but not less than
one hundred twenty-five percent (125%) of the amount demanded by the taxing
authorities, which bond shall be in a form satisfactory to Landlord, written by
an approved surety, and which shall hold Landlord and the Project harmless from
any damage arising out of the contest and ensure the payment of any judgment
that may be rendered. With respect to any contest of property taxes or Laws,
Tenant shall hold Landlord and the Premises harmless from any damage arising out
of such protest or contest and shall pay any judgment that may be rendered for
which Tenant would otherwise be liable under this Lease without such contest or
protest. Any contest conducted by Tenant under this Paragraph shall be at
Tenant's expense and if interest or late charges become payable as a result of
such contest or protest, Tenant
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shall pay the same. Tenant shall receive the net benefit (after Landlord's
expenses of obtaining the refund are paid) of all refunds of property taxes
received with respect to the Lease Term, to the extent that Tenant paid such
property taxes.
ARTICLE 9
INSURANCE
9.1 TENANT'S INSURANCE: Tenant shall maintain insurance complying with all
of the following:
A. Tenant shall procure, pay for and keep in full force and effect the
following:
(1) Commercial general liability insurance, including property
damage, against liability for personal injury, bodily injury, death and damage
to property occurring in or about, or resulting from an occurrence in or about,
the Premises with combined single limit coverage of not less than the amount of
Tenant's Liability Insurance Minimum specified in SECTION P of the Summary,
which insurance shall contain a "contractual liability" endorsement insuring
Tenant's performance of Tenant's obligation to indemnify Landlord contained in
PARA 10.3 (provided, however, that Tenant may satisfy all but $1,000,000.00 of
this commercial general liability insurance coverage requirement by an "umbrella
policy" of excess liability coverage which meets all of the other requirements
hereof, which covers at least the same losses and damages as a commercial
general liability policy, and which is in a form approved by Landlord);
(2) Fire and property damage insurance in so-called "all risk"
form insuring Tenant's Trade Fixtures and Tenant's Alterations for the full
actual replacement cost thereof;
(3) Such other insurance that is either (i) reasonably required by
any Lender, or (ii) reasonably required by Landlord and customarily carried by
tenants of similar property in similar businesses. In the event that Tenant
believes that a Lender's requirement is unreasonable, Tenant shall nevertheless
obtain the required insurance, but Landlord shall be reasonable for the cost
thereof if it is established that requirement was unreasonable.
B. Where applicable and required by Landlord, each policy of insurance
required to be carried by Tenant pursuant to this PARA 9.1: (i) shall name
Landlord and such other parties in interest as Landlord reasonably designates as
additional insured; (ii) shall be primary insurance which provides that the
insurer shall be liable for the full amount of the loss up to and including the
total amount of liability set forth in the declarations without the right of
contribution from any other insurance coverage of Landlord; (iii) shall be in a
form satisfactory to Landlord; (iv) shall be carried with companies reasonably
acceptable to Landlord; (v) shall provide that such policy shall not be subject
to cancellation, lapse, or reduction in coverage except after at least 30 days
prior written notice to Landlord so long as such provision of 30 days notice is
reasonably obtainable, but in any event not less than 10 days prior written
notice; (vi) shall not have a "deductible" in excess of such amount as is
reasonably approved by Landlord; (vii) shall contain a cross liability
endorsement; and (viii) shall contain a "severability" clause. If Tenant has in
full force and effect a blanket policy of liability insurance with the same
coverage for the Premises as described above, as well as other coverage of other
premises and properties of Tenant, or in which Tenant has some interest, such
blanket insurance shall satisfy the requirements of this PARA 9.1.
C. A copy of each certificate of the insurer, certifying that such
policy has been issued, providing the coverage required by this PARA 9.1, and
containing the provisions specified herein, shall be delivered to Landlord prior
to the time Tenant or any of its Agents enters the Premises and upon renewal of
such policies, but not less than 5 days prior to the expiration of the term of
such coverage. Landlord may, at any time, and form time to time, inspect and/or
copy any and all insurance policies required to be procured by Tenant pursuant
to this PARA 9.1. If any Lender or insurance advisor reasonably determines at
any time that the amount of coverage required for any policy of insurance Tenant
is to obtain pursuant to this PARA 9.1 is not adequate, then Tenant shall
increase such coverage for such insurance to such amount as such Lender or
insurance advisor reasonably deems adequate, not to exceed the level of coverage
for such insurance commonly carried by comparable businesses similarly situated.
9.2 LANDLORD'S INSURANCE: Landlord shall have the following obligations and
options regarding insurance:
A. Landlord shall maintain a policy or policies of fire and property
damage insurance in so-called "all risk" form insuring Landlord (and such others
as Landlord may designate) against loss of rents for a period of not less than
12 months and from physical damage to the Project with coverage of not less than
the full replacement cost thereof. Landlord may so insure the Project
separately, or may insure the Project with other property owned by Landlord
which Landlord elects to insure together under the same policy or policies.
Such fire and property damage insurance (i) may be endorsed to cover loss caused
by such additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and to provide such additional coverage as Landlord
reasonably requires, (provided, that the cost of earthquake and flood insurance
coverage shall not exceed a commercially reasonable sum and (ii) shall contain
reasonable "deductibles" which, in the case of earthquake and flood insurance,
may be up to 10% of the replacement cost of the property insured or such higher
amount as is then commercially reasonable. Landlord shall not be required to
cause such insurance to cover any Trade Fixtures or Tenant's Alterations of
Tenant.
B. Landlord may maintain a policy or policies of commercial general
liability insurance insuring Landlord (and such others as are designated by
Landlord) against liability for personal injury, bodily injury, death and damage
to property occurring or resulting from an occurrence in, on or about the
Project, with combined single limit coverage in such amount as Landlord from
time to time determines is reasonably necessary for its protection.
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9.3 TENANT'S OBLIGATION TO REIMBURSE: If Landlord's insurance rates for the
Building are increased at any time during the Lease Term as a result of the
nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for the
full amount of such increase immediately upon receipt of a bill from Landlord
therefor.
9.4 RELEASE AND WAIVER OF SUBROGATION: Notwithstanding anything to the
contrary contained in this Lease, the parties hereto release each other, and
their respective agents and employees, from any liability for injury to any
person or damage to property that is caused by or results from any risk
insured against under any valid and collectible insurance policy carried by
either of the parties which contains a waiver of subrogation by the insurer
and is in force at the time of such injury or damage; subject to the
following limitations: (i) the foregoing provision shall not apply to the
commercial general liability insurance described by subparagraphs PARA 9.1A
and PARA 9.2B; (ii) such release shall apply to liability resulting from any
risk insured against or covered by self-insurance maintained or provided by
Tenant to satisfy the requirements of PARA 9.1 to the extent permitted by
this Lease; and (iii) Tenant shall not be released from any such liability to
the extent any damages resulting from such injury or damage are not covered
by the recovery obtained by Landlord from such insurance, but only if the
insurance in question permits such partial release in connection with
obtaining a waiver of subrogation from the insurer. This release shall be in
effect only so long as the applicable insurance policy contains a clause to
the effect that this release shall not affect the right of the insured to
recover under such policy. Each party shall use reasonable efforts to cause
each insurance policy obtained by it to provide that the insurer waives all
right of recovery by way of subrogation against the other party and its
agents and employees in connection with any injury or damage covered by such
policy. However, if any insurance policy cannot be obtained with such a
waiver of subrogation, or if such waiver of subrogation is only available at
additional cost and the party for whose benefit the waiver is to be obtained
does not pay such additional cost, then the party obtaining such insurance
shall notify the other party of that fact and thereupon shall be relieved of
the obligation to obtain such waiver of subrogation rights from the insurer
with respect to the particular insurance involved.
Landlord and Tenant agree to consider, in good faith, the request of
either of them addressed to the other in writing, to extend the provisions of
this Paragraph 9.4 to a contractor or subcontractor engaged by or through the
requesting party, upon the offer of such contractor or subcontractor to enter
into a similar agreement acceptable to the party to whom the request is
addressed, but neither Landlord nor Tenant shall be obligated to grant such a
request, and the decision to grant or deny such request shall be in the sole
but reasonable discretion of the party to whom the request is addressed, and
shall not be subject to any standard of reasonableness, anything to the
contrary contained in this Lease to the contrary notwithstanding.
Neither party shall lose the benefit of the waivers contained in this
Paragraph 9.4 solely on account of the fact that a loss is not covered by
insurance, if such fact is due to the other party's failure to obtain such
insurance in breach of the other party's obligations under this Lease.
ARTICLE 10
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
10.1 LIMITATION ON LANDLORD'S LIABILITY: Landlord shall not be liable to
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent (except as expressly provided otherwise herein), for any injury to
Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents,
or loss to Tenant's business resulting from any cause, including without
limitation any: (i) failure, interruption or installation of any HVAC or other
utility system or service; (ii) failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by fire or other
peril, the elements, labor disturbances of any character, or any other accidents
or other conditions beyond the reasonable control of Landlord; (iii) limitation,
curtailment, rationing or restriction on the use of water or electricity, gas or
any other form of energy or any services or utility servicing the Project; (iv)
vandalism or forcible entry by unauthorized persons or the criminal act of any
person; or (v) penetration of water into or onto any portion of the Premises or
the Building through roof leaks or otherwise. Notwithstanding the foregoing but
subject to PARA 9.4, Landlord shall be liable for any such injury, damage or
loss which is proximately caused by Landlord's willful misconduct or gross or
active negligence.
10.2 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association or other form of business
entity: (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint ventures,
members owners, stockholders, or other principals or representatives of such
business entity; and (ii) Tenant shall not have recourse to the assets of such
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, principals or representatives except to the extent of their
interest in the Project. Tenant shall have recourse only to the interest of
Landlord in the Project (or, if the Project is sold, the proceeds of sale) for
the satisfaction of the obligations of Landlord and shall not have recourse to
any other assets of Landlord for the satisfaction of such obligations.
10.3 INDEMNIFICATION OF LANDLORD: Tenant shall hold harmless, indemnify and
defend Landlord, and its employees agents and contractors, with competent
counsel reasonably satisfactory to Landlord (and Landlord agrees to accept
counsel that any insurer requires be used), from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgements
arising by reason of any death, bodily injury, personal injury or property
damage resulting from (i) any cause or causes whatsoever (other than the willful
misconduct or gross or active negligence of Landlord) occurring on or resulting
from an occurrence on the Project during the Lease Term, (ii) the negligence or
willful misconduct of Tenant or its agents, employees and contractors, wherever
the same may occur, or (iii) and Event of Tenant's Default. The provisions of
this PARA 10.3 shall survive the expiration or
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sooner termination of this Lease.
10.4 INDEMNIFICATION OF TENANT: Landlord shall hold harmless, indemnify and
defend Tenant, and its employees and Agents from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgments not
covered by insurance (including reasonable attorney's fees) arising by reason of
any death, bodily injury, personal injury or property damage resulting from the
gross or active negligence or willful misconduct of Landlord or its Agents or
employees and for which Tenant is not, pursuant to Paragraph 10.3, obligated to
indemnify Landlord. The provisions of this Paragraph 10.4 shall survive the
expiration or sooner termination of this Lease.
ARTICLE 11
DAMAGE TO PREMISES
11.1 LANDLORD'S DUTY TO RESTORE: If the Premises are damaged by any peril
after the Effective Date, Landlord shall restore the Premises unless the Lease
is terminated by Landlord pursuant to PARA 11.2 or by Tenant pursuant to PARA
11.3. All insurance proceeds available from the fire and property damage
insurance carried by Landlord pursuant to PARA 9.2 shall be paid to and become
the property of Landlord. If this Lease is terminated pursuant to either PARA
11.2 or PARA 11.3, then all insurance proceeds available from insurance carried
by Tenant which covers loss to property that is Landlord's property or would
become Landlord's property on termination of this Lease shall be paid or
assigned to and become the property of Landlord. If this Lease is not so
terminated, then upon receipt of the insurance proceeds (if the loss is covered
by insurance) and the issuance of all necessary governmental permits, Landlord
shall commence and diligently prosecute to completion the restoration of the
Premises, to the extent then allowed by Law, to substantially the same condition
in which the Premises were immediately prior to such damage. Landlord's
obligation to restore shall be limited to the Premises and interior improvements
constructed by Landlord as they existed as of the Commencement Date, excluding
any Tenant's Alterations, Trade Fixtures and/or personal property constructed or
installed by Tenant in the Premises. Tenant shall forthwith replace or fully
repair all Tenant's Alterations and Trade Fixtures installed by Tenant and
existing at the time of such damage or destruction, and all insurance proceeds
received by Tenant from the insurance carried by it pursuant to PARA 9.1A(2)
shall be used for such purpose. Landlord agrees to consult with Tenant in good
faith in regard to the replacement or repair of Tenant's Alterations or Trade
Fixtures which have been damaged, and to approve or disapprove Tenant's
proposals for Tenant's Alterations or Trade Fixtures not to be replaced or
repaired using a standard of commercial reasonableness.
11.2 LANDLORD'S RIGHT TO TERMINATE: Landlord shall have the right to
terminate this Lease in the event any of the following occurs, which right may
be exercised only by delivery to Tenant of a written notice of election to
terminate within 30 days after the date of such damage:
A. Either the Project or the Building is damaged by an Insured Peril to
such an extent that the estimated cost to restore exceeds 33% of the then
actual replacement cost thereof;
B. Either the Project or the Building is damaged by an Uninsured Peril
to such an extent that the estimated cost to restore exceeds 5% of the then
actual replacement cost thereof; provided, however, that Landlord may not
terminate this Lease pursuant to this PARA 11.2B if one or more tenants of the
Project agree in writing to pay the amount by which the cost to restore the
damage exceeds such amount and subsequently deposit such amount with Landlord
within 30 days after Landlord has notified Tenant of its election to terminate
this Lease;
C. The Premises are damaged by any peril within 12 months of the last
day of the Lease Term to such an extent that the estimated cost to restore
equals or exceeds an amount equal to six times the Base Monthly Rent then due;
provided, however, that Landlord may not terminate this Lease pursuant to this
PARA 11.2C if Tenant, at the time of such damage, has a then valid express
written option to extend the Lease Term and Tenant exercises such option to
extend the Lease Term within 15 days following the date of such damage; or
D. Either the Project or the Building is damaged by any peril and,
because of the Laws then in force, (i) cannot be restored at reasonable cost to
substantially the same condition in which it was prior to such damage, or (ii)
cannot be used for the same use being made thereof before such damage if
restored as required by this Article.
E. As used herein, the following terms shall have the following
meanings: (i) the term "Insured Peril" shall mean a peril actually or required
to be insured against for which the insurance proceeds actually received by
Landlord are sufficient (except for any "deductible" amount specified by such
insurance) to restore the Project under then existing building codes to the
condition existing immediately prior to the damage; and (ii) the term "Uninsured
Peril" shall mean any peril which is not an Insured Peril. Notwithstanding the
foregoing, if the "deductible" for earthquake or flood insurance exceeds 2% of
the replacement cost of the improvements insured, such peril shall be deemed an
"Uninsured Peril".
11.3 TENANT'S RIGHT TO TERMINATE: If the Premises are damaged by any peril
and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to PARA 11.2, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate within 10 days after Tenant receives from Landlord the estimate of the
time needed to complete such restoration.
A. The Premises are damaged by any peril and, in the reasonable opinion
of Landlord's architect or construction consultant, the restoration of the
Premises cannot be substantially completed within
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180 days after the date of the report of Landlord's architect or construction
consultant; or
B. The Premises are damaged by any peril within 12 months of the last
day of the Lease Term and, in the reasonable opinion of Landlord's architect or
construction consultant, the restoration of the Premises cannot be substantially
completed within 90 days after the date of such damage and such damage renders
unusable more than 30% of the Premises.
11.4 ABATEMENT OF RENT: In the event of damage to the Premises which does not
result in the termination of this Lease, the Base Monthly Rent and the
Additional Rent shall be temporarily abated during the period of restoration in
proportion to the degree to which Tenant's use of the Premises is impaired by
such damage. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of Tenant's business or property or for any inconvenience or
annoyance caused by such damage or restoration. Tenant hereby waives the
provisions of California Civil Code Sections 1932(2) and 1933(4) and the
provisions of any similar law hereinafter enacted.
ARTICLE 12
CONDEMNATION
12.1 LANDLORD'S TERMINATION RIGHT: Landlord shall have the right to terminate
this Lease if, as a result of a taking by means of the exercise of the power of
eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) more than 10% of the Building
Leasable Area is so taken, or (ii) more than 50% of the Common Area (which in
this Article means the area of the Project outside the Premises) is so taken.
Any such right to terminate by Landlord must be exercised within a reasonable
period of time, to be effective as of the date possession is taken by the
condemnor.
12.2 TENANT'S TERMINATION RIGHT: Tenant shall have the right to terminate
this Lease if, as a result of any taking by means of the exercise of the power
of eminent domain (including any voluntary sale or transfer by Landlord to any
condemnor under threat of condemnation), (i) 10% or more of the Premises is so
taken and that part of the Premises that remains is not or cannot be restored
within a reasonable period of time and thereby made reasonably suitable for the
continued operation of the Tenant's business, or (ii) there is a taking
affecting the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within reasonable walking distance of the Premises equal
in number to at least 80% of the number of spaces allocated to Tenant by PARA
2.1, whether by rearrangement of the remaining parking areas in the Common Area
(including construction of multi-deck parking structures or restriping for
compact cars where permitted by Law) or by alternative parking facilities on
other land. Tenant must exercise such right within a reasonable period of time,
to be effective on the date that possession of that portion of the Premises or
Common Area that is condemned is taken by the condemnor.
12.3 RESTORATION AND ABATEMENT OF RENT: If any part of the Premises or the
Common Area is taken by condemnation and this Lease is not terminated, then
Landlord shall restore the remaining portion of the Premises and Common Area and
interior improvements constructed by Landlord as they existed as of the
Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or
personal property constructed or installed by Tenant. Thereafter, except in the
case of a temporary taking, as of the date possession is taken (i) the Base
Monthly Rent shall be reduced in the same proportion that the floor area of that
part of the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises and/or (ii)
there shall be an equitable adjustment of Base Monthly Rent to reflect any
taking of the Common Area, to the extent such taking results in material
diminishment of the value and useability of Tenant's's Lease; and in either
event, Tenant shall be entitled to the benefit of any actual reduction in Common
Operating Expenses which Landlord obtains as a result thereof (not including any
condemnation award).
12.4 TEMPORARY TAKING: If any portion of the Premises is temporarily taken
for one hundred eighty (180) days or less, this Lease shall remain in effect.
If any portion of the Premises is temporarily taken by condemnation for a period
which exceeds one hundred eighty (180) days or which extends beyond the natural
expiration of the Lease Term, and such taking materially and adversely affects
Tenant's ability to use the Premises for the Permitted Use, then Tenant shall
have the right to terminate this Lease, effective on the date possession is
taken by the condemnor.
12.5 DIVISION OF CONDEMNATION AWARD: Any award made as a result of any
condemnation of the Premises or the Common Area shall belong to and be paid to
Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant for the following
so long as the award made to Landlord is not thereby reduced; (i) for the taking
of personal property or Trade Fixtures belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, (iii) for loss of
Tenant's goodwill; or (iv) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of California Code of Civil Procedure
Section 1265.130 and the provisions of any similar law hereinafter enacted
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.
ARTICLE 13
DEFAULT AND REMEDIES
13.1 EVENTS OF TENANT'S DEFAULT: Tenant shall be in default of its
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):
A. Tenant shall have failed to pay Base Monthly Rent or Additional Rent
when due, and such failure is not cured within five (5) days after delivery of
written notice from Landlord specifying such failure to
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pay, or
B. Tenant shall have failed to perform any term, covenant, or condition
of this Lease except those identified in Subparagraphs C through F of this
Paragraph or requiring the payment of Base Monthly Rent or Additional Rent,
and Tenant shall have failed to cure such breach within 30 days after written
notice from Landlord specifying the nature of such breach where such breach
could reasonably be cured within said 30 day period, or if such breach could
not be reasonably cured within said 30 day period, Tenant shall have failed
to commence such cure within said 30 day period and thereafter continue with
due diligence to prosecute such cure to completion within such time period as
is reasonably needed but not to exceed 120 days from the date of Landlord's
notice; or
C. Tenant shall have sublet the Premises or assigned its interest in
the Lease in violation of the provisions contained in Article 14; or
D. Tenant shall have abandoned the Premises; or
E. The occurrence of the following: (i) the making by Tenant of any
general arrangements or assignments for the benefit of creditors; (ii) Tenant
becomes a "debtor" as defined in 11 USC Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Tenant, the same is
dismissed within 60 days); (iii) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within 30 days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within 30 days; provided, however, in the event that any provision
of this Section 13.1E is contrary to any applicable Law, such provision shall
be of no force or effect; or
F. Tenant shall have failed to deliver documents required of it
pursuant to PARA 15.4 to PARA 15.6 within the time periods
specified therein, and shall have further failed to deliver such documents
within five (5) days after Landlord's further written notice declaring that
Tenant must either perform its obligations under PARA 15.4 or
PARA 15.6 or an Event of Tenant's Default will have occurred.
13.2 LANDLORD'S REMEDIES: If an Event of Tenant's Default occurs,
Landlord shall have the following remedies, in addition to all other rights
and remedies provided by any Law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
A. So long as Landlord does not terminate Tenant's right to possession
of the Premises, Landlord may keep this Lease in effect and enforce by an
action at law or in equity all of its rights and remedies under this Lease,
including (i) the right to recover the rent and other sums as they become due
by appropriate legal action, (ii) the right to make payments required of
Tenant or perform Tenant's obligations and be reimbursed by Tenant for the
cost thereof with interest at the Agreed Interest Rate from the date the sum
is paid by Landlord until Landlord is reimbursed by Tenant, and (iii) the
remedies of injunctive relief and specific performance to compel Tenant to
perform its obligations under this Lease. Notwithstanding anything contained
in this Lease, in the event of a breach of an obligation by Tenant which
results in a condition which poses an imminent danger to safety of persons or
damage to property, an unsightly condition visible from the exterior of the
Building, or a threat to insurance coverage, then if Tenant does not cure
such breach within five (5) days after delivery to it of written notice from
Landlord identifying the breach, Landlord may cure the breach of Tenant and
be reimbursed by Tenant for the cost thereof with interest at the Agreed
Interest Rate from the date the sum is paid by Landlord until Landlord is
reimbursed by Tenant.
B. Landlord may enter the Premises and release them to third parties
for Tenant's account for any period, whether shorter or longer than the
remaining Lease Term (provided, that in no event shall Tenant remain liable
for longer than the Lease Term). Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in releasing the Premises, including
brokers' commissions, expenses of altering and preparing the Premises
required by the releasing. Tenant shall pay to Landlord the rent and other
sums due under this Lease on the date the rent is due, less the rent and
other sums Landlord received from any releasing. No act by Landlord allowed
by this subparagraph shall terminate this Lease unless Landlord notifies
Tenant in writing that Landlord elects to terminate this Lease.
Notwithstanding any releasing without termination, Landlord may later elect
to terminate this Lease because of the default by Tenant.
C. Landlord may terminate this Lease by giving Tenant written notice of
termination, in which event this Lease shall terminate on the date set forth
for termination in such notice. Any termination under this PARA 13.2C shall
not relieve Tenant from its obligation to pay sums then due Landlord or from
any claim against Tenant for damages or rent previously accrued or then
accruing. In no event shall any one or more of the following actions by
Landlord, in the absence of a written election by Landlord to terminate this
Lease or Tenant's right to possession of the Premises, constitute a
termination of this Lease: (i) appointment of a receiver or keeper in order
to protect Landlord's interest hereunder; (ii) consent to any subletting of
the Premises or assignment of this Lease by Tenant, whether pursuant to the
provisions hereof or otherwise; or (iii) any other action by Landlord or
Landlord's Agents intended to mitigate the adverse effects of any breach of
this Lease by Tenant, including without limitation any action taken to
maintain and preserve the Premises or any action taken to relet the Premises
or any portions thereof to the extent such actions do not affect a
termination of Tenant's right to possession of the Premises.
D. In the event Tenant breaches this Lease and abandons the Premises,
this Lease shall not terminate unless Landlord gives Tenant written notice of
its election to so terminate this Lease. No act by or on behalf of Landlord
intended to mitigate the adverse effect of such breach, including those
described by PARA 13.C, shall constitute a termination of Tenant's right to
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possession unless Landlord gives Tenant written notice of termination. Should
Landlord not terminate this Lease by giving Tenant written notice, Landlord
may enforce all its rights and remedies under this Lease, including the right
to recover the rent as it become due under the Lease as provided in
California Civil Code Section 1951.4.
E. In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date. For
purposes of computing damages pursuant to California Civil Code Section
1951.2, (i) an interest rate equal to the Agreed Interest Rate shall be used
where permitted, and (ii) the term "rent" includes Base Monthly Rent and
Additional Rent. Such damages shall include:
(1) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%); and
(2) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would
be likely to result therefrom, including the following: (i) expenses for
cleaning, repairing or restoring the Premises; (ii) expenses for altering,
remodeling or otherwise improving the Premises for the purpose of reletting,
including installation of leasehold improvement (whether such installation be
funded by a reduction of rent, direct payment or allowance to a new tenant,
or otherwise); (iii) broker's fees applicable to the remaining term of the
Lease, advertising costs and other expenses of reletting the Premises;
(iv) costs of carrying the Premises, such as taxes, insurance premiums,
utilities and security precautions; (v) expenses in retaking possession of
the Premises, and (vi) attorneys' fees and court costs incurred by Landlord
in retaking possession of the Premises and in releasing the Premises or
otherwise incurred as a result of Tenant's default.
F. Nothing in this PARA 13.2 shall limit Landlord's right to
indemnification from Tenant as provided in PARA 7.2 and PARA 10.3. Any notice
given by Landlord in order to satisfy the requirements of PARA 13.1A or
PARA 13.1B above shall also satisfy the notice requirements of California Code
of Civil Procedure Section 1161 regarding unlawful detainer proceedings, if
Landlord gives such notice(s) in compliance with the legal provisions
relating to notices in unlawful detainer proceedings.
13.3 WAIVER: One party's consent to or approval of any act by the other
party requiring the first party's consent or approval shall not be deemed to
waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any
rent or payment with or without knowledge of the breach of any other
provision hereof shall not be deemed a waiver of any such breach unless such
waiver is in writing and signed by Landlord. No delay or omission in the
exercise of any right or remedy accruing to either party upon any breach by
the other party under this Lease shall impair such right or remedy or be
construed as a waiver of any such breach theretofore or thereafter occurring.
The waiver by either party of any breach of any provision of this Lease shall
not be deemed to be a waiver of any subsequent breach of the same or of any
other provisions herein contained.
13.4 LIMITATION ON EXERCISE OF RIGHTS: At any time that an Event of Tenant's
Default has occurred and remains uncured, (i) it shall not be unreasonable
for Landlord to deny or withhold any consent or approval requested of it by
Tenant which Landlord would otherwise be obligated to give, and (ii) Tenant
may not exercise any option to extend, right to terminate this Lease, or
other right granted to it by this Lease which would otherwise be available to
it.
13.5 WAIVER BY TENANT OF CERTAIN REMEDIES: Tenant waives the provisions of
Sections 1932(1), 1941 and 1942 of the California Civil Code and any similar
or successor law regarding Tenant's right to terminate this Lease or to make
repairs and deduct the expenses of such repairs from the rent due under this
Lease. Tenant hereby waives any right of redemption or relief from forfeiture
under the laws of the State of California, or under any other present or
future law, including the provisions of Sections 1174 and 1179 of the
California Code of Civil Procedure.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFER BY TENANT: The following provisions shall apply to any
assignment, subletting or other transfer by Tenant or any subtenant or
assignee or other successor in interest of the original Tenant (collectively
referred to in this PARA 14.1 as "Tenant")
A. Tenant shall not do any of the following (collectively referred to
herein as a "Transfer"), whether voluntarily, involuntarily or by operation
of law, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed: (i) sublet all or any part of the
Premises or allow it to be sublet, occupied or used by any person or entity
other than Tenant; (ii) assign its interest in this Lease; (iii) mortgage or
encumber the Lease (or otherwise use the Lease as a security device) in any
manner; or (iv) materially amend or modify an assignment, sublease or other
transfer that has been previously approved by Landlord. Landlord's
disapproval of a proposed Transfer shall be conclusively presumed reasonable
if (i) the proposed subtenant or assignee requires a change in the Permitted
Use or Landlord's consent to or approval of an "other legal use" under
Paragraph N of the Summary; or (ii) if the proposed subtenant or assignee uses
Hazardous Materials in its business (other than insignificant amounts used
for ordinary office purposes and cleaning); or (iii) if the proposed assignee
does not have at least as much net worth and creditworthiness, in Landlord's
reasonable judgment, as the greater of Tenant's net worth and
creditworthiness on the
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Effective Date or the date on which the request to Transfer is made,
whichever shall be greater, or in the ease of a sublease, if the proposed
subtenant does not have net worth and creditworthiness, in Landlord's
reasonable judgment, commensurate with the financial obligations of the
proposed sublease. Tenant shall reimburse Landlord for all reasonable costs
and attorneys' fees (which attorney's fees shall not exceed $1,500 in regard
to any one application for Transfer) incurred by Landlord in connection with
the evaluation, processing, and/or documentation of any requested Transfer,
whether or not Landlord's consent is granted. Landlord's reasonable costs
shall include the cost of any review or investigation performed by Landlord
or consultant acting on Landlord's behalf of (i) Hazardous Materials (as
defined in Section 7.2E of this Lease) used, stored, released, or disposed of
by the potential Subtenant or Assignee, and/or (ii) violations of Hazardous
Materials Law (as defined in Section 7.2E of this lease) by the Tenant or the
proposed Subtenant or Assignee. Any Transfer so approved by Landlord shall
not be effective until Tenant has delivered to Landlord an executed
counterpart of the document evidencing the Transfer which (i) is in a form
reasonably approved by Landlord, (ii) contains the same terms and conditions
as stated in Tenant's notice given to Landlord pursuant to PARA 14.1B, and
(iii) in the case of an assignment of the Lease, contains the agreement of
the proposed transferee to assume all obligations of Tenant under this Lease
arising after the effective date of such Transfer and to remain jointly and
severally liable therefor with Tenant. Any attempted Transfer without
Landlord's consent shall constitute an Event of Tenant's Default and shall be
voidable at Landlord's option. Landlord's consent to any one Transfer shall
not constitute a waiver of the provisions of this PARA 14.1 as to any
subsequent Transfer or a consent to any subsequent Transfer. No Transfer,
even with the consent of Landlord, shall relieve Tenant of its personal and
primary obligation to pay the rent and to perform all of the other
obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from any person shall not be deemed to be a waiver by Landlord of
any provision of this Lease nor to be a consent to any Transfer.
B. At least 15 days before a proposed Transfer is to become effective,
Tenant shall give Landlord written notice of the proposed terms of such
Transfer and request Landlord's approval, which notice shall include the
following: (i) the name and legal composition of the proposed transferee;
(ii) a current financial statement of the transferee, financial statements of
the transferee covering the preceding three years if the same exist, and (if
available) an audited financial statement of the transferee for a period
ending not more than one year prior to the proposed effective date of the
Transfer, all of which statements are prepared in accordance with generally
accepted accounting principles; (iii) the nature of the proposed transferee's
business to be carried on in the Premises; (iv) all consideration to be given
on account of the Transfer; (v) a current financial statement of Tenant; and
(vi) an accurately filled out response to a Hazardous Materials
questionnaire. Tenant shall provide to Landlord such other information as may
be reasonably requested by Landlord within seven days after Landlord's
receipt of such notice from Tenant. Landlord shall respond in writing to
Tenant's request for Landlord's consent to a Transfer within the later of (i)
10 days of receipt of such request together with the required accompanying
documentation, or (ii) seven days after Landlord's receipt of all information
which Landlord reasonably requests within seven days after it receives
Tenant's first notice regarding the Transfer in question. If Landlord fails
to respond in writing within said period, Landlord will be deemed to have
withheld consent to such Transfer. Tenant shall immediately notify Landlord
of any material modification to the proposed terms of such Transfer.
C. In the event that Tenant seeks to make any Transfer, Landlord shall
have the right, in the case of a proposed assignment or a proposed sublease
of all or substantially all of the Premises, to terminate this Lease or, in
the case of a sublease of less than all of the Premises for all or
substantially all of the remainder of the Lease Term, terminate this Lease as
to that part of the Premises proposed to be so sublet, either (i) on the
condition that the proposed transferee immediately enter into a direct lease
of the Premises with Landlord (or, in the case of a partial sublease of less
than all of the Premises but for all or substantially all of the remaining
balance of the Lease Term, a lease for the portion proposed to be so sublet)
on the same terms and conditions contained in Tenant's notice, or (ii) so
that Landlord is thereafter free to lease the Premises (or, in the case of a
partial sublease of less than all of the Premises but for all or
substantially all of the remaining balance of the Lease Term, the portion
proposed to be so sublet) to whomever it pleases on whatever terms are
acceptable to Landlord. In the event Landlord elects to so terminate or
partially terminate this Lease, then (i) if such termination is conditioned
upon the execution of a lease between Landlord and the proposed transferee,
Tenant's obligations under this Lease shall not be terminated until such
transferee executes a new lease with Landlord, enters into possession and
commences the payment of rent, and (ii) if Landlord elects simply to
terminate this Lease (or, in the case of a partial sublease of less than all
of the Premises but for all or substantially all of the remaining balance of
the Lease Term, terminate this Lease as to the portion to be so sublet), the
Lease shall so terminate in its entirety (or as to the space to be so sublet)
fifteen (15) days after Landlord has notified Tenant in writing of such
election. Upon such termination, Tenant shall be released from any further
obligation under this Lease if it is terminated in its entirety, or shall be
released from any further obligation under the Lease with respect to the
space proposed to be sublet in the case of a proposed partial sublease of
less than all of the Premises but for all or substantially all of the
remaining balance of the Lease Term. In the case of the partial termination
of the Lease, the Base Monthly Rent and Tenant's Share shall be reduced to an
amount which bears the same relationship to the original amount thereof as
the area of that part of the Premises which remains subject to the Lease
bears to the original area of the Premises. Landlord and Tenant shall execute
a cancellation and release with respect to the Lease to effect such
termination.
D. If Landlord consents to a Transfer proposed by Tenant, Tenant may
enter into such Transfer, and if Tenant does so, the following shall apply:
(1) Tenant shall not be released
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of its liability for the performance of all of its obligations under the
Lease.
(2) If Tenant assigns its interest in this Lease, then Tenant shall
pay to Landlord 50% of all Subrent (as defined in PARA 14.1D(5)) received by
Tenant over and above (i) the assignee's agreement to assume the obligations
of Tenant under this Lease, and (ii) all Permitted Transfer Costs related to
such assignment. In the case of assignment, the amount of Subrent owned to
Landlord shall be paid to Landlord on the same basis, whether periodic or in
lump sum, that such Subrent is paid to Tenant by the assignee.
(3) If Tenant sublets any part of the Premises, then with respect
to the space so subleased, Tenant shall pay to Landlord 50% of the positive
difference, if any, between (i) all Subrent paid by the subtenant to Tenant,
less (ii) the sum of all Base Monthly Rent and Additional Rent allocable to
the space sublet and all Permitted Transfer Costs related to such sublease.
Such amount shall be paid to Landlord on the same basis, whether periodic or
in lump sum, that such Subrent is paid to Tenant by its subtenant. In
calculating Landlord's share of any periodic payments, all Permitted Transfer
Costs shall be first recovered by Tenant.
(4) Tenant's obligations under this PARA 14.1D shall survive any
Transfer, and Tenant's failure to perform its obligations hereunder shall be
an Event of Tenant's Default without notice or opportunity to cure. At the
time Tenant makes any payment to Landlord required by this PARA 14.1D, Tenant
shall deliver an itemized statement of the method by which the amount to
which Landlord is entitled was calculated, certified by Tenant as true and
correct. Landlord shall have the right at reasonable intervals to inspect
Tenant's books and records relating to the payments due hereunder. Upon
request therefor, Tenant shall deliver to Landlord copies of all bills,
invoices or other documents upon which its calculations are based. Landlord
may condition its approval of any Transfer upon obtaining a certification
from both Tenant and the proposed transferee of all Subrent and other amounts
that are to be paid to Tenant in connection with such Transfer.
(5) As used in this PARA 14.1D, the term "Subrent" shall mean any
consideration of any kind received, or to be received, by Tenant as a result
of the Transfer, if such sums are received by Tenant in return for Tenant's
Transfer of this Lease or the right to occupy all or part of the Premises, or
in lieu of rent payments, including payments from or on behalf of the
transferee (in excess of the book value thereof) for Tenant's assets,
fixtures, leasehold improvements, inventory, accounts, goodwill, equipment,
furniture, and general intangibles. As used in this PARA 14.1D, the term
"Permitted Transfer Costs" shall mean (i) all reasonable leasing commissions
paid to third parties not affiliated with Tenant in order to obtain the
Transfer in question, and (ii) all reasonable attorneys' fees incurred by
Tenant with respect to the Transfer in question.
E. If Tenant is a corporation, the following shall be deemed a voluntary
assignment of Tenant's interest in this Lease: (i) any dissolution, merger,
consolidation, or other reorganization of or affecting Tenant, whether or not
Tenant is the surviving corporation except as provided in Paragraph 14.1F,
and (ii) if the capital stock of Tenant is not publicly traded, the sale or
transfer to one person to entity (or to any group of related persons or
entities) of stock possessing more than 50% of the total combined voting
power of all classes of Tenant's capital stock issued, outstanding and
entitled to vote for the election of directors. If Tenant is a partnership,
any withdrawal or substitution (whether voluntary, involuntary or by
operation of law, and whether occurring at one time or over a period of time)
of any partner owning 25% of more (cumulatively) of any interest in the
capital or profits of the partnership, or the dissolution of the partnership,
shall be deemed a voluntary assignment of Tenant's interest in this Lease.
F. Notwithstanding anything contained in PARA 14.1, so long as Tenant
otherwise complies with the provisions of PARA 14.1 Tenant may enter into a
transfer (a "Permitted Transfer") without Landlord's prior written consent,
and Landlord shall not be entitled to terminate the Lease pursuant to PARA
14.1C or to receive any part of any Subrent resulting therefrom that would
otherwise be due it pursuant to PARA 14.1D, if Tenant is (i) subleasing all
or part of the Premises or assigning its interest in this Lease to any
corporation which controls, is controlled by, or is under common control with
the original Tenant to this Lease by means of an ownership interest of more
than 50%, or (ii) assigning this Lease to a successor corporation related to
Tenant by a merger in which Tenant is not the surviving corporation, or by a
consolidation or nonbankruptcy reorganization, or which purchases all or
substantially all of the assets of Tenant, which assignee in each such case
has at least as much net worth and creditworthiness, in Landlord's reasonable
judgment, as the greater of Tenant's net worth and creditworthiness on the
Effective Date or the date on which the merger, reorganization, or
consolidation is to take place, whichever shall be greater; or (iii) any
transaction relating to Tenant's stock which does not meet the requirements
of Paragraph 14.1E(ii). In order to have a Transfer treated as a Permitted
Transfer, Tenant must provide Landlord with (i) at least fifteen (15) days
advance written notice of the proposed Transfer, including therewith
sufficient documentation and information so that Landlord may reasonably
determine that the Transfer is a Permitted Transfer; (ii) any further
information reasonably requested by Landlord relating to the Transfer; and
(iii) written notice and documentation that the Transfer has taken place,
including documentation executed by the Transferee acknowledging that it has
assumed Tenant's responsibilities under the Lease, within fifteen (15) days
after the Transfer takes legal effect, and any Transfer made in violation of
this requirement shall not be a Permitted Transfer.
14.2 TRANSFER BY LANDLORD: Landlord and its successors in interest shall
have the right to transfer their interest in this Lease and the Project at
any time and to any person or entity. In the event of any such transfer, the
Landlord originally named herein (and, in the case of any subsequent
transfer, the transferror) from the date of such transfer, shall be
automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord
hereunder which may accrue after the date of such transfer. After the date of
any such transfer, the
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term "Landlord" as used herein shall mean the transferee of such interest in
the Premises.
ARTICLE 15
GENERAL PROVISIONS
15.1 LANDLORD'S RIGHT TO ENTER: Landlord and its agents may enter the
Premises at any reasonable time after giving at least 24 hours' prior notice
to Tenant (and immediately in the case of emergency) for the purpose of: (i)
inspecting the same; (ii) posting notices of non-responsibility; (iii)
supplying any service to be provided by Landlord to Tenant; (iv) showing the
Premises to prospective purchasers, mortgagees or tenants (but in regard to
Tenants, only during the last 180 days of the Lease Term, or during periods
when an uncured Event of Tenant's Default has occurred); (v) making necessary
alterations, additions or repairs; (vi) performing Tenant's obligations when
Tenant has failed to do so after written notice from Landlord; (vii) placing
upon the Premises ordinary "for lease" signs (but only within the last 180
days of the Lease Term) or "for sale" signs; and (viii) responding to an
emergency. Landlord shall have the right to use any and all means Landlord
may deem necessary ad proper to enter the Premises in an emergency. Any entry
into the Premises obtained by landlord in accordance with this PARA 15.1
shall not be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction, actual or constructive, of Tenant from the
Premises. Any such entry by Landlord and Landlord's Agents shall comply with
all reasonable security measures of Tenant and shall not impair Tenant's
operations more than reasonably necessary. During any such entry, Landlord
and Landlord's agents shall at all times be accompanied by Tenant, so long as
Tenant remains in physical occupancy of the Premises.
15.2 SURRENDER OF THE PREMISES: Upon the expiration or sooner termination
of this Lease, Tenant shall vacate and surrender the Premises to Landlord in
the same condition as existed at the Commencement Date, except for (i)
reasonable wear and tear, (ii) damage caused by any peril or condemnation,
and (iii) contamination by Hazardous Materials for which Tenant is not
responsible pursuant to PARA 7.2A or PARA 7.2B. In this regard, normal wear
and tear shall be construed to mean wear and tear caused to the Premises by
the natural aging process which occurs in spite of prudent application of the
best reasonable standards for maintenance, repair and janitorial practices,
and does not include items of neglected or deferred maintenance. In any
event, Tenant shall cause the following to be done prior to the expiration or
the sooner termination of this Lease: (i) all interior walls shall be painted
or cleaned so that they appear freshly painted; (ii) all tiled floors shall
be cleaned and waxed; (iii) all carpets shall be cleaned and shampooed; (iv)
all broken, marred, stained or nonconforming acoustical ceiling tiles shall
be replaced; (v) all windows shall be washed; (vi) the HVAC system should be
serviced by a reputable and licensed service firm and left in good operating
condition and repair as so certified by such firm; and (vii) the plumbing and
electrical systems and lighting shall by placed in good order and repair
(including replacement of any burned out, discolored or broken light bulbs,
ballasts, or lenses). If Landlord so requests, Tenant shall, prior to the
expiration or sooner termination of this Lease, (i) remove any Tenant's
Alterations which Tenant is required to remove pursuant to PARA 5.2 and
repair all damage caused by such removal, and (ii) return the Premises or any
part thereof to its original configuration existing as of the time the
Premises were delivered to Tenant (provided, however, that Landlord agrees
that removal of Tenant's Alterations shown in Exhibit "B" is not required).
If the Premises are not so surrendered at the termination of this Lease,
Tenant shall be liable to Landlord for all costs incurred by landlord in
returning the Premises to the required condition, plus interest on all costs
incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord against
loss or liability resulting from delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lost opportunities to lease to succeeding
tenants.
15.3 HOLDING OVER: This Lease shall terminate without further notice at
the expiration of the Lease Term. Any holding over by Tenant after expiration
of the Lease Term shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the Premises except as expressly provided in
this Lease. Any holding over after such expiration with the written consent
of Landlord shall be construed to be a tenancy from month to month on the
same terms and conditions herein specified insofar as applicable except that
Base Monthly Rent shall be increased to an amount equal to 125% of the Base
Monthly Rent payable during the last full calendar month of the Lease Term.
15.4 SUBORDINATION: The following provisions shall govern the
relationship of this Lease to any Security Instrument:
A. The Lease is subject and subordinate to all Security Instruments
existing as of the Effective Date. However, if any Lender so requires, the
Lease shall become prior and superior to any such Security Instrument.
Landlord will make its best efforts to obtain for Tenant, within forty five
(45) days of the Effective Date, (i) a subordination and non-disturbance
agreement in the form attached hereto as Exhibit G from Landlord's current
lender, including the changes requested by Tenant in Exhibit G, and (ii) a
subordination and non-disturbance agreement on the standard form of
Landlord's proposed bridge loan lender (currently expected to be Wells Fargo
Bank), with such commercially reasonable changes as Tenant shall request.
B. At Landlord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in default and
performs all of its obligations under this Lease, unless this Lease is
otherwise terminated pursuant to its terms.
C. Tenant shall upon request execute any documentation or instrument
reasonably required by any Lender to make this Lease either prior or
subordinate to a Security Instrument, which may include such other matters as
the Lender customarily and reasonably requires in connection with such
agreements, including provisions that the Lender not be liable for (i) the
return of any security deposit unless the Lender receives it
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from Landlord, and (ii) any defaults on the part of Landlord occurring prior
to the time the Lender takes possession of the Project in connection with the
enforcement of its Security Instrument. Tenant's failure to execute any such
document or instrument within 10 days after written demand therefor shall
constitute an Event of Tenant's Default.
15.5 MORTGAGEE PROTECTION AND ATTORNMENT: In the event of any default on
the part of the Landlord, Tenant will use reasonable efforts to give notice
by certified mail to any Lender whose name has been provided to Tenant and
shall offer such Lender a reasonable opportunity to cure the default,
including time to obtain possession of the Premises by power of sale or
judicial foreclosure or other appropriate legal proceedings, if such should
prove necessary to effect a cure. Tenant shall attorn to any purchaser of the
Premises at any foreclosure sale or private sale conducted pursuant to any
Security Instrument encumbering the Premises, or to any grantee or transferee
designated in any deed given in lieu of foreclosure.
15.6 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS: At all times during
the Lease Term, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party within 15 days
following delivery of such request an estoppel certificate: (i) certifying
that this Lease is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that this lease, as
so modified, is in full force and effect, (ii) stating the date to which the
rent and other charges are paid in advance, if any, (iii) acknowledging that
there are not, to the certifying party's knowledge, any uncured defaults on
the part of any party hereunder or, if there are uncured defaults,
specifying the nature of such defaults, and (iv) certifying such other
information about the Lease as may be reasonably required by the requesting
party. A failure to deliver an estoppel certificate within 15 days after
delivery of a request therefor shall be a conclusive admission that, as of
the date of the request for such statement: (i) this Lease is unmodified
except as may be represented by the requesting party in said request and is
in full force and effect, (ii) there are no uncured defaults in the
requesting party's performance, and (iii) no rent has been paid more than 30
days in advance. At any time during the Lease Term Tenant shall, upon 15
days' prior written notice from Landlord, provide Tenant's most recent
financial statement and financial statements covering the 24 month period
prior to the date of such most recent financial statement to any existing
Lender or to any potential Lender or buyer of the Premises, provided, that
any such statements are to be held by Landlord and any potential buyer or
Lender in the strictest confidence, unless the same are already public
knowledge or available to the public. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified
public accountant.
15.7 REASONABLE CONSENT: Except as otherwise provided herein, whenever
any party's approval or consent is required by this Lease before an action
may be taken by the other party, such approval or consent shall not be
unreasonably withheld or delayed.
15.8 NOTICES: Any notice required or desired to be given regarding this
Lease shall be in writing and may be given by personal delivery, by facsimile
telecopy, by courier service, or by mail. A notice shall be deemed to have
been given (i) on the third business day after mailing if such notice was
deposited in the United States mail, certified or registered, postage
prepaid, addressed to the party to be served at its Address for Notices
specified in SECTION Q or SECTION R of the Summary (as applicable), (ii) when
delivered if given by personal delivery, and (iii) in all other cases when
actually received at the party's Address for Notices. Either party may change
its address by giving notice of the same in accordance with this PARA 15.8,
provided, however, that any address to which notices may be sent must be a
California address.
15.9 ATTORNEY'S FEES. In the event either Landlord or Tenant shall
bring any action or legal proceeding for an alleged breach of any provision of
this Lease, to recover rent, to terminate this Lease or otherwise to enforce,
protect or establish any term or covenant of this Lease, the prevailing party
shall be entitled to recover as a part of such action or proceeding, or in a
separate action brought for that purpose, reasonable attorneys' fees,
court costs, and experts' fees as may be fixed by the court.
15.10 CORPORATE AUTHORITY: If Tenant is a corporation (or partnership),
each individual executing this Lease on behalf of Tenant represents and
warrants that he is duly authorized to execute and deliver this Lease on
behalf of such corporation in accordance with the by-laws of such corporation
(or partnership in accordance with the partnership agreement of such
partnership) and that this Lease is binding upon such corporation (or
partnership) in accordance with its terms. Each of the persons executing this
Lease on behalf of a corporation does hereby covenant and warrant that the
party for whom it is executing this Lease is a duly authorized and existing
corporation, that it is qualified to do business in California, and that the
corporation has full right and authority to enter into this Lease.
15.11 MISCELLANEOUS: Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect,
impair or invalidate any other provision hereof, and such remaining
provisions shall remain in full force and effect. Time is of the essence with
respect to the performance of every provision of this Lease in which time of
performance is a factor. The captions used in this Lease are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. Any executed copy of this Lease shall be deemed an original
for all purposes. This Lease shall, subject to the provisions regarding
assignment, apply to and bind the respective heirs, successors, executors,
administrators and assigns of Landlord and Tenant. "Party" shall mean
Landlord or Tenant, as the context implies. If Tenant consists of more than
one person or entity, then all members of Tenant shall be jointly and
severally liable hereunder. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to
its fair meaning, and not strictly for or against either Landlord or Tenant.
When the context of
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this Lease requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular includes the
plural. The terms "shall", "will" and "agree" are mandatory. The term "many"
is permissive. When a party is required to do something by this Lease, it
shall do so at its sole cost and expense without right of reimbursement from
the other party unless a provision of this Lease expressly requires
reimbursement. Landlord and Tenant agree that (i) the gross leasable area of
the Premises includes any atriums, depressed loading docks, covered entrances
or egresses, and covered loading areas, (ii) each has had an opportunity to
determine to its satisfaction the actual area of the Project and the
Premises, (iii) all measurements of area contained in this Lease are
conclusively agreed to be correct and binding upon the parties, even if a
subsequent measurement of any one of these areas determines that it is more
or less than the amount of area reflected in this Lease, and (iv) any such
subsequent determination that the area is more or less than shown in this
Lease shall not result in a change in any of the computations of rent,
improvement allowances, or other matters described in this Lease where area
is a factor. Where a party hereto is obligated not to perform any act, such
party is also obligated to restrain any others within its control from
performing said act, including the Agents of such party. Landlord shall not
become or be deemed a partner or a joint venture with Tenant by reason of the
provision of this Lease.
15.12 TERMINATION BY EXERCISE OF RIGHT: If this Lease is terminated
pursuant to its terms by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease
shall terminate 30 days after the date the right to terminate is properly
exercised (unless another date is specified in that part of the Lease
creating the right, in which event the date so specified for termination
shall prevail), the rent and all other charges due hereunder shall be
proacted as of the date of termination, and neither Landlord nor Tenant shall
have any further rights or obligations under this Lease except for those that
have accrued prior to the date of termination or those obligations which this
Lease specifically provides are to survive termination. This PARA-15.12 does
not apply to a termination of this Lease by Landlord as a result of an Event
of Tenant's Default.
15.13 BROKERAGE COMMISSIONS: Each party hereto (i) represents and
warrants to the other that it has not had any dealings with any real estate
brokers, leasing agents or salesmen, or incurred any obligations for the
payment of real estate brokerage commissions or finder's fees which would be
earned or due and payable by reason of the execution of this Lease, other
than to the Retained Real Estate Brokers described in SECTION S of the
Summary, and (ii) agrees to indemnify, defend, and hold harmless the other
party from any claim for any such commission of fees which result from the
actions of the indemnifying party. Landlord shall be responsible for the
payment of any commission owed to the Retained Real Estate Brokers.
15.14 FORCE MAJEURE: Any prevention, delay or stoppage due to strikes,
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental
restrictions, regulations, controls, action or inaction, civil commotion,
fire or other acts of God, and other causes beyond the reasonable control of
the party obligated to perform (except financial inability) shall excuse the
performance, for a period equal to the period of any said prevention, delay
or stoppage, of any obligation hereunder except the obligation of Tenant to
pay rent or any other sums due hereunder.
15.15 ENTIRE AGREEMENT: This Lease constitutes the entire agreement
between the parties and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that
neither Landlord nor Landlord's Agents has made any legally binding
representation or warranty as to any matter except those expressly set forth
herein, including any warranty as to (i) whether the Premises may be used for
Tenant's intended use under existing Law, (ii) the suitability of the
Premises or the Project for conduct of Tenant's business, or (iii) the
condition of any improvements. There are no oral agreements between Landlord
and Tenant affecting this Lease, and this Lease supersedes and cancels any
and all previous negotiations, arrangements, brochures, agreements and
understandings, if any, between Landlord and Tenant or displayed by Landlord
to Tenant with respect to the subject matter of this Lease. This instrument
shall not be legally binding until it is executed by both Landlord and
Tenant. No subsequent change or addition to this Lease shall be binding unless
in writing and signed by Landlord and Tenant.
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15.16 EXECUTION IN COUNTERPART AND BY FAX: This Lease may be executed in
counterpart, whereby different signatories execute this document on different
signature pages, and when so executed and all signature ages are attached
hereto, the resulting document shall be fully executed and shall be
considered a signed document. The parties agree that faxed copies of actual
signatures shall be as binding as if the party had received an executed
original, provided, that each party will, following the tender of any faxed
copy signature, promptly supply an original signature page.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with
the intent to be legally bound thereby, to be effective as of the Effective
Date.
LANDLORD: TENANT:
LARVAN PROPERTIES HEALTHEON CORPORATION, A DELAWARE
A CALIFORNIA GENERAL PARTNERSHIP CORPORATION
By: VANDERSON CONSTRUCTION, INC. By: /s/ Kallen Chan
A California corporation, its -----------------------------
General Partner
Kallen Chan, Controller
By: /s/ George F. Van Sickle ------------------------------------
--------------------------- [Typed or printed name and title]
George F. Van Sickle - PRESIDENT Dated: 12/5/97
--------------------------------- ----------------------------
[Typed or printed name and title]
By: LARSCOM INCORPORATED
a Delaware corporation
its General Partner
By: /s/ Bruce Horn
-----------------------------
Bruce Horn V.P. Finance
--------------------------------
[Typed or printed name and title]
By: /s/ Donn Byrne
-------------------------------
DONN BYRNE, General Partner
Dated: 12/8/97
-------------------------
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FIRST ADDENDUM TO LEASE
This First Addendum to Lease is dated for reference purposes as of
December 3, 1997, and is made a part of that Lease Agreement (the "Lease")
dated December 3, 1997, by and between Larvan Properties, a California general
partnership ("Landlord") and Healtheon Corporation, a Delaware corporation
("Tenant") affecting certain real property commonly known as 4600 Patrick
Henry Drive, Santa Clara, California. Landlord and Tenant agree that the
Lease is hereby amended and supplemented as follows:
1. SECURITY DEPOSIT: In addition to the cash portion of the Security
Deposit set forth in the Summary of Basic Lease Terms, Paragraph K, and
Paragraph 3.3 of the Lease, Tenant shall provide to Landlord the additional
and further amount of $867,000.00 as a further Security Deposit, and said
amount shall be deemed to be and treated in all respects as a part of the
Security Deposit.
A. This amount, or any portion thereof, can be provided, at
Tenant's sole cost and option, by providing Landlord an irrevocable
Letter of Credit which (i) is for an initial term of at least
twelve (12) months; (ii) is drawn upon a local commercial bank reasonably
acceptable to Landlord; (iii) is in the amount of $867,000.00; (iv) is in
a form satisfactory to Landlord ; and (v) may be drawn on by Landlord
solely upon submission of a written certification of Landlord that there
exists an Event of Tenant's Default (as defined in Paragraph 13.1 or
other applicable provisions of this Lease or as defined in this
Addendum), that Tenant has not, as of the date of Landlord's draw
request, cured such Event of Default, and that the amount drawn on the
Letter of Credit is the net amount due Landlord after first applying any
cash Security Deposit then being held by Landlord.
Tenant and Landlord acknowledge that Landlord is in the
process of obtaining a bridge loan secured by the Project, that
Landlord's lender (the "Bridge Loan Lender") has required that
Landlord assign this Lease to the Bridge Loan Lender as part of the
security for the loan, that the Bridge Loan Lender is further requiring
that the Letter of Credit be assigned to the Bridge Loan Lender in
conjunction with the assignment of this Lease. Accordingly, Landlord
and Tenant agree that they will work together reasonably to replace or
restructure the Letter of Credit in order to meet Landlord's lender
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requirements, and that Tenant will reasonably cooperate with Landlord in
providing documentation and taking action requested by the Bridge Loan
Lender in regard to such an assignment, at no cost to Tenant, including
but not limited to any necessary issuance of the Letter of Credit in the
name of the Bridge Loan Lender or jointly in the name of Landlord and the
Bridge Loan Lender, provided always, that no such arrangement shall be
required of Tenant without adequate protection of Tenant's rights under
the Letter of Credit provisions hereof.
B. Except as provided in Subparagraph H of this Paragraph,
Tenant shall keep the Letter of Credit in effect during the entire Lease
term plus a period of (30) days thereafter.
C. Tenant shall renew the Letter of Credit for an additional
period of at least twelve (12) months, and shall deliver the new or
renewed original Letter of Credit, in the required amount and in keeping
with all of the requirements hereof, to Landlord not later than 5:00 P.M.
on the thirty-first (31st) day before each date on which the then existing
Letter of Credit expires (such 31st day being referred to herein as the
"Renewal Date").
D. Tenant's failure to renew the Letter of Credit by the Renewal
Date shall be deemed an Event of Tenant's Default under this Lease,
without Landlord being required to give any notice or opportunity to
cure, except that Landlord shall give Tenant five (5) days written
notice of such failure to renew, and no Event of Default shall be
deemed to have occurred if, within such five (5) day period, Tenant
renews the Letter of Credit as required hereunder. Upon such an Event
of Tenant's Default, Landlord shall be immediately entitled to draw all
of the funds available under the Letter of Credit, which sum when received
shall remain a part of the Security Deposit until and unless applied by
Landlord pursuant to the provisions of Paragraph 3.5 of the Lease.
E. If Tenant shall allow the Letter of Credit to expire or to be
revoked at any time when it is required to be maintained hereunder, this
shall constitute an independent Event of Tenant's Default; provided,
however, that before such shall be deemed an Event of Tenant's Default,
Landlord shall give Tenant five (5) days written
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notice to cure or have committed an Event of Tenant's Default, and Tenant
fails within such five (5) day period to cure by causing the Letter of Credit
to be reissued or renewed. Tenant's failure to replenish any cash Security
Deposit which is applied by Landlord, within ten (10) days after notice that
it has been applied, shall be an immediate Event of Tenant's Default (for
purposes of this Paragraph only), without further notice or opportunity to
cure, which shall entitle Landlord to resort to the Letter of Credit to
replenish its cash Security Deposit.
F. Any proceeds received by Landlord by drawing upon the Letter of
Credit shall be applied in accordance with the provisions of Paragraph 3.5 of
the Lease.
G. If Landlord transfers the Premises during the Lease Term, and if a
Letter of Credit is still posted as part of the Security Deposit, Tenant
agrees, promptly on receipt of a written request from Landlord, to take such
actions as are necessary to have the Letter of Credit redrawn in favor of the
new owner of the Premises, at Tenant's sole cost and expense.
H. Notwithstanding the foregoing, the Letter of Credit shall be wholly
or partially (as the case may be) released by Landlord upon the achievement
by Tenant of the following milestones:
1. Provided that Tenant is not in material default of any
obligations under the Lease on any one year anniversary of the
Commencement Date, has not been in material default more than one time
during the preceding one (1) year period, and is not in material
default as of the final date following such one year anniversary on
which Landlord must execute any documents authorizing such reduction,
and provided that as of such anniversary date, Tenant's financial
condition is, in Landlord's judgment reasonably applied, equal to or
better than its financial condition on the Execution Date, Tenant shall
be allowed to reduce the Letter of Credit by the amount of $289,000.00,
and Landlord shall execute such documents as are required by the issuing
bank to effectuate such
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reduction and such review procedures shall occur on each anniversary of
the Commencement Date until the Letter of Credit is extinguished or the
Lease has expired or been terminated according to its terms, except that
no such reduction shall occur on an anniversary date which is within 6
months of the expiration date of the Lease.
2. Notwithstanding any of the foregoing, if Tenant provides
Landlord with documentation establishing to Landlord's reasonable
satisfaction that Tenant has successfully completed an initial public
offering of Tenant's stock and requests extinguishment of the Letter of
Credit, and further provided that Tenant has not been in material
default more than one time during the one (1) year period preceding the
date on which Tenant makes its request for extinguishment, and Tenant is
not in material default of any obligations under the Lease as of the
final date on which Landlord must execute any documents authorizing such
extinguishment, Tenant shall be allowed to extinguish the Letter of
Credit, and Landlord shall execute such documents as are required by the
issuing bank to effectuate such extinguishment. In the event that, as of
the date of the IPO, Tenant cannot satisfy the requirements hereof
because it has been in material default on more than one occasion during
the one (1) year preceding the date of the EPO, then Tenant may apply
for and obtain such an extinguishment at a later time, provided that (i)
Tenant has not been in material default on more than one occasion within
the one (1) year immediately preceding the date of such extinguishment
application and (ii) Tenant satisfies the other requirement hereof that
it not be in material default as of the date on which Landlord must
execute the extinguishment documents.
For purposes of this Subparagraph H, Tenant shall be deemed to be in
"material default" under the Lease if (a) Tenant has failed to make any
payment required hereunder or under the Lease within five (5) calendar days
of Landlord giving written notice that said payment is due and unpaid or
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committed any financial Event of Tenant's Default; and/or (b) Tenant has
committed a material non-financial Event of Tenant's Default hereunder.
I. All additional costs and expenses incurred by Landlord in regard
to the Letter of Credit, including but not limited to any reasonable
attorney's fees incurred by Landlord in the administration of this
Paragraph, shall be paid by Tenant to Landlord as Additional Rent within
ten (10) days after Landlord provides its written invoice for such costs
and expenses.
J. If Tenant cannot post the Letter of Credit on or before the
Effective Date, Tenant shall provide the Letter of Credit no later than
seven (7) days thereafter. In the event that Tenant fails to do so (or
to provide equivalent cash security) within such period, Landlord may,
at its option, deem this failure to be an Event of Tenant's Default or
declare the Lease to be terminated, provided, however, that before such
shall be deemed an Event of Tenant's Default or before the Lease is
terminated, Landlord must give Tenant five (5) days written notice to
cure or, as the case may be, have the Lease terminate or have committed
an Event of Tenant's Default. If Tenant falls within such five (5) day
period to cure by causing the Letter of Credit to be posted, then
Landlord shall have the right to exercise the remedy of which Tenant has
been notified. Tenant shall not be entitled to early occupancy under
Paragraph 2.5 of the Lease until the Letter of Credit is posted.
2. TENANT IMPROVEMENT ALLOWANCE: Landlord shall provide to Tenant a
Tenant Improvement Allowance (defined below) for the purpose of improving
the Premises, on the following terms and conditions:
A. The term "Tenant Improvement Allowance" shall mean the
maximum amount Landlord is required to spend toward the payment of costs
for all Tenant's Alterations constructed in the Premises, which amount is
$249,185.00 (i.e., $5.00 per square foot for Tenant's Gross Leasable Area
within the Premises).
B. Tenant shall obtain Landlord's written consent, which shall not
unreasonably be withheld, for all proposed improvements, which shall be
conducted according to the standards set forth in Paragraph 5.2
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of the Lease. Tenant shall construct the Tenant's Alterations as set forth
in the Space Plan and description of Tenant's Alterations which is attached
to the Lease as Exhibit B, or as otherwise approved in writing by Landlord.
However, Tenant is not required to construct all or any of the specified
Tenant's Alterations (and if Tenant does not do so, Landlord is not
obligated to provide the portion of the Tenant Improvement Allowance
relating to Tenant's Alterations which Tenant has elected not to
construct).
C. Upon completion of all work on the initial Tenant's Alterations
outlined in Exhibit "B", Landlord shall inspect the improvements, and if
satisfactorily constructed in accordance with Exhibit "B" and the approved
plans and specifications, and as required by Paragraph 5.2 (or any
modifications thereto approved in writing by Landlord), shall approve the
improvements. On receipt of Landlord's approval, Tenant will submit
invoices, lien releases, and other documentation reasonably required or
requested by Landlord in regard to the improvements, and Landlord shall,
within fifteen (15) days of receipt of all requested documentation,
reimburse Tenant for all documented expenses of constructing the
improvements up to the limit of the Tenant Improvement Allowance.
Provided that Tenant can so arrange with its contractors, Landlord will
make payments under the Tenant Improvement Allowance directly to the
contractors, upon receipt of appropriate lien releases reasonably
satisfactory to Landlord. Under such circumstances, Landlord will not
require that expenses of the Tenant's Alterations be actually paid by
Tenant to the contractor. In the event that the construction of Tenant's
Alterations cannot reasonably be completed by the Commencement Date,
Landlord will make a single progress payment of such part of the Tenant
Improvement Allowance as shall be merited by the progress toward completion
of the initial Tenant's Alterations as of the Commencement Date, on a
reasonable basis to be determined by mutual agreement of Landlord and
Tenant, to include such inspections and lien releases as Landlord shall
reasonably request.
3. INTERIOR IMPROVEMENTS: Except as otherwise set forth herein or in the
Lease, the Premises shall be delivered to Tenant in their then existing
"as-is" condition. Tenant acknowledges that it has had the opportunity to
inspect the Premises prior to execution of the Lease, and agrees that the
Premises are to be
Page 6 of 10
<PAGE>
leased and accepted by Tenant in their condition existing as of the Effective
Date of this Lease, "as is", without implied or expressed warranty or
representation and with all patent and latent defects. Landlord shall not
have any obligation to make any alterations or improvements to the Premises
prior to the commencement of the Lease Term except as otherwise specified
herein and in the Lease. Notwithstanding anything to the contrary contained
herein or in the Lease, Landlord represents and warrants to Tenant that the
plumbing and electrical systems of the Building and any other building
systems other than the HVAC and roof systems, which are dealt with below in
Paragraph 4, will be in good operating condition upon the Commencement Date.
Tenant shall not make any claims under any warranties set forth herein unless
the defect is brought to the Landlord's attention within one (1) year of the
Commencement Date, in the case of defects discovered by Tenant, or
discoverable by a reasonable Tenant's inspection (including the engagement of
appropriate expert consultants with regard to matters not within Tenant's
expertise); and within two (2) years for defects not so discovered or
discoverable.
4. CONDITION OF PREMISES: Landlord shall provide the Premises with all
existing electrical, plumbing, and building systems (other than the HVAC and
roof systems, which are dealt with below) in good and workable condition.
Landlord shall provide roof and HVAC systems as set forth below:
A. Prior to the Commencement Date, at its sole cost and expense,
Landlord will replace HVAC mechanical units and make other capital
improvements to the HVAC system as necessary, but Landlord's expense
thereof (measured by Landlord's out of pocket payments to third parties)
shall not exceed $35,000.00. Should any capital improvements to the HVAC
system be required after the Commencement Date, then Landlord will
continue to pay for such improvements so long as the total expense
(measured by Landlord's out of pocket payments to third parties) of all
capital improvements to the HVAC system (both before and after the
Commencement Date) does not exceed $35,000.00 in the aggregate. Any
costs incurred by Landlord in making any replacements to the HVAC system
(both before and after the Commencement Date) in excess of $35,000.00
in the aggregate will be considered a capital expenditure, which shall
be paid for by Landlord and reimbursed to Landlord by Tenant on an
amortized basis under the provisions set forth in Paragraph 5.4 of the
Lease.
Page 7 of 10
<PAGE>
B. Landlord shall promptly consult with Tenant as to the best date
for re-roofing the Building, and thereafter, as soon as reasonably
possible within the time guidelines of this Subparagraph, shall apply,
at Landlord's expense and on a schedule to be determined by Landlord
(depending on the weather and availability of a highly qualified roofing
company), not to be reimbursed as a Common Operating Expense, a new
roof. Landlord and Tenant acknowledge that such roof win not be applied
prior to the currently approaching rainy season, and that until the roof
is replaced, there may be leaks. Provided that Landlord has used
commercially reasonably efforts to replace the roof in accordance with
this Paragraph, Landlord shall not be liable for any roof leaks that may
occur prior to the roof's replacement, provided, however, that such
waiver shall not apply unless Landlord has used commercially reasonable
efforts to repair any leaks in a prompt and reasonable manner.
5. ASBESTOS CONTAINING MATERIALS. Tenant acknowledges that Landlord
has provided notification of possible asbestos containing materials in the
form attached hereto as Exhibit "H". Notwithstanding anything to the contrary
in this Lease, Landlord, at its sole cost and expense, shall (i) be
responsible keeping and maintaining the Premises in compliance with all Laws
(including all health and safety rules and regulations) concerning the
presence of asbestos-containing materials in commercial buildings and (ii)
performing any and all asbestos abatement and removal work required in the
Premises during the Lease term; provided, however, that if the removal,
encapsulation, or other treatment of asbestos containing materials in the
Building will be required as a result of improvements to be constructed by
Tenant in the Premises, then such abatement work, shall be at Tenant's sole
cost and expense, and without cost or liability on the part of Landlord.
However, such matters may be paid for, at Tenant's election, from any Tenant
Improvement Allowance granted by this Lease, to the extent that such
Allowance is sufficient to cover such costs. Notwithstanding anything above,
Landlord will, at its sole cost and expense, cause the asbestos containing
materials shown in Exhibit "H" to be removed during the Early Occupancy
Period, in compliance with all Laws relating to such removal, in a prompt
and diligent manner, and coordinating its work in regard to asbestos with
Tenant's contractor for maximum convenience and speed of work.
6. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord shall, at
its sole cost and expense, keep and maintain the exterior areas of the
Project in
Page 8 of 10
<PAGE>
compliance with the Americans With Disabilities Act of 1990 ("ADA") and the
regulations in force thereunder. Landlord shall deliver the Project in such a
state of compliance at Landlord's sole cost and expense as of the
Commencement Date, notwithstanding whether some improvements of the exterior
areas are required to be constructed solely as a result of any Tenant's
Alterations being constructed by Tenant prior to the Commencement Date (or
thereafter, if such construction is a continuation of construction begun
prior to the Commencement Date and continuously pursued thereafter), but in
the event that, thereafter, further work is required by changes in Law or
good practices, Landlord shall continue to take responsibility for
compliance, but any expenses thereof shall be Common Operating Expenses.
Tenant shall design, keep, and maintain the interior portions of the
Premises, including but not limited to the floor plan, design, and
furnishing thereof, in compliance with the ADA, at Tenant's sole cost and
expense. Each party shall indemnify, defend with counsel reasonably
acceptable to the indemnified party, and hold harmless the other party
against any claims, losses, liabilities, or damages which are incurred by the
other party by reason of a breach of the duties assumed in this Paragraph.
7. BROKER DISCLOSURE: Tenant understands that agents and/or
brokers associated with Cooper-Brady and Colliers Parrish International, to
wit, Jon Brady and Donn Byrne, are partners in Landlord.
8. SUBORDINATION TO GROUND LEASE: Tenant acknowledges that
Landlord leases a portion of the land within the Project from the City and
County of San Francisco pursuant to a Lease dated July 26, 1977 (referred to
herein as the "Ground Lease", a copy of which has been read and approved by
Tenant) and that this Lease is subject and subordinate to the terms of the
Ground Lease and to any extension, modifications or amendments thereof. The
portion of the Project to which this Ground Lease is applicable is as defined
in said Ground Lease. Landlord will at all times pay all amounts due and
satisfy any obligations under the Ground Lease, including but not limited to
payment of all rent thereunder and removal and/or restoration of parking
surfaces or landscaping as required thereunder, and such costs shall not be
reimbursed by Tenant as Common Operating Expenses or otherwise. In the event
that Landlord loses possession of the portion of the Project to which the
Ground Lease is applicable, then Tenant shall be entitled as its sole remedy
to an equitable adjustment of its Base Monthly Rent (as well as any actual
decrease in Common Operating Expenses), to the extent such taking results in
material diminishment of the value and useability of Tenant's Lease.
Page 9 of 10
<PAGE>
9. EFFECT OF ADDENDUM: Each term used herein with initial
capital letters shall have the meaning ascribed to such term in the Lease
unless specifically otherwise defined herein. In the event of any
inconsistency between this First Addendum to the Lease and the Lease, the
terms of this First Addendum to the Lease shall prevail.
LANDLORD: TENANT:
Larvan Properties, a California general Healtheon Corporation, a Delaware
partnership corporation
By: VANDERSON CONSTRUCTION, INC. By: /s/ Kallen Chan
a California corporation, its ------------------------------
General Partner Kallen Chan, Controller
---------------------------------
[Print Name and Title]
By: /s/ George F. Van Sickle
--------------------------- Dated: 12/8/97
George F. Van Sickle - President ---------------------------
------------------------------
[Print Name and Title]
By: LARSCOM INCORPORATED, a
Delaware corporation
its General Partner
By: /s/ Bruce Horn
------------------------------
Bruce Horn V.P. Finance
------------------------------
[Print Name and Title]
By: Donn Byrne, its General Partner
/s/ Don H. Byrne
------------------------------
Dated: 12/8/97
---------------------------
Page 10 of 10
<PAGE>
TENANT ESTOPPEL CERTIFICATE
TENANT: Healtheon Corporation, a Delaware Corporation
DATE OF LEASE: December 2, 1997
AMENDED: None
PREMISES: 49,837 square feet located at 4600 Patrick Henry Drive, Santa
Clara, California
ESTOPPEL CERTIFICATE
RE: Lease dated December 2, 1997 between Larvan Properties, a California
general Partnership, as Landlord, and Healtheon Corporation, a
Delaware corporation, as Tenant.
The undersigned hereby certifies to MELP VII L.P., a California limited
partnership ("Buyer") as follows:
1 . The undersigned is the "Tenant" under the above-referenced lease
("Lease"), a true and complete copy of which is attached hereto as Exhibit
"A", covering the above-referenced Premises ("Premises") located in that
certain building commonly known as 4600 Patrick Henry Drive, Santa Clara,
California ("Property").
2. The Lease is in full force and effect and constitutes the entire
agreement between the Landlord under the Lease and Tenant with respect to the
Premises, and the Lease has not been modified, changed, altered or amended in
any respect except as set forth in Exhibit "A".
3. The term of the Lease commenced on February 1, 1997, and will expire
on January 31, 2008. Tenant has accepted possession of the Premises and is
the actual occupant in possession and has not sublet, assigned or
hypothecated Tenant's leasehold interest. Landlord has no obligation to
construct any tenant improvements in the Premises (except as provided with
respect to roof in Paragraph 4 of the First Addendum) and the only allowances
to be paid by Landlord in connection with any improvements to be made to the
Premises are in the amount of $249,815 for tenant improvements and $35,000
for HVAC work pursuant to Paragraphs 2 and 4 of the First Addendum to the
Lease. Tenant is not currently aware of any defects in the existing
electrical, plumbing and other building systems serving the Premises;
provided, however that (i) Tenant is aware of a split puralin in the roof
structure of the Premises and the exterior loading dock is not level and may
not comply with building code requirements, and (ii) Landlord is performing,
at Landlord's sole cost and expense, certain seismic and other structural
upgrades to the building. Except as otherwise provided herein, to Tenant's
knowledge, the building systems serving the Premises were delivered by
Landlord in good and workable condition as required by Paragraph 4 of the
First Addendum to Lease. Nothing herein shall constitute of a waiver of any
Landlord's obligations under the Lease with respect to maintenance and repair
of the Premises. Tenant acknowledges that it is completing certain tenant
improvements and that rent obligations under the Lease have commenced even
though construction is not yet complete.
<PAGE>
4. As of the date of this Estoppel Certificate, to Tenant's knowledge
there exists no breach or default, nor any state of facts which, with notice,
the passage of time, or both, would result in a breach or default on the part
of either Tenant or Landlord.
5. Tenant is currently obligated to pay annual rental of $867,164.28 in
monthly installments of $72,263.69 per month and monthly installments of
annual rental have been paid through March 31, 1998. Tenant's pro rata share
of real estate taxes and "Common Operating Expenses" as defined in the Lease
for the Property is one hundred percent (100%). Tenant's pro rata share of
real estate taxes and Common Operating Expenses for the Property are due from
February 1, 1998 and thereafter. No other rent has been paid in advance and
Tenant presently has no claim or defense against Landlord under the Lease and
is asserting no offset or credits against either the rent or Landlord. Tenant
has no claim against Landlord for any security or other deposits except
$72,203.69 plus a letter of credit as set forth in the First Addendum to
Lease in the amount of $867,000 which was paid or deposited with Landlord
pursuant to the Lease.
6. Tenant has no option or preferential right to purchase all or any
part of the Premises (or the real property of which the Premises are a part)
nor any right or interest with respect to the Property other than as Tenant
under the Lease.
7. Tenant has no option, right of first offer or right of first refusal
to lease or occupy any other space within the Property, and Tenant has no
right to renew or extend the terms of the Lease except as follows: NO
EXCEPTIONS.
8. Tenant has made no agreement with Landlord or any agent,
representative or employee of Landlord concerning free rent, partial rent,
rebate or rental payments or any other type of rental or other concession
except as expressly set forth in the Lease.
9. To Tenant's knowledge, there has not been filed by or against Tenant
a petition in bankruptcy, voluntary or otherwise, any assignment for the
benefit of creditors, any petition seeking reorganization or arrangement
under the bankruptcy laws of the United States, or any state thereof, or any
other action brought under said bankruptcy laws with respect to Tenant.
This Estoppel Certificate is made to Buyer in connection with the
prospective purchase by Buyer, or Buyer's assignee, of the Property. This
Estoppel Certificate may be relied on by Buyer or Buyer's assignee and any
other party who acquires an interest in the Premises in connection with such
purchase or any person or entity which may finance such purchase. The
statements made herein shall be binding upon us, our successors and assigns.
Nothing contained herein shall constitute or be deemed to constitute an
amendment or modification of any term or condition of the Lease or any right
or remedy of Tenant thereunder all of which are expressly reserved. The
officers or persons executing this letter have been duly empowered to do so
on behalf of Tenant.
-2-
<PAGE>
Dated this 11 day of March, 1998.
"TENANT"
HEALTHEON CORPORATION, a Delaware
corporation
By: /s/ Kallen Chan
-------------------------------------
Print Name: Kallen Chan
-----------------------------
Its: Corporate Controller
------------------------------------
-3-
<PAGE>
CENTRAL PARK
LEASE AGREEMENT
BY AND BETWEEN
ZML-CENTRAL PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY
("LANDLORD")
AND
ACTAMED CORP., A GEORGIA CORPORATION
("TENANT")
DATED
NOVEMBER 6, 1995
FOR
SUITE NUMBER 400
SUITE NUMBER 600
CONTAINING
41,292 SQUARE FEET OF RENTABLE FLOOR AREA
AT BUILDING 7000
TERM: 60 MONTHS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Lease of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Base Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
7. Rental Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. Additional Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Tenant Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12. Late Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. Use Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
14. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
15. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
16. Landlord's Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . 7
17. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
18. Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
19. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
20. Waiver of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
21. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . 8
22. Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
24. Services by Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . .10
25. Attorneys' Fees and Homestead . . . . . . . . . . . . . . . . . . . . . .10
26. Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
27. Subordination and Attornment. . . . . . . . . . . . . . . . . . . . . . .10
28. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .11
29. No Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
30. Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
31. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
32. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . .11
33. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
34. Damage or Theft of Personal Property. . . . . . . . . . . . . . . . . . .11
35. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
36. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
39. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
40. Landlord's Liability. . . . . . . . . . . . . . . . . . . . . . . . . . .13
41. Landlord's Covenant of Quiet Enjoyment. . . . . . . . . . . . . . . . . .13
42. Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
43. Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . . . .13
44. Submission of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . .14
45. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
46. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
47. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
48. Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
49. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
50. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
51. Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . .14
52. Special Stipulations. . . . . . . . . . . . . . . . . . . . . . . . . . .14
</TABLE>
RULES AND REGULATIONS
EXHIBIT "A" - Legal Description
EXHIBIT "B" - Floor Plan
EXHIBIT "C" - Supplemental Notice
EXHIBIT "D" - Landlord's Construction
EXHIBIT "E" - Building Standard Services
EXHIBIT "F" - Special Stipulations
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into this 6th day of
November 1995, by and between Landlord and Tenant.
W I T N E S S E T H:
1. CERTAIN DEFINITIONS. For purposes of this Lease, the following terms shall
have the meanings hereinafter ascribed thereto:
(a) LANDLORD: The Equitable Life Assurance Society of the United States
(b) LANDLORD'S ADDRESS: LANDLORD'S ADDRESS FOR PAYMENTS:
c/o Equity Office Holding, c/o Equity Office Properties, L.L.C.
L.L.C. Suite 1040
Two North Riverside Plaza 7000 Central Parkway, N.E.
22nd Floor Atlanta, Georgia 30328
Chicago, Illinois 60606
Attention: General Counsel
(c) TENANT: ActaMed Corp., a Georgia corporation
(d) TENANT'S ADDRESS:
Suite 400
7000 Central Parkway
Atlanta, Georgia 30328
Attn: Chief Financial Officer
(e) BUILDING ADDRESS:
7000 Central Parkway
Atlanta, Georgia 30328
(f) SUITE NUMBERS:
Suite 400: 25,331 rentable square feet
Suite 600: 15,961 rentable square feet
Total: 41,292 rentable square feet
(g) RENTABLE FLOOR AREA OF DEMISED PREMISES:
Total 41,292 square feet.
(h) RENTABLE FLOOR AREA OF BUILDING: 410,490 square feet.
(i) LEASE TERM: Suite 400 - 60 months
Suite 600 - 55 months
(j) BASE RENTAL RATE: $19.95 per square foot of Rentable Floor Area of
Demised Premises per year.
(k) RENTAL COMMENCEMENT DATE: Suite 400 - August 1, 1996
Suite 600 - January 1, 1997
See Special Stipulation No. 34.
(l) TENANT IMPROVEMENT ALLOWANCE: $7.83 per square foot of rentable floor
area in Demised Premises.
See Special Stipulation No. 11.
<PAGE>
(m) SECURITY DEPOSITS:
(i) $43,875.04 [Article 42(a)].
(ii) $ N/A [Article 42(b)].
(n) BROKER(S): CB Commercial Real Estate Group, Inc.
2. LEASE OF PREMISES. Landlord, in consideration of the covenants and
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Demised Premises")
in the building (the "Building") located on that certain tract of land (the
"Land") more particularly described on EXHIBIT "A" attached hereto and by this
reference made a part hereof, which Demised Premises are outlined in red or
cross-hatched on the floor plan attached hereto as EXHIBIT "B" and by this
reference made a part hereof, with no easement for light, view or air included
in the Demised Premises or being granted hereunder. The "Project" is comprised
of the Building, the Land, the Building's parking facilities, any walkways,
covered walkways, tunnels or other means of access to the Building and the
Building's parking facilities, all common areas, including any lobbies or
plazas, and any other improvements or landscaping on the Land.
3. TERM. The term of this Lease (the "Lease Term") shall commence on
the date first hereinabove set forth (the "Term Commencement Due"), and,
unless sooner terminated as provided in this Lease, shall end on the
expiration of the period designated in Article 1(i) above, which period shall
commence on the Rental Commencement Date, unless the Rental Commencement Date
shall be other than the first day of a calendar month, in which event such
period shall commence on the first day of the calendar month following the
month in which the Rental Commencement Date occurs. Promptly after the
Rental Commencement Date, Landlord or Landlord's agent shall send to Tenant a
Supplemental Notice in the form of EXHIBIT "C" attached hereto and by this
reference made a part hereof, specifying the Rental Commencement Date, the
date of expiration of the Lease Term in accordance with Article 1(i) above
and certain other matters as therein set forth. Notwithstanding anything
herein to the contrary, if the Additional Space is not substantially complete
within sixty (60) days after the scheduled Rental Commencement Date, Tenant
shall have the option of terminating this Lease upon written notice to
Landlord, provided that if any delay in Landlord's completion of the Demised
Premises shall be caused by Tenant the deadline for substantial completion
shall be adjusted accordingly.
See Special Stipulation No. 34.
4. POSSESSION. The obligations of Landlord and Tenant with respect to
the initial leasehold improvements to the Additional Space are set forth in
EXHIBIT "D" attached hereto and by this reference made a part hereof. Taking of
possession by Tenant of the Additional Space shall be deemed conclusively to
establish that Landlord's construction obligations with respect to the
Additional Space have been completed in accordance with the plans and
specifications approved by Landlord and Tenant and that the Additional Space, to
the extent of Landlord's construction obligations with respect thereto, are in
good and satisfactory condition, except as to latent defects and any items
Tenant notifies Landlord of in writing within ten (10) days of Tenant's taking
possession of the Additional Space. Landlord shall repair any such defects and
items within a reasonable period following receipt of notice from Tenant.
5. RENTAL PAYMENTS.
(a) Commencing on the Rental Commencement Date, and continuing
thereafter throughout the Lease Term, Tenant hereby agrees to pay all Rent due
and payable under this Lease. As used in this Lease, the term "Rent" shall mean
the Base Rental, Rental Adjustment, Tenant's Forecast Additional Rental,
Tenant's Additional Rental, and any other amounts that Tenant assumes or agrees
to pay under the provisions of this Lease that are owed to Landlord, including,
without limitation, any and all other sums that may become due by reason of any
default of Tenant or failure on Tenant's part to comply with the agreements,
terms, covenants and conditions of this Lease to be performed by Tenant. Base
Rental, together with Tenant's Forecast Additional Rental, shall be due and
payable in twelve (12) equal installments on the first day of each calendar
month, commencing on the Rental Commencement Date and continuing thereafter
throughout the Lease Term and any extensions or renewals thereof. Tenant hereby
agrees to pay such Rent to Landlord at Landlord's address as provided herein (or
such other address as may be designated by Landlord from time to time) monthly
in advance. Tenant shall pay all Rent and other sums of money as shall become
due from and payable by Tenant to Landlord under this Lease at the times and in
the manner provided in this Lease, without demand, set-off or counterclaim,
except as specifically set forth in this Lease.
(b) If the Rental Commencement Date is other than the first day of a
calendar month or if this Lease terminates on a day other than the last day of a
calendar month, then the installments of Base Rental and Tenant's Forecast
Additional Rental for such month or months shall be prorated on a daily basis
and the installment or installments so prorated shall be paid in advance. Also,
if the Rental Commencement Date occurs on a day other than the first day of a
calendar year, or if this Lease expires or is terminated on a day other than the
last day of a calendar year, Tenant's Additional Rental shall be prorated for
such commencement or termination year, as the case may be, by multiplying such
Tenant's Additional Rental by a fraction, the numerator of which shall be the
number of days of the Lease Term (from and after the Rental Commencement Date)
during the commencement or expiration or termination year, as the case may be,
and the denominator of which shall be 365, and the calculation described in
Article 8 hereof shall be made as soon as possible after the expiration or
termination of this Lease, Landlord and Tenant hereby agreeing that the
provisions relating to said calculation shall survive the expiration or
termination of this Lease, by not more than three (3) years.
6. BASE RENTAL. From and after the applicable Rental Commencement Date,
Tenant shall pay to Landlord a base annual rental (herein called "Base Rental")
equal to the Base Rental Rate set forth in Article 1(j) above multiplied by the
Rentable Floor Area of the portion of the Demised Premises as set forth in
Article 1(f) above.
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7. RENTAL ADJUSTMENT.
(a) Tenant shall pay to Landlord as additional rental a rental
adjustment (the "Rental Adjustment") which shall be determined as of the
first anniversary of the Rental Commencement Date and as of each January 1
thereafter during the Lease Term in the manner hereinafter provided (each
such date being hereinafter in this Article 7 called an "Adjustment Date",
and each period of time from any given Adjustment Date through the day before
the next succeeding Adjustment Date being herein called an "Adjustment
Period"). Each such Rental Adjustment shall be payable in monthly
installments in advance on the first day of every such calendar month during
the Adjustment Period for which such Rental Adjustment was determined. A
prorated monthly installment, based on the number of days in the partial
month, shall be paid for any fraction of a month if the Rental Commencement
Date falls on any day other than the first day of a calendar month, or if the
Lease Term is terminated or expires on any other day than the last day of a
calendar month. Landlord shall use reasonable efforts to notify Tenant in
writing of the monthly amount of the Rental Adjustment for each Adjustment
Period at least ten (10) days prior to the date on which the first
installment of such Rental Adjustment is due and payable, or as soon
thereafter as is practicable. Failure by Landlord to notify Tenant of the
monthly amount of such Rental Adjustment shall not prejudice Landlord's right
to collect the full amount of such Rental Adjustment, nor shall Landlord be
deemed to have forfeited or surrendered its rights to collect such Rental
Adjustment which may have become due pursuant to this Article 7, and Tenant
agrees to pay within thirty (30) days after notice all accrued but unpaid
Rental Adjustment.
(b) For each Adjustment Period, each monthly installment of the
Rental Adjustment shall be an amount equal to one-twelfth (1/12th) of the
product of: (i) the annual Base Rental set forth in Article 6 hereof,
multiplied by (ii) .50, multiplied by (iii) the "percentage increase" (as
hereinafter defined), if any, in the "index" (as hereinafter defined), as
such percentage increase is determined with respect to the Adjustment Date
beginning such Adjustment Period.
(c) For purposes of Articles 7(a) and (b) above, the "percentage
increase," if any, in the Index for each Adjustment Date shall mean and equal
the quotient (expressed as a decimal) determined by dividing (i) the
difference obtained by subtracting the Index for the calendar month in which
the Rental Commencement Date falls from the Index for the calendar month of
October immediately preceding the Adjustment Date in question [if the
difference so obtained is negative, then this factor (i) shall be deemed to
be zero], by (ii) the Index for the calendar month in which the Rental
Commencement Date falls.
(d) The term "Index" as used in Articles 7(b) and (c) above shall
mean the Consumer Price Index for All Urban Consumers, U.S. City Average, All
Items (1982-84 = 100), published by the Bureau of Labor Statistics of the
United States Department of Labor. If the Bureau of Labor Statistics should
discontinue the publication of the Index, or publish the same less
frequently, or alter the same in some manner, then Landlord shall adopt a
substitute Index or substitute procedure which reasonably reflects and
monitors consumer prices.
(e) Nothing contained in this Article 7 shall be construed at any
time so to reduce the monthly installments of Base Rental payable hereunder
below the amount set forth in Article 6 of this Lease. Notwithstanding
anything contained in this Lease to the contrary, it is agreed that (i) the
Rental Adjustment for any given Adjustment Period shall not be less than the
Rental Adjustment for the immediately preceding Adjustment Period, and (ii)
Tenant's payments pursuant to this Article 7 shall not be deemed payments of
rent as that term is construed relative to governmental wage and price
controls or analogous governmental actions affecting the amount of rent which
Landlord may charge Tenant.
See Special Stipulation No. 3
8. ADDITIONAL RENTAL.
(a) For purposes of this Lease, "Tenant's Forecast Additional
Rental" shall mean Landlord's reasonable estimate of Tenant's Additional
Rental for each calendar year or portion thereof during the Lease Term. If
at any time it appears to Landlord that Tenant's Additional Rental for the
current calendar year then at hand will vary from Landlord's estimate,
Landlord shall have the right to revise, by notice to Tenant, its estimate
for such year, and subsequent payments by Tenant for such year shall be based
upon such revised estimate of Tenant's Additional Rental. Failure to make a
revision contemplated by the immediately preceding sentence shall not
prejudice Landlord's right to collect the full amount of Tenant's Additional
Rental. "Prior to the Rental Commencement Date, and thereafter prior to the
beginning of each calendar year during the Lease Term, including any
extensions or renewals thereof, Landlord shall present to Tenant a statement
of Tenant's Forecast Additional Rental for such calendar year; provided,
however, that if such statement is not given prior to the beginning of any
calendar year as aforesaid, Tenant shall continue to pay during the next
ensuing calendar year on the basis of the amount of Tenant's Forecast
Additional Rental payable during the calendar year just ended until the month
after such statement is delivered to Tenant."
(b) For purposes of this Lease, "Tenant's Additional Rental" shall
mean for each calendar year (or portion thereof) during the Lease Term the
excess of (x) the Operating Expense Amount (defined below) multiplied by the
number of square feet of Rentable Floor Area of the Demised Premises, over
(y) the Operating Expense Stop (as hereinafter defined). As used herein,
"Operating Expense Amount" shall mean an amount equal to the amount of
Operating Expenses (as defined below) for such calendar year divided by the
greater of (i) ninety-five percent (95%) of the number of square feet of
Rentable Floor Area of the Building, or (ii) the total number of square feet
of Rentable Floor Area occupied in the Building for such calendar year on an
average annualized basis; provided, however, if the amount is calculated
under (i) above, the Operating Expenses actually incurred with respect to
such calendar year shall be adjusted to reflect the amount of Operating
Expenses which would have been incurred if the Building were ninety-five
percent (95%) occupied throughout such calendar year. As used herein,
"Operating Expense Stop" shall be determined by calculating the Operating
Expenses during the first twelve (12) months following the Rental
Commencement Date for Suite 400.
(c) Within one hundred fifty (150) days after the end of the
calendar year in which the Rental Commencement Date occurs and of each
calendar year thereafter during the Lease Term, or as soon thereafter as
practicable, Landlord shall provide Tenant a statement showing the Operating
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Expenses for said calendar year, as prepared by an authorized representative
of Landlord, and a statement prepared by Landlord comparing Tenant's Forecast
Additional Rental with Tenant's Additional Rental. In the event Tenant's
Forecast Additional Rental exceeds Tenant's Additional Rental for said
calendar year, Landlord shall credit such amount against the Forecast
Additional Rental next due hereunder or, if the Lease Term has expired or is
about to expire, promptly refund such excess to Tenant if Tenant is not in
default under this Lease (in the instance of a default, such excess shall be
held as additional security for Tenant's performance, may be applied by
Landlord to cure any such default, and shall not be refunded until any such
default is cured). In the event that the Tenant's Additional Rental exceeds
Tenant's Forecast Additional Rental for said calendar year, Tenant shall pay
Landlord, within thirty (30) days of receipt of the statement, an amount
equal to such difference. The provisions of this Lease concerning the payment
of Tenant's Additional Rental shall survive the expiration or earlier
termination of this Lease.
(d) Landlord's books and records pertaining to the calculation of
Operating Expenses for any calendar year within the Lease Term may be audited
by Tenant or its representatives at Landlord's office where Operating Expense
records are kept, at Tenant's expense, at any time within ninety (90) days
after Landlord's annual statement is delivered to Tenant for such calendar
year; provided that Tenant shall give Landlord not less than thirty (30)
days' prior written notice of any such audit. If Landlord's calculations of
Tenant's Additional Rental for the audited calendar year was incorrect, then
Tenant shall be entitled to a prompt refund of any overpayment or Tenant
shall promptly pay to Landlord the amount of any underpayment, as the case
may be.
See Special Stipulation No. 21.
9. OPERATING EXPENSES.
(a) For the purposes of this Lease, "Operating Expenses" shall
mean all expenses, costs and disbursements (but not specific costs billed or
billable to specific tenants of the Building) of every kind and nature,
computed on an accrual basis and in conformity with generally accepted
accounting principles consistently applied, relating to or incurred or paid
in connection with the ownership, management, operation, repair and
maintenance of the Project, including but not limited to, the following:
(1) wages, salaries and other costs of all on-site and
off-site employees engaged either full or part time in the operation,
management, maintenance or access control of the Project, including
taxes, insurance and benefits relating to such employees, allocated
based upon the time such employees are engaged directly in providing
such services;
(2) the cost of all supplies, tools, equipment and materials
used in the operation, management, maintenance and access control of the
Project;
(3) the cost of all utilities for the Project, including but
not limited to the cost of electricity, gas, water, sewer services and
power for heating, lighting, air conditioning and ventilating;
(4) the cost of all maintenance and service agreements for
the Project and the equipment therein, including, but not limited to,
security service, garage operators, window cleaning, elevator
maintenance, HVAC maintenance, janitorial service, landscaping
maintenance and customary landscaping replacement;
(5) the cost of inspections, repairs and general maintenance
of the Project;
(6) amortization (together with reasonable financing charges,
whether or not actually incurred) of the cost of acquisition and/or
installation of capital investment items (including security equipment),
amortized over their respective useful lives, which are installed for
the purpose of reducing operating expenses (providing that such
amortization charge shall not exceed the cost reduction attributable to
the capital investment item for the related period), promoting safety,
complying with governmental requirements, or maintaining the first-class
nature of the Project;
(7) the cost of casualty, rental loss, liability and other
insurance applicable to the Project and Landlord's personal property
used in connection therewith;
(8) the cost of trash and garbage removal, vermin
extermination, and snow, ice and debris removal;
(9) the cost of legal and accounting services incurred by
Landlord in connection with the management, maintenance, operation and
repair of the Project, excluding the owner's or Landlord's general
accounting, such as partnership statements and tax returns, and
excluding services described in Article 9(b)(14) below;
(10) all taxes, assessments and governmental charges, whether
or not directly paid by Landlord, whether federal, state, country or
municipal and whether they be by taxing districts or authorities
presently taxing the Project or by others subsequently created or
otherwise, and any other taxes and assessments attributable to the
Project or its operation (and the costs of monitoring and contesting any
of the same), including business license taxes and fees (all of the
foregoing are herein sometimes collectively referred to as "Taxes"),
excluding, however, taxes and assessments imposed on the personal
property of the tenants of the Project, federal and state taxes on
income, death taxes, franchise taxes, and any taxes (other than business
license taxes and fees) imposed or measured on or by the income of
Landlord from the operation of the Project; provided, however, that if
at any time during the Lease Term, the present method of taxation or
assessment shall be so changed that the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or
imposed on real estate and the improvements thereon shall be
discontinued and as a substitute therefor, or in lieu of or in addition
thereto, taxes, assessments, levies, impositions or charges shall be
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levied, assessed and/or imposed wholly or partially as a capital levy or
otherwise on the rents received from the Project or the rents reserved
herein or any part thereof, then such substitute or additional taxes,
assessments, levies, impositions or charges, to the extent so levied,
assessed or imposed, shall be deemed to be included within the Operating
Expenses to the extent that such substitute or additional tax would be
payable if the Project were the only property of the Landlord subject to
such tax; and it is agreed that Tenant will be responsible for ad
valorem taxes on its personal property and on the value of the leasehold
improvements in the Demised Premises to the extent that the same exceed
building standard allowances, if said taxes are based upon an assessment
which includes the cost of such leasehold improvements in excess of
building standard allowances (and if the taxing authorities do not
separately assess Tenant's leasehold improvements, Landlord may make an
appropriate allocation of the ad valorem taxes allocated to the Project
to give effect to this sentence) (for purposes of this subparagraph
only, "building standard allowances" shall mean the improvements which
exist in the Demised Premises as of the Term Commencement Date plus all
additional improvements constructed using the Tenant Improvement
Allowances);
(11) the cost of operating the management office for the
Project, including cost of office supplies, telephone expenses and
non-capital investment equipment and amortization (together with
reasonable financing charges) of the cost of capital investment
equipment; and
(12) management fees consistent with those charged for
comparable buildings in the north central submarket of Atlanta, Georgia.
Tenant acknowledges that the Project is part of a development, which
will or may include other improvements and that the costs of management,
operation and maintenance of the development shall, from time to time, be
allocated among and shared by two or more of the improvements in the
development (including the Project). The determination of such costs and
their allocation shall be made by Landlord in its reasonable discretion. In
addition, Landlord reserves the right to recompute and adjust the base year
of any component of Operating Expenses at any time during the Lease Term as a
result of any reallocation within the Project. Accordingly, the term
"Operating Expenses" as used in this Lease shall, from time to time, include
some costs, expenses and taxes enumerated above which were incurred with
respect to other improvements in the development but which were allocated to
and shared by the Project in accordance with the foregoing. Notwithstanding
the foregoing, Tenant understands and agrees that its right to use other
portions of the development of which the Project is a part are those
available to the general public and that this Lease does not grant to Tenant
additional rights of use.
(b) For purposes of this Lease, and notwithstanding anything in
any other provision of this Lease to the contrary, "Operating Expenses" shall
not include the following:
(1) the cost of any special work or service performed for any
tenant (including Tenant) at such tenant's cost;
(2) the cost of installing, operating and maintaining any
specialty service, such as an observatory, broadcasting facility,
luncheon club, restaurant, cafeteria, retail store, sundry shop,
newsstand, or concession, but only to the extent such costs exceed those
which would normally be expected to be incurred had such space been
general office space;
(3) the cost of correcting defects in construction;
(4) compensation paid to officers and executives of Landlord
(but it is understood that the on-site building manager and other
on-site employees below the grade of building manager may carry a title
such as vice president and the salaries and related benefits of these
officers/employees of Landlord would be allowable Operating Expenses
under Article 9[a][1] above);
(5) the cost of any items for which Landlord is reimbursed by
insurance, condemnation or otherwise, except for costs reimbursed
pursuant to provisions similar to Articles 8 and 9 hereof;
(6) the cost of any additions, changes, replacements and
other items which are made in order to prepare for a new tenant's
occupancy;
(7) the cost of repairs incurred by reason of fire or other
casualty;
(8) insurance premiums to the extent Landlord may be directly
reimbursed therefor, except for premiums reimbursed pursuant to
provisions similar to Articles 8 and 9 hereof;
(9) interest on debt or amortization payments on any mortgage
or deed to secure debt (except to the extent specifically permitted by
Article 9[a]) and rental under any ground lease or other underlying
lease;
(10) any real estate brokerage commissions or other costs
incurred in procuring tenants or any fee in lieu of such commission;
(11) any advertising expenses incurred in connection with the
marketing of any rentable space;
(12) rental payments for base building equipment such as HVAC
equipment and elevators;
(13) any expenses for repairs or maintenance which are covered
by warranties and service contracts, to the extent such maintenance and
repairs are made at no cost to Landlord;
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(14) legal expenses arising out of the construction of the
improvements on the Land or the enforcement of the provisions of any
lease affecting the Land or Building, including without limitation this
Lease; and
(15) amortization or depreciation of the cost of acquisition
of the Building, project and any improvements thereto (other than those
described in section 9(a)(6).
See Special Stipulation No. 22.
10. TENANT TAXES. Tenant shall pay promptly when due all taxes
directly or indirectly imposed or assessed upon Tenant's gross sales,
business operations, machinery, equipment, trade fixtures and other personal
property or assets, whether such taxes are assessed against Tenant, Landlord
or the Building. In the event that such taxes are imposed or assessed
against Landlord or the Building, Landlord shall furnish Tenant with all
applicable tax bills, public charges and other assessments or impositions and
Tenant shall forthwith pay the same either directly to the taxing authority
or, at Landlord's option, to Landlord.
11. PAYMENTS. All payments of Rent and other payments to be made to
Landlord shall be made on a timely basis and shall be payable to Landlord or
as Landlord may otherwise designate. All such payments shall be mailed or
delivered to Landlord's Address designated in Article 1(b) above or at such
other place as Landlord may designate from time to time in writing. If
mailed, all payments shall be mailed in sufficient time and with adequate
postage thereon to be received in Landlord's account by no later than the due
date for such payment.
12. LATE CHARGES. Any Rent or other amounts payable to Landlord under
this Lease, if not paid by the fifth day of the month for which such Rent is
due, or by the due date specified on any invoices from Landlord for any other
amounts payable hereunder, shall incur a late charge of Fifty Dollars
($50.00) for Landlord's administrative expense in processing such delinquent
payment and in addition thereto shall bear interest at the rate of fifteen
percent (15%) per annum from and after the due date for such payment.
Notwithstanding anything to the contrary contained in this Lease, in no event
shall the rate of interest payable on any amount due under this Lease exceed
the legal limits for such interest enforceable under applicable law.
13. USE RULES. The Demised Premises shall be used for executive,
general administrative and office space purposes, including, without
limitation, sales offices, training facilities for Tenant's customers and
employees, ancillary kitchen facilities (including use of vending machines),
and no other purposes and in accordance with all applicable laws, ordinances,
rules and regulations of governmental authorities and the Rules and
Regulations attached hereto and made a part hereof. Tenant covenants and
agrees that it will, at its expense, comply with all laws, ordinances,
orders, directions, requirements, rules and regulations of all governmental
authorities (including Federal, State, county and municipal authorities), now
in force or which may hereafter be in force ("Legal Requirements"), which
shall impose any duty upon Landlord or Tenant with respect to the use,
occupancy or alteration of the Demised Premises, and of all insurance bodies
applicable to the Demised Premises or to the Tenant's use or occupancy
thereof. Notwithstanding the foregoing, nothing in this Lease shall be
construed to require Tenant to make any structural repairs, alterations or
modifications to the Demised Premises, the Building (including the bathrooms
and Common Areas) or the Project, in connection with any Legal Requirements.
Tenant covenants and agrees to abide by the Rules and Regulations in all
respects as now set forth and attached hereto or as hereafter promulgated by
Landlord, provided that such rules do not materially and adversely affect
Tenant's rights hereunder. Landlord shall have the right at all times during
the Lease Term to publish and promulgate and thereafter enforce such rules
and regulations or changes in the existing Rules and Regulations as it may
reasonably deem necessary in its sole discretion to protect the
tenantability, safety, operation, and welfare of the Demised Premises and the
Project.
See Special Stipulation No. 27.
14. ALTERATIONS. Except for any initial improvement of the Demised
Premises pursuant to EXHIBIT "D", which shall be governed by the provisions
of said EXHIBIT "D", Tenant shall not make, suffer or permit to be made any
alterations, additions or improvements to or of the Demised Premises or any
part thereof, or attach any fixtures or equipment thereto, without first
obtaining Landlord's written consent. With respect to any alteration,
addition or improvement which does not affect the structure of the Building,
does not affect any of the Building's systems (e.g., mechanical, electrical
or plumbing), does not diminish the capacity of such Building systems
available to other portions of the Building, is not visible from the common
areas or exterior of the Building, and is in full compliance with all laws,
orders, ordinances, directions, requirements, rules and regulations of all
governmental authorities. Landlord's consent shall not be unreasonably
withheld (and Landlord's consent shall not be required if the cost of the
aforesaid type of alteration is less than $15,000.00). Any such alterations,
additions or improvements to the Demised Premises consented to by Landlord
shall be made by Landlord or under Landlord's supervision for Tenant's
account and Tenant shall reimburse Landlord for all costs thereof (including
a reasonable charge for Landlord's overhead), as Rent, within ten (10) days
after receipt of a statement. All such alterations, additions and
improvements (except for Tenant's trade fixtures and computer and electronic
equipment) shall become Landlord's property at the expiration or earlier
termination of the Lease Term and shall remain on the Demised Premises
without compensation to Tenant unless Landlord elects by notice to Tenant to
have Tenant remove such alterations, additions and improvements, in which
event, notwithstanding any contrary provisions respecting such alterations,
additions and improvements contained in Article 32 hereof, Tenant shall
promptly restore, at its sole cost and expense, the Demised Premises to its
condition prior to the installation of such alterations, additions and
improvements, normal wear and tear excepted. Tenant shall under no
circumstances be required to remove any alterations, additions and
improvements which are part of the initial improvement of the Demised
Premises which do not require Landlord's consent, or which are made with
Landlord's consent (unless the removal requirement is specified by Landlord
at the time of initial approval).
See Special Stipulation No. 39.
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15. REPAIRS.
(a) Landlord shall maintain in good order and repair, subject to
normal wear and tear and subject to casualty and condemnation, the Building
(excluding the Demised Premises, other than the structural portions thereof,
and other portions of the Building leased to other tenants, other than the
structural portions thereof), the Building parking facilities, the public
areas and the landscaped areas. Notwithstanding the foregoing obligation,
the cost of any repairs or maintenance to the foregoing necessitated by the
intentional acts or negligence of Tenant or its agents, contractors,
employees, invitees, licensees, tenants or assigns, shall be borne solely by
Tenant and shall be deemed Rent hereunder and shall be reimbursed by Tenant
to Landlord upon demand. Landlord shall not be required to make any repairs
or improvements to the Demised Premises except structural repairs necessary
for safety and tenantability.
(b) Tenant covenants and agrees that it will take good care of the
Demised Premises and all alterations, additions and improvements thereto and
will keep and maintain the same in good condition and repair, except for
normal wear and tear (Covered Repairs" (as defined in Special Stipulation No.
36), condemnation and casualty. To the fullest extent permitted by law,
Tenant hereby waives all rights to make repairs at the expense of Landlord or
in lieu thereof to vacate the Demised Premises as may be provided by any law,
statute or ordinance now or hereafter in effect. Landlord has no obligation
and has made no promise to alter, remodel, improve, repair, decorate or paint
the Demised Premises or any part thereof, except as specifically and
expressly herein set forth.
16. LANDLORD'S RIGHT OF ENTRY. Landlord shall retain duplicate keys to
all doors of the Demised Premises and Landlord and its agents, employees and
independent contractors shall have the right to enter the Demised Premises at
reasonable hours to inspect and examine same, to make repairs, additions,
alterations and improvements, to exhibit the Demised Premises to mortgagees,
prospective mortgagees, purchasers or tenants, and to inspect the Demised
Premises to ascertain that Tenant is complying with all of its covenants and
obligations hereunder, all without being liable to Tenant in any manner
whatsoever for any damages arising therefrom, unless caused by Landlord's
negligence or willful misconduct; provided, however, that Landlord shall, except
in case of emergency, afford Tenant such prior notification of any entry into
the Demised Premises as shall be reasonably practicable under the circumstances.
Landlord shall be allowed to take into and through the Demised Premises any and
all materials (except hazardous substances as defined in Article 43) that may be
required to make such repairs. During such time as such work is being carried
on, in or about the Demised Premises, the Rent provided herein shall not abate,
and Tenant waives any claim or cause of action against Landlord for damages by
reason of interruption of Tenant's business or loss of profits therefrom because
of the prosecution of any such work or any part thereof.
See Special Stipulation No. 23.
17. INSURANCE. Tenant shall procure at its expense and maintain
throughout the Lease Term a policy or policies of commercial property insurance,
issued on an "all risks" basis insuring the full replacement cost with a
reasonable deductible amount of its furniture, equipment, supplies and other
property owned, leased, held or possessed by it and contained in the Demised
Premises, together with the excess value of the improvements to the Demised
Premises over the "building standard allowances" as defined in subparagraph
9(a)(10) (with a replacement cost endorsement sufficient to prevent Tenant from
becoming a co-insurer), and workmen's compensation insurance as required by
applicable law. Tenant shall also procure at its expense and maintain
throughout the Lease Term a policy or policies of commercial general liability
insurance, written on an occurrence basis and insuring Tenant, and naming as an
additional insured, Landlord and any mortgagee identified by written notice to
Tenant, against any and all liability for injury to or death of a person or
persons and for damage to property occasioned by or arising out of any
construction work being done on the Demised Premises by Tenant or its agent or
contractors, or arising out of the use or occupancy of the Demised Premises, or
in any way occasioned by or arising out of the activities of Tenant, its agents,
contractors, employees, guests or licensees in the Demised Premises, or other
portions of the Building or the Project, the limits of such policy or policies
to be in combined single limits for both damage to property and personal injury
and in amounts not less than Three Million Dollars ($3,000,000.00) for each
occurrence. Such insurance shall, in addition, extend to any liability of
Tenant arising out of the indemnities provided for in this Lease. Landlord
shall keep and maintain in effect fire insurance with extended coverage in an
amount equal to at least eighty percent (80%) of the insurable amount of the
Building. Such insurance company (an "Eligible Company") shall be solvent,
authorized to do business in Atlanta, Georgia, and be acceptable to prudent
landlords of first class office buildings in the Atlanta, Georgia, area similar
to the Building. Landlord shall keep and maintain comprehensive general
liability insurance, including contractual liability coverage issued by an
Eligible Company. The insurance policies evidencing the coverages described
above shall contain such terms and conditions as similar policies obtained by
landlords of similar first class office buildings in the Atlanta, Georgia, area.
All insurance policies procured and maintained by Tenant pursuant to this
Article 17 shall name Landlord and any mortgagee as additional insured, shall be
carried with companies licensed to do business in the State of Georgia
reasonably satisfactory to Landlord and shall be non-cancelable and not subject
to material change except after twenty (20) days' written notice to Landlord.
Duly executed certificates of insurance with respect to such policies,
accompanied by proof of payment of the premium therefor, shall be delivered to
Landlord prior to the Rental Commencement Date, and renewals of such policies
shall be delivered to Landlord at least thirty (30) days prior to the expiration
of each respective policy term.
18. WAIVER OF SUBROGATION. Landlord and Tenant shall each have included
in all policies of commercial property insurance, commercial general liability
insurance, and business interruption and other insurance respectively obtained
by them pursuant to this Lease, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Landlord and Tenant each
waives all right of recovery against the other for, and releases the other from
liability for, loss or damage to the extent such loss or damage is covered by
valid and collectible insurance in effect at the time of such loss or damage or,
in the event of self-insurance or a failure to insure, would be covered by the
insurance required to be maintained under this Lease by the party seeking
recovery.
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19. DEFAULT
(a) The following events shall be deemed to be events of default
by Tenant under this Lease: (i) Tenant shall fail to pay any installment of
Rent or any other charge or assessment against Tenant pursuant to the terms
hereof within five (5) days following written notice by Landlord to Tenant of
its failure to pay such installments, provided that Landlord shall not be
obligated to send to Tenant such written notice more often than twice in any
calendar year during the term hereof; (ii) Tenant shall fail to comply with
any term, provision, covenant or warranty made under this Lease by Tenant,
other than the payment of the Rent or any other charge or assessment payable
by Tenant, and shall not cure such failure within twenty (20) days after
notice thereof to Tenant; (iii) Tenant or any guarantor of this Lease shall
make a general assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts as they become due, or shall file a
petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or
shall file a petition in any proceeding seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file
an answer admitting or fail timely to contest the material allegations of a
petition filed against it in any such proceeding; (iv) a proceeding is
commenced against Tenant or any guarantor of this Lease seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, and such proceeding shall not have been dismissed within
forty-five (45) days after the commencement thereof; (v) a receiver or
trustee shall be appointed for the Demised Premises or for all or
substantially all of the assets of Tenant or of any guarantor of this Lease
(unless such receiver is removed within thirty (30) days after appointment
thereof); and (vi) Tenant shall do or permit to be done anything which
creates a lien upon the Demised Premises or the Project and such lien is not
removed or discharged within fifteen (15) days after the filing thereof.
Notwithstanding the foregoing, in the case of a non-monetary default which is
subject to cure but which cannot by its very nature be cured within said
twenty (20) day period, Tenant shall be granted an additional period of time,
not to exceed twenty-five (25) days, in which to effect such cure, provided
Tenant promptly commences to cure such default and diligently pursues said
cure to completion.
(b) Upon the occurrence of any of the aforesaid events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever: (i) terminate this Lease,
in which event Tenant shall immediately surrender the Demised Premises to
Landlord and if Tenant fails to do so, Landlord may without prejudice to any
other remedy which it may have for possession or arrearages in Rent, enter
upon and take possession of the Demised Premises and expel or remove Tenant
and any other person who may be occupying said Demised Premises or any part
thereof, in accordance with applicable law, without being liable for
prosecution or any claim of damages therefor; Tenant hereby agreeing to pay
to Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, whether through inability to relet the
Demised Premises on satisfactory terms or otherwise; (ii) terminate Tenant's
right of possession (but not this Lease) and enter upon and take possession
of the Demised Premises and expel or remove Tenant and any other person who
may be occupying said Demised Premises or any part thereof, by entry (in
accordance with applicable law), dispossessory suit or otherwise, without
thereby releasing Tenant from any liability hereunder, without terminating
this Lease, and without being liable for prosecution or any claim of damages
therefor and, if Landlord so elects, make such alterations, redecorations and
repairs as, in Landlord's judgment, may be necessary to relet the Demised
Premises, and Landlord may, but shall be under no obligation to do so, relet
the Demised Premises or any portion thereof in Landlord's or Tenant's name,
but for the account of Tenant, for such term or terms (which may be for a
term extending beyond the Lease Term) and at such rental or rentals and upon
such other terms as Landlord may deem advisable, with or without
advertisement, and by private negotiations, and receive the rent therefor,
Tenant hereby agreeing to pay to Landlord the deficiency, if any, between all
Rent reserved hereunder and the total rental applicable to the Lease Term
hereof obtained by Landlord re-letting, and Tenant shall be liable for
Landlord's expenses in redecorating and restoring the Demised Premises and
all costs incident to such re-letting, including broker's commissions and
lease assumptions, and in no event shall Tenant be entitled to any rentals
received by Landlord in excess of the amounts due by Tenant hereunder; or
(iii) enter upon the Demised Premises, in accordance with applicable law,
without being liable for prosecution or any claim of damages therefor, and do
whatever Tenant is obligated to do under the terms of this Lease; and Tenant
agrees to reimburse Landlord on demand for any expenses including, without
limitation, reasonable attorneys' fees which Landlord may incur in this
effecting compliance with Tenant's obligations under this Lease and Tenant
further agrees that Landlord shall not be liable for any damages resulting to
Tenant from such action. If this Lease is terminated by Landlord as a result
of the occurrence of an event of default, Landlord may declare due and
payable immediately an amount determined as follows: (x) the entire amount of
Rent and other charges and assessments which would have become due and
payable during the remainder of the Lease Term (including, without
limitation, increases in Rent pursuant to Article 7 hereof), discounted to
present value by using a discount factor of eight percent (8%) per annum,
plus (y) all of Landlord's costs and expenses (including, without limitation,
Landlord's expenses in redecorating and restoring the Demised Premises and
all costs relating to such reletting, including broker's commissions and
lease assumptions) reasonably incurred in connection with or related to the
reletting of the Demised Premises, minus (z) the market rental value of the
Demised Premises for the remainder of the Lease Term, based on Landlord's
reasonable determination of both future rental value and the probability of
reletting the Demised Premises for all or part of the remaining Term,
discounted to present value by using a discount factor of eight percent (8%)
per annum. Such payment shall not constitute a penalty or forfeiture but
shall constitute liquidated damages for Tenant's failure to comply with the
terms and provisions of this Lease (Landlord and Tenant agreeing that
Landlord's exact damages in such event are impossible to ascertain and that
the amount set forth above is a reasonable estimate thereof). For purposes of
determining what could be collected by Landlord by reletting under this
subsection, Landlord is not required to relet when other comparable space in
the Building is available. The term "remaining Lease Term" as used in this
subsection shall mean the period which otherwise would have (but for the
termination of this Lease) constituted the balance of the Lease Term from the
date of the termination of this Lease.
(c) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any other remedy herein provided or any other remedy provided by
law or at equity, nor shall pursuit of any remedy herein provided constitute
an election of remedies thereby excluding the later election of an alternate
remedy, or a forfeiture or waiver of any Rent or other charges and
assessments payable by Tenant and due to Landlord hereunder or of any damages
accruing to Landlord by reason of violation of any of the terms, covenants,
warranties and provisions herein contained. No reentry or taking possession
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of the Demised Premises by Landlord or any other action taken by or on behalf of
Landlord shall be construed to be an acceptance of a surrender of this Lease or
an election by Landlord to terminate this Lease unless written notice of such
intention is given to Tenant. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. In determining the amount of
loss or damage which Landlord may suffer by reason of termination of this Lease
or the deficiency arising by reason of any reletting of the Demised Premises by
Landlord as above provided, allowance shall be made for the expense of
repossession. Tenant agrees to pay to Landlord all costs and expenses incurred
by Landlord in the enforcement of this Lease, including without limitation, the
fees of Landlord's attorneys as provided in Article 25 hereof.
20. WAIVER OF BREACH. No waiver of any breach of the covenants,
warranties, agreements, provisions, or conditions contained in this Lease shall
be construed as a waiver of said covenant, warranty, provision, agreement or
condition or of any subsequent breach thereof, and if any breach shall occur and
afterwards be compromised, settled or adjusted, this Lease shall continue in
full force and effect as if no breach had occurred.
21. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, assign this Lease or any interest herein or in
the Demised Premises, or mortgage, pledge, encumber, hypothecate or otherwise
transfer or sublet the Demised Premises or any part thereof or permit the use
of the Demised Premises by any party other than Tenant. Consent to one or
more such transfers or subleases shall not destroy or waive this provision,
and all subsequent transfers and subleases shall likewise be made only upon
obtaining the prior written consent of Landlord. Without limiting the
foregoing prohibition, in no event shall Tenant assign this Lease or any
interest herein, whether directly, indirectly or by operation of law, or
sublet the Demised Premises or any part thereof or permit the use of the
Demised Premises or any part thereof by any party if such proposed
assignment, subletting or use would contravene any restrictive covenant
(including any exclusive use) granted to any other tenant of the Building or
would contravene the provisions of Article 13 of this Lease. Sublessees or
transferees of the Demised Premises for the balance of the Lease Term shall
become directly liable to Landlord for all obligations of Tenant hereunder,
without relieving Tenant (or any guarantor of Tenant's obligations hereunder)
of any liability therefor, and Tenant shall remain obligated for all
liability to Landlord arising under this Lease during the entire remaining
Lease Term including any extensions thereof, whether or not authorized
herein. If Tenant is a partnership, a withdrawal or change, whether
voluntary, involuntary or by operation of law, of partners owning a
controlling interest in the Tenant shall be deemed a voluntary assignment of
this Lease and subject to the foregoing provisions. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization
of Tenant, or the sale or transfer of a controlling interest in the capital
stock of Tenant, whether in a single transaction or in a series of
transactions, shall be deemed a voluntary assignment of this Lease and
subject to the foregoing provisions. Landlord may, as a prior condition to
considering any request for consent to an assignment or sublease, require
Tenant to obtain and submit current financial statements of any proposed
subtenant or assignee and such other financial documentation relative to the
proposed subtenant or assignee as Landlord may reasonably require. In the
event Landlord consents to an assignment or sublease, Tenant shall pay to
Landlord a fee to cover Landlord's accounting costs plus any legal fees
actually incurred by Landlord as a result of the assignment or sublease (not
to exceed $1,000.00). The consent of Landlord to any proposed assignment or
sublease may be withheld by Landlord in its sole and absolute discretion.
Any consideration, in excess of the Rent and other charges and sums due and
payable by Tenant under this Lease, paid to Tenant by any assignee of this
Lease for its assignment, or by any sublessee under or in connection with its
sublease, or otherwise paid to Tenant by another party for use and occupancy
of the Demised Premises or any portion thereof (after deducting Tenant's
reasonable costs associated therewith, including brokerage fees, attorneys'
fees and remodeling costs), shall be promptly remitted by Tenant to Landlord
as additional rent hereunder and Tenant shall have no right or claim thereto
as against Landlord. No assignment of this Lease consented to by Landlord
shall be effective unless and until Landlord shall receive an original
assignment and assumption agreement, in form and substance satisfactory to
Landlord, signed by Tenant and Tenant's proposed assignee, whereby the
assignee assumes due performance of this Lease to be done and performed for
the balance of the then remaining Lease Term of this Lease. No subletting of
the Demised Premises, or any part thereof, shall be effective unless and
until there shall have been delivered to Landlord an agreement, in form and
substance satisfactory to Landlord, signed by Tenant and the proposed
sublessee, whereby the sublessee acknowledges the right of Landlord to
continue or terminate any sublease, in Landlord's sole discretion, upon
termination of this Lease, and such sublessee agrees to recognize and attorn
to Landlord in the event that Landlord elects under such circumstances to
continue such sublease. Upon Landlord's receipt of a request by Tenant to
assign this Lease or any interest herein or in the Demised Premises or to
transfer or sublet the Demised Premises or any part thereof or permit the use
of the Demised Premises by any party other than Tenant, Landlord shall
exercise in writing one of the following options: (a) to terminate this Lease
as to the portion of the Demised Premises proposed to be assigned or sublet;
(b) to consent to the proposed assignment or sublease, subject to the other
terms and conditions set forth in this Article 21; or (c) to refuse to
consent to the proposed assignment or sublease, which refusal shall be deemed
to have been exercised unless Landlord gives Tenant written notice providing
otherwise. Landlord agrees to respond to any such request within ten (10)
days after receipt of such request, together with such information as may be
reasonably necessary to enable Landlord to make an informed decision with
respect to such request.
See Special Stipulation No. 5.
22. DESTRUCTION.
(a) If the Demised Premises are damaged by fire or other casualty,
the same shall be repaired or rebuilt as speedily as practical under the
circumstances as the expense of Landlord, unless this Lease is terminated as
provided in this Article 22, and during the period required for restoration,
a just and proportionate part of Base Rental shall be abated until the
Demised Premises are repaired or rebuilt.
(b) If the Demised Premises are (i) damaged to such an extent that
repairs cannot be completed within one hundred eighty (180) days after the
date of the casualty, or (ii) damaged or destroyed as a result of a risk
which is not insured under the insurance policies required hereunder, or
(iii) damaged or destroyed during the last eighteen (18) months of the Lease
Term, or (iv) if the Building is damaged in whole or in part (whether or not
the Demised Premises are damaged) to such an extent that the Building cannot,
in Landlord's reasonable judgment, be operated economically as an integral
unit, then and in any such event Landlord may at its option terminate this
Lease by notice in writing to Tenant within sixty (60) days after the day of
such occurrence. With respect to condition (iv) above, Landlord must
terminate all other leases
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in the Building in order to terminate this Lease. If the Demised Premises are
damaged to such an extent that repairs cannot reasonably be anticipated to be
to be or are not completed within one hundred eighty (180) days after the date
of the casualty or if the Demised Premises are substantially damaged during
the last eighteen (18) months of the Lease Term, then in either such event
Tenant may elect to terminate this Lease by notice in writing to Landlord
given within forty-five (45) days after the date of such occurrence (or
within thirty (30) days of the conclusion of such one hundred eighty (180)
day period if the repairs are not completed within such period). Unless
Landlord or Tenant elects to terminate this Lease as hereinabove provided,
this Lease will remain in full force and effect and Landlord shall repair such
damage at its expense to the extent required under subparagraph (c) below as
expeditiously as possible under the circumstances.
(c) If Landlord should elect or be obligated pursuant to
subparagraph (a) above to repair or rebuild because of any damage or
destruction, Landlord's obligation shall be limited to the original Building
and any other work or improvements which were originally performed or
installed at Landlord's expense as described in EXHIBIT "D" hereto or with
the proceeds of the Tenant Improvement Allowance. If Landlord's mortgagee or
the lessor under a ground or underlying lease shall require that any
insurance proceeds from a casualty loss be paid to it, Landlord may terminate
this Lease unless Tenant, within fifteen (15) days after demand therefor,
deposits with Landlord a sum of money sufficient to pay the difference
between the cost of repair and the proceeds of the insurance available to
Landlord for such purpose.
(d) In no event shall Landlord be liable for any loss or damage
sustained by Tenant by reason of casualties mentioned hereinabove or any
other accidental casualty.
(e) In the event of a minor casualty (i.e., one which can be fully
repaired in less than thirty (30) days), Landlord shall not be entitled to
terminate this Lease and shall restore the Demised Premises in accordance
with the provisions of this Article 22.
See Special Stipulation No. 37.
23. LANDLORD'S LIEN. [INTENTIONALLY DELETED.]
24. SERVICES BY LANDLORD. Landlord shall provide the Building Standard
Services described on EXHIBIT "E" attached hereto and by this reference made
a part hereof.
25. ATTORNEYS' FEES AND HOMESTEAD. [INTENTIONALLY DELETED.]
See Special Stipulation No. 18.
26. TIME. Time is of the essence of this Lease and whenever a certain
day is stated for payment or performance of any obligation of Tenant or
Landlord, the same enters into and becomes a part of the consideration hereof.
27. SUBORDINATION AND ATTORNMENT.
(a) Tenant agrees that this Lease and all rights of Tenant
hereunder are and shall be subject and subordinate to any ground or
underlying lease which may now or hereafter be in effect regarding the
Project or any component thereof, to any mortgage now or hereafter
encumbering the Demised Premises or the Project or any component thereof, to
all advances made or hereafter to be made upon the security of such mortgage,
to all amendments, modifications, renewals, consolidations, extensions and
restatements of such mortgage, and to any replacements and substitutions for
such mortgage. The terms of this provision shall be self-operative and no
further instrument of subordination shall be required. Tenant, however, upon
request of any party in interest, shall execute promptly such instrument or
certificates as may be reasonably required to carry out the intent hereof,
whether said requirement is that of Landlord or any other party in interest,
including, without limitation, any mortgagee.
(b) If any mortgagee or lessee under a ground or underlying lease
elects to have this Lease superior to its mortgage or lease and signifies its
election in the instrument creating its lien or lease or by separate recorded
instrument, then this Lease shall be superior to such mortgage or lease, as
the case may be. The term "mortgage", as used in this Lease, includes any
deed to secure debt, deed of trust or security deed and any other instrument
creating a lien in connection with any other method of financing or
refinancing. The term "mortgagee", as used in this Lease, refers to the
holder(s) of the indebtedness secured by a mortgage.
(c) In the event any proceedings are brought for the foreclosure
of, or in the event of exercise of the power of sale under, any mortgage
covering the Demised Premises or the Project, or in the event the interests
of Landlord under this Lease shall be transferred by reason of deed in lieu
of foreclosure or other legal proceedings, or in the event of termination of
any lease under which Landlord may hold title, Tenant shall, at the option of
the transferee or purchaser at foreclosure or under power of sale, or the
lessor of the Landlord upon such lease termination, as the case may be
(sometimes hereinafter called "such person"), attorn to such person and shall
recognize and be bound and obligated hereunder to such person as the Landlord
under this Lease; provided, however, that no such person shall be (i) bound
by any payment of Rent for more than one (1) month in advance, except
prepayments in the nature of security for the performance by Tenant of its
obligations under this Lease; (ii) bound by any amendment or modification of
this Lease made without the express written consent of the mortgagee or lessor
of the Landlord, as the case may be (provided that Tenant was notified in
writing of such mortgagee or lessor of Landlord); (iii) obligated to cure
any defaults under this Lease of any prior landlord (including Landlord);
(iv) liable for any act or omission of any
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prior landlord (including Landlord); (v) subject to any offsets or defenses
which Tenant might have against any prior landlord (including Landlord); or
(vi) bound by any warranty or representation of any prior landlord (including
Landlord) relating to work performed by any prior landlord (including
Landlord) under this Lease. Landlord's successor shall not be liable for the
matters described in clauses (iii) through (vi) of the preceding sentence,
provided Landlord shall remain liable to Tenant for the matters described
therein. Tenant agrees to execute any attornment agreement reasonable in form
and content and not in conflict herewith requested by Landlord, the mortgagee
or such person. Tenant's obligation to attorn to such person shall survive
the exercise of any such power of sale, foreclosure or other proceeding.
Tenant agrees that the institution of any suit, action or other proceeding by
any mortgagee to realize on Landlord's interest in the Demised Premises or
the Building pursuant to the powers granted to a mortgagee under its
mortgage, shall not, by operation of law or otherwise, result in the
cancellation or termination of the obligations of Tenant hereunder. Landlord
and Tenant agree that notwithstanding that this Lease is expressly subject
and subordinate to any mortgages, any mortgagee, its successors and assigns,
or other holder of a mortgage or of a note secured thereby, may sell the
Demised Premises or the Building, in the manner provided in the mortgage and
may, at the option of such mortgagee, its successors and assigns, or other
holder of the mortgage or note secured thereby, make such sale of the Demised
Premises or Building subject to this Lease.
See Special Stipulation No. 6.
28. ESTOPPEL CERTIFICATES. Within twenty (20) days after written
request therefor by Landlord, Tenant agrees to execute and deliver to
Landlord in recordable form an estoppel certificate addressed to Landlord,
any mortgagee or assignee of Landlord's interest in, or purchaser of, the
Demised Premises or the Building or any part thereof, certifying (if such be
the case) that this Lease is unmodified and is in full force and effect (and
if there have been modifications, that the same is in full force and effect
as modified and stating said modifications); that there are no defenses or
offsets against the enforcement thereof to Tenant's knowledge or stating
those claimed by Tenant; and stating the date to which Rent and other charges
have been paid. Such certificate shall also include such other information
concerning the Lease and Tenant's occupancy as may reasonably be required by
such mortgagee, proposed mortgagee, assignee, purchaser or Landlord. Any such
certificate may be relied upon by Landlord, any mortgagee, proposed
mortgagee, assignee, purchaser and any other party to whom such certificate
is addressed. Upon written request from Tenant, Landlord agrees to provide
estoppel certificates to Tenant generally in the same manner as set forth
herein above.
29. NO ESTATE. This Lease shall create the relationship of landlord and
tenant only between Landlord and Tenant and no estate shall pass out of
Landlord. Tenant shall have only an usufruct, not subject to levy and sale
and not assignable in whole or in part by Tenant except as herein provided.
30. CUMULATIVE RIGHTS. All rights, powers and privileges conferred
hereunder upon the parties hereto shall be cumulative to, but not restrictive
of, or in lieu of those conferred by law.
31. HOLDING OVER. If Tenant remains in possession after expiration or
termination of the Lease Term with or without Landlord's written consent,
Tenant shall become a tenant-at-sufferance, and there shall be no renewal of
this Lease by operation of law. During the period of any such holding over,
all provisions of this Lease shall be and remain in effect except that the
monthly rental shall be one hundred fifty percent (150%) of Rent (including
any adjustments as provided herein) payable for the last full calendar month
of the Lease Term including renewals or extensions. The inclusion of the
preceding sentence in this Lease shall not be construed as Landlord's consent
for Tenant to hold over.
32. SURRENDER OF PREMISES. Upon the expiration or other termination of
this Lease, Tenant shall quit and surrender to Landlord the Demised Premises
and every part thereof and all alterations, additions and improvements
thereto, broom clean and in good condition and state of repair, reasonable
wear and tear and damage caused by casualty or condemnation excepted. Tenant
shall remove all personalty and equipment not attached to the Demised
Premises which it has placed upon the Demised Premises, and Tenant shall
restore the Demised Premises to the condition immediately preceding the time
of placement thereof. If Tenant shall fail or refuse to remove all of
Tenant's effects, personalty and equipment from the Demised Premises upon the
expiration or termination of this Lease for any cause whatsoever or upon
Tenant being dispossessed by process of law or otherwise, such effects,
personalty and equipment shall be deemed upon three (3) business days prior
written notice to Tenant to be abandoned and may be appropriated, sold,
stored, destroyed or otherwise disposed of by Landlord without written notice
to Tenant or any other party and without obligation to account for them.
Tenant shall pay Landlord on demand any and all reasonable expenses incurred
by Landlord in the removal of such property, including, without limitation,
the cost of repairing any damage to the Building or Project caused by the
removal of such property and storage charges (if Landlord elects to store
such property). The covenants and conditions of this Article 32 shall survive
any expiration or termination of this Lease.
See Special Stipulation No. 39.
33. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been fully given, whether
actually received or not, when delivered in person, or one (1) days after
being deposited with an overnight commercial courier, or three (3) days after
being deposited, postage prepaid, in the United States Mail, certified,
return receipt requested, and addressed to Landlord or Tenant at their
respective address set forth hereinabove or at such other address as either
party shall have theretofore given to the other by notice as herein provided.
See Special Stipulation No. 33.
34. DAMAGE OR THEFT OF PERSONAL PROPERTY. All personal property brought
into the Demised Premises by Tenant, or Tenant's employees, agents, or
business visitors, shall be at the risk of Tenant only, and Landlord shall
not be liable for theft thereof or any damage thereto occasioned by any act
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of co-tenants, occupants, invitees or other users of the Building or any other
person unless damage or theft is caused by Landlord's negligence or misconduct.
Landlord shall not at any time be liable for damage to any personal property of
Tenant, its employees, sublessees, or invitees in or upon the Demised Premises,
which results from gas, smoke, water, rain, ice or snow which issues or leaks
from or forms upon any part of the Building or from the pipes or plumbing work
of the same, or from any other place whatsoever unless damage is caused by
Landlord's negligence or misconduct.
35. EMINENT DOMAIN.
(a) If all or part of the Project shall be taken for any public or
quasi-public use by virtue of the exercise of the power of eminent domain or by
private purchase in lieu thereof, this Lease shall terminate as to any part of
the Demised Premises so taken as of the date of taking, and, in the case of a
partial taking, either Landlord or Tenant shall have the right to terminate this
Lease by written notice to the other within thirty (30) days after such date;
provided, however, that a condition to the exercise by Tenant of such right to
terminate shall be that the portion of the Project taken shall be of such extent
and nature as to materially impair Tenant's use of the balance of the Demised
Premises (i.e. insufficient parking, lack of access, non-availability of
essential services). If title to so much of the Project is taken that a
reasonable amount of reconstruction thereof will not in Landlord's sole
discretion result in the Building being a practical improvement and reasonably
suitable for use for the purpose for which it is designed, then this Lease shall
terminate on the date that the condemning authority actually takes possession of
the part so condemned or purchased; provided, however, that as a condition to
terminating this Lease, Landlord must also terminate all other leases in the
Building. If a temporary taking has a material, adverse effect on the Demised
Premises and will extend beyond one hundred eighty (180) days, then Tenant shall
have the right to terminate this Lease by timely notice to Landlord. If any
part of the Demised Premises is taken and Tenant elects not to terminate the
Lease, rent will be reduced in proportion to the area of the Demised Premises so
taken.
(b) If this Lease is terminated under the provisions of this
Article 35, Rent shall be apportioned and adjusted as of the date of
termination. Tenant shall have no claim against Landlord or against the
condemning authority for the value of any leasehold estate or for the value
of the unexpired Lease Term provided that the foregoing shall not preclude
any claim that Tenant may have against the condemning authority for the
unamortized cost of leasehold improvements, to the extent the same were
installed at Tenant's expense (and not with the proceeds of the Tenant
Improvement Allowance), or for loss of business, moving expenses or other
consequential damages, in accordance with subparagraph (d) below.
(c) If there is a partial taking of the Project and this Lease is
not thereupon terminated under the provisions of this Article 35, then this
Lease shall remain in full force and effect, and Landlord shall, within a
reasonable time thereafter, repair or reconstruct the remaining portion of
the Project or Building to the extent necessary to make the same a complete
architectural unit; provided, that in complying with its obligations
hereunder, Landlord shall not be required to expend more than the net
proceeds of the condemnation award which are paid to Landlord. Upon any such
partial taking, Landlord shall have the right to reduce the figure described
in Article 8(b)(y) hereof by an amount equal to the product of (x) the amount
of tax savings arising from such partial taking, as determined by Landlord in
its reasonable discretion, divided by the number of square feet of Rentable
Floor Area of the Building, multiplied by (y) the number of square feet of
Rentable Floor Area of the Demised Premises. Landlord shall give Tenant
notice of such adjustment and a statement setting forth a reasonably detailed
explanation of how the adjustment was calculated.
(d) All compensation awarded or paid to Landlord upon a total or
partial taking of the Demised Premises or the Project shall belong to and be
the property of Landlord without any participation by Tenant. Nothing herein
shall be construed to preclude Tenant from prosecuting any claim directly
against the condemning authority for loss of business, for damage to, and
cost of removal of, trade fixtures, furniture and other personal property
belonging to Tenant, and for the unamortized cost of leasehold improvements
to the extent the same were installed at Tenant's expense (and not with the
proceeds of the Tenant Improvement Allowance); provided, however, that no
such claim shall diminish or adversely affect Landlord's award.
(e) Notwithstanding anything to the contrary contained in this
Article 35, if, during the Lease Term, the use or occupancy of any part of
the Project or the Demised Premises shall be taken or appropriated
temporarily for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, this Lease shall be
and remain unaffected by such taking or appropriation and Tenant shall
continue to pay in full all Rent payable hereunder by Tenant during the Lease
Term. In the event of any such temporary appropriation or taking, Tenant
shall be entitled to receive that portion of any award which represents
compensation for the loss of use or occupancy of the Demised Premises during
the Lease Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration and compensation for the loss
of use or occupancy of the Demised Premises after the end of the Lease Term.
36. PARTIES. The term "Landlord", as used in this Lease, shall include
Landlord and its successors and assigns. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Demised Premises cease to exist
for any reason during the Lease Term, then notwithstanding the happening of such
event, this Lease nevertheless shall remain in full force and effect, and Tenant
hereby agrees to attorn to the then owner of the Demised Premises. The term
"Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees, if this Lease shall be
validly assigned for the balance of the Lease Term or any renewals or extensions
thereof. In addition, Landlord and Tenant covenant and agree that Landlord's
right to transfer or assign Landlord's interest in and to the Demised Premises,
or any part or parts thereof, shall be unrestricted, and that in the event of
any such transfer or assignment by Landlord which includes the Demised Premises,
Landlord's obligations to Tenant hereunder shall cease and terminate, and Tenant
shall look only and solely to Landlord's assignee or transferee for performance
thereof, provided Landlord's successor assumes all of Landlord's liability
hereunder.
37. [INTENTIONALLY DELETED.]
12
<PAGE>
See Special Stipulation No. 17.
38. RELOCATION OF THE PREMISES. [INTENTIONALLY DELETED.]
39. FORCE MAJEURE. In the event of strike, lockout, labor trouble,
civil commotion, Act of God, or any other cause beyond a party's control
(collectively "force majeure") resulting in Landlord's inability to supply
the services or perform the other obligations required of Landlord hereunder,
this Lease shall not terminate and Tenant's obligation to pay Rent and all
other charges and sums due and payable by Tenant shall not be affected or
excused and Landlord shall not be considered to be in default under this
Lease. If, as a result of force majeure, Tenant is delayed in performing any
of its obligations under this Lease, other than Tenant's obligation to take
possession of the Demised Premises on or before the Rental Commencement Date
and to pay Rent and all other charges and sums payable by Tenant hereunder,
Tenant's performance shall be excused for a period equal to such delay and
Tenant shall not during such period be considered to be in default under this
Lease with respect to the obligation, performance of which has thus been
delayed.
40. LANDLORD'S LIABILITY. Landlord shall have no personal liability
with respect to any of the provisions of this Lease. If Landlord is in
default with respect to its obligations under this Lease, Tenant shall look
solely to the interest of Landlord in and to the Building and the Land
(including net rental income and net sales, insurance and condemnation
proceeds) for satisfaction of Tenant's remedies, if any. It is expressly
understood and agreed that Landlord's liability under the terms of this Lease
shall in no event exceed the amount of its interest in and to said Land and
Building. In no event shall any partner of Landlord nor any joint venturer in
Landlord, nor any officer, director or shareholder of Landlord or any such
partner or joint venturer of Landlord be personally liable with respect to
any of the provisions of this Lease.
41. LANDLORD'S COVENANT OF QUIET ENJOYMENT. Provided Tenant performs
the terms, conditions and covenants of this Lease, and subject to the terms
and provisions hereof, Landlord covenants and agrees that Tenant shall have
the quiet and peaceful possession of the Demised Premises, for the Lease
Term, without hindrance, claim or molestation by Landlord or any other person
lawfully claiming under Landlord.
42. SECURITY DEPOSITS.
(a) As security for Tenant's obligations to take possession of the
Demised Premises in accordance with the terms of this Lease and to comply
with all of Tenant's covenants, warranties and agreements hereunder, Tenant
shall deposit with Landlord the sum set forth in Article 1(m)(i) above on the
date Tenant executes and delivers this Lease to Landlord as prepaid rent.
Such amount shall be applied by Landlord, without interest, to the first
monthly installment(s) of Base Rental as they become due hereunder. In the
event Tenant fails to take possession of the Demised Premises as aforesaid,
said sum shall be retained by Landlord for application in reduction, but not
in satisfaction, of damages suffered by Landlord as a result of such breach by
Tenant.
(c) In the event of a sale or transfer of Landlord's interest in
the Demised Premises or the Building or a lease by Landlord of the Building,
Landlord shall have the right to transfer the within described security
deposits to the purchaser or lessor, as the case may be, and Landlord shall
be relieved of all liability to Tenant for the return of such security
deposits. Tenant shall look solely to the new owner or lessor for the return
of said security deposits. The security deposits shall not be mortgaged,
assigned or encumbered by Tenant. In the event of a permitted assignment
under this Lease by Tenant, the security deposits shall be held by Landlord as
a deposit made by the permitted assignee and Landlord shall have no further
liability with respect to the return of said security deposits to the
original Tenant.
(d) Neither Landlord nor its agents shall be required to keep the
security deposits separate from their general accounts, it being agreed that
the security deposits may be commingled with other funds of Landlord or of
its agents. It is further agreed and acknowledged by Tenant that Landlord or
its agents shall have the right to deposit the security deposits in an
interest-bearing account, and all interest accrued on the security deposits
shall belong to Landlord and will be retained by Landlord as its property.
43. HAZARDOUS SUBSTANCES. Tenant hereby covenants and agrees that
Tenant shall not bring or cause to be brought any "Hazardous Substances" (as
hereinafter defined) or knowingly permit to be generated, placed, held,
stored, used, located or disposed of at the Project or any part thereof,
except for Hazardous Substances as are commonly and legally used or stored as
a consequence of using the Demised Premises for general office and
administrative purposes, but only so long as the quantities thereof do not
pose a threat to public health or to the environment or would necessitate a
"response action", as that term is defined in CERCLA (as hereinafter
defined), and so long as Tenant strictly complies or causes compliance with
all
13
<PAGE>
applicable governmental rules and regulations concerning the use or
production of such Hazardous Substances, at the time such materials are
placed in or on the Land, Building or the Demised Premises. For purposes of
this Article 43, "Hazardous Substances" shall mean and include those elements
or compounds which are contained in the list of Hazardous Substances adopted
by the United States Environmental Protection Agency (EPA) or the list of
toxic pollutants designated by Congress or the EPA which are defined as
hazardous, toxic, pollutant, infectious or radioactive by any other federal,
state or local statute, law, ordinance, code, rule, regulation, order or
decree regulating, relating to or imposing liability (including, without
limitation, strict liability) or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereinafter in effect (collectively "Environmental Laws"). Tenant hereby
agrees to indemnify Landlord and hold Landlord harmless from and against any
and all losses, liabilities, including strict liability, damages, injuries,
expenses, including reasonable attorneys' fees, costs of settlement or
judgment and claims of any and every kind whatsoever paid, incurred or
suffered by, or asserted against, Landlord by any person, entity or
governmental agency for, with respect to, or as a direct or indirect result
of Tenant's breach of this paragraph 43 (including, without limitation, any
losses, liabilities, including strict liability, damages, injuries, expenses,
including reasonable attorneys' fees, costs of any settlement or judgment or
claims asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act ["CERCLA"], any so-called federal, state or
local "Superfund" or "Superlien" laws or any other Environmental Law);
provided, however, that the foregoing indemnity is limited to matters arising
solely from Tenant's violation of the covenant contained in this Article. The
obligations of Tenant under this Article shall survive any expiration or
termination of this Lease.
See Special Stipulation No. 16.
44. SUBMISSION OF LEASE. The submission of this Lease for examination
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant.
45. SEVERABILITY. If any clause or provision of the Lease is illegal,
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision
of this Lease which is illegal, invalid or unenforceable, there shall be
added as a part of this Lease a clause or provision as nearly identical to
the said clause or provision as may be legal, valid and enforceable.
46. ENTIRE AGREEMENT. This Lease contains the entire agreement of the
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No failure of Landlord to exercise any power given Landlord
hereunder, or to insist upon strict compliance by Tenant with any obligation
of Tenant hereunder, and no custom or practice of the parties at variance
with the terms hereof, shall constitute a waiver of Landlord's right to
demand exact compliance with the terms hereof. This Lease may not be
altered, waived, amended or extended except by an instrument in writing
signed by Landlord and Tenant. This Lease is not in recordable form, and
Tenant agrees not to record or cause to be recorded this Lease or any short
form or memorandum thereof.
47. HEADINGS. The use of headings herein is solely for the convenience
of indexing the various paragraphs hereof and shall in no event be considered
in construing or interpreting any provision of this Lease.
48. BROKER. Broker(s) [as defined in Article 1(n)] is(are) entitled to
a leasing commission from Landlord by virtue of this Lease, which leasing
commission shall be paid by Landlord to Broker(s) in accordance with the
terms of a separate agreement between Landlord and Broker(s). Tenant
represents and warrants to Landlord that [except with respect to any Broker(s)
identified in Article 1(n) hereinabove, which has(have) acted as agent for
Tenant (and not for Landlord) in this transaction] no broker, agent,
commission salesperson, or other person has represented Tenant in the
negotiations for and procurement of this Lease and that [except with respect
to any Broker(s) identified in Article 1(n) hereinabove] no commissions, fees
or compensation of any kind are due and payable in connection herewith to any
broker, agent, commission salesperson or other person as a result of any act
or agreement of Tenant. Tenant agrees to indemnify and hold Landlord harmless
from all loss, liability, damage, claim, judgment, cost or expense (including
reasonable attorneys' fees and court costs) suffered or incurred by Landlord
as a result of a breach by Tenant of the representation and warranty
contained in the immediately preceding sentence or as a result of Tenant's
failure to pay commissions, fees or compensation due to any broker who
represented Tenant, whether or not disclosed, or as a result of any claim for
any fee, commission or similar compensation with respect to this Lease made
by any broker, agent or finder [other than the Broker(s) identified in
Article 1(n) hereinabove] claiming to have dealt with Tenant with respect to
the Lease, whether or not such claim is meritorious. The parties hereto do
hereby acknowledge and agree that COMPASS Management and Leasing, Inc., a
subsidiary of Equitable Real Estate Investment Management, Inc., has acted as
agent for Landlord in this transaction and shall be paid a commission by
Landlord in connection with this transaction pursuant to the terms of a
separate written commission agreement. COMPASS Management and Leasing, Inc.
has not acted as agent for Tenant in this transaction. Landlord hereby
warrants and represents to Tenant that Landlord has not dealt with any
broker, agent or finder other than COMPASS Management and Leasing, Inc. and
Broker as defined in subparagraph 1(n) in connection with this Lease, and,
Landlord hereby agrees to indemnify and hold Tenant harmless from and against
any and all loss, damage, liability, claim, judgment, cost or expense
(including, but not limited to, reasonable attorneys' fees and court costs)
that may be incurred or suffered by Tenant because of any claim for any fee,
commission or similar compensation with respect to this Lease made by any
broker, agent or finder claiming to have represented Landlord.
49. GOVERNING LAW. The laws of the State of Georgia shall govern the
validity, performance and enforcement of this Lease.
50. AUTHORITY. If Tenant executes this Lease as a corporation, Tenant
does hereby represent and warrant that Tenant is a duly incorporated or a
duly qualified (if a foreign corporation) corporation and is fully authorized
and qualified to do business in the State in which the Demised Premises are
located, that the corporation has full right and authority to enter into this
Lease, and that each person signing on behalf of the corporation is an
officer of the corporation and is authorized to sign on behalf of the
corporation. If Tenant signs as a partnership, joint venture or sole
proprietorship or other
14
<PAGE>
business entity (each being herein called "Entity"), each of the persons
executing on behalf of Tenant does hereby covenant and warrant that Tenant is
a duly authorized and existing Entity, that Tenant has full right and
authority to enter into this Lease, that all persons executing this Lease on
behalf of the Entity are authorized to do so on behalf of the Entity, and
that such execution is fully binding upon the Entity and its partners, joint
venturers or principal, as the case may be. Upon the request of Landlord,
Tenant shall deliver to Landlord documentation satisfactory to Landlord
evidencing Tenant's compliance with this Article, and Tenant agrees to
promptly execute all necessary and reasonable applications or documents as
reasonably requested by Landlord, required by the jurisdiction in which the
Demised Premises is located, to permit the issuance of necessary permits and
certificates for Tenant's use and occupancy of the Demised Premises.
51. JOINT AND SEVERAL LIABILITY. If Tenant comprises more than one person,
corporation, partnership or other entity, the liability hereunder of all such
persons, corporations, partnerships or other entities shall be joint and
several.
52. SPECIAL STIPULATIONS. The special stipulations attached hereto as
EXHIBIT "F" are hereby incorporated herein by this reference as though fully set
forth (if none, so state). To the extent the special stipulations conflict with
or are inconsistent with the foregoing provisions of this Lease or any exhibit
to this Lease, the special stipulations shall control.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day, month and year first above written.
"LANDLORD": ZML-CENTRAL PARK, L.L.C., a Delaware
Limited Liability Company
BY: EQUITY OFFICE HOLDINGS, L.L.C., as agent
Date executed by Landlord By: /s/ Arvid Povilaitis
-------------------------------------------
11/6/95 Arvid Povilaitis
- ------------------- Title: Vice President
----------------------------------------
"TENANT":
ACTAMED CORP., a Georgia corporation
Date executed by Tenant By: /s/ Nancy J. Ham
10/2/95 -------------------------------------------
- ----------- Title: Chief Financial Officer
----------------------------------------
Attest:
---------------------------------------
Title:
---------------------------------------
[CORPORATE SEAL]
Exhibits Attached
Rules and Regulations
Exhibit "A" - Legal Description of Building 7000
Exhibit "A-1" - Storage Space
Exhibit "B" - Floor Plan
Exhibit "C" - Supplemental Notice
Exhibit "D" - Landlord's Construction
Exhibit "E" - Building Standard Services
Exhibit "F" - Special Stipulations
Exhibit "G" - Janitorial Specifications
15
<PAGE>
ADDENDUM
This Addendum is entered into as of the 6th day of November, 1995 by
and between ZML-Central Park, L.L.C., a Delaware Limited Liability Company
("Landlord") by its agent Equity Office Holdings, L.L.C., a Delaware Limited
Liability Company, and Actamed Corp., a Georgia Corporation ("Tenant").
WITNESSETH:
WHEREAS, simultaneously with the execution of this Addendum, Landlord and Tenant
have entered into that certain lease of even date herewith (the "Lease") for
approximately 41,292 square feet of Rentable Floor Area on the 4th and 6th
floors of the building located at 7000 Central Parkway, Atlanta, Georgia and
commonly known as Central Park (the "Building"), all as more particularly
described in the Lease; and
WHEREAS, Landlord and Tenant desire to modify certain terms and conditions of
the Lease as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and
other good and valuable consideration, the sufficiency and receipt of which is
acknowledge, Landlord and Tenant agree as follows:
1. TERM. Article 3 of the Lease is hereby amended by adding the
following language at the end thereof:
"Notwithstanding anything herein to the contrary, if Landlord determines
that it will be unable to substantially complete the Additional Space by
sixty (60) days after the scheduled Rental Commencement Date for the
Additional Space (the "Outside Completion Date"), Landlord shall have the
right to provide Tenant with written notice (the "Outside Extension
Notice") of such inability, which Outside Extension Notice shall set forth
the date on which Landlord reasonably believes that it will be able to
substantially complete the Additional Space. Upon receipt of the Outside
Extension Notice, Tenant shall have the right to terminate this Lease by
providing written notice of termination to Landlord within five (5)
business days after the date of the Outside Extension Notice. In the event
that Tenant does not terminate this Lease within such five (5) business day
period, the Outside Completion Date shall automatically be amended to be
the date set forth in Landlord"s Outside Extension Notice."
2. RELOCATION OF PREMISES. Article 38 of the Lease is hereby amended by
deleting the words "INTENTIONALLY DELETED" and adding the following in lieu
thereof:
"In the event that: (i) Tenant leases First Refusal Space (as defined in
Exhibit F) on any floor of the Building other than the 4th and 6th floors;
and (ii) such First Refusal Space, when combined with any other space
already leased by Tenant on such floor, equals a total of less than 6,000
rentable square feet, then Landlord, at its expense, shall be entitled to
cause Tenant to relocate from such First Refusal Space to space containing
comparable improvements and approximately the same Rentable Area as the
First Refusal Space (the "Relocation Space")
<PAGE>
SECOND AMENDMENT
This Second Amendment (the "Amendment") is made and entered into as of the
22nd day of April 1996, by and between ZML-Central Park, L.L.C., a Delaware
limited liability company "Landlord") by its agent, Equity Office Holdings,
L.L.C., a Delaware limited liability company and ActaMed Corporation, a Georgia
corporation ("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain Lease Agreement
dated the 4th day of November, 1995 as amended by that certain Addendum dated
the 6th day of November, 1995, for approximately 41,292 rentable square feet of
space described as Suite No(s). 400 and 600 on the fourth (4th) and sixth (6th)
floor(s) of the building commonly known as 7000 Central Park and the address of
which is 7000 Central Parkway, Atlanta, Georgia (the "Building"); and
B. WHEREAS, Tenant has requested that additional space consisting of 2,404
rentable square feet on the third (3rd) floor of the Building shown on Exhibit A
hereto (the "Expansion Space") be added to the Premises and that the Lease be
appropriately amended, and Landlord is willing to do the same on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. EXPANSION AND EFFECTIVE DATE. Effective as of the Expansion
Effective Date (as hereinafter defined), the Premises is increased from
41,292 rentable square feet on the fourth (4th) and sixth (6th) floor(s) to
43,696 rentable square feet on the third (3rd), fourth (4th) and sixth (6th)
floor(s) by the addition of the Expansion Space. The lease term for the
Expansion Space shall commence on the Expansion Effective Date and end at
5:00 p.m. on the last day following thirty-six (36) calendar months following
the Expansion Effective Date (the "Expansion Space Termination Date"). The
Expansion Space is subject to all the terms and conditions of the Lease
except as expressly modified herein and except that Tenant shall not be
entitled to receive any allowances, abatement or other financial concession
granted with respect to the Premises unless such concessions are expressly
provided for herein with respect to the Expansion Space.
A. The Expansion Effective Date shall be April 22, 1996
("Expansion Effective Date").
II. MONTHLY BASE RENTAL.
In addition to Tenants' obligation to pay Base Rental for the Premises,
Tenant shall pay Landlord the sum of One Hundred Sixty-two Thousand Two Hundred
Seventy and 00/100's Dollars ($165,539.40) as Base Rental for the Expansion
Space in Thirty-six monthly installments as follows:
A. Twelve equal installments of Four Thousand Five Hundred
Seven and 50/100's Dollars ($4,507.50) each payable on or before
the first day of each month during the period beginning April 22,
1996 and ending April 21, 1997.
B. Twelve equal installments of Four Thousand Five Hundred
Ninety-seven and 65/100's Dollars ($4,597.65) each payable on or
before the first day of each month during the period beginning
April 22, 1997 and ending April 21, 1998.
<PAGE>
C. Twelve equal installment of Four Thousand Six Hundred
Eighty-nine and 80/100's Dollars ($4,689.80) each payable on or
before the first day of each month during the period beginning
April 22, 1998 and ending April 21, 1999.
All such Base Rental shall be payable by Tenant in accordance with the
terms of Article V of the Lease.
III. TENANT'S PRO RATA SHARE. For the period commencing with the
Expansion Effective Date and ending on the Expansion Space Termination Date
unless terminated sooner as provided herein, Tenants Pro Rata Share for purposes
of calculating Tenant's Additional Rental for the Expansion Space is Fifty-nine
One Hundredths percent (.59%).
IV. BASE YEAR, BASE AMOUNT, TAX BASE, AND EXPENSE BASE. For the
period commencing with the Expansion Effective Date and ending on the Expansion
Space Termination Date, the Base Year for the computation of Tenant's Pro Rata
Share of Basic Costs applicable to the Expansion Space is 1996.
V. IMPROVEMENTS TO EXPANSION SPACE.
A. ACCEPTANCE OF EXPANSION SPACE. Tenant has inspected the
Expansion Space and agrees to accept the same "as is" without any
agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or
improvements, except as may be expressly provided otherwise in this
Amendment.
B. OCCUPANCY OF EXPANSION SPACE. Tenant shall have the right to
take occupancy of the Expansion Space on April 22, 1996. Tenant
may elect to perform improvements or have Landlord perform
improvements to the Expansion Space thereafter.
C. COST OF IMPROVEMENTS TO EXPANSION SPACE. Provided Tenant is
not in default, Tenant shall be entitled to receive an improvement
allowance (the "Expansion Improvement Allowance") in an amount not
to exceed Nineteen Thousand Five Hundred Ninety-two and 60/100
Dollars ($19,592.60) to be applied toward the cost of performing
initial construction, alteration or improvement of the Expansion
Space, including but not limited to the cost of space planning,
design and related architectural and engineering services and a
five percent (5%) construction management fee if Tenant elects to
have Landlord manage the construction of the Expansion Space. In
the event the total cost of the initial improvements to the
Expansion Space exceeds the Expansion Improvement Allowance, Tenant
shall pay for such excess upon demand. Any unused Expansion
Improvement Allowance may be used by Tenant for improvements in the
original Premises within eight (8) months after the Expansion
Effective Date or if not used within said eight (8) months, accrue
to the sole benefit of Landlord. Landlord shall pay such Expansion
Improvement Allowance directly to the contractors retained to
perform the construction, design or related improvement work to the
Expansion Space.
<PAGE>
D. RESPONSIBILITY FOR IMPROVEMENTS TO EXPANSION SPACE.
(i) WORK PERFORMED BY OR ON BEHALF OF LANDLORD PURSUANT TO
PLANS YET TO BE PREPARED.
If Tenant elects to have Landlord manage the construction of
the Expansion Space, Landlord shall enter into a direct
contract for the initial improvements to the Expansion Space
with a general contractor selected by Landlord. Tenant
shall devote such time in consultation with Landlord or
Landlord's architect as may be required to provide all
information Landlord deems necessary in order to enable
Landlord to complete, and obtain Tenant's written approval
of, the plans for the initial improvements to the Expansion
Space in a timely manner. All plans for the initial
improvements to the Expansion Space shall be subject to
Landlord's consent, which consent shall not be unreasonably
withheld. If the cost of such improvements exceeds the
Expansion Improvement Allowance, then prior to commencing
any construction of improvements to the Expansion Space,
Landlord shall submit to Tenant a written estimate setting
forth the anticipated cost, including but not limited to the
cost of space planning, design and related architectural and
engineering services, labor and materials, contractor's
fees, and permit fees. Within a reasonable time thereafter,
Tenant shall either notify Landlord in writing of its
approval of the cost estimate or specify its objections
thereto and any desired changes to the proposed
improvements. In the event Tenant notifies Landlord of such
objections and desired changes, Tenant shall work with
Landlord to reach a mutually acceptable alternative cost
estimate.
VI. RIGHT TO TERMINATE. Provided Tenant is not in default under the
Lease, as amended, Tenant shall have a one-time right to terminate the Lease
with respect to the Expansion Space only as defined by this Second Amendment
effective as of October 21, 1997 (the "Early Termination Date") subject to the
following terms and conditions:
A. Tenant shall notify Landlord in writing of its desire to
terminate the Lease with respect to the Expansion space no less
than six (6) months prior to the Early Termination Date.
B. Tenant shall pay to Landlord no later than October 1, 1997 a
termination fee equal to Thirty-five Thousand three Hundred
Ninety-eight and 90/100 Dollars ($35,398.90) which is the (i)
unamortized Expansion Improvement Allowance (at 13%), (ii) the
difference between a Base Rental Rate of $22.50 and $25.00 for
twelve (12) months and the difference between a Base Rental Rate
of $22.95 and $25.00 for six (6) months and (iii) three (3) months
rent at $25.00 per rentable square foot.
C. Tenant shall vacate the Expansion Space effective October
21, 1997 and leave same in broom clean condition.
VII. MISCELLANEOUS.
A. This Second Amendment sets forth the entire agreement
between the parties with respect to the matters set forth herein.
There have been no additional oral or written representations or
agreements.
<PAGE>
B. Except as herein modified or amended, the provisions,
conditions and terms of the Lease shall remain unchanged and in
full force and effect.
C. In the case of any inconsistency between the provisions of
the Lease and this Second Amendment, the provisions of this
Amendment shall govern and control.
D. Submission of this Second Amendment by Landlord is not an
offer to enter into this Second Amendment but rather is a
solicitation for such an offer by Tenant. Landlord shall not be
bound by this Second Amendment until Landlord has executed and
delivered the same to Tenant.
E. The capitalized terms used in this Second Amendment shall
have the same definitions as set forth in the Lease to the extent
that such capitalized terms are defined therein and not redefined
in this Second Amendment.
F. This Second Amendment shall be of no force and effect unless
and until accepted by any guarantors of the Lease, who by signing
below shall agree that their guarantee shall apply to the Lease as
amended herein, unless such requirement is waived by Landlord in
writing.
G. Landlord and Tenant each warrant and represent to the other
that CB Commercial Real Estate Services ("Broker") has represented
Tenant in connection with the negotiations of the Second Amendment
and that Equity Office Properties, L.L.C. ("Co-Broker"),
collectively "Brokers", has represented Landlord, and it knows of
no other real estate broker, agent or finder other than the Brokers
who is entitled to any commission in connection with this Second
Amendment. Landlord and Tenant each covenant and agree to defend,
indemnify and hold the other harmless from and against any and all
loss, liability, damage, claim, judgment, cost or expense
(including, but not limited to, reasonable attorneys' fees and
expenses and court costs) that may be incurred or suffered by the
other because of any claim for any fee, commission or similar
compensation with respect to the Second Amendment made by any
broker, agent or finder claiming to have dealt with the
indemnifying party whether or not such claim is meritorious.
Landlord agrees to pay the commission due Brokers in connection
with this Second Amendment pursuant to a separate written
commission agreement. The parties hereby acknowledge CB Commercial
Real Estate Services has represented Tenant and Equity Office
Properties, L.L.C. has represented Landlord in this transaction.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Second
Amendment as of the day and year first above written.
WITNESSES; ATTESTATION LANDLORD:ZML-Central Park, L.L.C.,
a Delaware limited liability company
BY: EQUITY OFFICE HOLDINGS, L.L.C.,
a Delaware limited liability company as
agent
By: /s/ Arvid A. Povilaitis
--------------------------------
/s/ Angel Rivera
- ----------------------------
Name (print): Angel Rivera Name: /s/ Arvid A Povilaitis
-------------- ------------------------------
/s/ illegible
- ----------------------------
Title: VP -- ASSET MANAGEMENT
-----------------------------
Name (print): illegible
- ----------------------------
Date:
------------------------------
TENANT: ActaMed Corporation,
a Georgia corporation
/s/ Mary Lee Lockhart
- ----------------------------
By: /s/ Nancy J. Ham
--------------------------------
Name (print): Mary Lee Lockhart
/s/ Katherine B. Grissom Its: CFO
- ---------------------------- -------------------------------
Name (print): Katherine B. Grissom Date: 4/22/96
--------------------- ------------------------------
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EXHIBIT A
This Exhibit is attached to and made a part of the Third Amendment dated
April 22nd, 1996, by and between ZML-Central Park, L.L.C., a Delaware limited
liability company ("Landlord"), by its agent Equity Office Holdings, L.L.C., a
Delaware limited liability company and ActaMed Corporation, a Georgia
corporation ("Tenant") for space in the Building located at 7000 Central
Parkway, Atlanta, Georgia.
The Expansion Space shall consist of 2,404 rentable square feet located on
the third (3rd) floor in the Building commonly known as 7000 Central Park in the
approximate location outlined below.
[MAP]
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THIRD AMENDMENT
This Third Amendment (the "Amendment") is made and entered into as of the
9th day of February, 1998, by and between EOP-Central Park, L.L.C., a Delaware
limited liability company ("Landlord"), and ActaMed Corporation, a Georgia
corporation ("Tenant").
WITNESSETH
A. WHEREAS, Landlord (f/k/a ZML-Central Park, L.L.C.) and Tenant are parties
to that certain lease dated the 6th day of November, 1995, for space
currently containing approximately 43,696 rentable square feet of space
(the "Original Premises") described as Suite No(s). 370, 400, and 600 on
the Third, Fourth, and Sixth floor(s) of the building commonly known as
Central Park and the address of which is 7000 Central Parkway, Atlanta, GA
30328 (the "Building"), which lease has been previously amended or assigned
by instrument(s) dated November 6, 1995 and April 22, 1996 (collectively,
the "Lease"); and
B. WHEREAS, Tenant desires to surrender a portion of the Premises to Landlord
containing approximately 2,404 rentable square feet on the Third floor(s)
of the Building as shown on EXHIBIT A hereto (the "Reduction Space") and
that the Lease be appropriately amended, and Landlord is willing to accept
such surrender on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. REDUCTION. Effective as of December 31, 1997 (the "Reduction
Effective Date"), the Premises is decreased from 43,696 rentable
square feet on the Third, Fourth and Sixth floor(s) to 41,292
rentable square feet on the Fourth and Sixth floor(s) by the
elimination of the Reduction Space. As of the Reduction Effective
Date, the Reduction Space shall be deemed surrendered by Tenant to
Landlord, the Lease shall be deemed terminated with respect to the
Reduction Space, and the "Premises", as defined in the Lease, shall
be deemed to mean the Original Premises, less the Reduction Space.
Tenant shall fully comply with all obligations under the Lease
respecting the Reduction Space through the Reduction Effective
Date, including those provisions relating to the condition of the
Reduction Space and removal of Tenant's Property therefrom upon
termination or expiration of the Lease. Landlord acknowledges
that Tenant has surrendered the Reduction Space as of the Reduction
Effective Date and Tenant will not be subject to any holdover
provisions as defined in the Lease, as it relates to the Reduction
Space. Landlord also acknowledges that the Reduction Space was
returned to it in broom clean condition.
II. MONTHLY BASE RENTAL. As of the Reduction Effective Date, the
schedule of monthly installments of Base Rental contained in the
Second Amendment is hereby deleted.
III. TENANT'S PRO RATA SHARE. For the period commencing with the
Reduction Effective Date, Tenant's Pro Rata Share as contained in
the Second Amendment is hereby deleted.
IV. REPRESENTATIONS. Each party represents to the other that it has
full power and authority to execute this Amendment. Tenant
represents that it has not made any assignment, sublease, transfer,
conveyance of the Lease or any interest therein or in the Reduction
Space other than those explicitly recited herein and further
represents that there is not and will not hereafter be any claim,
demand, obligation, liability, action or cause of action by any
other party respecting, relating to or arising out of the Reduction
Space, and Tenant agrees to indemnify and hold harmless Landlord
and the Landlord Related Parties (as defined in the "Miscellaneous"
Section below) from all liabilities, expenses, claims, demands,
judgments, damages or costs arising from any of the same, including
without limitation, attorneys' fees. Tenant acknowledges that
Landlord will be relying on this Amendment in entering into leases
for the Reduction Space with other parties.
VII. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There
have been no additional oral or written representations or
agreements. Under no circumstances shall Tenant be entitled
to any Rent abatement, improvement allowance, leasehold
improvements, or other work to the Premises, or any similar
economic incentives that may have been provided Tenant in
connection
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with entering into the Lease, unless specifically set forth
in this Amendment. This Amendment shall not be relied upon
by any other party, individual, corporation, partnership or
entity as a basis for reducing its lease obligations with
Landlord. Tenant agrees that it shall not disclose any
matters set forth in this Amendment or disseminate or
distribute any information concerning the terms, details or
conditions hereof to any person, firm or entity without
obtaining the express written consent of Landlord.
B. Except as herein modified or amended, the provisions,
conditions and terms of the Lease shall remain unchanged and
in full force and effect.
C. In the case of any inconsistency between the provisions of
the Lease and this Amendment, the provisions of this
Amendment shall govern and control.
D. Submission of this Amendment by Landlord is not an offer to
enter into this Amendment but rather is a solicitation for
such an offer by Tenant. Landlord shall not be bound by
this Amendment until Landlord has executed and delivered the
same to Tenant.
E. The capitalized terms used in this Amendment shall have the
same definitions as set forth in the Lease to the extent
that such capitalized terms are defined therein and not
redefined in this Amendment.
F. Tenant hereby represents to Landlord that Tenant has dealt
with no broker in connection with this Amendment. Tenant
agrees to indemnify and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors,
employees, mortgagee(s) and agents, and the respective
principals and members of any such agents (collectively, the
"Landlord Related Parties") harmless from all claims of any
brokers claiming to have represented Tenant in connection
with this Amendment. Landlord hereby represents to Tenant
that Landlord has dealt with no broker in connection with
this Amendment. Landlord agrees to indemnify and hold
Tenant, its members, principals, beneficiaries, partners,
officers, directors, employees, and agents, and the
respective principals and members of any such agents
(collectively, the "Tenant Related Parties") harmless from
all claims of any brokers claiming to have represented
Landlord in connection with this Amendment.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
as of the day and year first above written.
WITNESS/ATTEST: LANDLORD:
EOP-CENTRAL PARK, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership,
a Delaware limited partnership, its
managing member
By Equity Office Properties Trust,
a Maryland real estate
investment trust, its managing
general partner
By:
- ----------------------------------- --------------------------------
Name (print): Name:
---------------------- ------------------------------
Title:
- ----------------------------------- -----------------------------
Name (print):
----------------------
TENANT: ACTAMED CORPORATION,
a Georgia corporation
/s/ Katherine B. Grissom By: /s/ Lewis R. Belote
- ----------------------------------- --------------------------------
Name: Lewis R. Belote, II
--------------------------------
Pat N. Daer
- -----------------------------------
Title: Senior VP & CFO
-----------------------------
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EXHIBIT 10.13
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
Services and License Agreement
Between ActaMed Corporation
and United HealthCare Corporation
This Services and License Agreement (the "Agreement") is made and
entered into as of April 4, 1996 (the "Effective Date"), by and between
ActaMed Corporation ("ActaMed") and United HealthCare Corporation ("UHC"),
for itself and on behalf of each of the Managed Plans which has given its
written consent (as hereinafter defined).
RECITALS
A. ActaMed is in the business of providing electronic data
interchange products and services to the health care industry.
B. UHC, for itself on and behalf of its Affiliates (including The
MetraHealth Companies, Inc.), and other entities that UHC may hereafter
acquire, and on behalf of the health maintenance organizations identified in
Exhibit A hereto that are managed by UHC or an Affiliate thereof and which
have given their consent to be bound by this Agreement (which plans which
give their consent are referred to herein as the "Managed Plans"), desires to
obtain from ActaMed certain software and materials and access to the Network,
on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties agree as follows.
1. DEFINITIONS.
1.1 "Affiliate" means with respect to a party, an entity directly
or indirectly controlling, controlled by or under common control with such
party where control means the ownership or control, directly or indirectly,
of more than fifty percent of all of the voting power of the shares (or other
securities or rights) entitled to vote for the election of directors or other
governing authority, as of the Effective Date or hereafter during the term of
this Agreement; provided that such entity shall be considered an Affiliate
only for the time during which such control exists. The Managed Plans shall
be considered to be Affiliates of UHC.
1.2 "Cosmos" means the computer program owned by UHC which is
commonly known as Cosmos, and which UHC operates for health care claims
adjudication and other business functions.
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1.3 "Enhancements" means changes or additions to application
software and documentation that improve existing Functions, add new
Functions, or improve performance through changes in the system design or
coding.
1.4 "Functions" means the tasks employed by users to exchange
information within the Network.
1.5 "Licensed Materials" shall mean the Network Software, the
ORBIT software (i.e., the ProviderLink billing and registration system), and
the documentation, training materials, and other materials related to the
Network Software or the Network which are listed on Exhibit B attached to
this Agreement. All updates and new versions of such materials are also
included in the definition of "Licensed Materials".
1.6 "Network" means the electronic data interchange ("EDI") system
and network operated by ActaMed, which includes the Network Software,
including any future versions of the EDI network or products substituting for
it which include the basic functionality of the Network Software and network
as of the Effective Date, regardless of the name under which it is marketed.
The term "Network" specifically excludes any telecommunications network.
1.7 "Network Software" means the personal computer version of the
ProviderLink and ActaLink presentation and network software programs, and all
updates to them, which are licensed to users and which allow access to the
Network for the transmission and reception of information.
1.8 "Provider" means a provider of health care services, which is
not UHC, an Affiliate of UHC, or operated by UHC.
1.9 "UHC" means United HealthCare Corporation and its Affiliates.
2. LICENSE AND NETWORK ACCESS.
2.1 ActaMed grants UHC the nonexclusive, nontransferable right to
use the Licensed Materials, to reproduce and modify those of the Licensed
Materials so designated on Exhibit B, and to access and utilize the services
of the Network, for UHC's internal use, on the terms set forth in this
Agreement. UHC's internal use shall include use by and/or on behalf of (a)
UHC or any UHC Affiliate; and (b) third parties that are purchasers of UHC's
products and/or services, including management services, as well as UHC's
health care service providers (including, without limitation, NYH Health Plan
Services, Inc. ("NYHHPS") and its subsidiaries and/or affiliates pursuant to
the First Restated Administrative Services Agreement between UHC and NYHHPS,
dated September 1, 1994, as amended from time to time). UHC's access to use
the Network will be on the same operational basis which ActaMed offers the
Network to its other customers of the Network, except as otherwise provided
in this Agreement.
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2.2 UHC shall submit all permitted modifications it makes to the
Licensed Materials for ActaMed's approval, prior to distributing the
modifications. If ActaMed does not respond to UHC within fourteen days after
UHC submits modifications to ActaMed for approval, the modifications shall be
deemed approved. On the copies of the Licensed Materials UHC makes, UHC
shall reproduce all notices or legends appearing on the original copy,
including the copyright notice. All copies of the Licensed Materials made by
UHC can be used only as permitted under this Agreement. At any time within
ten days after ActaMed's written request, UHC shall inform ActaMed of the
number and location of all copies of the Licensed Materials UHC has made.
2.3 UHC shall have the right to install the Network Software at
any UHC location and at any locations of Providers working with UHC, and to
connect such locations to the Network. ActaMed will install the Network
Software at UHC or Provider sites and connect them to the Network, when
mutually agreed by the parties. UHC and ActaMed will do agreed upon
installations in a timely manner. UHC and ActaMed must continue to use the
installation procedures developed by UHC or other mutually agreeable
installation procedures (except as provided in any agreements directly
between ActaMed and a UHC health plan, such as UHC Georgia) for such sites.
UHC shall not be obligated under paragraph 12.1 to pay a monthly site fee or
transaction fees for any Provider connected to the Network by ActaMed, unless
UHC has agreed to be responsible for such Provider and fees.
2.4 Any development work on the Licensed Materials or the Network
which was in progress on the date of this Agreement, will be provided to UHC
upon completion and included within the definition of "Licensed Materials",
at no charge to UHC, if it is set forth on Exhibit C attached to this
Agreement.
2.5 UHC shall not act as a clearinghouse for health care claims
going to payors other than UHC, other than as required by a UHC client, such
as UBS misdirected Railroad Retirement claims and Medicare cross-over claims.
2.6 If UHC desires to and ActaMed agrees that UHC may use and
implement the Licensed Materials or the Network technology outside North
America, UHC and ActaMed shall mutually agree upon the terms and conditions
of such use and implementation.
2.7 Except as otherwise provided in this Agreement, ActaMed
provides the Licensed Materials to UHC on an "AS IS, WHERE IS" basis.
ACTAMED EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, RELATING TO
THE LICENSED MATERIALS, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF
TITLE, NONINFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
OR USE.
2.8 Except as otherwise provided in this Agreement, UHC shall not
(a) copy, reproduce, modify, or excerpt any of the Licensed Materials for any
purpose; (b) distribute,
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<PAGE>
rent, sublicense, share, transfer or lease the Licensed Materials or access
to the Network, to any person or entity which is not a party to this
Agreement; or (c) attempt to reverse engineer or otherwise obtain copies of
the source code for the Licensed Materials.
2.9 UHC acknowledges that the Licensed Materials may contain
embedded runtime modules of products licensed to ActaMed by Sybase, Inc.
("Sybase") and, accordingly, that Sybase as an interested third party
beneficiary of this Agreement, may enforce this Agreement directly against
UHC and shall have no liability to UHC. In addition, UHC agrees that Sybase
shall have the right to direct a recognized independent accounting firm to
conduct, during normal business hours, an audit of appropriate records of UHC
to verify (a) the number of copies of the Licensed Materials in use by UHC,
and the computer systems on which such copies are installed, the number of
processors in such computer systems, and the number of users using such
copies; and (b) UHC's compliance with this Agreement. Representatives of the
auditing firm shall protect the confidentiality of UHC's confidential
information and abide by UHC's reasonable security regulations while on UHC's
premises.
2.10 ActaMed agrees that ActaMed does not own and cannot use,
distribute or publish any data transmitted over the Network either to or from
UHC, except to the extent such data originates with ActaMed. Notwithstanding
the above, ActaMed shall have the right to collect and distribute data
transmitted over the Network back to the originator of such data.
3. MARKETING AND IMPLEMENTATION OF NETWORK PRODUCTS.
3.1 UHC will identify the business needs, goals and objectives of
UHC for ActaMed, and will establish targets for the number and volume of
Providers submitting electronic transactions. These numbers will be
estimates, and not guarantees, for any amount of business for ActaMed. UHC
will provide this information to ActaMed no less often than quarterly, and
shall respond to additional requests for information within thirty days of
ActaMed's request. The parties shall mutually agree upon any other
information or data which UHC may give to ActaMed under this Agreement.
3.2 ActaMed will appoint at least one representative dedicated to
the UHC account, who will have decision making capabilities for ActaMed.
This person will attend planning meetings with UHC, keep UHC updated on
national trends in EDI, and consult with UHC regarding ActaMed's software and
network strategy. ActaMed will provide a representative to WEDI and ANSI to
represent UHC, upon UHC's request. UHC shall also designate a representative
to work with ActaMed and to coordinate UHC's activities with ActaMed, who
will have decision making capabilities for UHC. This person will attend
planning meetings with ActaMed, keep ActaMed updated on technical
developments with respect to Cosmos, and coordinate UHC's activities with
ActaMed. J.R. Hughes will be the initial representative for ActaMed and Joy
Bahnemann will be the initial representative for UHC. Each party will
consult with the other before changing its designated representative.
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3.3 Exhibit D to this Agreement specifies the reports UHC will
deliver to ActaMed and ActaMed will deliver to UHC daily, weekly, monthly,
quarterly and annually. The parties shall also provide ad hoc reports to
each other at no cost to the requesting party.
3.4 ActaMed will submit to UHC for its input and comments a
comprehensive disaster recovery plan and documentation within 90 days after
the date of this Agreement. The plan shall include testing of the plan no
less often than annually and agreed upon time constraints within which full
recovery will be expected. ActaMed will accept comments from UHC and make
reasonable commercial efforts within the context of the Network to
incorporate such comments. ActaMed will use its best efforts to establish a
hot site under its disaster recovery plan which is not at a UHC data center
within one year after the date of this Agreement. ActaMed will submit
amended disaster recovery plans to UHC, for its information and input, any
time that ActaMed makes substantial changes to its plan. ActaMed will
participate in UHC's annual test of the UHC disaster recovery plan, with up
to forty hours of ActaMed personnel time at no cost to UHC. For any
additional time beyond the forty hours which UHC requests from ActaMed for
this purpose, UHC will pay ActaMed an agreed upon price.
3.5 ActaMed will establish a user group, to consult on priorities
and provide direction to ActaMed on system initiatives, which will include
representation from UHC, Providers and payors. ActaMed will solicit user
suggestions, input and feedback regarding the Network. ActaMed will provide
to UHC copies of customer satisfaction surveys and other similar information
regarding use of the Network at sites for which UHC is paying the monthly
site fee or any transaction fees.
3.6 UHC will make its sales and Provider relations personnel
available to work with ActaMed to develop new sites for use of the Network by
Providers working with UHC, to the same extent that such personnel work with
UHC's EDI Services to develop new sites as of the Effective Date. Pursuant
to paragraph 12.2, UHC shall have the option of performing installations and
implementations of the Network software itself, rather than contracting for
them through ActaMed. In such circumstances where UHC has decided not to
out-source such functions to ActaMed, UHC will continue to use health plan
ProviderLink representatives to install and implement the Network for new and
existing UHC-sponsored sites. UHC will also continue to use health plan
ProviderLink representatives to train and provide technical support to the
extent required under Exhibit F and section 8.
3.7 UHC shall sponsor a reasonable number of reference inquiries
and visits (not to exceed two visits in any calendar month) by customers and
potential customers of the Network, pursuant to ActaMed's Showcase Program,
on mutually agreeable terms. UHC shall retain the right to reasonably refuse
a site visit to any competitor or potential competitor of UHC, and ActaMed
shall inform all customers and potential customers allowed on UHC's premises
under this paragraph 3.7 that they are required to abide by
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UHC's security procedures and policies.
4. ACTAMED'S OBLIGATIONS REGARDING, NETWORK PRODUCT LINE.
4.1 ActaMed will, during the term of this Agreement, continue
maintaining the Licensed Materials and the Network, or other ActaMed products
which provide, at a minimum, substantially the same functionality as provided
by the Licensed Materials and the Network, on the Effective Date.
4.2 ActaMed will update the licensed Materials and the Network
with changes mandated by state or federal law and other changes required in
the reasonable opinion of the parties to meet market expectations for EDI,
including the ANSI X12N standard. The parties will mutually agree upon any
additional standards which ActaMed will need to maintain. If the changes
mandated by this paragraph apply to substantially all of ActaMed's customers,
then ActaMed will make such changes as part of a release of the Network or
the Licensed Materials pursuant to paragraph 8.1 or paragraph 8.2.
4.3 Subject to section 9, both parties will continue to work with
practice management system vendors to develop interfaces between practice
management programs and the Network, in order to be able to market the
Network to Providers. UHC will assist ActaMed in its attempts to establish
relationships with and work with practice management system vendors.
4.4 ActaMed will work with and cooperate with Allina and UHC to
formulate a plan allowing Allina to use the Network to operate its LaborLink
product, at UHC's request.
4.5 ActaMed will be responsible for notifying all Providers,
practice management vendors and other entities which are signatories to
Network agreements to be assigned by UHC to EDI Services, Inc. that the
assignee will be merged with and into ActaMed. UHC shall have the right to
review and approve the notice prior to ActaMed sending it to any Providers or
other signatories.
4.6 ActaMed shall place a copy of the source code, object code and
technical documentation for all software used in the operation of the Network
in escrow, including the Network Software, for the benefit of UHC, pursuant
to the escrow agreement attached to this Agreement as Exhibit E (the "Escrow
Agreement"). ActaMed shall cause UHC to be listed as a "Licensee" under the
Escrow Agreement and shall cause the Licensed Materials and all operational
computer software and documentation ActaMed uses to operate the Network to be
listed as a "System" under the Escrow Agreement, as soon as practical after
the Effective Date. In the event ActaMed ceases operating the Network for
any reason defined in such Escrow Agreement during the duration of this
Agreement, ActaMed shall deliver to UHC, for UHC's nonexclusive use, one
then-current copy of all operational computer software and documentation
ActaMed uses to operate the Network.
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5. UIHC'S OBLIGATIONS REGARDING THE NETWORK.
5.1 UHC shall generate or receive transaction data in the standard
format and the protocol set forth in such format which is in use as of the
Effective Date, or as otherwise mutually agreed upon by the parties. In the
event that ActaMed changes such format, UHC shall provide ActaMed with
standard output and test messages for ActaMed's use.
5.2 UIHC shall provide, at its own expense, all necessary
hardware, including terminal equipment, compatible with and suitable for its
communications with the Network. UIHC shall prepare the proper operating
environment as described in Exhibit J attached to this Agreement. ActaMed
shall verify UHC's operating environment with the testing procedure
established by ActaMed and agreed to by UHC.
6. ACCESS TO COSMOS AND OTHER PROPRIETARY UHC SOFTWARE.
6.1 ActaMed will not have access to Cosmos or any other UHC
proprietary systems, and will have no right to modify the computer code in
Cosmos, except as mutually agreed by the parties in writing. ActaMed will
not receive any part of the Cosmos code, except as mutually agreed by the
parties in writing. The Network will deliver claims and information to
Cosmos, and UHC is solely responsible for the operation of Cosmos.
6.2 UHC produces new releases of Cosmos four to five times each
year, and new releases of other UHC host computer systems (including host
computer systems operated by third party out-sources on behalf of UHC), from
time to time. UHC will give ActaMed notice of such changes and information
regarding them, and, if the changes require any modifications to the Network
or the Licensed Materials, the parties will mutually agree on the scope of
the project, the deliverables, deadlines, any fees ActaMed will charge UHC, a
test plan and an acceptance test plan.
6.3 If, at any point, UHC agrees that ActaMed needs access to any
other proprietary UHC software or systems, the parties shall negotiate a
limited license allowing ActaMed such access to be used only for UHC's
benefit.
6.4 ActaMed agrees that UHC shall be the sole and exclusive owner
of any and all changes ActaMed makes to the code in Cosmos or any other
computer system proprietary to UHC. ActaMed agrees to assign and hereby
assigns and transfers to UHC any and all rights which ActaMed may have in
such code, including any copyright, patent, trademark, trade secret and other
intellectual property rights. ActaMed will cooperate with UHC and will
execute any documentation reasonably required by UHC to assert or protect its
property rights in such code.
7. DEVELOPMENT OF NEW FUNCTIONALITY.
7.1 When ActaMed develops new functionality for the Network that
ActaMed
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offers generally to its customers, which is not included in a maintenance
release that ActaMed offers generally to its customers pursuant to paragraph
8.1, [*]
7.2 When UHC specifically requests development work from ActaMed,
for UHC's own use, the parties will negotiate a price at the time such work
is requested. If ActaMed will be permitted to use this custom work for other
customers, the price UHC pays ActaMed for such work [*] that [*] and [*]
7.3 When ActaMed performs development work on the Network at the
request of another customer, [*] to [*] at [*] for the [*] as long as
ActaMed has the legal right to [*] and such [*] is [*].
7.4 If, at any time, UHC chooses to contract with ActaMed for a
dedicated services team from ActaMed to handle development of new
functionality and other changes to the Network, the Licensed Materials, or
UHC's proprietary systems which are not covered under maintenance, ActaMed
will provide the dedicated team on mutually agreeable terms and conditions.
8. ACTAMED'S MAINTENANCE AND SUPPORT OBLIGATIONS.
8.1 ActaMed's maintenance releases for the Network and the
Licensed Materials shall be denoted by a three digit number where the first
number is the version number, the second number is the level number, and the
third number (if it is greater than 1) is the build number. For example,
release 2.1.2 is a maintenance release for the version 2.1.1 software.
ActaMed will provide new maintenance releases at no charge to all its Network
maintenance customers, including, without limitation, UHC.
8.2 The price UHC will pay ActaMed under paragraph 12.1 for
ActaMed's maintenance services under this Agreement does not include
Enhancements to the Network Software, such as new Functions, significant
redesigns or improvements of current Functions, or significant advances in
system performance. Enhancements are contained in Actamed's new versions
which are denoted by a three digit number, the first digit of which is the
version number, the second digit of which is a level number, and the third
digit of which is 1. For example, version 2.1.1 is followed by new version
numbers 2.2.1, 2.3.1, 2.4.1, 3.0.1, etc. ActaMed will make new versions of
the Network Software available to UHC upon payment in accordance with
paragraph 7.1.
8.3 ActaMed will provide free Network maintenance and support
services to UHC at a minimum level which will meet or exceed the free Network
maintenance and support
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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ActaMed provides to its other customers for the Network. ActaMed will also
provide the support and maintenance services to UHC which are specified on
Exhibit F attached to this Agreement. ActaMed will notify UHC of any
technical errors in the Network Software reported to the ActaMed help desk,
and will use reasonable efforts to provide customers with corrections of such
technical errors in a timely manner. ActaMed will provide all support and
maintenance services directly to UHC and the Providers who subscribe to the
Network, as required. UHC shall have no obligation to provide any support,
training or maintenance services to Providers, other than as specified on
Exhibit F attached to this Agreement. In order to allow UHC to implement a
new release of the Network or the Licensed Materials on an orderly schedule,
ActaMed shall maintain the current release and one prior release of the
Network and the Licensed Materials, at all times. The maintenance services
specified in this Agreement shall be provided at no cost to UHC beyond the
fees set forth below in section 12.
8.4 UHC inquiries and appeals will be handled by ActaMed within
time frames specified on Exhibit F or as mutually agreed to, and with the
utmost customer focus in mind.
8.5 ActaMed will maintain the security standards for the Network
which are set forth on Exhibit G attached to this Agreement.
9. EXCLUSIVITY.
9.1 UHC agrees to use the services of the Network under this
Agreement. UHC agrees that it will accept and attempt to process all
transactions listed on Exhibit H and intended for UHC which the Network
delivers to UHC. UHC will pay ActaMed for all such transactions pursuant to
paragraph 12.1 of this Agreement.
9.2 For [*] term of this Agreement (except as otherwise permitted
under this Agreement), UHC will not promote, develop, sell or distribute any
product [*] except as permitted under this Agreement. UHC also agrees that
it will not develop an interface for any third party, or provide any third
party with access to Cosmos or any other host computer under the control of
UHC for the purpose of developing an interface for any network that competes
with the Network, except to the extent UHC is allowed to work with other
vendors under this section 9 or UHC is allowed to continue existing projects
under paragraph 9.6.
9.3 For [*] term of this Agreement, UHC will not promote or
contract for services providing essentially the same functionality as the
Network from third party providers of [*] PROVIDED, HOWEVER, that UHC shall
not be required to terminate any existing contracts with vendors of services
similar to the Network (including, specifically, the contracts entered into
by The MetraHealth Companies, Inc.), which are listed on Exhibit K attached
to this Agreement. Prior to automatic or optional renewal of any such
contracts, however, UHC shall give ActaMed 15 business days in which to bid
on such contracts,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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pursuant to paragraph 9.7 of this Agreement. UHC shall cease actively
promoting any products similar to the Network from vendors other than ActaMed
in markets where ActaMed's services are available; provided, however, that
UHC may promote products similar to the Network in markets where ActaMed has
waived its rights under this section 9. Nothing in this paragraph shall
limit UHC's ability to meet its contractual obligations in such existing
contracts, such as a contractual obligation to perform specified promotional
activities.
9.4 UHC agrees that, for [*] term of this Agreement, UHC will not
and will not permit any of its subsidiaries to, directly or indirectly, (a)
engage in or (b) have any ownership or equity interest exceeding five percent
in any business, firm, corporation, joint venture, or other entity engaged in
any business which competes with ActaMed's Network product (a "Competitive
Business"). However, nothing contained herein shall prohibit UHC from
acquiring any business, the principal line of business of which is not a
Competitive Business and less than fifty percent of the revenues of which are
derived from a Competitive Business. In such case, UHC shall use its
reasonable efforts to cause the competitive portion of such business to be
sold or disposed of as soon as reasonably possible, and, pending such sale,
shall not use such business in such manner as would violate the provisions of
this section 9 or seek to expand such business in a manner that would
substantially adversely affect ActaMed's rights hereunder. Not later than
one month following such acquisition, UHC shall give to ActaMed a notice of
the acquisition of such Competitive Business and set forth the net purchase
price (collectively, a "Sale Proposal") at which UHC would be prepared to
sell such Competitive Business to ActaMed. ActaMed she have the right to
purchase such Competitive Business for such terms or on such other basis as
UHC and ActaMed may actually agree. In the event that, within 60 days after
ActaMed's receipt of a Sale Proposal, UHC and ActaMed shall not have reached
agreement that ActaMed will acquire such Competitive Business, each of UHC
and ActaMed shall appoint an appraiser, which two appraisers shall select a
mutually acceptable third appraiser. As promptly as practicable such three
appraisers shall determine the fair value of the Competitive Business and
shall notify UHC and ActaMed of their determination. ActaMed shall have
sixty days after such notification in which to determine whether to acquire
the CompetitiveBusiness at the value so determined. If ActaMed does not
elect to acquire the Competitive Business at the appraised value, UHC shall
be free to sell such Competitive Business to another entity; PROVIDED,
HOWEVER, that UHC shall not sell such Competitive Business to another entity
within six months after the appraisers' determination on terms and conditions
which are substantially more favorable to such other entity than the terms
and conditions last offered to ActaMed.
9.5 The restrictions set forth in this section 9 shall apply only
to activities within North America.
9.6 Nothing in this section 9 shall be construed to prohibit UHC
from engaging in activities relating to or contracting with third parties
relating to the following, as long as each of the following is not intended
primarily as a connection from a Provider's desk to a
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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network for communication of data:
(a) promoting, developing, using, selling, and distributing its
EmployerLink and LaborLink products and future versions of
them, and any other initiatives for employers and brokers, and
shall retain the right to contract with third parties to
perform any work relating to these products. UHC agrees,
however, that EmployerLink, LaborLink and such other
initiatives shall not be intended for use primarily as
connections to Providers' desk tops;
(b) using and developing Internet connections;
(c) electronic medical records and clinical data;
(d) electronic mail (other than e-mail to and from a Provider's desk
top);
(e) financial or banking electronic data interchange,
telecommunications networks, or EDI used by the UHC purchasing
department or other internal departments which are not connecting
to a Provider's desk top;
(f) EDI between clinics and other facilities owned and/or operated by
UHC;
(g) claims repricing; or
(h) UHC's "Total Recall" project, AdjudiPro product, or Q-Star
product, and all future versions of them.
9.7 In the event that this section 9 requires UHC to offer any
business opportunities or new development work to ActaMed, ActaMed shall
notify UHC of ActaMed's prices and terms for such business or work. If
ActaMed declines such business or work, or if ActaMed cannot provide the
requested business or work to UHC [*] [*] UHC shall have the right to
contract with a third party for such business or work or to do such business
or work itself, and the provisions of this section 9 shall not apply to such
business or work. To [*] ActaMed's [*] is [*] the parties [*] among other
things, the [*] by [*] from [*] the [*] and the [*] offered by [*] and
whether [*]. If the parties cannot agree upon [*] the parties shall resolve
the dispute pursuant to section 15. In the event that any customer and/or
supplier, including an integrated delivery system, of UHC or a UHC Affiliate
requires, as a condition of doing business with the customer or supplier,
that a different EDI system be-used in regard to that customer or supplier,
UHC shall use all reasonable efforts to encourage the customer or supplier to
utilize ActaMed's EDI system. In the event the customers or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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supplier [*], UHC or the UHC Affiliate [*] with [*].
9.8 For the initial five year term of this Agreement, ActaMed agrees
that it will not sell or distribute the Network in the Republic of South Africa,
except with UHC's prior, written approval.
9.9 This section 9 shall not preclude UHC from providing factual
information on other EDI vendors to Providers, as long as this section 9 permits
UHC to work with such vendors and provided UHC does not promote such vendors.
10. PERFORMANCE STANDARDS.
10.1 Exhibit I to this Agreement specifies the performance standards
and measurements ActaMed must achieve and the applicable time periods for
measuring compliance with the performance standards (the "Performance
Standards"). The parties shall measure, at a minimum, performance of ActaMed's
help desk and customer support and the Network. The goal of these Performance
Standards is to ensure that the performance of the Network during the term of
this Agreement meets or exceeds the performance of the ProviderLink Network
immediately prior to the Effective Date. In addition, ActaMed shall develop and
deliver to UHC, from time to time, ActaMed's plans to increase performance of
the Network beyond the minimum levels specified in Exhibit I.
10.2 The Performance Standards on Exhibit I apply only to transactions
sent from or to Cosmos. At any time that UHC uses a different host computer to
connect to the Network, the parties shall mutually agree upon performance
standards for the Network and its connection to the different host computer,
which shall become an amendment to this Agreement.
10.3 Any time that UHC's host computers are down and/or the down time
on UHC computers will not be counted as down time for the Network.
10.4 In the event that ActaMed fails to meet any Performance Standard
on Exhibit I in any month, ActaMed shall begin to diagnose the cause of the
failure to meet the Performance Standard promptly after being notified of or
discovering the failure to perform. Thereafter, ActaMed shall work continuously
and diligently to correct such failure to perform until it is corrected. The
failures to meet the Performance Standards which occur while ActaMed is working
to remedy the problem shall continue to be counted for the purposes of paragraph
10.5.
10.5 In the event that ActaMed fails to meet any Performance Standard
on Exhibit I for [*] in any [*] period, ActaMed shall be deemed to
be in material breach of this Agreement, which allows UHC to terminate this
Agreement under paragraph 14.2 of this Agreement. In this event, UHC shall also
have the right, at its option, to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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terminate section 9 of this Agreement and retain the rest of the Agreement in
full force and effect, by giving the notice and opportunity to cure specified
in paragraph 14.2 of this Agreement.
11. REPRESENTATIONS AND WARRANTIES.
11.1 The parties agree that ActaMed owns the Network and ActaMed
represents that it has the right to license the Licensed Materials and grant
access to the Network to UHC. All rights in patents, copyrights, trademarks and
trade secrets encompassed in the Licensed Materials will remain in ActaMed or
its licensors, as applicable. No title to or ownership of the Licensed
Materials is transferred to UHC. UHC agrees that it does not obtain any rights
in the Licensed Materials except the limited right to use the Licensed Materials
as provided herein.
11.2 ActaMed agrees to defend UHC against and, to the extent of
amounts paid to third parties in infringement damage awards and approved
settlement awards, hold it harmless from all claims, damages and liabilities
resulting from a claim that the Network or the Licensed Materials (other than
the version of the Licensed Materials which ActaMed acquired from UHC) infringes
a United States patent or United States copyright, provided that UHC gives
ActaMed prompt, written notice of any such claim, sole control of the defense
and settlement of such claim, and all reasonable assistance to defend such
claim. UHC may appear in such action with counsel of its choice, at its own
expense. ActaMed shall have no obligations under this paragraph if such claims,
damages and liabilities result from UHC's breach of any term of this Agreement,
UHC's unauthorized use of or modifications to the Licensed Materials or the
Network, or the combination of the Licensed Materials with other materials not
provided by ActaMed.
11.3 If UHC's right to use the Licensed Materials or the Network is
enjoined or limited in any way, or if ActaMed believes that the Licensed
Materials or the Network is likely to become subject to such action, then
ActaMed, at its option and expense, may either:
(a) procure for UHC the right to continue to use the Licensed
Materials and the Network free from such limitations;
(b) modify the Licensed Materials and the Network to be free from
such limitations, but equivalent in all material functional and
performance respects to the Licensed Materials and Network prior
to such modification;
(c) replace the Licensed Materials and the Network with materials
that are free of claims, but equivalent in all material
functional and performance respects to the Licensed Materials and
the Network; or
(d) if none of the above are reasonably possible or likely to be
effective,
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terminate this Agreement and the licenses granted herein.
11.4 Except as set forth in this Agreement, ACTAMED EXPRESSLY
DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, RELATING TO THE NETWORK OR
SERVICES TO BE PERFORMED BY ACTAMED HEREUNDER, INCLUDING, BUT NOT LIMITED TO,
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE.
12. PRICES, PATENTS AND AUDITS.
12.1 For [*] after the date of this Agreement, UHC will pay ActaMed
(a) [*] per user site identification number established by ActaMed at UHC;
(b) [*] per user site identification number established by ActaMed for which
UHC has agreed to be responsible; (c) [*] per transaction listed on Exhibit H
attached to this Agreement, [*] and (d) [*] transaction listed on
Exhibit H [*]. UHC shall not pay for any transactions a Provider sends to a
different payor. ActaMed shall not charge UHC for any unclean transactions
which are not able to access UHC's host computer. These payments cover all
license fees, subscription fees, and access fees for usage of the Licensed
Materials and the Network and all fees for the maintenance services set forth
in section 8.
12.2 The fees set forth in paragraph 12.1 do not cover charges for any
services UHC requests and obtains from ActaMed beyond the services specified in
paragraph 12.1, including, without limitation, file transfer of data,
installation, implementation or Enhancements of the Network, a particular sales
effort from ActaMed which ActaMed would not otherwise be providing, or a
telecommunications connection between the Network and UHC's host computers. For
all services UHC requests from ActaMed for which this Agreement does not set
forth a price (including, without limitation, UHC's request for a particular
sales effort from ActaMed which ActaMed would not otherwise be providing), UHC
shall pay ActaMed an agreed upon price. ActaMed shall not charge UHC anything
for installation and implementation of the Network at sites where UHC chooses to
do the installation and implementation itself. UHC shall pay all taxes levied
in connection with this Agreement, except for any taxes based on ActaMed's net
income.
12.3 After [*] after the date of this Agreement, the parties shall
agree upon prices to supersede the prices in paragraph 12.1 of this
Agreement, which new prices shall [*] [*]. To [*] is [*] the parties shall
[*] among other things, the [*]. If the parties cannot agree upon [*] the
parties shall resolve the dispute pursuant to section 15.
12.4 When ActaMed offers transactions other than those set forth on
Exhibit H,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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UHC will decide, in its sole discretion, whether it will agree to receive
and/or send such transactions. Upon deciding to receive and/or send any such
new transaction, UHC shall pay ActaMed a mutually agreeable price for its own
such transactions and for such transactions from any other user site
identification number where UHC (in its sole discretion) decides to be
responsible for the fees.
12.5 ActaMed will bill UHC monthly for the site and transaction fees
for UHC and any Providers where UHC has asked ActaMed to bill UHC directly, in a
mutually agreeable format. When ActaMed bills UHC for a Provider's site and
transaction fees, ActaMed shall not bill the Provider directly for the same
charges. Invoices will include any additional fees for other services purchased
by UHC. UHC agrees to pay all undisputed fees and expenses invoiced by ActaMed
within thirty days after receipt of each invoice, and to pay a late payment
charge equal to the lesser of [*] per month or the maximum rate allowed by
law on all amounts outstanding after thirty days.
12.6 ActaMed shall maintain accurate and complete books and records
regarding the transactions to and from UHC and the amounts ActaMed is charging
UHC under this Agreement, with a system of audit trails, records and controls
sufficient to satisfy the requirements imposed on ActaMed by its external
auditors and governmental regulators. UHC shall have the right, not more often
than once in each calendar year, to have employees or mutually agreeable
external auditors audit the books and records of ActaMed relating to UHC
transactions and charges for which UHC is responsible, to determine the proper
amounts which should have been billed to UHC, which were billed to UHC, and
which UHC has paid under this Agreement, and ActaMed's procedures for handling
transactions to and from UHC. UHC shall give ActaMed two weeks prior notice of
any such audit, and shall abide by reasonable ActaMed security and
confidentiality procedures during the audit. UHC shall bear the cost of such
audit, provided that in the event the audit determines that ActaMed has
overcharged UHC by more than five percent of the amount properly due ActaMed in
any month beginning on or after July 1, 1996, ActaMed shall pay all costs of
such audit.
12.7 ActaMed will, at its expense, provide UHC annually with a report
produced in accordance with standards established by the American Institute of
Certified Public Accounts' Statement on Auditing Standards Number 70: Reports on
the Processing of Transactions by Service Organizations. ActaMed shall submit
the first such report to UHC by the end of third quarter 1997.
13. CONFIDENTIALITY AND SECURITY.
13.1 "Proprietary Information" means information that is (a)
confidential to the business of a party, including, without limitation, computer
software source code, technical documentation and information regarding
proprietary computer systems, marketing and product development plans, financial
and personnel information, and other business information not generally known to
the public; and (b) is designated and identified as such
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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by a party, or which the other party should have reasonably known was
confidential. Proprietary Information belonging to ActaMed includes, without
limitation, the Licensed Materials and the source code for its proprietary
software used in connection with the Network. Proprietary Information
belonging to UHC includes, without limitation, information relating to Cosmos
or other UHC computer systems, and information regarding UHC's members,
Providers or health plans. "Proprietary Information" does not include
information which a party had in its possession prior to receiving it from
the other party, or which a party properly receives from a third party, or
which is or becomes available to the public, or which a party independently
develops without reference to information received from the other party under
this Agreement.
13.2 Proprietary Information and all physical embodiments thereof
received by either party (the "Receiving Party") from the other party (the
"Disclosing Party") during the term of this Agreement are confidential to and
are and will remain the sole and exclusive property of the Disclosing Party. At
all times, both during the term of this Agreement and after its termination, the
Receiving Party shall hold all Proprietary Information of the Disclosing Party
in confidence, and will not use, copy or disclose such Proprietary Information
or any physical embodiment thereof (except as permitted by this Agreement), or
cause any of the Proprietary Information to lose its character as confidential
information.
13.3 The Disclosing Party's Proprietary Information shall be
maintained under secure conditions by the Receiving Party, using reasonable
security measures which shall be not less than the same security measures used
by the Receiving Party for the protection of its own Proprietary Information of
a similar kind, and any specific security measures required by this Agreement.
The Receiving Party shall not remove, obscure or deface any proprietary legend
relating to the Disclosing Party's rights, on or from any tangible embodiment of
any Licensed Materials without the Disclosing Party's prior written consent.
Within thirty days after the termination of this Agreement, the Receiving Party
shall deliver to the Disclosing Party all Proprietary Information belonging to
the Disclosing Party, and all physical embodiments thereof, then in the custody,
control or possession of the Receiving Party.
13.4 If the Receiving Party is ordered by a court, administrative
agency or other governmental body of competent jurisdiction to disclose
Proprietary Information, or if it is served with or otherwise becomes aware of a
motion or similar request that such an order be issued, then the Receiving Party
will not be liable to the Disclosing Party for disclosure of Proprietary
Information required by such order if the Receiving Party complies with the
following requirements:
(a) If an already-issued order calls for immediate disclosure, then
the Receiving Party shall immediately move for or otherwise
request a stay of such order to permit the Disclosing Party to
respond as set forth in this paragraph 13.4; and
(b) The Receiving Party shall immediately notify the Disclosing Party
of the
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motion or order by the most expeditious possible means; and
(c) The Receiving Party shall join or agree to (or at a minimum shall
not oppose) a motion or similar request by the Disclosing Party
for an order protecting the confidentiality of the Proprietary
Information including joining or agreeing to (or not opposing) a
motion for leave to intervene by the Disclosing Party.
13.5 The Receiving Party shall immediately report to the Disclosing
Party any attempt by any person of which the Receiving Party has knowledge (a)
to use or disclose any portion of the Proprietary Information without
authorization from the Disclosing Party; or (b) to copy, reverse assemble,
reverse compile or otherwise reverse engineer any part of the Proprietary
Information (except as permitted herein).
13.6 Each party agrees not to disclose or utilize individual health
care claim information in any way that would violate any physician-patient
confidence or any state or federal regulations.
13.7 The obligations of this section 13 shall survive termination or
expiration of this Agreement as to any Proprietary Information which falls under
the definition of "trade secret" under the Uniform Trade Secret Act, as adopted
in the State of Georgia and as amended from time to time. For all other
information which falls under the definition of Proprietary Information used in
this Agreement, the obligations of this section 13 shall terminate five years
after termination or expiration of this Agreement.
14. TERM AND TERMINATION.
14.1 This Agreement commences as of the date set forth above and
continues for five years thereafter, unless earlier terminated as provided
herein. The parties shall mutually agree upon any renewal of this Agreement,
but the provisions of section 9 shall not be part of any renewal. Upon
termination or expiration of this Agreement, UHC's rights to use the Licensed
Materials and the Network shall cease.
14.2 If one party breaches any material provision of this Agreement,
the nonbreaching party may terminate this Agreement by giving 60 days written
notice of termination to the breaching party. If the breach is capable of being
cured and the other party acts diligently and continuously to cure such breach
within the 60 days, the termination shall not become effective. In the event
ActaMed attempts to terminate this Agreement pursuant to this paragraph 14.2 due
to UHC's failure to pay any undisputed amounts due, the sixty day notice and
cure period set forth above shall be reduced to fifteen working days.
14.3 If UHC or an affiliate thereof shall, at any time, cease to
manage or administer any Managed Plan, then, as of the date of such cessation,
this Agreement shall terminate as to such Managed Plan. UHC shall inform
ActaMed that an entity has ceased or will cease to be a Managed Plan promptly
after such information is known to UHC.
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14.4 Upon termination or expiration of this Agreement, the parties
shall cooperate in the orderly and reasonable removal of UHC from the Network.
The parties shall jointly develop a transition plan, which will allow UHC to use
the Network services for a mutually agreeable time after termination or
expiration, which shall be not less than three months. The transition plan will
provide for a reasonable level of support to transition UHC off the Network.
Each party will bear its own costs in developing the transition plan. During
such additional time, UHC shall continue to pay ActaMed all fees due under
section 12 of this Agreement. In the event that ActaMed has terminated this
Agreement pursuant to paragraph 14.2 due to UHC's failure to pay amounts due to
ActaMed, ActaMed will not be required to perform services for UHC or to allow
UHC access to the Network during the transition period unless UHC pays ActaMed
in advance for such services and Network access. UHC shall not be obligated to
pay any site or transaction fees that accrue after the effective date of
termination with respect to Providers that remain connected to the Network.
15. DISPUTE RESOLUTION.
15.1 In the event a dispute between ActaMed and UHC arises out of or
is related to this Agreement, either party may request in writing that the
representatives of the parties designated pursuant to paragraph 3.2 of this
Agreement meet and negotiate in good faith to attempt to resolve the dispute
without a formal proceeding. During the course of such negotiations, all
reasonable requests made by one party to the other for information, including
copies of relevant documents, will be honored. The specific format for such
discussions will be left to the discretion of the designated representatives.
15.2 If the designated representatives conclude in good faith that
amicable resolution through continued negotiation in this forum does not appear
likely, then the matter will be escalated to a joint panel of ActaMed and UHC
senior executives, by formal written notification by either party to the other.
This panel will meet as required to attempt to resolve the dispute. The number
and nature of the senior executives will depend on the issues in dispute, but
will include those senior executives with authority to resolve all matters in
dispute. At either party's election, this panel will be facilitated by an
external facilitator designated by both parties.
15.3 Formal proceedings for the resolution of a dispute may not be
commenced until the earlier of (a) the panel referred to in paragraph 15.2
concluding in good faith that amicable resolution through continued negotiation
of the matter does not appear likely; or (b) 30 days after the first notice of
the dispute was sent under paragraph 15.1 or paragraph 15.2. However, nothing
in this section 15 shall preclude either party from seeking temporary or
preliminary injunctive relief where a party determines in good faith that such
relief is necessary to limit its damage or injury under this Agreement.
15.4 In the event the dispute is not resolved as outlined in
paragraphs 15.1 and 15.2, and if either party wishes to pursue the dispute,
either party may submit it to binding
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arbitration in accordance with the rules of the American Arbitration
Association. In no event may arbitration be initiated more than one year
following the sending of written notice of the dispute. The parties shall
request a list from the American Arbitration Association of five possible
arbitrators who shall each have had at least five years experience in some
aspect of computer networking matters or health care. Each of the parties
will select one of these arbitrators and the parties or their selected
arbitrators shall jointly select the third arbitrator from the proposed list.
Any arbitration proceeding under this Agreement shall be conducted in
Hennepin County, Minnesota, Atlanta, Georgia, or in a mutually agreeable
location. The arbitrators shall have no authority to award any punitive or
exemplary damages, or to vary or ignore the terms of this Agreement, and
shall be bound by controlling law.
16. LIMITATION ON DAMAGES AND ALLOCATION OF RISK.
16.1 Except to the extent of ActaMed's obligation to indemnify UHC
as provided in [*] IN NO EVENT SHALL EITHER PARTY'S LIABILITY TO THE OTHER
PARTY (INCLUDING LIABILITY TO ANY PERSON WHOSE CLAIM OR CLAIMS ARE BASED ON
OR DERIVED FROM A RIGHT OR RIGHTS CLAIMED BY THE OTHER PARTY) WITH RESPECT TO
ANY AND ALL CLAIMS ARISING FROM OR RELATING TO THE SUBJECT MATTER OF THIS
AGREEMENT IN CONTRACT, TORT OR OTHERWISE, EXCEED [*].
16.2 NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY (NOR TO ANY
PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR INCIDENTAL,
CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KING (INCLUDING,
BUT NOT LIMITED TO, LOST PROFITS, LOSS OF BUSINESS OR OTHER ECONOMIC DAMAGE) AS
A RESULT OF BREACH OF THIS AGREEMENT.
16.3 Notwithstanding anything to the contrary set forth in this
Agreement, ActaMed shall not be responsible for any breach of this Agreement or
loss to UHC to the extent such breach or loss is caused by materials that
ActaMed purchased from UHC or services provided by UHC.
17. GENERAL.
17.1 This Agreement, including the Exhibits to it, constitutes the
entire understanding between the parties and supersedes all proposals,
communications and agreements between the parties relating to its subject
matter. However, this Agreement does not supersede the UHC Outsourcing
Agreement between ActaMed and UHC, dated December 4, 1995, as amended from time
to time. No amendment, change, or waiver of any provision of this Agreement
will be binding unless in writing and signed by both parties.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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17.2 This Agreement will be governed by and construed in accordance
with the laws of the State of Georgia applicable to contracts made and performed
therein.
17.3 Neither party may assign this Agreement without the prior,
written consent of the other party, which shall not be unreasonably withheld.
Any attempted assignment without such consent shall be void. Any assignment
with consent does not release the assigning party from any of its obligations
under this Agreement unless the consent so states. Notwithstanding the above,
however, ActaMed may assign this Agreement without UHC's consent to the
purchaser of all or substantially all the business or assets of ActaMed related
to the Licensed Materials and the Network, as long as the purchaser is not a
company which competes with UHC in any of the businesses UHC owns or operates at
the time of the assignment. If the parties cannot agree upon whether a company
competes with UHC in any of the businesses UHC owns or operates at the time of
the assignment, the parties shall resolve the dispute pursuant to section 15.
17.4 Any notices relating to this Agreement shall be in writing and
will be sent by certified United States mail, postage prepaid, return receipt
requested, or by facsimile transmission or overnight courier service, addressed
to the party at the address set forth below, or at such different address as a
party has advised to the other party in writing and shall be deemed given and
received when actually received:
United HealthCare Corporation ActaMed Corporation
9900 Bren Road East 7000 Central Parkway
Minneapolis, MN 55440 Suite 600
Attn: Chief Information Officer Atlanta, Georgia 30328
Attn: President
17.5 In the event one or more of the provisions of this Agreement are
found to be invalid, illegal or unenforceable by a court with jurisdiction, the
remaining provisions shall continue in full force and effect.
17.6 The obligations of the parties under this Agreement (other than
the obligation to make payments) shall be suspended to the extent a party is
hindered or prevented from complying therewith because of labor disturbances
(including strikes or lockouts), war, acts of God, fires, storms, accidents,
governmental regulations, failure of telecommunications vendors or suppliers, or
any other cause whatsoever beyond a party's control. For so long as such
circumstances prevail, the party whose performance is delayed or hindered shall
continue to use all commercially reasonable efforts to recommence performance
without delay and shall declare a disaster under its disaster recovery plan.
17.7 Each party shall have the right to include the other party's name
on its customer or vendor list and to disclose the nature of the services and
products provided under this Agreement, so long as such services and products
are accurately represented; provided, however, that neither party has the right
to use the other's name, trademarks or
20
<PAGE>
trade names for other advertising, sales promotion, or publicity purposes
without the other's prior written consent.
17.8 During the term of this Agreement, neither party will solicit or
attempt to hire any individual who is then currently an employee of the other
party or who has been an employee of the other party within the six months prior
to the solicitation or hiring, without the other party's prior, written consent.
This paragraph 17.8 shall only apply to individuals who, in the case of ActaMed,
have performed services for UHC under this Agreement or worked in connection
with the Network or the Licensed Materials, or who, in the case of UHC, have
worked with ActaMed or received services from ActaMed, on behalf of UHC.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE
ENFORCED BY THE PARTIES.
This Agreement may be executed in one or more counterparts each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
UNITED HEALTHCARE CORPORATION ACTAMED CORPORATION
By: /s/ Travers H. Wills By: /s/ Michael K. Hoover
------------------------------- -------------------------------
Its: Chief Operating Officer Its: President
------------------------------ ------------------------------
Date: Date: April 4, 1996
----------------------------- -----------------------------
21
<PAGE>
EXHIBIT LIST
Exhibit A: Managed Plans
Exhibit B: Licensed Materials
Exhibit C: Development Work in Progress
Exhibit D: Reports
Exhibit E: Escrow Agreement
Exhibit F: Network Maintenance and Support Services
Exhibit G: Security
Exhibit H: Transactions
Exhibit 1: Performance Standards and Methods of Measurement
Exhibit J: UHC Operating Environment
Exhibit K: MetraHealth EDI Contracts
22
<PAGE>
EXHIBIT A
MANAGED PLANS
Community Health Network of Louisiana, Inc. (purchase pending)
PHP, Inc. (Michigan)
PHP of Mid Michigan
PHP of South Michigan
PHP of Southwest Michigan
PHP of West Michigan
PHP of South Carolina
PHP of North Carolina, Inc. (purchase pending)
Physicians Plus Insurance Corporation
Allina
<PAGE>
EXHIBIT B
LICENSED MATERIALS
<TABLE>
<CAPTION>
Right to Right to
Reproduce Modify
--------- ------
<S> <C> <C>
*User Manual, versions 2.1 and 2.2.5 No No
Portal Specifications No No
Communications Interface Document
HCFA Claim Validations
HCFA National Standard Format Claims
ANSI X12 837 Claims Format
Implementation Guide for Claims
ANSI Xl 2 835 Electronic Remittance Advice
UB92 Hospital Claim Format
DOS Command Line Routines
UNIX Command Line Routines
Training Materials
Version 2.2.5 Demo Disks and CSI Demo Disks Yes Yes
PL Training Manual Yes Yes
Network: EDI TCP/IP Interface Specification No No
Promotional Material
ProviderLink Brochure Yes Yes
ProviderLink Send Back Card Yes Yes
</TABLE>
*ActaMed will, upon request from UHC, identify UHC as the sponsor and promoter
of these materials.
<PAGE>
EXHIBIT C
DEVELOPMENT WORK IN PROGRESS
Projects which are completed or will be completed by ActaMed as part of the
sale:
1. COSMOS Distributed 'A'
2. Ohio health plan merger
3. Separation of the EmployerLink-ProviderLink network. At that time, a
comprehensive list of hardware and software products required will be
provided to ActaMed.
4. ORBIT
5. MHS "Mail Rules"
<PAGE>
EMPLOYERLINK SPLIT FROM PROVIDERLINK NETWORK
PRODUCTION ENVIRONMENT
<TABLE>
<CAPTION>
<S> <C>
ACQUIRE ALTERNATE HARDWARE:
[*] 20 hours, UHC
[*] 4 hours, UHC
[*] 2 hours, UHC
[*] 20 hours, UHC
[*] 10 hours, PL
ACQUIRE ALTERNATE SOFTWARE:
[*] 10 hours, UHC
[*] 6 hours, UHC
[*] 2 hour, UHC
INSTALL VENDOR HARDWARE/SOFTWARE:
[*] 40 hours, UHC
[*] 40 hours, UHC
[*] 10 hours, UHC
[*] 10 hours, PL
SPLIT PRODUCTION EMPLOYERLINK NETWORK SOFTWARE FROM
PROVIDERLINK:
[*] 30 UHC, 15 PL
[*] 30 UHC, 8 PL
[*] 30 UHC, 8 PL
[*] 50 UHC
[*] 40 UHC, 20 PL
[*] 15 hours, PL
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT D
REPORTS
REPORTS ACTAMED WILL PROVIDE TO UHC
The following reports will be provided to UHC from ActaMed on a routine schedule
as indicated.
- - Orbit reports
Three [*] core operating reports, for each market, will be sent to each
health plan lead ProviderLink/EDI representative and a central UHC corporate
resource. (Available electronically or on paper as requested.)
<TABLE>
<S> <C>
UNI Access Status Report [*]
Monthly Detail Transaction report by source UNI [*]
Monthly Detail Transaction report by Destination Market [*]
- - Intercompany billing detail reports for use in determining
allocation of transaction expensed to the proper health plan or
business unit.
Summary of fees by health plan detailed by plan and DIV [*]
Intercompany Billing Details-site fees, mail and Era transactions [*]
Intercompany Billing Details-transaction charges [*]
</TABLE>
- - Help Desk Reports
The following problem notification procedures will be performed by the ActaMed
Help Desk staff by call priority level. Severity levels are defined in Exhibit
1. Reporting on these activities will be provided to UHC upon request.
Severity 1 - High priority calls will be reported to a health plan on a [*]
basis. A report listing each call and its status will be electronically
mailed or faxed the following morning. For a specific high priority call, if
closure is not expected within [*], a call will be placed to the UHC health
plan ProviderLink representative. If the call is closed within [*],
notification to UHC health plan ProviderLink representative via the next
morning's E-mail report is acceptable. If an UHC health plan ProviderLink
representative cannot be accessed "live", a voice mail will be left. [*]
contact with the customer is required until closure.
Severity 2 - Normal priority calls will also be reported on a [*] report
listing each call and its status. No telephone calls will be placed to the
plan for these calls except on and as needed basis. Regular customer contact
is required until closure.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
Severity 3 - Low-priority calls will also be reported in a [*] report to UHC
health plan ProviderLink representative containing all calls and status.
Customer contact is required as needed or when a course of action has been
determined.
- - In the event that the ActaMed Help Desk computerized on-line problem
management tool is down, call information will be recorded manually and
entered into the system as soon as it becomes available.
- - Required problem resolution timeframes are outlined in Exhibit D.
- - ActaMed should prepare a quarterly Executive Summary report for UHC
management detailing the customer issues raised during this time frame and
the resolution of these problems.
- - Network Availability Reports
Modem connectivity-actual performance to standard Monthly
Network Transaction Success rate by plan, and in the
aggregate Monthly
Host and Modem availability Monthly
- - Itemization and accounting for the hours worked by the UHC Dedicated Team,
and a project status report on each item worked.
Reports UHC will provide to ActaMed
These reports will include data from health plans centralized on COSMOS, those
plans with decentralized UHC host systems including, but not limited to,
Complete, PrimeCare, Ramsay, UHC Illinois, etc., and all ex-MetraHealth systems
including the previous Travelers and Met Life systems.
UHC will provide a resource to coordinate the assembly of this data and will
serve as the contact for all questions regarding these reports.
- - Membership data by health plan or market provided on paper or Monthly
electronically where available.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- - Claims receipts or processed claims, for all commercial UHC Monthly
health plans or markets, offices or systems, including the
total volume of claims received electronically by month and
year-to-date, if available, actual penetration percentages
by plans, market, offices or systems, and desired percentage
of electronic claim receipts.
- - Decision Support System (DSS) Data will be extracted from UHC Monthly
health plans and markets to support the market analysis done
by ActaMed and for the prioritization of target providers and
potential prospects. (A sample report is provided on
Attachment 1)
- - Physician and Hospital claims volume data for each health Quarterly
plan/market by Provider Number and/or submitting Entity Tax
ID including:
* total claims volumes received by each provider/tax ID
* volume received electronically (EDI) by each
provider/tax ID
* volume received on tape/other by each provider/tax ID, Monthly
if applicable and available
This information will be provided electronically, as available.
- - Other data to be determined in the future to support the
analysis of new transactions as mutually agreed by both parties.
- - Strategic information from UHC related to EDI growth goals Quarterly
and objectives by health plan/market will be provided to
ActaMed as needed. This will include pertinent project plans
and other material/documentation that will assist ActaMed to
enhance and increase electronic transactions for UHC.
<PAGE>
EXHIBIT E
MASTER ESCROW AGREEMENT
BETWEEN
PRODUCER AND FORT KNOX
This escrow agreement is intended for use by a Producer (Developer) and
Fort Knox Escrow Services, Inc. The Producer may escrow multiple products under
this agreement. In addition, multiple Licensees (End Users) may be registered
as beneficiaries of this agreement. Although each Licensee does not sign the
agreement, Fort Knox does notify them of the service.
<PAGE>
Master Escrow Agreement
This Master Escrow Agreement ("Agreement") is made as of this 20th day
of February, 1995, by and between ActaMed Corp. ("Producer") and Fort Knox
Escrow Services, Inc. ("Fort Knox").
PRELIMINARY STATEMENT. Producer intends to deliver to Fort Knox a
sealed package containing magnetic tapes, disks, disk packs, or other forms
of media, in machine readable form, and the written documentation prepared in
connection therewith, and any subsequent updates or changes thereto (the
"Deposit Materials") for the computer software products (the "System(s)"),
all as identified from time to time on Exhibit B hereto. Producer desires
Fort Knox to hold the Deposit Materials, and, upon certain events, deliver
the Deposit Materials (or a copy thereof) to those persons or entities listed
from time to time on Exhibit C hereto as a licensee of Producer ("Licensee"),
in accordance with the terms hereof.
Now, therefore, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. DELIVERY BY PRODUCER. Producer shall be solely responsible for
delivering to Fort Knox the Deposit Materials as soon as practicable. Fort
Knox shall hold the Deposit Materials in accordance with the terms hereof.
Except as provided in Section 10 below, Fort Knox shall have no obligation to
verify the completeness or accuracy of the Deposit Materials.
2. DUPLICATION; UPDATES.
(a) Fort Knox may duplicate the Deposit Materials by any means in order
to comply with the terms and provisions of this Agreement, provided that the
Licensee to whom a copy of the Deposit Materials is to be delivered pursuant
to the terms hereof shall bear the expense of duplication.
(b) Producer shall deposit with Fort Knox any modifications, updates,
new releases or documentation related to the Deposit Materials by delivering
to Fort Knox an updated version of the Deposit Materials ("Additional
Deposit") as soon as practicable after the modifications, updates, new
releases and documentation have become generally available to Producer's
Licensees, but in any event within thirty (30) days following the first
delivery to any Licensee. When Producer delivers an Additional Deposit to
Fort Knox, Fort Knox shall return to Producer the previous Deposit Materials
it held in custody, except for the Deposit Materials that were the subject of
the most recent previous deposit. Except as provided in Section 10 below,
Fort Knox shall have no obligation to verify the accuracy or completeness of
any Additional Deposit or to verify that any Additional Deposit is in fact a
copy of the Deposit Materials or any modification, update, or new release
thereof.
3. NOTIFICATION OF DEPOSITS. Simultaneous with the delivery to Fort
Knox of the Deposit Materials or any Additional Deposit, as the case may be,
Producer shall deliver to Fort Knox and to each Licensee a written statement
specifically identifying all items deposited and stating that the Deposit
Materials or any Additional Deposit, as the case may be, so deposited have
been inspected by Producer and are complete and accurate. Within five (5)
days of receipt by Fort Knox of the Deposit Materials or any
1
<PAGE>
Additional Deposit, Fort Knox will send notification of such receipt via
certified or registered mail to the Licensee(s).
4. DELIVERY BY FORT KNOX
4.1 DELIVERY BY FORT KNOX TO LICENSEES. Fort Knox shall deliver
the Deposit Materials, or a copy thereof, to a Licensee only in the event that:
(a) Producer notifies Fort Knox to effect such delivery to a Licensee
or Licensees at a specific address or addresses, the notification being
accompanied by a check payable to Fort Knox in the amount of one hundred
dollars ($100.00); or
(b) Fort Knox receives from any Licensee:
(i) written notification that Producer has failed in a material
respect to support the applicable Systems as required by a
valid and existing license agreement ("License Agreement")
between Licensee and Producer or that Producer has generally
ceased its business of supporting the applicable systems
("Producer Default");
(ii) evidence satisfactory to Fort Knox that Licensee has notified
Producer, at least ten (10) days prior to the notice to Fort
Knox, of such Producer Default in writing;
(iii) a written demand that the Deposit Materials be released and
delivered to Licensee;
(iv) a written undertaking from the Licensee that the Deposit
Materials being supplied to the Licensee will be used only as
permitted under the terms of the License Agreement;
(v) specific instructions from the Licensee for this delivery; and
(vi) a cashier's check payable to Fort Knox in the amount of five
hundred dollars ($500.00).
(c) If the provisions of paragraph 4.1(a) are satisfied, Fort Knox
shall, within five (5) business days after receipt of the notification and
check specified in paragraph 4.1(a), deliver the Deposit Materials in
accordance with the applicable instructions.
(d) If the provisions of paragraph 4.1(b) are met, Fort Knox shall,
within five (5) business days after receipt of all the documents specified in
paragraph 4.1(b), send by certified mail to Producer a photostat copy of all
such documents. Producer shall have thirty (30) days from the date on which
Producer receives such documents ("Objection Period") to notify Fort Knox of
its objection ("Objection Notice") to the release of the Deposit Materials to
a Licensee and to request that the issue of Licensee's entitlement to a copy
of the Deposit Materials be submitted to arbitration in accordance with the
following provisions:
2
<PAGE>
(i) If Producer shall send an Objection Notice to Fort Knox during
the Objection Period, the matter shall be submitted to, and
settled by arbitration by, a panel of three (3) arbitrators
chosen by the Atlanta Regional Office of the American
Arbitration Association in accordance with the rules of the
American Arbitration Association. The arbitrators shall apply
Georgia law. At least one (1) arbitrator shall be reasonably
familiar with the computer software industry. The decision of
the arbitrators shall be binding and conclusive on all parties
involved, and judgment upon their decision may be entered in a
court of competent jurisdiction. All costs of the arbitration
incurred by Fort Knox, including reasonable attorneys' fees
and costs, shall be paid by the non-prevailing party.
(ii) Producer may, at any time prior to the commencement of
arbitration proceedings, notify Fort Knox that Producer has
withdrawn the Objection Notice. Upon receipt of any such
notice from Producer, Fort Knox shall reasonably promptly
deliver the Deposit Materials to the Licensee in accordance
with the instructions specified in paragraph 4.1(b)(v).
(e) If, at the end of the Objection Period, Fort Knox has not received
an Objection Notice from Producer, then Fort Knox shall reasonably promptly
deliver the Deposit Materials to the Licensee in accordance with the
instructions specified in paragraph 4.1(b)(v).
4.2 DELIVERY BY FORT KNOX TO PRODUCER. Fort Knox shall release
and deliver the Deposit Materials to Producer upon termination of this
Agreement in accordance with paragraph 7(a) hereof.
5. INDEMNITY. Producer and any party claiming beneficiary status
under this Agreement shall indemnify and hold harmless Fort Knox and each of
its directors, officers, agents, employees and stockholders ("Fort Knox
Indemnities") absolutely and forever, from and against any and all claims,
actions, damages, suits, liabilities, obligations, costs, fees, charges, and
any other expenses whatsoever, including reasonable attorneys' fees and
costs, that may be asserted against Fort Knox Indemnitee in connection with
this Agreement or the performance of Fort Knox or any Fort Knox Indemnitee
hereunder, except as a result of the negligent act or omission on the part of
Fort Knox or any Fort Knox Indemnitee.
6. DISPUTES AND INTERPLEADER.
(a) In the event of any dispute between any of Fort Knox, Producer
and/or any Licensee relating to delivery of the Deposit Materials by Fort
Knox or to any other matter arising out of this Agreement, Fort Knox may
submit the matter to any court of competent jurisdiction in an interpleader
or similar action. Any and all costs incurred by Fort Knox in connection
therewith, including reasonable attorneys' fees and costs, shall be borne by
the party seeking the copy of the Deposit Materials.
(b) Fort Knox shall perform any acts ordered by any court of competent
jurisdiction, without any liability or obligation to any party hereunder by
reason of such act.
3
<PAGE>
7. TERM AND RENEWAL.
(a) The initial term of this Agreement shall be two (2) years,
commencing on the date hereof (the "Initial Term"). This Agreement shall be
automatically extended for an additional term of one year ("Additional Term")
at the end of the Initial Term and at the end of each Additional Term
hereunder unless, on or before ninety (90) days prior to the end of the
Initial Term or an Additional Term, as the case may be, either party notifies
the other party that it wishes to terminate the Agreement at the end of such
term.
(b) In the event of termination of this Agreement, Producer shall pay
all fees due Fort Knox and Fort Knox shall promptly notify all Licensees that
this Agreement has been terminated and that Fort Knox shall promptly return
to Producer all copies of the Deposit Materials then in its possession.
8. FEES. Producer shall pay to Fort Knox fees in accordance with
Exhibit A as compensation for Fort Knox's services under this Agreement.
(a) PAYMENT. Fort Knox shall issue an invoice to Producer following
execution of this Agreement ("Initial Invoice"), on the commencement of any
Additional Term hereunder, and in connection with the performance of any
additional services hereunder. Payment is due upon receipt of invoice. All
fees and charges are exclusive of, and Producer is responsible for the
payment of, all sales, use and like taxes. Fort Knox shall have no
obligations under this Agreement until the Initial Invoice has been paid in
full by Producer.
(b) NONPAYMENT. In the event of non-payment of any fees or charges
invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any fee
due and payable hereunder to the Producer and, in such an event, the Producer
shall have the right to pay the unpaid fee within thirty (30) days after
receipt of notice from Fort Knox. If Producer fails to pay in full all fees
due during such thirty (30) day period, Fort Knox shall give notice of
non-payment of any fee due and payable hereunder to the Licensee(s) and, in
such event, the Licensee(s) shall have the right to pay the unpaid fee within
ten (10) days of receipt of such notice from Fort Knox. Upon payment of the
unpaid fee by either the Producer or the Licensee(s), as the case may be,
this Agreement shall continue in full force and effect until the end of the
applicable term. Failure to pay the unpaid fee under this paragraph 8(b) by
both Producer and the Licensee(s) shall result in termination of this
Agreement.
9. OWNERSHIP OF DEPOSIT MATERIALS. Fort Knox and Producer recognize
and acknowledge that ownership of the Deposit Materials shall remain with
Producer at all times.
10. BANKRUPTCY. Producer and Licensee acknowledge that this Agreement
is an "agreement supplementary to" the License Agreement as provided in
Section 365(n) of Title 11, United States Code (the "Bankruptcy Code").
Producer acknowledges that if Producer as a debtor in possession or a trustee
in Bankruptcy in a case under the Bankruptcy Code rejects the License
Agreement or this Agreement, Licensee may elect to retain its rights under
the License Agreement and this Agreement as provided in Section 365(n) of the
Bankruptcy Code. Upon written request of Licensee to Producer or the
Bankruptcy Trustee, Producer or such Bankruptcy Trustee shall not interfere
with the rights of Licensee as provided in the License Agreement and this
Agreement, including the right to obtain the Deposit Material from Fort Knox
in accordance with Section 3.
4
<PAGE>
11. MISCELLANEOUS.
(a) REMEDIES. Except for actual fraud, gross negligence or intentional
misconduct, Fort Knox shall not be liable to Producer for any act, or failure
to act, by Fort Knox in connection with this Agreement. Fort Knox will not
be liable for special, indirect, incidental or consequential damages
hereunder. Licensees are intended to be third party beneficiaries as to the
express rights and subject to the obligations set forth herein.
(b) NATURAL DEGENERATION; UPDATED VERSION. In addition, the parties
acknowledge that as a result of the passage of time alone, the Deposit
Materials are susceptible to loss of quality ("Natural Degeneration"). It is
further acknowledged that Fort Knox shall have no liability or responsibility
to any person or entity for any Natural Degeneration. For the purpose of
reducing the risk of Natural Degeneration, Producer shall deliver to Fort
Knox a new copy of the Deposit Materials at least once every three years.
(c) PERMITTED RELIANCE AND ABSTENTION. Fort Knox may rely and shall be
fully protected in acting or refraining from acting upon any notice or other
document believed by Fort Knox in good faith to be genuine and to have been
signed or presented by the proper person or entity. Fort Knox shall have no
duties or responsibilities except those expressly set forth herein.
(d) INDEPENDENT CONTRACTOR. Fort Knox is an independent contractor,
and is not an employee or agent of either the Producer or any Licensee. The
foregoing notwithstanding, nothing in this Agreement shall limit any remedies
to which Producer may be entitled, whether at law or in equity, in connection
with any claim relating to the misappropriation of confidential information
or trade secrets (including the Deposit Materials) or the violation of any
copyright or other intellectual property right of Producer. Licensee is a
party to this Agreement.
(e) AMENDMENTS. This Agreement shall not be modified or amended except
by another agreement in writing executed by the parties hereto, except that
Producer may modify this Agreement at any time without the consent of Fort
Knox to designate additional "Systems" on Exhibit B hereto and additional
Licensees on Exhibit C hereto, as appropriate.
(f) ENTIRE AGREEMENT. This Agreement, including all exhibits hereto,
supersedes all prior discussions, understandings and agreements between the
parties with respect to the matters contained herein, and constitutes the
entire agreement between the parties with respect to the matters contemplated
herein. All exhibits attached hereto are by this reference made a part of
this Agreement and are incorporated herein.
(g) COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in two
(2) counterparts, each of which when so executed shall be deemed to be an
original and both of which when taken together shall constitute one and the
same Agreement. This Agreement shall be construed and enforced in accordance
with the laws of the State of Georgia.
(h) CONFIDENTIALITY. Fort Knox will hold and release the Deposit
Materials only in accordance with the terms and conditions hereof, and will
maintain the confidentiality of the Deposit Materials.
5
<PAGE>
(i) NOTICES. All notices, requests, demands or other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be delivered by hand or by commercial overnight delivery
service which provides for evidence of receipt, or mailed by certified mail,
return receipt requested, postage prepaid, and addressed as follows:
(i) If to Producer:
to the address listed on the signature page hereof
(ii) If to Fort Knox:
Fort Knox Escrow Services, Inc.
3539-A Church Street
Clarkston, Georgia 30021-1717
Attn: Contracts Administrator
Copy: Michael A. Payne
Vice President
If delivered personally or by commercial overnight delivery service, the
date on which the notice, request, instruction or document is delivered shall
be the date on which delivery is deemed to be made, and if delivered by mail,
the date on which such notice, request, instruction or document is received
shall be the date on which delivery is deemed to be made. Any party may
change its address for the purpose of this Agreement by notice in writing to
the other parties as provided herein.
(j) SURVIVAL. Paragraphs 5, 6, 8, 9 and 10 shall survive any
termination of this Agreement.
(k) NO WAIVER. No failure on the part of any party hereto to exercise,
and no delay in exercising any right, power or single or partial exercise of
any right, power or remedy by any party will preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No
express waiver or assent by any party hereto to any breach of or default in
any term or condition of this Agreement shall constitute a waiver of or an
assent to any succeeding breach of or default in the same or any other term
or condition hereof.
6
<PAGE>
IN WITNESS WHEREOF each of the parties has caused its duly authorized
officer to execute this Agreement as of the date and year first above written.
Fort Knox Escrow Services, Inc.
By: /s/ Michael A. Payne
---------------------------------------------
Title: V.P.
------------------------------------------
Producer
By: /s/ Nancy J. Ham
------------------------------------------------------
Print Name: Nancy J. Ham
------------------------------------------------------
Title: CFO
------------------------------------------------------
Address: 7000 Central Parkway, Suite 620
------------------------------------------------------
Atlanta, GA 30328
------------------------------------------------------
------------------------------------------------------
Phone: (404) 551-1600
------------------------------------------------------
Fax: (404) 551-1601
------------------------------------------------------
Attention: Nancy Ham
------------------------------------------------------
7
<PAGE>
EXHIBIT A
<TABLE>
<S> <C>
Fees to be paid by Producer shall be as follows:
Initialization fee (one time only) $750 (payable for initial term only)
Annual maintenance/storage fee
- includes one Deposit Material update $800/Product
- includes two cubic feet of storage space
Annual Licensee registration fee FULL SERVICE
$ 150/Licensee
(foreign licensee $250)
Additional Updates $ 100/Product
(above one per year)
Additional Storage Space $ 150/Cubic foot
Payable by Licensee or Producer:
Due Upon Licensee's or Producer's
Request for Release of Deposit Materials $ 500
</TABLE>
Fees due in full, in US dollars, upon receipt of signed contract or deposit
material, whichever comes first. Thereafter, fees shall be subject to their
current pricing, provided that such prices shall not increase by more than
10% per year.
8
<PAGE>
EXHIBIT B
B1. Product Name:____________________________________________________________
Version #:_______________________________________________________________
Prepared/Confirmed by:________________________________________________________
Title:___________________________________ Date:__________________________
Signature:____________________________________________________________________
Type of deposit:
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe)_____________________________________________
ITEMS DEPOSITED:
Quantity Media Type Description of Material
A) ________ ____________ _______________________________________________
B) ________ ____________ _______________________________________________
C) ________ ____________ _______________________________________________
B2. Product Name:____________________________________________________________
Version #:_______________________________________________________________
Prepared/Confirmed by:________________________________________________________
Title:___________________________________ Date:__________________________
Signature:____________________________________________________________________
Type of deposit:
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe)_____________________________________________
ITEMS DEPOSITED:
Quantity Media Type Description of Material
A) ________ ____________ _______________________________________________
B) ________ ____________ _______________________________________________
C) ________ ____________ _______________________________________________
9
<PAGE>
EXHIBIT C
Licensees
Please list a primary contact person, company names, and address, as well as
telephone and facsimile numbers.
COMPANY NAME & ADDRESS
A.____________________________ Contact Name:____________________
______________________________ Telephone:_______________________
______________________________ Facsimile:_______________________
______________________________ Date:____________________________
Product Name and Version #_____________________________________
B.____________________________ Contact Name:____________________
______________________________ Telephone:_______________________
______________________________ Facsimile:_______________________
______________________________ Date:____________________________
Product Name and Version #______________________________________
C.____________________________ Contact Name:____________________
______________________________ Telephone:_______________________
______________________________ Facsimile:_______________________
______________________________ Date:____________________________
Product Name and Version #______________________________________
(PLEASE COPY PAGE AS NECESSARY)
10
<PAGE>
FIRST AMENDMENT TO
MASTER ESCROW AGREEMENT
This First Amendment to Master Escrow Agreement (the "Agreement") is made
to that certain Master Escrow Agreement dated February 1995 (the "master Escrow
Agreement"), between Fort Knox Escrow Services, Inc. ("Fort Knox"), and ActaMed
Corp. (the "Producer"), to provide certain amended or revised terms to the
Master Escrow Agreement. The Master Escrow Agreement and this Amendment
together constitute the "Agreement" referred to in the Master Escrow Agreement.
All capitalized terms used in this Amendment and not defined herein have the
meaning provided for in the Master Escrow Agreement. In the event of any
conflict between the terms of this Amendment and the terms of the Master Escrow
Agreement, the terms of this Amendment shall govern and control.
In consideration of the sum of Ten Dollars ($10.00) in hand resolved, and
other good and valuable considerations, the receipt and adequacy of which is
hereby acknowledged, the parties hereby do agree as follows:
Section 4.1(b)(i) of the Master Escrow Agreement is deleted in its entirety
and the following is substituted thereafter:
(I) written notification that Producer has failed in material respects to
support the applicable Systems as required by a valid and existing
License Agreement ("License Agreement") between Licensee and Producer,
or that the terms of any other agreement to which Producer and
Licensee are a party provides that Licensee is entitled to receive the
Deposit Materials, or that Producer has ceased the business of
supporting the applicable Systems ("Producer Default");
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in duplicate originals by its duly authorized representative.
Fort Knox Escrow Services, Inc. ActaMed Corporation
By: /s/ Jane L. Elliott By: /s/ Nancy J. Ham
-------------------------- -------------------------------
Name: Jane L. Elliott Name: Nancy J. Ham
------------------------ -----------------------------
Title: Senior Account Manager Title: CFO
----------------------- ----------------------------
Date: 9/27/95 Date: 9/27/95
------------------------ -----------------------------
<PAGE>
EXHIBIT F
MAINTENANCE AND SUPPORT SERVICES
ActaMed will provide United HealthCare Corporation with the following hardware,
network and application (product) maintenance services which will be performed
by ActaMed staff not dedicated to UHC enhancements. The cost of these
maintenance services are provided as a part of the transaction and site fees,
and include:
- - Correction of identified system bugs in the network hardware or
application;
- - Changes and modifications to the ActaMed hardware, application and network
required to manage scalability and capacity issues associated with
increased transaction volumes;
- - Changes required to maintain service level commitments as identified in
Exhibit I;
- - Help Desk services as defined in Exhibit I, including appropriate staffing,
call response time, escalation procedures, reporting, availability,
severity levels, problem log tracking and problem resolution, etc;
- - Maintaining the ORBIT system and accurately performing the provider
registration process on ORBIT to include the assignment of Site and Tax
ID's;
- - User Security set up and processing;
- - Marketing Group Product Support for maintenance of a COMPUTERIZED DEFECT
CONTROL SYSTEM problem log to include ongoing discussions between the Help
Desk personnel and the ActaMed development staff to communicate customer
needs and reactions to daily activity;
- - Plan Rep Training for all current and future owned or managed plans as well
as UHC corporate staff;
- - Plan Rep and Corporate training will be conducted at ActaMed locations
unless alternate locations are mutually agreed upon by both parties.
- - Maintenance, monitoring and reporting of network and communication systems
regarding stability and performance as specified in Exhibit D;
F 1
<PAGE>
- - Multi-Payor and Vendor technical and administrative support to insure
collection and transmission of maximum volumes of electronic claims to UHC;
Infrastructure will be upgraded by ActaMed as needed to accommodate
provider transactions to UHC;
- - Maintenance of appropriate connectivity to UHC host systems to maintain
security provisions and data integrity of UHC transactions;
- - Administer and maintain license agreement procedures with providers
assuring appropriate signatures and approvals from UHC providers;
- - Provide routine, updated application and network documentation for UHC
sites and corporate;
- - Maintain the network and application to assure data integrity of
transactions;
- - Maintenance releases shall be defined to include any emergency releases
issued by ActaMed;
- - Technology upgrades to the ActaMed hardware, network, and/or application
(to include such things as fault tolerance products and services) will be
included as part of ongoing maintenance;
- - Provide ongoing support of and communication with the health plan
representatives on electronic commerce issues, targets and strategies;
- - Provide monthly billing detail by health plan, and in the aggregate, for
all transaction activity.
- - The following list of projects are "maintenance" and are part of the
general support activities provided by ActaMed:
1. TCP/IP socket interface to ESN
2. Claim Batch Processing (CPB) - Report Generation Redesign
3. TALX Voice Response system support
4. Identification of health plans by payer ID
5. Menu navigation and file transfer
6. Accept physician claims using HCFA NSF 2.0 format
F 2
<PAGE>
EXHIBIT G
ACTAMED PROVIDERLINK SECURITY
FUNCTION OBJECTIVE
To provide adequate data security given the confidential nature of the data and
the types of transactions performed on the ActaMed ProviderLink network.
Security related to ActaMeds ProviderLink is made up of multiple components:
[*]. This document will concentrate on workstation and network security.
FUNCTION FEATURES
DATA OWNERSHIP
The ActaMed ProviderLink network is a system that enables communication between
a health care provider's place of business and payer host systems. While the
ActaMed ProviderLink network enables the flow of data between these entities, it
"owns" none of the data.
[*]
ActaMed ProviderLink [*]. [*] by the ActaMed ProviderLink network [*]. A [*]
when installing the ActaMed ProviderLink application software. In [*]
ProviderLink, this consisted of [*]. With [*] the ActaMed ProviderLink
application, [*]. The [*] then [*] ActaMed ProviderLink application [*].
A [*] is used [*] to [*]. When the ActaMed ProviderLink application software
[*]. It is the responsibility of [*] and the [*]. This allows [*] who [*]
of ActaMeds ProviderLink. The [*] is [*] with all [*] the ActaMed's
ProviderLink network, but only [*] is [*].
[*]
The ActaMed ProviderLink [*] to manage security. ActaMed [*] will [*].
When [*] the [*] can perform and [*] that
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
G 1
<PAGE>
the [*] are granted. The [*] also [*] with some of the [*] ActaMed's
ProviderLink.
The ActaMed ProviderLink [*] makes a [*] with [*] the ActaMed ProviderLink
network. The [*] will return [*] requested transaction [*].
In addition, the [*] that make up the ActaMed ProviderLink [*] use a [*] to
control access. Each [*] call will [*] as part of [*]. In this manner, we [*]
to a [*] in effect, if you know the [*] of the ActaMed ProviderLink [*]
you still cannot [*].
[*]
In general, [*] is [*] to the [*]. As necessary, the ActaMed ProviderLink [*]
will provide [*] to satisfy the [*].
In the case of [*] ActaMed ProviderLink [*]. Also associated with each [*]
are [*]. When transactions are performed to [*] the [*] then the [*]. For
[*] transactions (referrals, claim status, etc.), the [*].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
G 2
<PAGE>
ACTALINK SECURITY
FUNCTION OBJECTIVE
To provide adequate data security given the confidential nature of the data and
the types of transactions performed on the ActaLink network.
FUNCTION FEATURES
[*]
ActaLink is a distributed database system which operates as if it were
centralized. It implements an [*] in a [*]. It supports operations that
make it [*]. The user need not be concerned with [*].
[*] a given user is provided with a [*] the information in the system is [*].
[*] all of the details for [*]. The [*] is a set of [*].
The [*] of the detailed information [*]. The [*] of the database system
makes [*] and intuitive, a [*].
[*]
[*] have [*]. The [*] for [*] at a [*]. Once a [*] the network [*] who
must [*] with a [*] for that purpose. From that time onward, until the end
of the [*] the [*] must be used by the individual [*].
All [*] and [*] is managed [*].
[*]
All ActaLink [*] wherever [*] become the [*]. This [*] which network
users are [*] ActaLink [*]. ActaMed provides [*] and [*] that are used only
for the [*]. The [*] uses this [*] to access ActaLink through [*].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
G 3
<PAGE>
The [*] does not have ActaLink [*] so the local [*] must use a different
account for personal ActaLink network access. This reduces the probability
that [*] could walk up to [*] and grant [*] without [*].
A given ActaLink [*] may be [*] a variety of [*] but only if [*] have [*].
Accordingly, a physician can [*] at [*] as [*] assuming that [*]. This [*]
can be granted with [*].
[*]
When a [*] the [*] is [*] and the [*] is returned to [*]. The [*]
determines which [*] to be [*] to the user [*] and uses [*] to prevent [*]
from [*]. The [*] only presents the user with [*].
[*]
The ActaLink [*] is composed of [*] may [*] information in ActaLink [*].
All access to [*] in the ActaLink system [*] are [*]. The only method of [*]
is through the ActaLink [*]. A [*] to the [*] governed by [*].
[*]
The [*] of using particular [*] to each [*]. This permits the [*] to
allow [*] and [*] allowing some [*]. [*] correspond to [*] each of which
[*]. As stated in the [*] this [*] is accomplished by [*] to the user.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
G 4
<PAGE>
EXHIBIT H
TRANSACTION DEFINITIONS
[*] and [*] allow a user to [*] and [*] to the [*].
[*] which allows a user to [*].
[*] which allows a user to [*] about the [*] and their [*]. A user can also
[*] if available.
[*] which allows a user to [*] for [*].
[*] which allows a user to [*].
[*] which allows a user to [*].
[*] allow [*].
[*] which allows a user to [*].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
H
<PAGE>
EXHIBIT I
PERFORMANCE STANDARDS
AND
METHODS OF MEASUREMENT
NETWORK AVAILABILITY
The network will be available 24 hours a day, 7 days a week with the exception
of scheduled downtime.
- - During this time, ActaMed will achieve the following performance standards:
* [*] of the time or better, hardware and modems will be operational and
available for receiving/accepting calls. Hardware specifically
includes the ActaMed UNIX machines and the modems attached to the
hardware. Measurement will be weekly with reporting monthly.
* [*] or better successful modem connectivity, until 30 days after the
network is moved and is under the complete control of ActaMed, at
which time [*] or better successful modem connection performance will
be required. Of the calls attempted, ActaMed's bank of modems will
negotiate a successful connection and offer service [*] of the time.
This measurement will be based on statistics generated by the HDMS
modem rack network controller and will be measured weekly with
reporting monthly.
* [*] or better of transactions will be successful. Of the transactions
submitted to ActaMed, [*] of these will be successfully serviced.
Measurement will be weekly with reporting monthly.
The definition for transaction success will be those transactions that do not
result in a system generated, non-user created error. They may be categorized
into the following:
- - transactions that return valid data
- - transactions that return a meaningful message, but not an error (i.e. "Name
not found" when performing an eligibility inquiry by name.)
- - transactions returning an error based on the information received (i.e.
"Unknown Request Format" which indicates an incorrectly formatted
transaction.)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
I 1
<PAGE>
Transaction failures are defined as those transactions that fail due to a system
component failure (i.e. "Internal DCE Error" which identifies that a service
necessary to complete the transaction was not available). Transaction failures
will be recorded and measured according to the standards described above.
AVAILABILITY MEASUREMENT
Availability is measured as the number of ACTUAL hours available as a percentage
of total AVAILABLE hours. Planned systems downtime is NOT included in the total
availability time. The following definitions are used for calculating the
availability measurement:
- - DEFINED HOURS are the total days in the month multiplied by 24 hours.
- - PLANNED HOURS are the planned and published hours that any system is down
for maintenance or other planned outages.
- - AVAILABLE HOURS are the Defined Hours minus the Planned Hours.
- - UNPLANNED HOURS are the unplanned hours of downtime experienced during the
month.
- - ACTUAL HOURS are the Available Hours minus the Unplanned Hours.
- - AVAILABILITY PERCENTAGE is determined by dividing the Actual Hours by
Available Hours and multiplying the result by 100.
- - CONNECTIVITY PERCENTAGE is determined by dividing the Total Successful
Calls to the system by the Total Attempted Calls and multiplying the result
by 100.
UHC will consider these performance standards achieved if the network
availability described above is achieved [*] of the time, or better. UHC will
consider less than [*] performance achievement within [*] of any
consecutive [*] period to be a material breach of this Service Level
Agreement.
Reporting as identified in Exhibit D will be the source documents from which
these standards will be measured. Compliance to these standards will be
determined by UHC upon reviewing the reports provided to the UHC/ActaMed
liaison.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
I 2
<PAGE>
In the event that ActaMed cannot perform according to the standards because of
emergent situations. UHC will be notified following the emergency procedures
outlined in this document.
Reports on performance are due to UHC by no later than the 10th working day
following the end of the month.
LABORLINK SYSTEM
ActaMed will continue to support the batch processing of Allinas LaborLink
system, at the level of performance required for the ActaMed ProviderLink
network. ActaMed will deliver files to the Third Party Administrator's (TPA)
mailboxes as soon as UHC uploads the files to the network, usually available by
8:00 a.m. every Monday, which allows reports to be released to TPA's by noon on
Monday, fifty-two weeks a year.
DATA INTEGRITY
ActaMed will uphold the highest standard of integrity with regard to the
transmission and processing of transactions, reporting performance and service.
Information received from ActaMed will be correct, and without errors, [*] of
the time, measured monthly, unless otherwise stated in the SLA.
All updates from COSMOS or other UHC host systems will be promptly and correctly
applied [*] of the time.
ACTAMED PROVIDERLINK HELP DESK
Users, UHC health plans and business units agree to call the ActaMed
ProviderLink Help Desk at 612-945-8500 or 1-800-446-8279 for all problem
resolution when concerns cannot be resolved by the Health Plan, or a Health Plan
representative is not available. The ActaMed ProviderLink Help Desk will be
open from 7:00 a.m. - 5:00 p.m. CST, Monday through Friday. Voice mail is
available for after hour calls. Messages left on voice mail after business
hours will be retrieved the following business day.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
I 3
<PAGE>
CALL DOCUMENTATION
Utilizing the ActaMed ProviderLink Help Desk computerized problem management
tool, the following information will be recorded on each call to the help desk:
Site ID (PC ID) Site Name Caller Name Phone Number
Health Plan Priority Level Date of Call Time of Call
Problem Code Call Recipient Problem Definition
Call Status Resolution Information
The ActaMed ProviderLink Help Desk will attempt to accommodate any requests for
additional information as long as the collection of the information does not add
significant time and effort in logging the call. The ActaMed ProviderLink Help
Desk statistics will be reported to UHC on a routine basis but will not be
integrated into any individual health plan's call tracking statistics.
DEFINITION OF THE PRIORITY LEVEL CLASSIFICATIONS
All calls will be assigned to one of three priority levels. The following
definitions will be used by the ActaMed ProviderLink Help Desk Representatives
to assign priority to calls:
SEVERITY 1 - A critical system or component is down or experiencing degraded
service causing UHC's or a customer's business functions to be halted
SEVERITY 2 - A single user is down, a component is experiencing degraded
service, or scheduled deliverables are unavailable. This does not have a
critical impact on the business, but may restrict function to some users and may
impact normal business operations.
SEVERITY 3 - A user's system is still operating but is experiencing difficulties
or a specially requested deliverable is unavailable.
The definition of each priority level and the classification of call types into
priority levels will be determined through negotiation between ActaMed and UHC.
The definitions may be reassessed and are subject to change. The ActaMed
ProviderLink Help Desk's method of classifying calls into priority levels will
be reviewed periodically with UHC. UHC will be responsible for defining
additional situations and communicating to ActaMed any requests on how to
classify particular call situations.
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In the event that the ActaMed ProviderLink Help Desk computerized on-line
problem management tool is down, call information will be recorded manually and
entered into the system when it becomes available.
MEASUREMENT
Objectives have been set for both the maximum time required for communicating
the current status and action plan to the user and to UHC for each priority
level and for the percentage of call volumes that will meet these objectives.
Measurement will begin when the problem is received by the ActaMed ProviderLink
Help Desk and recorded into the computerized on-line problem management tool.
Measurement will end when the call is closed, (i.e. the current status and
action plan is communicated to the user and the appropriate UHC health plan has
acknowledged the problem) by the ActaMed ProviderLink Help Desk representative.
It is the responsibility of the UHC health plan personnel to notify ActaMed
ProviderLink Help Desk when an open call has been resolved by a health plan
resource, but not communicated to ActaMed by the user.
The percent of calls closed within the time frame objectives will be measured by
calculating, by priority level, the volume of calls closed within the time frame
objectives as a percentage of total calls opened.
SALES, INSTALLATION AND TRAINING
When selling ProviderLink, UHC will ensure that the users conform to the
technical standards that have been established in the current version of
Schedule B of the ProviderLink License Agreement. UHC will continue to follow
ProviderLink approved installation procedures and will provide an adequate level
of user understanding of ProviderLink through appropriate training.
The ProviderLink health plan representatives will be trained by ActaMed as
described in Exhibit F. UHC recognizes that the quality of ActaMed's
ProviderLink Help Desk support is partially dependent on UHC's sales and
installation to sites with approved technical requirements and thorough training
of users.
CAPACITY PLANNING
UHC is responsible for providing the ActaMed's ProviderLink Help Desk with as
much information as possible to assist ActaMed in planning for the appropriate
levels of staffing to meet the service level objectives. Forecasts of site
sales,
15
<PAGE>
installation scheduling and specific events that will impact ActaMed's
ProviderLink volume of calls will be communicated to the best of UHC's ability.
Major support requirements will be communicated with a 90 day lead time,
whenever possible.
TECHNICAL MAINTENANCE/ENHANCEMENT SCHEDULING OBJECTIVES
PDR (PROVIDERLINK DEVELOPMENT REQUEST) PROCESS
ActaMed will have an established process for documenting all ProviderLink user
requests for correction of problems or the development of new functionality.
All requests are recorded into a computerized defect control system software
product including a detailed description of the requirements. All regular open
requests are reviewed by the ActaMed ProviderLink development team on a routine
basis, however, UHC will be responsible for establishing the development
priorities. ActaMed assumes the responsibility to make the development and
maintenance modifications based on UHC priorities.
DURING THE TRANSITION, ACTAMED PROVIDERLINK PRODUCT MARKETING WILL AID AND
CONTRIBUTE TO THE PRIORITIZATION OF UHC REQUESTS IF NEEDED. FOLLOWING THE
TRANSITION PERIOD, ACTAMED WILL CONSIDER THIS ASSISTANCE A LONG TERM BILLABLE
SERVICE.
NETWORK MAINTENANCE RELEASES
Regular ProviderLink network maintenance enhancements and fixes will be
completed and certified on a regular basis. They will be released into
production on Thursday evenings, AS AVAILABLE. Major software and hardware
releases will be scheduled to go into production on weekends. ActaMed will
communicate these changes to UHC on a regular, weekly basis.
EMERGENCY MAINTENANCE RELEASES
Emergency maintenance is defined as the correction of a technical bug or
omission in the existing functionality of ActaMed's ProviderLink presentation
software or network. The technical problem renders the ProviderLink feature or
user inoperable.
ActaMed will be responsible for ongoing monitoring and quality control of the
network and application. UHC will expect ActaMed to have a well defined problem
identification procedure to document and fix inoperable functionality before
recognized by UHC or its users. However, when this has not been
16
<PAGE>
accomplished, UHC will in cooperation with an ActaMed staff resource,
complete a PDR with as much information as is available, designate it as
emergency, and submit it to the ActaMed ProviderLink Product Marketing staff.
The UHC/ActaMed liaison is responsible for supporting ActaMed with the
initial research and documentation of the problem via the PDR.
The service level performance objective for emergency correction will be within
ten business days. Tracking of the fix will begin at the time of ActaMed's
receipt of the PDR. Emergency changes will be released on any given day. These
releases are not subject to the Thursday release schedule.
The correction of the emergency technical problem will be in the control of the
ActaMed development team. ActaMed is not responsible for correcting problems
located outside of the ActaMed ProviderLink presentation software or network,
i.e. a specific user's configuration, hardware problems, or technical problems
located within another vendor's software.
APPLICATION MAINTENANCE RELEASES
Application Maintenance releases will include maintenance and fixes of
presentation software bugs identified and documented in the PDR process. A
software bug is defined as existing functionality that fails to perform as
designed.
Where applicable, it will be the responsibility of UHC to assist
ActaMed/ProviderLink development in thoroughly researching user needs and
determining the implication of product changes on all stakeholders within United
HealthCare and ProviderLink end users.
The registration, installation and training of ProviderLink users on the
features of any maintenance release is the primary responsibility of UHC.
ENHANCEMENT RELEASES
All enhancements to the ActaMed ProviderLink software or network will be
provided to UHC health plans or affiliates as outlined in the Service Level
Agreement. Enhancements are defined as the addition of functionality that does
not currently exist in the ProviderLink system, or is currently not supported.
In addition, these releases may include maintenance and fixes of presentation or
other software bugs not included in the routine application maintenance
releases.
An enhancement release may also include modifications to any or all of the
current ProviderLink features of Claim Submissions, Eligibility, Referrals,
Referral Status, Claims Status, ProviderLink E-mail/Fax, and Provider Directory.
17
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Enhancements specific to UHC, and those created exclusively for UHC by the
ActaMed/UHC dedicated team, will be released according to the agreed upon
schedule. Information specific to the dedicated team and enhancements paid for
by UHC, will be outlined in the Dedicated Team Agreement.
It is the responsibility of UHC to assist ActaMed/ProviderLink development in
thoroughly researching user needs and determining the implication of product
enhancements on all stakeholders within United HealthCare and ProviderLink end
users.
The registration, installation and training of ProviderLink users on the
features of any new release is the primary responsibility of UHC. All requests
for the development of enhancements in functionality will be communicated to
ActaMed through the PDR process.
COMMUNICATION OF TECHNICAL REQUIREMENTS
The ActaMed ProviderLink development team will formally communicate to UHC's
health plan ProviderLink Managers, 90 days prior to release date, any
anticipated changes in standard hardware requirements, as defined in the current
version of schedule B of the ProviderLink License Agreement, that would impact
UHC's users of new ProviderLink software releases.
PLANNING FOR THE YEAR 2000
ActaMed will plan for, and successfully implement, changes to all applications
and network tools and services to accommodate the transition to the year 2000.
ActaMed will perform this task on internal software as part of the maintenance
agreement with UHC and will be done at no extra cost. If UHC data formats
change as a result of adding support for the year 2000, UHC will prioritize this
exclusive change for ActaMed and submit the change request for completion by the
UHC dedicated team.
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ALLINA SERVICE LEVEL AGREEMENT (SLA)
ActaMed will perform to the level of service described in the 1996 agreement
negotiated with Allina by the UHC EDI Services Department through the duration
of the 1996 calendar year.
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EXHIBIT J
UHC Operating Environment
(a) [*] will provide [*] between ActaMed and [*].
(b) [*] will provide [*] between [*].
(c) [*] will provide [*]. UHC will provide [*] the communications
between ActaMed and [*].
(d) [*] may [*] as appropriate [*].
ATTACHED DIAGRAMS:
In the first diagram, labeled Attachment 1, the division of responsibility is
identified by the vertical line. This division of responsibility is depicted
in more detail by the second diagram, labeled 'ProviderLink Architecture'.
In the second diagram, the cloud which represents [*] at the bottom of the
page [*] are the responsibility of [*]. The [*] to connect the [*].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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EXHIBIT K
EMC CONTRACTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VENDOR CONTRACT RENEWAL PRODUCTION FEES PER CLAIM CHARGE TO PROVIDER
DATE DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
SERVICES AGREEMENT
This SERVICES AGREEMENT (the "Services Agreement" or "Agreement")
is made and entered into as of December 31, 1997 by and between ACTAMED
CORPORATION, a Georgia Corporation ("ActaMed") and SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC., a Delaware Corporation ("SBCL").
BACKGROUND
ActaMed is in the business of providing electronic data interchange
products and services to the health care industry, including its ProviderLink
software, and desires to develop business involving automated laboratory order
entry and results reporting services.
SBCL provides laboratory testing services to certain Providers
who use SBCL Software (as defined in the License Agreement) for electronic
clinical laboratory test order entry and/or test result reporting between an
SBCL Lab and such Provider. In addition, SBCL uses the SBCL Software to
allow [*] to send laboratory test orders entered electronically to an SBCL
Lab and/or to have the test results reported electronically back to the PSC
or the Provider ordering the test.
The parties previously entered into the Development Agreement
pursuant to which ActaMed and SBCL are jointly developing the ActaLab Software.
Simultaneously with the execution of this Agreement, ActaMed and
SBCL are entering into the Purchase Agreement pursuant to which ActaMed is
purchasing and SBCL is selling certain assets associated with SBCL's provision
of Lab EDI Services, as more fully set forth therein. Also concurrently with
the execution and delivery of this Agreement, SBCL and ActaMed are entering into
the License Agreement whereby SBCL, among other things, grants ActaMed a license
to the SBCL Software. This Agreement sets forth the parties' agreements
relating to their rights and obligations following the date hereof relating to
provision of Lab EDI Services to Automated Providers.
Pursuant to the Purchase Agreement, the Parties contemplate that
there will be a staged transfer to ActaMed of SCAN Assets. The transfer of
Region One SCAN Assets is to occur on the Region One Transfer Date. The
transfer of the other Regions will occur sequentially when the Transfer
Benchmarks (as defined in the Purchase Agreement) have been met.
NOW THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties, intending to be legally bound, agree as
follows:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
I. DEFINITIONS.
Capitalized terms used in this Agreement and not otherwise defined
herein are defined in EXHIBIT A attached hereto.
II. NETWORK READINESS SERVICES.
A. GATEWAY REPLICATION. SBCL shall be responsible [*] to provide
such reasonable and appropriate software development, installation and
support services as are necessary to establish connectivity with an ActaMed
gateway (the "ACTAMED GATEWAY") that works substantially as the SBCL gateway
works as of the date hereof. In connection with such services from SBCL:
1. ActaMed shall [*] order, acquire, install and configure
the necessary hardware and data communications lines required to install and
operate the appropriate gateway systems, including without limitation a [*]
modems, 800 phone service, [*] and data communications lines for connection
to SBCL systems. SBCL will provide specifications and guidance to assist
ActaMed in this effort.
2. SBCL will install the gateway software on ActaMed's computer
and modify the gateway software as necessary to cause it to communicate with the
SBCL systems. At SBCL's determination, this may include new enhancements or
additional software as needed to allow the ActaMed Gateway to transmit
Transmittal Information for Automated Providers using the SCAN Network.
3. At such time as the ActaMed Gateway has been adequately (in
SBCL's determination) tested, including for compliance with applicable SBCL
internal standards and using SBCL sample clinical laboratory test orders and/or
test result report data, in which testing ActaMed and SBCL shall cooperate, SBCL
shall so notify ActaMed. For a period of up to thirty (30) days after the date
of such notice, ActaMed shall be entitled to perform such quality assurance
testing as it shall reasonably deem appropriate. SBCL shall provide reasonable
assistance to ActaMed in this process. If the system is not performing
substantially the same as SBCL's gateway and as necessary to enable ActaMed to
meet the Key Performance Standards and to provide the Lab EDI Services using the
ActaMed Gateway, ActaMed shall provide timely notice to SBCL of such deficiency
or performance problem within such thirty (30) day period. SBCL shall supply
the appropriate personnel to investigate and correct any such reported
deficiencies or performance problems. The acceptance period shall be extended to
two (2) weeks beyond the time of such correction. When corrected to the
reasonable satisfaction of ActaMed and SBCL, or if SBCL is notified of no
further deficiencies or performance problems within such period, the ActaMed
Gateway shall be deemed ready and accepted by ActaMed.
4. SBCL will provide reasonable training of ActaMed personnel and
any available documentation to allow ActaMed to operate and support its gateway
independently;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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provided that SBCL will not provide [*] or other base-line training that may
be required by ActaMed.
5. The foregoing procedures of this Section II.A shall be
completed within one hundred twenty (120) days after the date hereof.
6. After acceptance of the ActaMed Gateway and until [*] SBCL
shall, at ActaMed's written request, provide such maintenance and related
support to the ActaMed Gateway as may be necessary to continue its effective
operation at substantially the same performance levels as SBCL experienced on
its gateway immediately prior to the date hereof. SBCL shall charge ActaMed
for such services at the then industry standard rates for similar services.
After [*] (i) SBCL makes no representation or warranty as to the performance
of the ActaMed Gateway software systems so established by SBCL hereunder; and
(ii) ActaMed may request SBCL to provide such support and, if SBCL elects to
provide such support, SBCL may charge ActaMed for such services at the then
industry standard rates for similar services.
B. MIGRATION PERIOD. After the Transfer Date of a Region, SBCL and
ActaMed shall have the following obligations with respect to SBCL Sites
transferred to ActaMed in that Region:
1. ACTAMED TO MIGRATE SITES. ActaMed will use its good faith
efforts to migrate the SBCL Sites so transferred from communicating with the
SBCL gateway to communicating with the ActaMed Gateway as soon as practicable,
and shall similarly use its best efforts, and take all steps reasonably
necessary, to assign financial responsibility or otherwise change the billing of
dedicated phone lines installed in Automated Providers' offices for Lab EDI
Services from SBCL over to ActaMed. SBCL will support ActaMed in ActaMed's
efforts to transfer the local phone lines to ActaMed's account and, subject to
ActaMed's obligation under Section II.B.7.(g) hereof, pay any charges,
assessments, fees or other amounts incurred by SBCL for such transfer.
2. EDI AGREEMENT AMENDMENTS. ActaMed shall obtain signed
amendments to any existing CIS Agreement between a Provider and SBCL or a new
CIS Agreement between the Provider and ActaMed containing the provisions set
forth in EXHIBIT II.B.2(a). SBCL shall obtain a signed agreement from such
Provider for Lab EDI Services by ActaMed in the form of EXHIBIT II.B.2(b).
3. ASSISTANCE FROM SBCL. SBCL will make available to ActaMed
such resources as SBCL determines is reasonable and appropriate for the
transfer of each Region, at no cost to ActaMed. After the earlier of (i) [*]
after the Transfer Date for a particular Region or (ii) the full migration of
SBCL Sites in such Region from communication with the SBCL gateway to
communication with the ActaMed Gateway, SBCL will continue to use its good
faith efforts to make such resources available to ActaMed and may charge
ActaMed therefor at then industry standard rates for similar services.
4. SUPPORT SERVICES. From time to time prior to the [*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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a. ActaMed may request that SBCL's [*] provide services
to ActaMed in [*] to assist ActaMed in the delivery of items relating to
ActaMed's delivery of Lab EDI Services to Automated Providers (provided
ActaMed delivers the item to [*] for such delivery to the Automated
Provider), such services to be provided consistently with the manner and
extent to which SBCL has used such [*] during the twelve (12) month period
prior to the Transfer Date of the Region in [*] is located. SBCL shall
direct its [*] to provide such services provided that SBCL shall not be
responsible for any Losses incurred as a result of providing such services.
Nothing in this Section III.B.4 shall require SBCL, ActaMed or [*] to provide
any service if to do so would cause any party, including [*] to violate any
Regulation.
b. SBCL may request that ActaMed's employees provide
services to SBCL in the course of their normal duties to assist SBCL in the
delivery of items (E.G., [*]) to Automated Providers (provided SBCL delivers
the item to the employee for such delivery to the Automated Provider), such
services to be provided consistently with the manner and extent to which SBCL
has used employees for such purposes during the twelve (12) month period
prior to the Transfer Date of the Region in which such employee works.
ActaMed shall direct its employees to provide such services provided that
ActaMed shall not be responsible for any Losses incurred as a result of
providing such services. Nothing in this Section III.B.4 shall require
ActaMed, SBCL or such employee to provide any service if to do so would cause
any party, including the respective employee, to violate any Regulation.
5. USE OF SBCL FACILITIES BY TRANSFERRED EMPLOYEES. ActaMed
will employ the Transferred Employees in accordance with the provisions of
Article VI of the Asset Purchase Agreement. From the Transfer Date of a
Region until [*] after the Transfer Date of that Region, such Transferred
Employees may continue to use such office space, office equipment, office
telephones, office supplies, and have access to such office services as such
Transferred Employees had immediately prior to the applicable Transfer Date
(collectively, "OFFICE SPACE"), [*] whether or not such Transferred
Employees are responsible for ActaMed Sites. No employees of ActaMed other
than the Transferred Employees currently assigned to such Office Space shall
be allowed to use such Office Space, and ActaMed may not place signage inside
or outside of such Office Space or use such Office Space for any operations
other than the transition contemplated by this Section II and the provision
by ActaMed of Lab EDI Services.
6. SCAN NETWORK MAINTENANCE. SBCL shall continue to have and
support Lab EDI Services between each SBCL Site and SBCL's gateway until
migration of such SBCL Site to the ActaMed Gateway is completed. SBCL will
continue to operate and maintain its gateway systems for such purposes.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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7. ACTAMED PAYMENTS TO SBCL. In consideration of services
provided under this Agreement, ActaMed will pay SBCL the following amounts (in
addition to any other amounts which may be charged to ActaMed by SBCL as
expressly set forth in this Agreement):
a. A fee in the amount of [*] per month for each month
after the Region One Transfer Date (prorated for any portion thereof);
provided that no payment shall be made under this clause a. either (i) if a
payment is made under clause b. below, after the third month after the Region
One Transfer Date, or (ii) if a payment is not made under clause b. below,
after the Region Two Transfer Date.
b. A fee in the amount of [*] for each month prior to the
Region Two Transfer Date (prorated for portion thereof) commencing with the
fourth month after the Region One Transfer Date, provided, however, that
payment under this Section II.B.7.b shall not be made unless the delay in the
Region Two Transfer Date beyond the date three (3) months after the Region
One Transfer Date is due to ActaMed's failure to meet the Transfer Benchmarks
(with any dispute with respect thereto to be resolved in accordance with
Section XV hereof).
c. A fee in the amount of [*] per month for each month
after the Region Two Transfer Date (prorated for any portion thereof),
provided that no payment shall be made under this clause c. after the Region
Three Transfer Date;
d. A fee in the amount of [*] per month after the Region
Three Transfer Date (prorated for any portion thereof), provided that no
payment shall be made under this clause d. after the Region Four Transfer
Date;
e. Until the date which is twelve (12) months after the
Transfer Date of a Region, reimbursement for any local and long distance
telecommunication services (including 800 and 888 service other than 800 and
888 numbers used to [*]) billed to SBCL in respect of SBCL Sites in that
Region;
f. From and after the date which is twelve (12) months
from the Transfer Date of a Region, an amount equal to [*] of the amount of
any local and long distance telecommunication services (including 800 and 888
service other than 800 and 888 numbers used to [*]) billed to SBCL in respect
of SBCL Sites in that Region; and
g. Reimbursement for [*] of any charges, assessments, fees
or other amounts incurred by SBCL for the transfer of any dedicated phone
lines installed in Automated Providers' offices for Lab EDI Services into the
ActaMed name, including without limitation any transfer fees or new
installation fees.
C. PAYMENT TERMS FOR ACTAMED PAYMENTS TO SBCL. SBCL shall invoice
ActaMed monthly for the services rendered by it and chargeable to, or to be
reimbursed by, ActaMed pursuant to this Section II. All amounts shown due on
such invoice shall be paid within [*] after the date of the invoice. Late
payments shall be subject to a late fee equal to [*] per
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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month on the overdue amount. In the event ActaMed disputes any amount shown
due on such invoice, ActaMed shall pay timely any undisputed amounts and send
a Dispute Notice to SBCL with respect to any disputed amounts. For a period
of thirty (30) days after the date of the Dispute Notice, ActaMed shall have
Audit Rights with respect to the portions of SBCL's books and records that
relate to the subject of the dispute. In the event the parties are unable to
resolve the disputed matter, the matter shall be resolved in accordance with
Section XV hereof and application of any late fee to such disputed amount
shall be tolled until conclusion of such proceedings and then applied only to
the amount so determined to be due.
III. SERVICES AFTER TRANSFER.
A. PLANNING AND OVERSIGHT COMMITTEE. On or promptly after the Region
One Transfer Date, SBCL and ActaMed will establish an Oversight Committee having
the obligations set forth in this Section III (the "OVERSIGHT COMMITTEE"). The
parties may thereafter, in their respective sole discretion, change the
complement of the Oversight Committee, including without limitation to decrease
or increase the number of members on the Oversight Committee, so long as the
Oversight Committee shall continuously have equal numbers of persons
representing ActaMed and SBCL, provided that SBCL may appoint a majority of the
Oversight Committee members if ActaMed consents thereto. The Oversight Committee
shall continue in effect through the term of the Agreement (including any
applicable renewal period). Each member of the Oversight Committee will have
responsibility to, among other things,
1. review the performance of ActaMed hereunder, as measured by
the Performance Standards,
2. review the compliance of ActaMed with Regulations and report
to ActaMed and SBCL with respect to compliance matters,
3. discuss trends in the health care information services
industry and service type and quality offered by competitors of ActaMed,
4. exchange information regarding strategic needs and directions
of the respective ActaMed and SBCL businesses that are relevant to the
relationships contemplated by this Agreement,
5. exchange information about technological developments for
electronic connectivity in the health care information services industry,
6. provide feedback to ActaMed and SBCL regarding the
implementation and effect of ActaMed's preferred provider status pursuant to
Section VII of this Agreement,
7. notify SBCL, ActaMed and other members of the Oversight
Committee at any time such member has any knowledge that ActaMed has not
performed in accordance with the Performance Standards, and make recommendations
to ActaMed and SBCL as to remedying
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performance that does not comply with this Agreement, including without
limitation the Performance Standards, and
8. examine and, collectively with the other members, report to
ActaMed and SBCL from time to time on ways in which Agreed Services can be
improved.
B. AGREED SERVICES. ActaMed will provide the following services to
SBCL and Automated Providers at ActaMed Sites in accordance with the Performance
Standards and will take all reasonable and appropriate action to preserve the
Network and the goodwill of the Automated Providers utilizing such services:
1. NETWORK SUPPORT. ActaMed shall maintain and support the
Network for Lab EDI Services between Automated Providers and an SBCL Lab and
shall ensure that the Network meets or exceeds all Network Standards.
2. INSTALLATION AND TRAINING. ActaMed will provide
installation, set up and training services at all ActaMed Sites as reasonably
necessary to enable such ActaMed Sites to utilize the Network accurately and
efficiently. In this connection, ActaMed will (i) install software, and if
necessary and appropriate and consistent with contractual relationships
between SBCL and ActaMed, hardware, (ii) confirm set up thereof, (iii)
confirm the ability after set up to successfully transmit and receive modem
communications with the applicable SBCL Lab and that requisitions and results
functionality is accurate, and (iv) provide competent and timely training to
the Automated Provider's personnel regarding Lab EDI Services. Such
installation, set up and training services shall be provided to, and
connectivity to the Network established for, any Provider or PSC designated
by SBCL. If ActaMed identifies a Provider which is a potential new customer
for Lab EDI Services, it shall so notify SBCL and SBCL shall determine if
such installation, set up and training services shall be provided to such
Provider. SBCL and ActaMed shall [*] to establish [*] to provide guidance on
[*] of ActaMed suggested Automated Providers. Prior to any
installation, set up and training services being rendered hereunder, SBCL and
ActaMed shall have each entered into an agreement for such Lab EDI Services
with such new customer which agreement shall contain the provisions set forth
on EXHIBIT II.B.2(b).
3. SPECIAL SERVICES AT PIF SITES. At up to [*] (the "PIF
NUMBER") sites selected by SBCL prior to the [*] [*] where
installation training and set up services are required (the "PIF SITES"),
SBCL shall be entitled, by written request to ActaMed and payment of the [*]
set forth in Section IV.B.2, to require that installation, set up and
training services be provided on a top priority accelerated basis.
4. INITIAL ROLL OUT OF ACTALAB SOFTWARE. After market launch of
the ActaLab Software (which shall be only after the ActaLab Software functions,
features and performance have been accepted by SBCL in accordance with the
Development Agreement and the requirement in this Agreement that it comply with
Regulations), ActaMed will begin to replace the SCAN Software at ActaMed Sites
with the ActaLab Software in accordance with a roll out plan developed by
ActaMed
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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which shall be designed to deploy the ActaLab Software as quickly as
practicable with minimal disruption to Automated Providers. ActaMed shall
submit the roll out plan to SBCL sufficiently in advance to allow SBCL
reasonable opportunity to review and comment on the roll out plan prior to
implementation, and shall use its good faith efforts to incorporate SBCL's
comments thereon. Such roll out, however, shall not be made to any Provider
which has not executed an agreement containing the provisions set forth in
EXHIBIT II.B.2(a) or (b).
5. CUSTOMER SUPPORT. ActaMed will provide all reasonably
necessary and appropriate end user support for issues relating to connectivity
to the Network utilizing any Network Software in use at such time, including
without limitation, help desk assistance to Automated Providers, hardware
support to applicable Automated Providers, user training and bug fixes to the
Network. All customer support services shall be performed in a competent and
professional manner meeting or exceeding generally accepted industry standards
for confidential EDI and will be rendered by qualified personnel who will
perform the tasks assigned consistently with good professional practice and the
state of the art involved. SBCL shall have the right to request the removal
from Automated Providers accounts of any ActaMed personnel used by ActaMed to
perform customer support services, provided such objection would not constitute
unlawful discrimination, if SBCL becomes aware that such person is causing
customer dissatisfaction. If an objection is raised by SBCL, ActaMed agrees to
confer with SBCL and endeavor to furnish a replacement as quickly as is
practicable.
6. MONITORING. ActaMed shall continuously monitor its
performance against the Performance Standards and shall notify SBCL at any time
when it fails to meet the Performance Standards. SBCL shall similarly notify
ActaMed of any such failure, provided that the failure to notify shall not
constitute a waiver of SBCL's rights hereunder. In the event that ActaMed fails
to meet any Performance Standard at any time, ActaMed shall promptly diagnose
the cause of the failure and shall work continuously and diligently to correct
such failure to perform until it is corrected. Any failure to meet the
Performance Standards which occurs while ActaMed is working to remedy the
problem shall continue to be counted for the purposes of Section XII.B.1,
Section VII.B.4 and IV.F.
7. REPORTS. ActaMed and SBCL will, at their own expense, provide
the other with the reports specified on EXHIBIT III.B.7 hereto at the times
specified thereon.
C. PERFORMANCE STANDARDS. "Performance Standards" shall mean the
Network Standards and the Customer Support Standards. EXHIBIT III.C-1 to this
Agreement specifies the performance standards for the Network which must be
maintained and the applicable time periods for measuring compliance with such
standards (the "NETWORK STANDARDS"). EXHIBIT III.C-2 to this Agreement
specifies the customer support standards ActaMed must achieve and maintain and
the applicable time periods for measuring compliance with such standards (the
"CUSTOMER SUPPORT STANDARDS"). In no event shall the Performance Standards be
less than the comparable Network maintenance and support standards and services
ActaMed utilizes for or provides to its other customers receiving services
comparable to Lab EDI Services. ActaMed shall have sixty (60) days following
the date
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hereof to validate the metric performance level set forth in the Performance
Standards as representative of SBCL's provision of services which are now
Agreed Services. ActaMed shall perform the validation (with cooperation from
and access to relevant records and data of SBCL) within such sixty (60) day
period, and based upon the period of [*]. In the event that ActaMed's
validation process yields a metric different from that set forth in the
Performance Standards, a new metric for this Agreement shall be mutually
agreed by SBCL and ActaMed, with any disputes with respect thereto resolved
in accordance with Section XV hereof.
D. SBCL OBLIGATIONS. SBCL shall have no obligation to provide any
support, training or maintenance services to Automated Providers, other than as
expressly set forth herein.
E. Records and Audits.
1. ActaMed shall maintain accurate and complete records
regarding the transmissions to and from Automated Providers and SBCL in
accordance with accepted information storage practices in the clinical
laboratories industry and in compliance with applicable Regulations, but in
no event for less than [*] or such longer period as may be required by
Regulations or the Integrity Agreement.
2. The records maintained pursuant to Section III.E.1 above shall
include without limitation records of the amounts ActaMed charges SBCL under
this Agreement, with a system of audit trails, records and controls sufficient
to allow SBCL to audit such transactions and charges under this Agreement and to
assure satisfaction of any requirements imposed on SBCL by their external
auditors or on ActaMed or SBCL by government officials enforcing applicable
Regulations.
3. In addition to the grant of Audit Rights pursuant to Sections
IV.B, IV.C.3 and VI.B of this Agreement, SBCL shall have the right, exercisable
not more often than twice in each calendar year for the first three years after
the date hereof, and once in each calendar year thereafter, to have any of its
agents or employees, who or which are reasonably acceptable to ActaMed, audit,
in accordance with the Audit Rights, the books and records of ActaMed relating
to such SBCL transactions to examine or determine the proper amounts which
should have been billed to SBCL, the amounts which were billed to SBCL, and the
amounts which SBCL has paid under this Agreement.
4. In any exercise of Audit Rights hereunder, including without
limitation pursuant to Section III.E.3, SBCL shall give ActaMed two week's
prior notice of any such audit, and shall abide by reasonable ActaMed
security and confidentiality procedures during the audit. SBCL and ActaMed
shall each bear their own costs associated with such audit, provided that in
the event the audit determines that ActaMed has overcharged SBCL by more than
ten percent (10%) of the amount properly due ActaMed in any month, ActaMed
shall pay all costs of such audit. If the audit reveals an overpayment by
SBCL to ActaMed, ActaMed shall promptly refund such overpayment to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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SBCL. If the audit reveals an underpayment by SBCL, SBCL shall promptly pay
to ActaMed the amount of such underpayment.
IV. PAYMENTS TO ACTAMED BY SBCL.
A. FEES FOR FIXED FEE SITES. SBCL will pay ActaMed for the Agreed
Services rendered to Fixed Fee Sites as follows:
1. Fixed Fee payments shall be due [*] on the first (1st)
business day of [*] beginning on January 2, 1998 and shall be in an amount
equal to
a. from January 2, 1998 until the day before the first
business day of [*], [*] per month;
b. from the first business day of [*] until [*].
B. TRANSACTION FEE FOR SITES OTHER THAN FIXED FEE SITES. From the
Region One Transfer Date and continuing until the day before the [*] SBCL
will pay to ActaMed, for Agreed Services in respect of sites which are not
Fixed Fee Sites only, within thirty (30) days after receipt of an invoice
from ActaMed detailing the charges then due, a fee equal to the sum of [*]
SBCL in accordance with the Performance Standards during the period covered
by the invoice (the "TRANSACTION FEE").
C. [*]. Provided the conditions set forth in Section IV.D are
satisfied, SBCL shall pay the following amounts to ActaMed as hereinafter in
this Section IV.C provided:
1. An amount (the "FIRST VARIABLE FEE") equal to (i) [*] minus
the aggregate of the amount billed to SBCL pursuant to Section IV.B.1 above
(the "TRANSACTION FEE AMOUNT") prior to the [*]; (ii) [*] minus the sum of
(A) the Transaction Fee Amount for the period from the date hereof to the [*]
and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus the
sum of (A) the Transaction Fee Amount for the period from the date hereof to
the [*] and (B) the amount paid pursuant to clauses (i) and (ii) above.
2. An amount (the "SECOND VARIABLE FEE" and together with the
First Variable Fee, the "VARIABLE FEES") equal to (i) [*] minus the aggregate
of the amount paid plus amounts owed (whether or not billed) pursuant to
Section IV.M.1 below (the "PIF AMOUNT") prior to the [*]; (ii) [*] minus the
sum of (A) the PIF Amount for the period from the date hereof to the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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[*] and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus
the sum of (A) the PIF Amount for the period from the date hereof to the [*]
and (B) the amount paid pursuant to clauses (i) and (ii) above; PROVIDED THAT
if the PIF Amount with respect to an annual period (other than the last such
annual period) is at least [*] of the aforementioned dollar amount for that
annual period, no payment shall be due under this Section IV.B.2 for such
annual period.
3. Subject to Section IV.D, the Variable Fees shall be paid
annually within thirty (30) days after invoice therefor from ActaMed, which
shall be (i) submitted to SBCL within [*] (ii) detail the calculation
thereof, and (iii) reflect the Variable Fees payable in respect of the most
recently completed annual period only. SBCL shall have Audit Rights with
respect to any disputed amount of the Variable Fees.
D. CONDITIONS TO [*]. ActaMed and SBCL have agreed that the
foregoing [*] with respect to the provision of Lab EDI Services after the
date hereof shall apply (i) [*] and (ii) to the extent set forth in this
Section IV.D:
1. With respect to [*] (i) such fees shall cease to be payable
if (i) ActaMed shall fail to satisfy any of the Key Performance Standards, or
(ii) such fees [*] for the applicable year shall not be payable (but shall be
treated as paid for purposes of calculation of any amount payable in the
following year) if any of the following shall occur:
a. As of [*] shall [*] of [*] at [*] it has [*] as of [*];
b. As of [*] shall [*] of [*] at [*] it has [*] as of [*];
c. As of [*] shall [*] of [*] at [*] it has [*] as of [*];
2. With respect to the [*] such fees shall be payable [*] in
accordance with the Performance Standards [*] pursuant to Section [*].
E. LATE FEE. A late fee of [*] per month on the unpaid balance of
any payments owing pursuant to this Section IV after expiration of the thirty
(30) day period for payment thereof shall be due from SBCL.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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F. [*] OF PAYMENTS. After the [*] Anniversary, with respect to any
month after ActaMed has [*] with the [*] for [*] SBCL may, at its option, [*]
or other [*] to [*] for such month [*] established with [*] to be [*] the
date as of which [*] with the [*].
G. DEFINITION OF FIXED FEE SITES. "Fixed Fee Sites" shall mean the
[*] PROVIDED HOWEVER THAT:
1. if the number of SBCL Sites transferred to ActaMed on any
Transfer Date, when added to the number of ActaMed Sites on the date of such
Transfer, totals more than [*] any sites in excess of [*] (such excess to be
identified as described in the next sentence) shall not be Fixed Fee Sites.
The sites to be excluded from Fixed Fee Sites will be (i) from the Region
transferred on such Transfer Date, and (ii) selected, in order, from a list
of such sites that is sorted on the basis of the date of the first successful
Requisition from each site, beginning with the site which had the most recent
first successful Requisition, and continuing to the sites with the next most
recent first successful Requisition; and
2. if, on the last day of [*] the number of sites that are
Fixed Fee Sites [*] a number of sites, not to exceed [*] sites in any year,
that are not Fixed Fee Sites [*] PROVIDED THAT the aggregate number of Fixed
Fee Sites [*]. The [*] will be [*] in order, from a list of [*] that is
sorted on the basis of the date of the first successful Requisition from a
site, beginning with the site on such list which had the least recent first
successful Requisition, and continuing to the sites with next least recent
first successful Requisition; [*].
H. RENEGOTIATION OF PRICES. For a period of at least [*] prior to
[*] the parties will negotiate new Transaction Fees which shall apply for
the [*] period beginning on [*]. The parties will thereafter similarly
negotiate new Transaction Fees for each two (2) year period thereafter for
each renewal period in the term of this Agreement. [*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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[*].
I. EFFECT OF [*] CHANGES. If either of the following occurs, then
the parties agree to negotiate in good faith to restructure the Transaction
Fees payable or other provisions hereunder in a manner that will be fair to
both parties while at the same time preserving the economic expectations of
the parties under this Agreement to the greatest extent possible and in a
manner consistent with the [*]. Any dispute as to the amendments to this
Agreement to be made in the event of a [*] shall be settled in accordance
with the procedures set forth in Article XV hereof.
1. Any [*] is [*] or determined to [*] including without
limitation any significant reduction in SBCL's [*] or significant increase in
the [*] as compared to SBCL's [*] and [*] as of the date of this Agreement
as set forth on EXHIBIT IV.I hereto (which shall be delivered within thirty
(30) days after the date hereof); or
2. if the Automated Providers' [*] such that the effective [*]
for such period [*] with no corresponding [*].
J. PHONE LINE TRANSFER COSTS. SBCL shall reimburse ActaMed for [*]
of any charges, assessments, fees or other amounts incurred by ActaMed for
the transfer of any dedicated phone lines installed in Automated Providers'
offices for Lab EDI Services into the ActaMed name, including without
limitation any transfer fees or new installation fees.
K. ActaMed Obligations Regarding Hardware.
1. ActaMed shall reimburse SBCL for the cost of hardware
purchased by SBCL and located at SBCL Sites other than Fixed Fee Sites in a
Region to be transferred to ActaMed on a Transfer Date.
2. Subject to the limitations of Section III.L.2(b) hereof,
ActaMed and SBCL understand and agree that, [*] are to [*] for providing [*]
to Providers, there will be situations where [*] is [*] for ActaMed to
provide Lab EDI Services to certain Providers. ActaMed desires that the
number of such new sites be capped. SBCL and ActaMed have therefore agreed
that:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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a. ActaMed shall provide [*], PC Systems for up to [*].
ActaMed may provide hardware for such [*] by either moving existing PC
Systems from a canceled Fixed Fee Site or by providing new PC Systems, as it
determines in its sole discretion.
b. In addition, ActaMed shall provide, prior to the [*]
Anniversary, [*] PC Systems for New Sites or [*] in excess of the [*].
Notwithstanding the above, this obligation shall be (a) limited to [*] PC
Systems prior to the [*] and (b) reduced by each PC System the cost of which
is reimbursed to SBCL subject to Section IV.K.1 above.
c. Any PC Systems in excess of those required to be provided
by ActaMed under (i) and (ii) above may be provided by SBCL to the Automated
Provider, subject only to the Automated Provider entering into a contract with,
and satisfactory to, SBCL for the use of such PC System.
L. SPECIAL FEE FOR USE OF SCAN DEVELOPMENTS. SBCL will pay ActaMed
a fee equal to [*], or [*] received by SBCL for [*] that use SCAN
Developments for Lab EDI Services over the SCAN Network and which [*].
M. SPECIAL FEES FOR NEW SITES. From the Region One Transfer Date
and continuing until the day before the [*], SBCL will pay to ActaMed, within
thirty (30) days after receipt of an invoice from ActaMed detailing the
charges then due, the following amounts:
1. a one time fee of [*] for [*] services at each PIF Site [*]
or "PIF"); and
2. up to the first [*] of any out-of-pocket cost required to be
incurred by ActaMed to provide the bar code label printer to be used for
orders to SBCL Labs at any New Site or any [*] during the period covered by
the invoice. ActaMed shall charge the Automated Provider [*] using the bar
code label printer for anything other than Lab EDI Services for the fair
market value of any such use. If an Automated Provider ceases to use Lab EDI
Services, SBCL may direct where the printer previously installed at such
Automated Provider will be next installed or ActaMed shall purchase, at its
cost and without reimbursement under this Section IV.M.2, a bar code label
printer for installation at another Automated Provider's location to be
determined by SBCL.
N. DISPUTED INVOICES. In the event SBCL disputes any amount shown due
on such invoice, SBCL shall send a Dispute Notice to ActaMed. In such event,
SBCL shall timely pay any undisputed amount to ActaMed and shall have Audit
Rights with respect to the portions of ActaMed's books and records that relate
to the subject of the dispute. In the event the parties are unable to resolve
the disputed matter, the matter shall be resolved in accordance with Section XV
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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hereof and application of any late fee to such disputed amount shall be
tolled until conclusion of such proceedings and then applied only to the
amount so determined to be due.
V. CHANGES AND DEVELOPMENT OF NEW FUNCTIONALITY.
A. MAINTENANCE. ActaMed shall provide such maintenance upgrades and
updates to the Network as set forth on EXHIBIT V.A and shall maintain and
enhance the Network so as to improve from time to time the speed, accuracy,
security and other features and functions available for Lab EDI Services.
ActaMed shall make available to Automated Providers all such modified, upgraded,
enhanced or improved services or software at no additional charge except as
permitted by this Agreement or applicable agreement with Automated Providers.
B. YEAR 2000 COMPLIANCE. ActaMed shall provide, without charge to
SBCL or to Automated Providers (unless the Automated Providers own the PC
Systems needing Year 2000 compliance), such maintenance and hardware upgrades
and updates to the Network (other than the SBCL gateway), or other software
relating (or which will relate) to Lab EDI Services as is necessary for all such
software and related hardware to include acceptable design and performance
specifications so that any or all such software will not abruptly end or provide
invalid or incorrect results due to issues related to Year 2000 compliance and
will otherwise be in compliance with the warranties set forth in EXHIBIT V.B
hereto. Year 2000 compliance requires that the design and performance
specifications of the hardware, software and/or other items include, without
limitation: date data century recognition, calculations that accommodate same
century and multi-century formulas and date values, and date data interface
values that reflect the century change at the year 2000. SBCL shall provide
specifications for Year 2000 compliance for SBCL systems in sufficient time to
allow ActaMed and SBCL to mutually agree on and ActaMed to complete such
modifications as are necessary to enable ActaMed to meet the requirements of
this Section V.B. SBCL will also provide reasonable cooperation and assistance
to ensure ActaMed's understanding of the requirements of this Section V.B.
Prior to any sale of PC Systems to any Automated Provider or potential Automated
Provider, ActaMed shall disclose to such Automated Provider any Year 2000
compliance problems of such PC System which are then known to ActaMed after
reasonable inquiry. A condition of any such sale shall be appropriate
arrangements for making the PC System to be sold Year 2000 compliant. In this
regard, the sales price shall reflect the fair market value of the services
required to make the PC System Year 2000 compliant.
C. REQUIRED CHANGES. ActaMed shall be required to develop and
implement, at its expense except to the extent hereinafter provided, as
promptly as practicable and in no event later than thirty (30) days prior to
the effective date of the applicable Regulatory Change, any Changes which (i)
ActaMed determines are required for the Network Software to remain in
compliance with all applicable Regulations, or (ii) SBCL requests in writing
to ActaMed for compliance with Regulations of the Network Software.
1. If SBCL reasonably determines that ActaMed cannot provide such
required work by thirty (30) days prior to a deadline imposed by governmental
authority, SBCL shall have the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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right to contract with a third party for such work or to do such work itself.
In such event, SBCL shall be reimbursed therefor by ActaMed, except as
provided in Section V.C.3 below.
2. Upon reasonable advance written notice to ActaMed, SBCL may
request, and if it so requests ActaMed shall use its good faith efforts to
accommodate, prioritization of such Changes over any other software development
work performed by or on behalf of ActaMed.
3. In any event, upon reasonable advance notice to ActaMed, SBCL
shall be entitled to change the prioritization of required Changes from time to
time and to resolve conflicts between Changes demanding equal prioritization to
the extent necessary to deliver any such Change not less than thirty (30) days
prior to any government imposed deadlines or as promptly as practicable.
4. If ActaMed disputes that Changes requested by SBCL pursuant
to clause (ii) of Section V.C are required by Regulations, either ActaMed or
SBCL shall be entitled to cause the dispute to be resolved in accordance with
the procedures set forth in Section XV.B.1.a and XV.B.1.b thereof. If such
process is used and results in substantial agreement with either (i) ActaMed,
then [*] (including the cost of FTEs) in implementing such Changes, or (ii)
SBCL, [*]. If such process is not used or does not result in an agreement as
to whether or not such Change is required by Regulations, ActaMed and SBCL
shall mutually agree on an outside counsel familiar with issues of the nature
involved in the dispute and the opinion of such counsel shall be binding on
the parties hereto.
D. ACTAMED DEVELOPED NEW FUNCTIONALITY. When ActaMed develops new
functionality for the Network that ActaMed offers generally to its customers,
which is not included in a maintenance release that ActaMed offers generally
to its customers pursuant to Section V.A. above, ActaMed will offer such new
functionality to Automated Providers on the same basis [*] subject to SBCL's
right to accept or reject such new functionality.
E. Development Work Requested by SBCL.
1. SBCL at any time may request that ActaMed perform additional
development work and, subject to the terms of this Section V.E, shall pay
ActaMed for such work at no higher than the then industry standard rates for
similar services.
a. If SBCL requests in writing that ActaMed provide
additional development work for use exclusively by SBCL and, regardless of
whether ActaMed or a third party actually performs such development work,
ActaMed shall either (i) [*] in which case such work shall be a "Perpetual
Exclusive Development", or (ii) acting in good faith, [*] in which case such
work shall be a "Temporary Exclusive Development". With respect to Perpetual
Exclusive Developments, ActaMed will not use or license
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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the use of the Perpetual Exclusive Developments (without regard to whether
they constitute SCAN Developments or ActaLab Software) other than in support
of Lab EDI Services. With respect to Temporary Exclusive Developments,
ActaMed will not use or license the use of Temporary Exclusive Developments
(without regard to whether they constitute SCAN Developments or ActaLab
Software) other than in support of Lab EDI Services for a period of [*] from
the date on which ActaMed first makes available to SBCL such Temporary
Exclusive Development for use on a commercial basis in support of SBCL's
laboratory testing services. After expiration of such [*] period, subject to
resolution of any dispute relating to ActaMed's initial designation of such
development work as a Temporary Exclusive Development pursuant to Section
V.E.1.b, such Temporary Exclusive Development shall no longer be an
Exclusive Development.
For purposes of this Section V.E, Perpetual Exclusive
Developments and Temporary Exclusive Developments shall include any Changes made
pursuant to Section V.C and paid for by SBCL by reason of Section V.C.4, to be
designated as Perpetual Exclusive Developments or Temporary Exclusive
Developments in accordance with the procedures set forth in this Section
V.E.1.a. All such developments are herein referred to collectively as
"Exclusive Developments."
b. Within twenty (20) days after receiving SBCL's request
pursuant to Section V.E.1.a, ActaMed shall notify SBCL of ActaMed's prices and
terms for performing such development work, and whether such work will
constitute a Perpetual Exclusive Development or a Temporary Exclusive
Development. If SBCL provides notice ("Acceptance Notice") accepting ActaMed's
price and performance terms, ActaMed shall perform such work at the accepted
price and on the accepted performance terms. If SBCL provides notice that it
disputes ActaMed's determination that the development work should constitute a
Temporary Exclusive Development, the parties shall resolve the dispute in
accordance with Section XV. If either (i) ActaMed declines any work requested
pursuant to this Section V.E.1, or (ii) SBCL provides notice that it does not
accept ActaMed's price and performance terms, then SBCL may engage a third party
to perform such work.
c. Any contract between ActaMed and SBCL (or a third party
developer and SBCL) for development of Exclusive Developments shall allocate
ownership of and other rights with respect to the Exclusive Developments as
between ActaMed and SBCL, in the manner contemplated by the License Agreement
and Development Agreement, including, without limitation, Sections 2.1.4 and
2.3.2 of the License Agreement.
2. If, at any time, SBCL chooses to contract with ActaMed for a
dedicated services team from ActaMed to handle development of Changes to the
Network, the Licensed Materials, or SBCL's proprietary systems which are not
required to be performed by ActaMed pursuant to Section V.C and which are not
requested pursuant to Section V.E, ActaMed may elect whether to provide the
dedicated team and, if it so elects, shall do so only on terms and conditions
agreed to in advance by SBCL.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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F. Development Work Requested or Used by Another ActaMed Customer.
1. When ActaMed performs development work on the Network at the
request of another ActaMed customer, SBCL shall have the right to obtain [*]
but only for so long as ActaMed has the legal right to [*] to SBCL and [*] is
not proprietary to the contracting party.
2. When ActaMed performs development work on the Network at the
request of SBCL and such work is usable in connectivity with Other Labs (and is
not an Exclusive Development), [*].
G. ACCESS AND COOPERATION. Whenever SBCL shall use a third party
developer, ActaMed shall allow such third party such access to the Network as
shall be reasonably necessary to complete such work and shall cooperate with
such third party, PROVIDED THAT such access and cooperation shall be subject
to such third party (i) executing reasonable and appropriate security and
confidentiality agreements with ActaMed, (ii) abiding by ActaMed's internal
policies applicable to all third party developers, and (iii) agreeing to [*]
in providing such access and cooperation.
H. EMPLOYEE WAIVERS. ActaMed shall ensure that all employees or
agents who perform customer support services or have access to any Network
Software (whether in preliminary or final form) have signed non-disclosure and
assignment agreements that, at minimum, contain provisions (i) prohibiting the
disclosure of Confidential Information to the same extent as is set forth in
Section X hereof, and (ii) effecting the complete transfer and assignment
(without further consideration) by such employee or agent to SBCL or ActaMed, as
appropriate, of all right, title and interest to all software and documentation
and any proprietary rights thereto to the extent required pursuant to the
License Agreement.
I. STATEMENT OF WORK AND ACCEPTANCE FOR NEW WORK. In the event any
Change projected to cost in excess of [*] is to be made by ActaMed pursuant
to this Section V, ActaMed shall deliver a Statement of Work therefor within
thirty (30) days after the Change becomes known to it and shall, subject to
the other provisions of this Section V, dedicate sufficient resources to the
development and implementation of such Change as shall be necessary to gain
acceptance of and deploy the Change in accordance with such Statement of Work.
VI. COMPLIANCE MATTERS.
ActaMed is a computer technology company which provides electronic
connectivity services, and is not a health care provider. ActaMed acknowledges
that, for a laboratory services provider such as SBCL, the ability to assure
that it complies with applicable laws, rules or regulations ("Applicable Laws"),
including, but not limited to, the federal Physician Self-Referral Law, 42
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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U.S.C. 1395nn, and the regulations promulgated thereunder (together, the "Stark
Law"), similar state physician self-referral laws and regulations (together with
the Stark Law, the "Self-Referral Laws"), the federal Medicare/Medicaid
Antikickback Law and regulations promulgated thereunder (the "Federal
Antikickback Law"), and similar state antikickback laws and regulations
(together with the Federal Antikickback Law, the "Antikickback Laws"), is of
critical importance. SBCL and ActaMed intend that the outsourcing of the Lab
EDI Services to ActaMed and the subsequent provision of the Agreed Services by
ActaMed to SBCL be done in a manner that allows SBCL to maintain its compliance
with Applicable Laws. Accordingly, SBCL and ActaMed have agreed to the
provisions set forth in this Section VI, although SBCL and ActaMed understand
and agree that the provisions of this Section VI and of the separate SOPs (as
defined below) that may be agreed to from time to time by SBCL and ActaMed may
not be necessary or may be more restrictive than necessary to assure SBCL's
continued compliance with Applicable Laws.
A. Representation, Warranty and Covenant. ActaMed represents,
warrants, and covenants to SBCL as follows:
1. ActaMed will not directly or indirectly provide any
remuneration, as defined in the applicable Self-Referral Laws or Antikickback
Laws, to any Provider to whom any of such Self-Referral Laws or Antikickback
Laws applies on behalf of SBCL, except for direct or indirect remuneration
permitted by such law.
2. In furtherance and not in limitation of the foregoing, SBCL
and ActaMed may, from time to time, agree upon certain principles, activities,
agreements, standard operating procedures and/or actions (the "SOPs") that one
or both parties, as applicable, will follow or undertake to help SBCL assure its
compliance with Applicable Laws, and each party will follow any such SOPs
applicable to it in the course of conducting its respective business.
3. With respect to [*] to which ActaMed is [*] in connection
with the provision of Lab EDI Services, ActaMed will not [*] [*] unless and
until SBCL has informed ActaMed in writing that it is willing to [*] and that
ActaMed and SBCL have agreed upon [*].
4. ActaMed will provide any reasonable assistance that SBCL may
request from ActaMed, including the provision of information or other
assistance, in order for SBCL to fulfill any obligation that SBCL, in its sole
discretion, determines it has under the Integrity Agreement. Notwithstanding
the foregoing, nothing in this provision is intended to or should be interpreted
to mean that ActaMed is subject to any of the provisions of the Integrity
Agreement.
5. In the event that SBCL becomes aware of an issue with respect
to compliance with this Section VI, SBCL will promptly inform ActaMed of such
issue and ActaMed will promptly address such issue and take action to remedy any
such issue to the reasonable satisfaction of SBCL.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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6. ActaMed will notify SBCL of any proposed changes in ActaMed's
business practices with respect to EDI or the provision of LAB EDI Services
that are likely to affect SBCL or Automated Providers (other than [*]) a
reasonable period prior to the proposed implementation of such change or
changes and will provide SBCL with a reasonable opportunity to review those
proposed changes for compliance with this Section VI prior to implementation.
If [*] any such [*] based on an [*] or the [*], [*] with [*] to [*] before [*].
B. AUDIT RIGHTS. SBCL shall have Audit Rights, exercisable [*]
with respect to all of ActaMed's books, records and other materials that
relate to any compliance issues covered by this Section VI in order for SBCL
to determine ActaMed's fulfillment of its obligations hereunder or under any
separately agreed upon SOPs. When ActaMed enters into agreements with
Providers, it will use its best efforts to secure the right for ActaMed and,
if such Provider is an SBCL client, for SBCL, to audit such Provider's books
and records, and other materials and/or to inspect the Provider's premises to
assure that any compliance requirements established with such Provider are
being satisfied, and, upon request from SBCL, ActaMed will permit SBCL to
exercise such rights. In any exercise of Audit Rights under this Section
VI.B, SBCL shall give ActaMed two (2) weeks' prior written notice of any such
audit, and shall abide by reasonable ActaMed security and confidentiality
procedures during the audit. SBCL and ActaMed shall each bear their own
expenses associated with such audit.
C. DISPUTE RESOLUTION. Notwithstanding any other provision of this
Agreement to the contrary, because of the critical nature of compliance to
SBCL's business, disputes regarding compliance with this Section VI may not be
susceptible to resolution following normal dispute resolution mechanisms. In
the event that SBCL and ActaMed have a disagreement or dispute regarding
compliance with this Section VI, ActaMed agrees to use its best efforts in
working with SBCL to attempt to resolve that dispute as soon as possible. If
the parties are not able promptly to resolve any such dispute, and the parties
are not able to agree upon another mechanism, such as that provided for in
Section V.C.4 hereof, to resolve the issue, SBCL shall have the right to
exercise any and all remedies available to it under this Agreement, including
the right to terminate the Agreement.
VII. PREFERRED LAB EDI VENDOR.
A. PREFERRED LAB EDI VENDOR RELATIONSHIP. Provided none of the
events has occurred which is described in Section VII.B hereof, SBCL will, [*]
afford ActaMed "preferred Lab EDI Vendor" status in the United States to
the extent set forth in this Section VII. In this regard, SBCL will:
1. instruct its salespeople that when occasions arise where it is
appropriate to do so, inform Providers interested in Lab EDI Services that
ActaMed is its preferred vendor for all Lab EDI Services;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2. indicate that ActaMed is SBCL's preferred vendor for Lab EDI
Services in appropriate communications, whether internal or external, written or
oral, as determined by SBCL that relate to the topic of Lab EDI Services and
where a Lab EDI Services vendor is mentioned;
3. from the date when the ActaLab Software is approved by SBCL
for use by Automated Providers, (i) cause the marketing materials for SCAN
Software to be revised to feature the ActaLab Software; and (ii) train the SBCL
salespeople at no direct expense to ActaMed regarding the general features and
benefits of the ActaLab Software;
4. instruct its salespeople of the benefits to SBCL of ActaMed's
preferred status so that whenever they undertake sales efforts or negotiations
with a Provider whom SBCL believes to be a significant future customer for Lab
EDI Services with an SBCL Lab, or with a significant Automated Provider serviced
by ActaMed, insofar as it is known to the salesperson, for renewal or extension
of lab testing services at an SBCL Lab, if appropriate, invite representatives
from ActaMed to be included in such sales efforts and negotiations, so that
ActaMed may promote the use of the ActaLab Software to such customer;
5. inform appropriate third parties, including but not limited to
practice management system companies, electronic medical record vendors and
other EDI clearinghouses interested in establishing Lab EDI Services (or
services relating thereto) with SBCL, that, ActaMed is SBCL's preferred provider
for Lab EDI Services, and suggest that, provided ActaMed has the capabilities
sought by the third party, the third party pursue a contractual relationship
with ActaMed regarding such Lab EDI Services.
B. LIMITATIONS ON PREFERRED PROVIDER STATUS. The provisions of
Section VII.A shall apply unless and until any of the following occurs:
1. ActaMed ceases to offer products and services which have
features and functionality which are substantially comparable to other similar
products and services of similar vendors for services in the nature of Lab EDI
Services; SBCL provides written notice of same and, within thirty (30) days
after such notice is given, ActaMed fails to demonstrate to SBCL's reasonable
satisfaction that such determination is not accurate.
2. An Other Lab becomes a shareholder of ActaMed; provided that,
after ActaMed has consummated a Qualified Public Offering (as defined in
ActaMed's Fourth Amended and Restated Articles of Incorporation), this clause 2
shall apply only if the Other Lab becomes a shareholder of ActaMed by reason of
either an issuance of equity to the Other Lab by ActaMed or waiver of
restrictions in agreements between ActaMed and its stockholders which are
comparable to the Standstill Agreement between ActaMed and SBCL dated the date
hereof.
3. Any of the events described in clauses 2 through 5 of Section
XII.B shall have occurred (without regard to grace periods otherwise applicable
thereto and other than an event under clause 7 thereof which is based upon a
failure of SBCL to pay amounts due from it hereunder).
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4. ActaMed fails to meet any of the Performance Standards in [*]
or [*].
5. Any of the events described in Article X of the Assets
Purchase Agreement shall have occurred.
6. In the event that SBCL merges with or into, or acquires or
is acquired by an entity, owning or operating a clinical laboratory, or sells
substantially all of its assets to another entity in a transaction in which
this Agreement is assigned to such entity, SBCL shall have the right to elect
to have the preferred provider status removed with respect to such other
entity, PROVIDED THAT the [*] set forth in Section IV.C and D hereof shall
remain in effect after such transaction; and PROVIDED FURTHER THAT before
exercising such right, SBCL shall have used its good faith efforts to
preserve the original intention of the parties hereto.
C. EXCLUSIONS. Notwithstanding anything to the contrary contained
in this Agreement, including without limitation this Section VII, SBCL shall
be entitled without restriction and in its sole discretion, to (i) utilize or
change any EDI system for purposes of connectivity between an SBCL Lab and a
Provider [*], or between SBCL Labs, utilizing Lab EDI Services that SBCL has
already established or begun to establish connectivity capabilities as of the
date hereof, including without limitation those set forth on EXHIBIT VII.C-1
which Exhibit shall be delivered by January 15, 1998 and shall represent
SBCL's best efforts to identify all such capabilities which are significant
to SBCL; (ii) terminate or not renew its current contracts or arrangements
with third parties relating to Lab EDI Services; (iii) pursue future
arrangements or relationships for Lab EDI for any exclusion described in
EXHIBIT VII.C-2, and (iv) utilize or change any EDI system between SBCL Labs
and other facilities owned, managed and/or operated by SBCL.
D. EXCLUSIONS FOR [*]. Notwithstanding anything to the contrary
contained in this Agreement, including without limitation this Section VII,
SBCL shall be entitled without restriction and in its sole discretion, to
change, continue to use or install [*]. At some time in the future, SBCL will
consider a proposal from ActaMed for some or all of these [*] transactions
and enter into reasonable negotiations, if appropriate. For a period of [*]
from the date hereof, SBCL will not [*] Lab EDI Services without notifying
ActaMed and affording ActaMed opportunity to propose to provide such services.
E. FUTURE ACTAMED PARTICIPATION IN EXCLUDED ARRANGEMENTS.
Notwithstanding Section VII.C above, SBCL will endeavor to include ActaMed in
opportunities relating to the arrangements identified in Section VII.C(iii)
to the extent feasible and appropriate as determined by SBCL for Lab EDI or
physician connectivity. The nature and pricing of ActaMed's involvement will
be negotiated on a case by case basis.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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F. ELIGIBILITY AND CLAIMS PROCESSING SERVICES. During the initial
term of this Agreement, SBCL will use all reasonable business efforts,
consistent with its competitive needs in the lab testing business, to utilize
ActaMed as SBCL's preferred provider of electronic eligibility verification
and claims processing services to provide connectivity with all third party
payers with which SBCL desires connectivity and ActaMed is then connected,
PROVIDED THAT this Section VII.F shall apply only if (i) SBCL desires to use
an outside vendor for such services, and (ii) the prices proposed to be
charged by ActaMed for such services are [*]. In furtherance of such "preferred"
status, SBCL shall offer ActaMed as one of the potential providers of such
services in any written response to a request for proposals for lab testing
services. For each written SBCL proposal for the provision of such services,
SBCL shall provide ActaMed with a copy of the sections thereof describing
ActaMed's proposed services. SBCL shall provide ActaMed with such reasonable
opportunity as circumstances permit to review and correct or comment on any
such proposed language. Notwithstanding the foregoing, SBCL shall not be
obligated to comply with the provisions of this Section VII.F in those cases
in which (i) the payer designates (in the request for proposals or otherwise)
a provider of such services other than ActaMed, or (ii) it would violate any
Regulation, contractual provision or obligation by which SBCL is bound.
G. FURTHER EXCLUSIONS FOR NON-LABORATORY EDI. Nothing contained herein
shall prohibit SBCL from engaging in or contracting with third parties relating
to non laboratory related EDI transactions including but not limited to the
following, as long as each of the following is not intended primarily as a
connection from an Automated Provider to a network for the purposes of Lab EDI
Services (or services related thereto): [*].
VIII. COOPERATIVE RELATIONSHIP.
A. COOPERATION. Upon SBCL request, ActaMed will work with SBCL's
sales people to generate site connectivity and will use reasonable efforts to be
available to perform the technical portions of sales presentations made by
SBCL's sales people.
B. USE OF OTHER PARTIES' NAME. Each party shall have the right to
include the other party's name on its client or vendor list and to disclose the
nature of the services and products provided under this Agreement, so long as
such services and products are accurately represented; PROVIDED, HOWEVER, that
neither party has the right to use the other's name, trademarks or trade names
for other advertising, sales promotion, or publicity purposes without the
other's prior written consent.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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C. USER GROUP. ActaMed will establish a user group, to consult on
priorities and provide direction to ActaMed on system initiatives, which will
include representation from SBCL, Automated Providers and payers. At regular
intervals not less frequently than annually ActaMed will solicit user
suggestions, input and feedback regarding the Network.
D. ACTAMED'S OBLIGATION TO PROMOTE SB FOR DISEASE MANAGEMENT. For so
long as ActaMed is SBCL's preferred vendor pursuant to Section VII, ActaMed will
undertake actions similar to those set forth in Section VII.A to promote
SmithKline Beecham Corporation's Healthcare Services Division for the Disease
Management Business. "DISEASE MANAGEMENT BUSINESS" shall be defined in a
separate writing reasonably agreed upon by the parties within thirty (30) days
after the date hereof.
E. REFERENCE CHECKS. SBCL shall designate one or two individuals who
shall respond to a reasonable number of reference inquiries and visits (not to
exceed two visits in any calendar month) by customers and potential customers of
ActaMed on mutually agreeable terms. SBCL shall retain the right to refuse a
visit to any competitor or potential competitor of SBCL or to terminate the
visit of any customer or potential customer who does not abide by SBCL's
policies and procedures. ActaMed shall inform all customers and potential
customers allowed on SBCL's premises pursuant to this Section that they are
required to abide by SBCL's policies and procedures.
IX. SBCL'S OBLIGATIONS REGARDING THE NETWORK.
A. STANDARD FORMATS AND PROTOCOLS. SBCL shall receive and generate
transaction data and any other Lab EDI in a standard format and protocol
mutually agreed upon by the parties.
B. HARDWARE AND OPERATING ENVIRONMENT. SBCL shall provide, at its own
expense, all necessary hardware, including terminal equipment, compatible with
and suitable for its communications with the Network at the SBCL Labs. ActaMed
shall verify SBCL's operating environment with testing procedures implemented by
ActaMed from time to time, with advance notice to and approval from SBCL, which
approval shall not be unreasonably withheld or delayed.
C. NEW RELEASES OF SBCL PROPRIETARY SOFTWARE. SBCL will make
available to ActaMed all new releases and specifications for the SBCL gateway so
as to enable ActaMed to maintain the ActaMed Gateway substantially the same as
the SBCL gateway, including for Year 2000 compliance. In addition, SBCL will
give ActaMed advance notice of test code changes, new releases of SBCL
proprietary software and other SBCL host computer system changes (including host
computer systems operated by third party outsourcers on behalf of SBCL), if such
changes or releases will affect ActaMed's ability to transmit information over
the Network. If any changes are required to the Network by reason of such
actions by or on behalf of SBCL, the parties will mutually agree (consistent
with Section V hereof) in advance on the scope of the project, the deliverables,
deadlines, any fees ActaMed will charge SBCL, a test plan and an acceptance test
plan.
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X. CONFIDENTIALITY AND SECURITY.
A. DATA CONFIDENTIALITY. Each party agrees that patient clinical
records are Confidential Information and each party shall not disclose or
utilize individual lab test information in any way that would violate any
patient confidentiality obligation or any Regulations. Without limiting
ActaMed's obligations regarding Confidential Information which may be otherwise
provided for in this Agreement, ActaMed shall be responsible to ensure the
confidentiality of test results and patient information transmitted over the
Network, in accordance with all applicable Regulations governing such patient
confidential information, including to prevent anyone other than the sender and
addressee of Transmittal Information or their respective authorized employees
from monitoring, using, gaining access to or learning the import or contents of
any Transmittal Information.
B. DISTRIBUTION AND USE OF DATA. All Transmittal Information entered
onto the Network by SBCL or any Automated Provider from tests referred to SBCL,
shall be owned by SBCL and not by ActaMed. ActaMed shall not aggregate,
integrate, compile, regenerate, merge, manipulate or otherwise use the
Transmittal Information for any purposes and shall not provide the Transmittal
Information to any other person or entity, other than as specifically required
or allowed under the terms of this Agreement to perform the Agreed Services,
without the prior written consent of SBCL. ActaMed agrees that such information
cannot be aggregated for any Provider or among different customers' or other
health care providers or laboratory service providers for any purpose, without
SBCL's prior written consent.
1. If ActaMed is served with a warrant, subpoena or any other
order or request from a governmental body or any other entity or person for any
records or files of information transmitted over the Network, ActaMed will as
soon as practicable, and not in violation of law, deliver to SBCL a copy of such
warrant, subpoena, order or request and will not, without SBCL's prior written
consent, accede to the same unless and until required to do so under applicable
law.
2. ActaMed acknowledges and agrees that in the event it has
access to confidential data relating to an Automated Provider and/or the
Automated Providers's patients, employees and medical staffs, ActaMed will
hold such information in the strictest confidence and will not, without
SBCL's prior written consent, disclose any such information, including
without limitation in any regeneration, recompilation, or reorganization
thereof, or through any statistical analyses or provision of other excerpts
thereof. Without limiting the foregoing, ActaMed agrees that it shall limit
the ActaMed employees who have access to any patient identifiable health
information, including without limitation, laboratory test order or results
information, if any, to only those "need to know" employees of ActaMed as is
required to perform the Agreed Services to the level of the Performance
Standards set forth herein. Such employees shall be identified to SBCL in
advance of such access and shall have executed and delivered to ActaMed and
to SBCL, an agreement requiring non-disclosure of confidential information,
compliance with all ActaMed policies and procedures with respect to
Confidential Information and security of the Network (which shall be
consistent with the requirements in this Agreement), if applicable,
procedures established by SBCL and shall include an acknowledgment of
immediate termination for breach of such agreement. To the extent any
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employee of ActaMed acquires such access to patient health information through
any SBCL computer systems, or [*] ("SBCL ACCESS"), ActaMed shall cause such
employees to abide by SBCL's [*] Security Access procedures, and shall
deliver to SBCL such agreements reflecting same as may be required by SBCL and
identified to ActaMed in writing from time to time. ActaMed shall be
responsible for promptly notifying SBCL if any employee with SBCL Access is
terminated or leaves the employment of ActaMed.
3. Subject to the requirements of Section X.A, ActaMed may, at
[*] of [*] to such [*] for which the [*] from such [*] without the [*] SBCL.
There shall be [*] such [*].
4. Subject to Section X.A and without limiting the above
restrictions in this Section X.B, ActaMed [*] without the [*]. A copy of [*]
shall be provided to SBCL. ActaMed agrees that, if SBCL's consent is
obtained, [*] to Automated Providers shall be made available only in
accordance with all applicable patient confidentiality laws of the states [*]
the patient and SBCL Labs and ActaMed are located, and only [*] or [*]. SBCL
shall have Audit Rights with respect to any disputed amounts hereunder.
C. TRADE SECRET NONDISCLOSURE COVENANT. Without limiting the
foregoing, Trade Secrets and Confidential Information and all physical
embodiments thereof received by either party (the "RECEIVING PARTY") from the
other party (the "DISCLOSING PARTY") during the term of this Agreement,
including those received pursuant to the exercise of Audit Rights as described
in Section III.E hereof, are confidential to and are and will remain the sole
and exclusive property of the Disclosing Party. In furtherance of the
foregoing:
1. At all times, both during the term of this Agreement and
after its termination, the Receiving Party shall hold all Trade Secrets of
the Disclosing Party in confidence, and will not use, copy or disclose such
Trade Secrets, or any physical embodiment thereof, or cause any of such Trade
Secrets to lose their character as Trade Secrets. At all times during the
term of this Agreement and for a period of [*] following the termination of
this Agreement, (except where a longer period is required pursuant to this
Agreement or Regulations) the Receiving Party shall hold the Confidential
Information of the Disclosing Party in confidence, and will not use, copy or
disclose such Confidential Information, or any physical embodiments thereof,
or cause any of such Confidential Information to lose its character or cease
to qualify as Confidential Information.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2. Trade Secrets and Confidential Information shall be maintained
under secure conditions by the Receiving Party, using reasonable security
measures and in any event (1) not less than the same security measures used by
the Receiving Party for the protection of its own Trade Secrets and Confidential
Information of a similar kind, and (2) any specific security measures required
by this Agreement. The Receiving Party shall not remove, obscure or deface any
proprietary legend relating to the Disclosing Party's rights, on or from any
tangible embodiment of any Licensed Materials without the Disclosing Party's
prior written consent. Within thirty (30) days after termination of this
Agreement, the Receiving Party shall deliver to the Disclosing Party all Trade
Secrets and Confidential Information, and all physical embodiments thereof, then
in the custody, control or possession of the Receiving Party.
3. If the Receiving Party is ordered by a court, administrative
agency, or other governmental body of competent jurisdiction to disclose Trade
Secrets or Confidential Information, or if it is served with or otherwise
becomes aware of a motion or similar request that such an order be issued, then
the Receiving Party will not be liable to the Disclosing Party for disclosure of
Trade Secrets or Confidential Information required by such order if the
Receiving Party complies with the following requirements: (i) if an already
issued order calls for immediate disclosure, then the Receiving Party shall
immediately move for or otherwise request a stay of such order to permit the
Disclosing Party to take measures such as are described in clause (iii); (ii)
the Receiving Party shall immediately notify the Disclosing Party of the motion
or order by the most expeditious possible means; and (iii) the Receiving Party
shall join or agree to (or at a minimum shall not oppose) a motion or similar
request by the Disclosing Party for an order protecting the confidentiality of
the Trade Secrets and Confidential Information, including joining or agreeing to
(or non opposition to) a motion for leave to intervene by the Disclosing Party.
4. The Receiving Party shall immediately report to the Disclosing
Party any attempt by any person of which the Receiving Party has knowledge (i)
to use or disclose any portion of the Trade Secrets and Confidential Information
without authorization from the Disclosing Party, or (ii) to copy, reverse
assemble, reverse compile or otherwise reverse engineer any part of the Trade
Secrets or Confidential Information (except as permitted herein).
D. PERMITTED DISCLOSURES. Notwithstanding any provisions of this
Agreement to the contrary, SBCL may disclose to the OIG as part of the
disclosures SBCL makes under its Integrity Agreement the fact that SBCL and
ActaMed have entered into the transactions contemplated by the parties and any
information relating to such transaction or this Agreement which SBCL
determines, in good faith upon advice of counsel, is required or, in light of
SBCL's obligations under the Integrity Agreement, appropriate for SBCL to make,
or SBCL proposes to make in response to a request for such information from the
OIG, provided that ActaMed shall be given opportunity (which shall be reasonable
in light of all facts and circumstances) to review and comment upon the
information SBCL intends to include in any such submission. In the event that
any such disclosure that SBCL intends to make includes any information that
constitutes Confidential Information of ActaMed or Trade Secrets of ActaMed,
SBCL will provide reasonable (in light of all facts and circumstances, including
the time frame in which such disclosure is required to be made) assistance
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to ActaMed to take reasonable steps to assure that such Confidential
Information or Trade Secrets of ActaMed are maintained in confidence,
including, but not limited to, (i) requesting that the OIG treat such
information as trade secrets, confidential information or financial
information within the meaning of the Freedom of Information Act, 5 U.S.C.
Section 552(b)(4), (ii) requesting of the OIG that SBCL and ActaMed be given
prior notice of any proposed release of such information to persons or
entities outside of the OIG; (iii) requesting that the OIG otherwise assure
the confidentiality of the information provided by ActaMed as if such
information was confidential information of SBCL [*] and taking other
reasonable steps that may be requested by ActaMed and to which SBCL may, in
its sole discretion, agree to assure that the OIG honors its confidentiality
obligations in that section; (iv) where such information is to be provided in
response to a request by the OIG, take reasonable steps to narrow the request
for information from the OIG in an appropriate manner in order to limit the
amount of information, if any, that constitute Confidential Information or
Trade Secrets of ActaMed covered by such request; and (v) make reasonable
efforts to permit ActaMed with the concurrence of the OIG, to disclose such
information directly to the OIG provided that in any such case, ActaMed shall
give SBCL a timely opportunity to review, comment upon, and approve the
information ActaMed intends to include in such submission. The additional
safeguards described in subsections (i) through (v) above are designed to
help assure the confidentiality of Confidential Information and Trade Secrets
the disclosure of which would have a material adverse impact on ActaMed.
These additional provisions are not intended to interfere with SBCL's ability
to meet its disclosure obligations under the Integrity Agreement.
Each party shall promptly notify the other in the event it receives
an inquiry, investigation, or request for information from the OIG or other
governmental agency into the matters relating to the proposed transaction.
XI. RELATIONSHIP MANAGERS.
ActaMed will designate a representative responsible for the SBCL
account and who will have decision making authority for ActaMed (the "ACTAMED
RELATIONSHIP MANAGER"). [*] will be the initial Relationship Manager for
ActaMed. The ActaMed Relationship Manager will be a member of the Oversight
Committee and shall attend planning meetings with SBCL, keep SBCL updated on
national trends in EDI and Lab EDI, and consult with SBCL regarding ActaMed's
software and Network strategy.
SBCL will designate a representative responsible for SBCL's
relationship with ActaMed who will have decision making authority for SBCL
(the "SBCL RELATIONSHIP MANAGER"). [*] will be the initial Relationship
Manager for SBCL. The SBCL Relationship Manager will be a member of the
Oversight Committee and will coordinate SBCL's activities with ActaMed,
attend planning meetings with ActaMed, and keep ActaMed updated on technical
developments with respect to [*] and Lab EDI.
Each party will consult with the other before changing its
Relationship Manager.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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XII. TERM AND TERMINATION.
A. INITIAL TERM AND RENEWALS. This Agreement shall continue for five
(5) years from the Region One Transfer Date, unless earlier terminated as
provided herein. Unless written notice of termination is given by SBCL not less
than one hundred eighty (180) days, or by ActaMed not less than three hundred
sixty (360) days, prior to the end of the term (including any extension or
renewal of the term pursuant to this Section XII.A), the term of this Agreement
will be automatically extended for successive two (2) year periods.
B. TERMINATION. A party may cause a termination of all rights and
obligations of the parties hereunder, except as provided in this Section XII
hereof, as follows:
1. In the event that ActaMed fails to meet any of the Key
Performance Standards in any [*] during any period of [*] SBCL may terminate
this Agreement immediately by giving written notice of termination to ActaMed.
2. SBCL may terminate this Agreement immediately following a
breach by ActaMed of its covenants set forth in Section VI hereof by giving
written notice of termination to ActaMed.
3. Either party may terminate this Agreement if the other party
shall fail to pay any amount when due from it hereunder (disregarding for this
purpose any unpaid amount in dispute which dispute is being pursued with
diligence) within thirty (30) days after written notice of a failure to pay is
provided by the terminating party to the nonpaying party.
4. If one party breaches any material provision of this
Agreement, which breach is not described in Sections XII.B.1-3 above (and
which is not a breach of Performance Standards other than the Key Performance
Standards), the nonbreaching party may terminate this Agreement by giving [*]
written notice of termination to the breaching party. If such breach is (in
the reasonable estimation of the terminating party) capable of being cured
during such period and the other party acts diligently and continuously to
cure such breach, the termination shall be suspended during such time,
PROVIDED THAT such breach is actually cured prior to the end of such period;
AND PROVIDED FURTHER THAT during the period from and after the time an
ActaMed breach is discovered, SBCL may, at its election, pay all Fixed Fees,
Transaction Fees, Variable Fees, PIFs and other amounts otherwise due ActaMed
hereunder into an escrow account established with a nationally recognized
financial institution selected by SBCL, to be released to ActaMed upon the
later of the date within such [*] period when the breach is cured or the date
prior to exercise of the termination right provided in this Section XII.B.4
as of which ActaMed shall have been not in breach of this Agreement for at
least thirty (30) days. If ActaMed proves, to SBCL's reasonable
satisfaction, that such amounts are needed in order to cure the breach, SBCL
will release amounts to enable ActaMed to cure the breach, in which case such
released amounts will be used by ActaMed exclusively for purposes of curing
such breach.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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5. If one party becomes insolvent, files bankruptcy, or has an
involuntary bankruptcy case filed against it which is not dismissed within
ninety (90) days, the other party may terminate this Agreement immediately by
giving written notice of termination to the breaching party.
C. EFFECT OF EXPIRATION. All rights and obligations of the parties
hereunder shall cease upon the expiration of this Agreement except that (i) the
obligations of the parties pursuant to Section X (relating to confidentiality),
and (ii) the exclusive use rights of SBCL pursuant to Section V (relating to
development work) shall continue in full force and effect indefinitely. In
addition, the obligations of the parties pursuant to Section IV (relating to
compliance with Regulations) shall continue for so long as SBCL shall have Long
Term Access or Short Term Access.
D. EFFECT OF TERMINATION. All rights and obligations of the parties
hereunder shall cease upon the effective date of the termination of this
Agreement except that (i) the obligations of the parties pursuant to Section
X (relating to confidentiality), (ii) the exclusive use rights of SBCL
pursuant to Section V (relating to development work), and (iii) the
obligations of ActaMed pursuant to Section XII.E hereof (relating to
termination transition), shall continue in full force and effect
indefinitely. In addition, the obligations of the parties pursuant to
Section IV (relating to compliance with Regulations) shall continue for so
long as SBCL shall have Long Term Access or Short Term Access. In the event
that ActaMed has terminated this agreement for SBCL's failure to pay
undisputed amounts due under this Agreement, ActaMed will not be required to
perform services for SBCL or to allow SBCL access to or use of the Network
during the termination transition period unless SBCL pays ActaMed in advance
for such services and Network access. Upon termination of this Agreement,
any amount in escrow pursuant to Section IV.F or Section XII.B.4 hereof shall
be paid to the terminating party.
E. Transition Upon Termination.
1. If this Agreement terminates as a result of a notice of
non-renewal given by ActaMed pursuant to Section XII.A, ActaMed will provide
[*] or, at SBCL's option,
a. SBCL may have [*] so long as ActaMed provides [*] (but
not less than [*]), or
b. SBCL may require ActaMed [*] prior to the effective
date of such termination, and SBCL may exercise the right to [*] as granted
by the License Agreement.
2. If this Agreement terminates as a result of a notice of
non-renewal given by SBCL pursuant to Section XII.A, ActaMed will provide [*]
and SBCL will have [*].
3. If SBCL terminates this Agreement pursuant to Section XII.B,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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a. ActaMed will provide [*],
b. SBCL may require ActaMed [*] within [*] after
SBCL's notice of termination,
c. SBCL may exercise the right to [*] as granted by the
License Agreement, and
d. until such time [*] by SBCL on a commercial basis, SBCL
shall have Long Term Access.
4. [*] shall mean that [*] from [*] who have [*] or a version
of [*]. For [*] SBCL will [*] on the date notice of termination is given.
ActaMed will [*] and SBCL will [*] is rendered. If SBCL [*] (subject to [*]
to those provided in Section [*] hereof), ActaMed will [*]. ActaMed will have
[*] and SBCL will [*].
5. [*] shall mean that ActaMed [*] the date of termination.
For [*] SBCL will [*] the date of Termination. ActaMed will [*] the date
the bill is rendered. If SBCL [*] (subject to [*] to those provided in
Section [*] hereof), ActaMed will [*]. ActaMed will have [*] and SBCL will
have [*].
6. [*] shall mean [*] that will only provide [*] and allows [*],
to provide [*] ActaLab Software at their sites.
F. TRANSITION UPON TERMINATION. ActaMed's [*] shall mean (i) if the
date of termination occurs [*] the transfer to SBCL of [*] requested by SBCL
to [*] SBCL at such time [*] and (ii) providing SBCL, as promptly as
practicable, with [*] used for [*] whether or not [*] to which ActaMed is
in a position to [*] the effective date of the termination and to [*] to the
transition. In furtherance of and in addition to the foregoing, upon
termination or expiration of this Agreement, the parties shall effect, and
shall cooperate with each other in effecting,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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the orderly and reasonable removal of ActaMed as a provider of Lab
EDI Services to Automated Providers in the manner that is least disruptive to
Automated Providers and which allows connectivity between SBCL Labs and
Automated Providers to continue uninterrupted with SBCL or a separate vendor.
The parties shall jointly develop a removal plan which will provide a reasonable
level of support consistent with Section III hereof to transition SBCL off the
Network. Each party shall bear its own expenses in developing and implementing
the removal plan.
G. LICENSE AGREEMENT. To the extent any provisions of the License
Agreement depend for their interpretation or application upon provisions of this
Agreement, such provisions shall survive termination or expiration of this
Agreement but solely for purposes of the License Agreement.
XIII. NONSOLICITATION.
A. BY SBCL. Until the occurrence of any of the events described in
Sections XIII.B, SBCL will not, directly or indirectly, solicit any ActaMed Site
to use a clinical laboratory test ordering or results reporting product other
than one serviced or distributed by or otherwise affiliated with ActaMed.
B. EXCEPTIONS TO SBCL NONSOLICITATION. The restrictions set forth in
Section XIII.A shall not apply from and after the occurrence of the following:
1. Any of the events described in clauses 1 through 5 of Section
XII.B shall have occurred (without regard to notice or grace periods otherwise
applicable thereto and disregarding for this purpose any termination event
arising by reason of nonpayment by SBCL of any amount not in dispute).
2. Any of the events described in Article X of the Assets
Purchase Agreement shall have occurred.
3. Notice of nonrenewal of this Agreement is given by (i)
ActaMed pursuant to Section XII.A in which case Section XIII.A shall not
apply for the last [*] of the then remaining term hereof, or (ii) SBCL in
which case Section XIII.A shall not apply for the last [*] of the then
remaining term hereof.
C. Noncompetition by ActaMed.
1. [*] ActaMed shall not, either individually or through any
affiliate, employee, director, officer or consultant, directly or indirectly,
(i) [*], or (ii) compete with SBCL in the Disease Management Business. The
specific terms of such noncompetition shall be detailed in the separate
writing referred to in Section VIII.D to be delivered within thirty (30) days
after the date hereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2. At any time prior to [*], ActaMed shall not [*] at the SBCL
Sites transferred to ActaMed pursuant to the Purchase Agreement, including
without limitation, to install or be instrumental in causing [*] to [*]
located at such sites which enables the [*], or otherwise provide [*] which
facilitate [*].
XIV. OBLIGATION TO INDEMNIFY.
A. ACTAMED INDEMNITY. Subject to Section XIV.C hereunder, ActaMed
agrees to indemnify and hold harmless each SBCL Indemnitee against and in
respect of (i) all Losses, asserted against, imposed upon or incurred by any
SBCL Indemnitee by reason of or resulting from any breach of any representation
or warranty or covenant of ActaMed contained in this Agreement, as well as from
any negligent act or omission of ActaMed; and (ii) any and all actions, suits,
claims, proceedings, investigations, demands, assessments, audits, fines,
judgments, costs and other expenses (including, without limitation, reasonable
legal fees and expenses) incident to any Loss or to the enforcement of this
Section XIV.A.
B. SBCL INDEMNITY. Subject to Section XIV.C hereunder, SBCL agrees to
indemnify and hold harmless each ActaMed Indemnitee against and in respect of
(i) all Losses, asserted against, imposed upon or incurred by any ActaMed
Indemnitee by reason of or resulting from any breach of any representation or
warranty or covenant of SBCL contained in this Agreement, as well as from any
negligent act or omission of SBCL; and (ii) any and all actions, suits, claims,
proceedings, investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation, reasonable legal fees
and expenses) incident to any Loss or to the enforcement of this Section XIV.B.
C. ALLOCATION OF RISK.
1. ActaMed shall not be liable to SBCL (or to any person claiming
to have been injured by SBCL) for any lab testing error, billing error, or other
action or failure to act of SBCL, or any error or mistake not caused by ActaMed
and made by SBCL in the reporting of lab testing results to ActaMed for delivery
by the Network, and SBCL shall hold ActaMed harmless from all claims caused by
such errors or mistakes to the extent made by SBCL.
2. SBCL shall not be liable to ActaMed (or to any person claiming
to have been injured by ActaMed) for any error in Transmittal Information,
billing error, or other action or failure to act of ActaMed, or any error or
mistake not caused by SBCL and made by ActaMed in the transmission of test
orders and results over the Network, and ActaMed shall hold SBCL harmless from
all claims caused by such errors or mistakes to the extent made by ActaMed.
3. Neither party shall be liable to the other hereunder for
consequential, special, punitive or exemplary damages of any kind (including,
but not limited to, lost profits, loss of business or other similar damages)
arising out of any action or proceeding except and only to the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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extent that such damages arise from or relate to (i) the failure of a party
to comply with Regulations as required by this Agreement, (ii) an action in
tort initiated by a third party against either or both of the parties hereto,
or (iii) breach of a party's confidentiality undertakings set forth herein.
4. Neither party shall be liable to the other hereunder in
connection with any action or proceeding arising from or relating to a matter
covered by this Section XIV, or for breach of this Agreement, for an amount
in excess of the greater of (i) [*] or (ii) the [*] prior to the date on
which such breach occurs; PROVIDED THAT this limitation shall not apply to
any Losses or other damages arising out of or relating to any action
described in clauses [*].
D. CLAIMS NOTICE. A Claim shall be made by any Indemnitee by delivery
of a Claims Notice to any Indemnifying Party requesting indemnification and
specifying the basis on which indemnification is sought and the amount of
asserted Losses and, in the case of a Third Party Claim, containing (by
attachment or otherwise) such other information as such Indemnitee shall have
concerning such Third Party Claim.
E. PROCEDURES INVOLVING NON THIRD PARTY CLAIMS. If the Claim involves
a matter other than a Third Party Claim, the Indemnifying Party shall raise any
objection to such Claim within a reasonable period of time by delivery of a
written notice of such objection to such Indemnitee specifying in reasonable
detail the basis for such objection. If an objection is timely interposed by
the Indemnifying Party, the Indemnifying Party and the Indemnitee shall
cooperate in the compromise of the Claim or resolve any disagreement in
accordance with Section XV hereof.
F. PROCEDURES INVOLVING THIRD PARTY CLAIMS. The obligations and
liabilities of the parties hereunder with respect to a Third Party Claim shall
be subject to the following terms and conditions:
1. The Indemnitee shall give the Indemnifying Party written
notice of a Third Party Claim promptly after receipt by the Indemnitee of notice
thereof, and the Indemnifying Party may undertake the defense, compromise and
settlement thereof by representatives of its own choosing reasonably acceptable
to the Indemnitee. The failure of the Indemnitee to notify the Indemnifying
Party of such claim shall not relieve the Indemnifying Party of any liability
that they may have with respect to such claim except to the extent the
Indemnifying Party demonstrates that the defense of such claim is prejudiced by
such failure. The assumption of the defense, compromise and settlement of any
such Third Party Claim by the Indemnifying Party shall be an acknowledgment of
the obligation of the Indemnifying Party to indemnify the Indemnitee with
respect to such claim hereunder. If the Indemnitee desires to participate in,
but not control, any such defense, compromise and settlement, it may do so at
its sole cost and expense. If, however, the Indemnifying Party fails or refuses
to undertake the defense of such Third Party Claim within ten (10) days after
written notice of such claim has been given to the Indemnifying Party by the
Indemnitee, the Indemnitee shall have the right to undertake the defense,
compromise and settlement
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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of such claim with counsel of its own choosing. In the circumstances
described in the preceding sentence, the Indemnitee shall, promptly upon its
assumption of the defense of such claim, make a Claim as specified in
Sections XIV.A and XIV.B which shall be deemed a Claim that is not a Third
Party Claim for the purposes of the procedures set forth herein.
2. If, in the reasonable opinion of the Indemnitee, any Third
Party Claim or the litigation or resolution thereof involves an issue or matter
which could have a material adverse effect on the business, operations, assets,
properties or prospects of the Indemnitee, the Indemnitee shall have the right
to control the defense, compromise and settlement of such Third Party Claim
undertaken by the Indemnifying Party, and the reasonable costs and expenses of
the Indemnitee in connection therewith shall be included as part of the
indemnification obligations of the Indemnifying Party hereunder. If the
Indemnitee shall elect to exercise such right, the Indemnifying Party shall have
the right to participate in, but not control, the defense, compromise and
settlement of such Third Party Claim at its sole cost and expense.
3. No settlement of a Third Party Claim involving the asserted
liability of the Indemnifying Party under this Article shall be made without the
prior written consent by or on behalf of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed. If the Indemnifying Party
assumes the defense of such a Third Party Claim, (1) no compromise or settlement
thereof may be effected by the Indemnifying Party without the Indemnitee's
consent unless (a) there is no finding or admission of any violation of law or
any violation of the rights of any person and no effect on any other claim that
may be made against the Indemnitee (b) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party and (c) the compromise
or settlement includes, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnitee of a release, in form and substance
satisfactory to the Indemnitee, from all liability in respect of such Third
Party Claim, and (2) the Indemnitee shall have no liability with respect to any
compromise or settlement thereof effected without its consent.
G. NO RELEASE FOR FRAUD. Nothing contained in this Agreement shall
relieve or limit the liability of a party or any officer or director of such
party from any Liability arising out of or resulting from common law fraud or
intentional misrepresentation in connection with the transactions contemplated
by this Agreement or in connection with the delivery of this Agreement. Each
ActaMed Indemnitee or SBCL Indemnitee, as the case may be, shall have a right to
indemnification for any Loss incurred as the result of any common law fraud or
intentional misrepresentation by SBCL or ActaMed, respectively, or any officer
or director thereof.
H. Payment.
1. If any party is required to make any payment under this
Section XIV, such party shall promptly pay the Indemnified Party the amount so
determined. If there is a dispute as to the amount or manner of determination
of any indemnity obligation owed under this Section XIV, the Indemnifying Party
shall nevertheless pay when due such portion, if any, of the obligation as shall
not be subject to dispute. The difference, if any, between the amount of the
obligation
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ultimately determined as properly payable under this Section XIV and
the portion, if any, theretofore paid shall bear interest as set forth in
Section XIV.F.3.
2. Any items as to which an Indemnified Party is entitled to
payment under this Article may be paid by setoff against amounts payable to the
Indemnifying Party to the extent that such amounts are sufficient to pay such
items.
3. If all or part of any indemnification obligation under this
Agreement is not paid when due, then the Indemnifying Party shall pay the
Indemnified Party interest on the unpaid principal amount of the obligation from
the date the amount became due until payment in full, at the per annum rate of
interest announced from time to time by NationsBank South, N.A., to be its
"prime rate."
XV. DISPUTE RESOLUTION; ARBITRATION.
A. GENERAL. Except as otherwise provided in Section VI of this
Agreement, disputes between ActaMed and SBCL relating to the interpretation or
application of this provisions of this Agreement shall be resolved in accordance
with this Section XV.
B. INFORMAL DISPUTE RESOLUTION. Any dispute between the parties
arising out of or with respect to this Agreement, either with respect to the
interpretation of any provision of this Agreement or with respect to the
performance by ActaMed or SBCL, shall be resolved as provided in this Article.
1. Prior to the initiation of formal dispute resolution
procedures, the parties shall first attempt to resolve their dispute informally,
as follows:
a. The Representatives for each party shall meet for the
purpose of endeavoring to resolve such dispute. They shall meet as often as the
parties reasonably deem necessary in order to gather and furnish to the other
all information with respect to the matter in issue which the parties believe to
be appropriate and germane in connection with its resolution. The
Representatives shall discuss the problem and negotiate in good faith in an
effort to resolve the dispute without the necessity of any formal proceeding.
During the course of negotiations, all reasonable requests made by one party to
another for nonprivileged information, reasonably related to this Agreement,
shall be honored in order that each of the parties may be fully advised of the
other's position.
b. If, within fifteen (15) days after a matter has been
identified for resolution pursuant to this Section XV, either of the
Representatives concludes in good faith that amicable resolution through
continued negotiation in this forum does not appear likely, the matter will be
escalated by formal written notification to the SBCL President and the ActaMed
President. The parties will use their respective best efforts to cause the SBCL
President and the ActaMed President to meet to attempt to resolve the dispute.
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c. Formal proceedings for the resolution of a dispute may
not be commenced until the earlier of: (i) the date on which the SBCL President
and the ActaMed President conclude in good faith that amicable resolution
through continued negotiation of the matter does not appear likely; or (ii)
thirty (30) days after the dispute has been referred to the SBCL President and
the ActaMed President.
2. The provisions of this Section XV shall not be construed to
prevent a party from instituting, and a party is authorized to institute, formal
proceedings earlier to avoid the expiration of any applicable limitations
period.
C. ARBITRATION. If the parties are unable to resolve any controversy
arising under this Agreement as contemplated by Section XV.A and if such
controversy is not subject to Section XIV or Section XV.D, then such controversy
shall be submitted to mandatory and binding arbitration at the election of
either Party (the "DISPUTING PARTY") pursuant to the following conditions:
1. The Disputing Party shall notify the AAA and the other Party
in writing describing in reasonable detail the nature of the dispute (the
"DISPUTE NOTICE"). The parties shall each select a neutral arbitrator in
accordance with the rules of AAA and the two (2) arbitrators selected shall
select a third neutral arbitrator. The three (3) arbitrators so selected are
herein referred to as the "PANEL."
2. The Panel shall allow reasonable discovery as permitted by the
Federal Rules of Civil Procedure, to the extent consistent with the purpose of
the arbitration. The Panel shall have no power or authority to amend or
disregard any provision of this Section XV. The arbitration hearing shall be
commenced promptly and conducted expeditiously, with each of ActaMed and SBCL
being allocated one-half of the time for the presentation of its case. Unless
otherwise agreed to by the parties, an arbitration hearing shall be conducted on
consecutive days.
3. Should any arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section, such arbitrator shall be
replaced by an arbitrator selected in accordance with the rules of the AAA and
consistent with this Section XV.
4. The Panel rendering judgment upon disputes between parties as
provided in this Section XV shall, after reaching judgment and award, prepare
and distribute to the parties a writing describing the findings of fact and
conclusions of law relevant to such judgment and award and containing an opinion
setting forth the reasons for the giving or denial of any award. The award of
the arbitrator shall be final and binding on the parties, and judgment thereon
may be entered in a court of competent jurisdiction.
5. Arbitration hearings hereunder shall be held in Washington
D.C. or other mutually agreeable location.
6. The Panel shall be instructed that time is of the essence in
the arbitration proceeding. The Panel shall render its judgment or award within
fifteen (15) days following the
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conclusion of the hearing. Recognizing the express desire of the parties for
an expeditious means of dispute resolution, the arbitrator shall limit or
allow the parties to expand the scope of discovery as may be reasonable under
the circumstances.
D. LITIGATION. In the event of a breach of the confidentiality
obligations set forth in this Agreement, or in the event a party makes a good
faith determination that a breach of the terms of this Agreement by the other
party is such that the damages to such party resulting from the breach will be
so immediate, so large or severe, and so incapable of adequate redress after the
fact that a temporary restraining order or other immediate injunctive relief is
a necessary remedy, then such party may file a pleading with a court seeking
immediate injunctive relief. If a party files a pleading with a court seeking
immediate injunctive relief and this pleading is challenged by the other party
and the injunctive relief sought is not awarded in substantial part (or in the
event of a temporary restraining order is vacated upon challenge by the other
party), the party filing the pleading seeking immediate injunctive relief shall
pay all of the costs and attorneys' fees of the party successfully challenging
the pleading.
1. ActaMed and SBCL each consent to venue in Philadelphia,
Pennsylvania and to the nonexclusive jurisdiction of competent Pennsylvania
state courts or federal courts located in Philadelphia for all litigation which
may be brought, subject to the requirement for arbitration hereunder, with
respect to the terms of, and the transactions and relationships contemplated by,
this Agreement.
XVI. MISCELLANEOUS.
A. PUBLICITY. Each party hereto agrees that neither it, nor or any of
its representatives, shall make any public announcement with respect to this
Agreement or the transactions contemplated hereby without the prior consent of
the other party hereto unless required by law or judicial process, in which case
notification shall be given to the other party hereto prior to such disclosure
and the content of such disclosure approved by such other party, which approval
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing,
ActaMed agrees that nothing in this Section XVI.A shall prohibit SBCL from
disclosing any information SBCL is permitted to disclose under Section X.D.
B. ENTIRE AGREEMENT. This Agreement, including the Exhibits to it,
constitutes the entire understanding between the parties and supersedes all
proposals, communications and agreements between the parties relating to its
subject matter. No amendment, change, or waiver of any provision of this
Agreement will be binding unless in writing and signed by both parties.
C. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Georgia applicable to contracts made
and performed therein.
D. ASSIGNMENTS. Neither party may assign this Agreement without the
prior, written consent of the other party, which shall not be unreasonably
withheld; PROVIDED, HOWEVER, that SBCL may assign its rights and obligations
hereunder without approval of ActaMed to any of its affiliates,
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or an acquiror of substantially all of its assets; PROVIDED FURTHER that
ActaMed may assign its rights and obligations under this Agreement without
the approval of SBCL to any person that acquires all or substantially all of
the business or assets of ActaMed related to the ActaLab Software and the
Network, if such person (or any affiliate of such person) is not engaged in
the business of providing laboratory testing services. Any attempted
assignment without such consent shall be void. If the parties cannot agree
upon whether a company competes with SBCL for lab testing, the parties shall
resolve the dispute pursuant to Section XV. Any assignment with consent does
not release the assigning party from any of its obligations under this
Agreement unless the consent so states.
E. NOTICES. Any notices relating to this Agreement shall be in
writing and will be sent by certified United States mail, postage prepaid,
return receipt requested, or by facsimile transmission or overnight courier
service, addressed to the party at the address set forth below, or at such
different address as a party has advised to the other party in writing and shall
be deemed given and received when actually received:
If to SBCL:
SmithKline Beecham Clinical Laboratories, Inc.
1201 South Collegeville Road
Collegeville, Pennsylvania 19426
Attention: John B. Okkerse, Jr., Ph.D., President
Telephone: [*]
Telecopy: [*]
With a copy to:
SmithKline Beecham Corporation
One Franklin Plaza
16th and Race Streets
Philadelphia, PA 19103
Attention: General Counsel-U.S.
Telephone: [*]
Telecopy: [*]
If to ActaMed:
ActaMed Corporation
Suite 600
7000 Central Parkway
Atlanta, Georgia 30328
Attention: Chief Financial Officer
Telephone: (770)352-1600
Telecopy: (770)352-1815
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John C. Weitnauer, Esquire
Telephone: (404) 881-7780
Telecopy Number: (404) 881-7777
F. SEVERABILITY. In the event one or more of the provisions of this
Agreement are found to be invalid, illegal or unenforceable by a court with
jurisdiction, the remaining provisions shall continue in full force and effect.
G. FORCE MAJEURE. The obligations of the parties under this Agreement
(other than the obligation to make payments) shall be suspended to the extent a
party is hindered or prevented from complying therewith because of labor
disturbances (including strikes or lockouts), war, acts of God, fires, storms,
accidents, governmental regulations, failure of vendors or suppliers or any
other cause whatsoever beyond a party's control. For so long as such
circumstances prevail, the party whose performance is delayed or hindered shall
continue to use all commercially reasonable efforts to recommence performance
without delay.
H. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE
ENFORCED BY THE PARTIES.
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IN WITNESS WHEREOF, the parties have executed this Services Agreement as
of the date set forth above.
ACTAMED CORPORATION
By: /s/
---------------------------------------
Its: President
--------------------------------------
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
By: /s/
---------------------------------------
Its: President
--------------------------------------
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A -- Definitions-
Exhibit II.B.2(a) -- Automated Provider Contract Amendment Provisions*
Exhibit II.B.2(b) -- Automated Provider New Contract*
Exhibit III.B.7 -- Reports-
Exhibit III.C-1 -- Network Standards-
Exhibit III.C-2 -- Customer Support Standards-
Exhibit IV.G -- Average Revenue/Requisition & Monthly
Average Number of Requisitions*
Exhibit V.A. -- Required Maintenance
Exhibit V.B. -- Year 2000 Warranties
Exhibit VII.C-1 -- Current Connectivity Arrangements**
Exhibit VII.C-2 -- Exclusions to Preferred Vendor Status
</TABLE>
* TO BE DELIVERED BY JANUARY 31, 1998.
** TO BE DELIVERED BY JANUARY 15, 1998.
<PAGE>
EXHIBIT A
DEFINITIONS
"AAA" means the American Arbitration Association.
"ActaLab Software" means the ActaLab Software as defined under the
License Agreement.
[*] has the meaning set forth in Section XII.E.6 of the Services
Agreement.
"ActaMed" means ActaMed Corporation, a Georgia corporation.
"ActaMed Gateway shall have the meaning set forth in Section
II.A.1.
"ActaMed Indemnitee" means ActaMed and its directors, officers,
employees, affiliates and permitted assigns.
"ActaMed Network" means the EDI system and network for electronic
Transmissions, which includes the Network Software and ActaMed's gateway and
hardware and computer systems needed to operate that software.
"ActaMed President" shall mean the President of ActaMed, presently
Michael K. Hoover, or should ActaMed be restructured in any manner, the officer
of ActaMed having top authority over ActaMed's operations.
"ActaMed Relationship Manager" shall have the meaning set forth in
Section XI.
"ActaMed Site" means an Automated Provider utilizing the Network
for Lab EDI Services located in a transferred Region that was an SBCL Site on
the Transfer Date of the Region or is a New Site or [*].
"Agreed Services" means all services to be rendered by ActaMed
under this Services Agreement, including without limitation Lab EDI Services.
"Anniversary" shall mean the anniversary date of the Region One
Transfer Date.
"Audit Rights" means the right to, or to have representatives,
(1) examine all books of account, records, reports and
other papers except to the extent that such action would, in the reasonable
opinion of counsel, constitute a waiver of the attorney/client privilege or
violate obligations of confidentiality to third parties,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-1
<PAGE>
(2) make copies and take extracts from any thereof,
except for information which is subject to a written confidentiality agreement
with a third party,
(3) discuss the affairs, finances and accounts of the
party being audited with such party's officers and independent certified public
accountants (and by this provision such audited party hereby authorizes said
accountants to discuss with the auditing party and its representatives, the
finances and accounts of such entity) and
(4) visit and inspect, at reasonable times and on
reasonable notice during normal business hours, the properties of the other
party;
PROVIDED THAT, the foregoing audit rights are in addition to any rights of a
party under the Georgia Business Corporation Code in the case of ActaMed, or the
Delaware General Corporation Law in the case of SBCL, and shall in no way limit
such rights; and
PROVIDED FURTHER THAT, the expenses incurred in connection with any such
inspection shall be for the account of the auditing party, except that all
reasonable expenses incurred by the audited party, or any of its officers,
employees, agents or independent certified public accountants, shall be
expenses payable by the audited party and shall not be expenses of the auditing
party.
"Automated Provider" means a Provider [*] who or which, on or
after the Transfer Date of the Region in which the Provider [*] is located,
uses the Network to send clinical laboratory test orders to an SBCL Lab or to
receive test result reports from an SBCL Lab.
"Changes" means any improvements, changes or additions to
application software and documentation that improve existing functions, add new
functions, or improve performance through changes in the software or system
design or coding.
"Claim" means any claim for indemnification under Section XIV of
the Services Agreement.
"Claims Notice" means a written notice of an indemnification claim
delivered pursuant to Section XIV of the Services Agreement.
"Confidential Information" means information that is (1)
confidential to the business of a party, including without limitation, data
regarding the extent of the Agreed Services provided hereunder to, or
Transaction Fees, Fixed Fees or PIFs paid hereunder by, SBCL, (2) is designated
and identified as such by such party, and (3) is not a Trade Secret; provided,
however, that Confidential Information does not include any information which is
or becomes generally known to the public without any breach by the Receiving
Party of its duties to the Disclosing Party. Assuming that the foregoing
criteria are met, Confidential Information also includes information which has
been disclosed to a Receiving Party by another person and which the Receiving
Party is obligated to treat as confidential.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-2
<PAGE>
"Customer Support Standards" has the meaning set forth in Section
III.C of the Services Agreement.
"Development Agreement" means the Development Agreement between
SBCL and ActaMed dated October 31, 1997 for the initial development of the
ActaLab Software.
"Disclosing Party" has the meaning set forth in Section X.C of the
Services Agreement.
"Disease Management Business" shall have the meaning set forth in
Section VIII.D.
"Dispute Notice" means a written notice by one party hereto
notifying the other of the existence of a dispute, which notice shall delineate
the disputed items and the factual basis for the dispute.
"Disputing Party" has the meaning given in Section XV.B of the
Services Agreement.
"EDI" means electronic data interchange.
"Exclusive Developments" has the meaning set forth in Section
V.E.1.a of the Services Agreement.
"First Variable Fee" has the meaning set forth in Section IV.C.1 of
the Services Agreement.
"Fixed Fee" means the amounts payable by SBCL pursuant to Section
IV.A of the Services Agreement.
"Fixed Fee Sites" has the meaning set forth in Section IV.G of the
Services Agreement.
"FTE" means "full time equivalent," i.e., the equivalent number of
work hours that would be worked by one person working on a full time basis,
treating eight (8) hours worked per day as a full work day.
"Indemnifying Party" means the Party obligated to provide
indemnification pursuant to Section XIV of the Services Agreement.
"Indemnitee" means an ActaMed Indemnitee or an SBCL Indemnitee.
"Integrity Agreement" means SBCL's Corporate Integrity Agreement
with the OIG.
"Intellectual Property" means copyrights, trademarks, service
marks, trade names, patents, applications therefor, technology rights and
licenses, computer software (including, without limitation, any source or object
codes therefor or documentation relating thereto), computer software licenses,
trade secrets, franchises, know-how, inventions and intellectual property
rights.
A-3
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"Key Performance Standards" shall mean the Performance Standards
under the headings of [*]
"Lab EDI Services " means electronic connectivity services enabling
an Automated Provider to send Transmittal Information electronically to an SBCL
Lab and/or to receive electronically Transmittal Information from an SBCL Lab
utilizing the Network.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of or by any
person (other than endorsements of notes, bills and checks presented to banks
for collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute, contingent, matured, unmatured or other.
"License Agreement" means the License Agreement between SBCL and
ActaMed dated the date of the Services Agreement and described in the Preamble
to the Services Agreement.
"Licensed Materials" means the software licensed pursuant to the
License Agreement.
[*] has the meaning set forth in Section XII.E.4 of the Services
Agreement.
"Losses" means any and all demands, claims, actions or causes of
action, assessments, losses, diminution in value, damages (including special and
consequential damages), liabilities, costs, and expenses, including without
limitation, interest, penalties, cost of investigation and defense, and
reasonable attorneys' and other professional fees and expenses.
[*] has the meaning set forth in Section XII.F of the Services
Agreement.
"Network" means the SCAN Network and/or the ActaMed Network.
"Network Software" means ActaMed's personal computer version of the
ProviderLink and ActaLink presentation and network software programs, under
whatever name marketed, and the SCAN Software and the ActaLab Software, and all
Changes to them, which are licensed to Automated Providers and which allow
access to the Network for the transmission of laboratory test order entries and
reception of test result information, or other software program for use by
ActaMed in the transmission of test order entries and reception of test result
information which is licensed to Automated Providers.
"Network Standards" shall have the meaning set forth in Section
III.C of the Services Agreement.
"New Business Plan" shall mean the ActaMed business plan delivered
pursuant to Section 5.1.8 of the Purchase Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-4
<PAGE>
"New Site" shall mean an ActaMed Site added to the Network on or
after the Transfer Date of the Region in which the ActaMed Site is located and
which is not a Fixed Fee Site.
"Office Space" has the meaning set forth in Section II.B.5 of the
Services Agreement.
"OIG" means the Office of Inspector General, U.S. Department of
Health and Human Services.
"Other Lab" means a commercial laboratory other than an SBCL Lab.
"Oversight Committee" has the meaning set forth in Section III.A of
the Services Agreement.
"Panel" has the meaning given it in Section XV.B of the Services
Agreement.
"PC System" means the personal computer, modem, bar code readers,
bar code label printers, requisition and results printers and other hardware
peripherals required for a Provider to become an Automated Provider.
[*] means an SBCL [*] or other [*].
"Performance Standards" shall have the meaning set forth in Section
III.C of the Services Agreement.
"PIF Amount" has the meaning given it in Section IV.C.2 of the
Services Agreement.
"PIF Number" has the meaning given it in Section III.B.3 of the
Services Agreement.
"PIF Sites" has the meaning given it in Section III.B.3 of the
Services Agreement.
[*] or "PIF" has the meaning given it in Section IV.M.1 of the
Services Agreement.
"Provider" means a physician, clinic, hospital, or other provider
of clinical health care services other than [*].
"Purchase Agreement" means the Asset Purchase Agreement between
ActaMed and SBCL dated the date of the Services Agreement and described in the
Preamble to the Services Agreement.
"Receiving Party" has the meaning given it in Section X.C of the
Services Agreement.
"Region" means any one of Region One, Region Two, Region Three, or
Region Four.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-5
<PAGE>
"Region Four" means the Region described on Schedule 2.2(d) to the
Purchase Agreement.
"Region Four Transfer Date" has the meaning given in Section 2.3.4
of the Purchase Agreement.
"Region One" means the Region described on Schedule 2.2(a) to the
Purchase Agreement.
"Region One Transfer Date" means the date on which Region One is
transferred to ActaMed pursuant to the Purchase Agreement.
"Region Three" means the Region described on Schedule 2.2(c) to the
Assets Purchase Agreement.
"Region Three Transfer Date" has the meaning given in Section 2.3.3
of the Purchase Agreement.
"Region Two" means the Region described on Schedule 2.2(b) to the
Purchase Agreement.
"Region Two Transfer Date" has the meaning given in Section 2.3.2
of the Purchase Agreement.
"Regulation" means any statute, law, ordinance, regulation,
requirement, order or rule of any federal, state, local government or other
governmental agency or body or of any other type of regulatory body, or any
governmental or administrative interpretation of any thereof, including, without
limitation, (i) those covering health, safety, environmental, energy,
transportation, bribery, record keeping, zoning, antidiscrimination, antitrust,
wage and hour, and price and wage control matters, (ii) requirements imposed by
any governmental or regulatory body which must be satisfied to qualify for
Medicare reimbursements, and (iii) any and all federal, state and local health
care laws relating to or covering the methods and ways in which Lab EDI Services
and other related or incidental services or benefits, if any, are provided to
the Automated Providers, including, but not limited to, the Stark law (42 U.S.C.
Section 1395nn) and the Clinical Laboratory Improvements Act of 1988, as
amended.
[*] has the meaning set forth in Section IV.G of the Services
Agreement.
[*] has the meaning set forth in Section IV.G.2 of the Services
Agreement.
"Representatives" means the ActaMed Relationship Manager and the
SBCL Relationship Manager.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-6
<PAGE>
"Requisition" shall mean an electronically transmitted clinical
laboratory test order from an Automated Provider to SBCL which is entered
utilizing SCAN Software, the ActaLab Software or other program for electronic
lab order entry and results reporting and utilizing the Network, for one or
more clinical laboratory tests for a single patient transmitted
electronically at one time and the corresponding test results delivered
electronically to an Automated Provider from SBCL at one or more times. The
term "Requisition" shall include patient eligibility for third party payor
benefits or reimbursement or claim status checking related to such order and
available to ActaMed.
"SBCL" means SmithKline Beecham Clinical Laboratories, Inc., a
Delaware corporation.
"SBCL Access" has the meaning set forth in Section X.B.2 of the
Services Agreement.
"SBCL Indemnitee" means SBCL and its directors, officers,
employees, affiliates and permitted assigns.
"SBCL Lab" means any location at which SBCL or its affiliates
provide, or may in the future provide, clinical laboratory testing services,
regardless of the computer systems or software, if any, used by such lab for lab
order entry and results reporting.
"SBCL President" shall mean the President of SBCL, presently
John B. Okkerse, Jr., Ph.D., or should SBCL be restructured in any manner, the
officer of SBCL having top authority over SBCL's operations.
"SBCL Relationship Manager" has the meaning set forth in Section XI
of the Services Agreement.
"SBCL Site" means an Automated Provider utilizing the SCAN Network
for Lab EDI Services on the Transfer Date of the Region in which such Automated
Provider is located.
"SCAN Assets" has the meaning set forth in the Purchase Agreement.
"SCAN Developments" has the meaning set forth in the License
Agreement.
"SCAN Network" means the SCAN Software and SBCL's gateway and
hardware and computer systems needed to operate the SCAN Software, excluding
[*] which enables Providers or [*] to place laboratory test orders
electronically to an SBCL Lab and/or to receive test result reports
electronically from an SBCL Lab.
"SCAN PSC" means a PSC which utilizes the Network to enter
laboratory test orders electronically and/or to receive test result reports
electronically.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-7
<PAGE>
"SCAN Site" means either an SBCL Site or an ActaMed Site that has
installed and is using SCAN Software for Lab EDI Services.
"SCAN Software" means the SBCL SCAN-TM- software licensed to
ActaMed pursuant to the License Agreement, and all Changes thereto after the
date hereof.
"Second Variable Fee" has the meaning set forth in Section IV.C.2
of the Services Agreement.
[*] has the meaning set forth in Section XII.E.5 of the Services
Agreement.
"SOP" means a standard operating procedure.
"Termination Transition" has the meaning given it in Section XII.D
of the Services Agreement.
"Third Party Claim" means any claim, suit or proceeding (including,
without limitation, a binding arbitration or an audit by any taxing authority)
that is instituted against an Indemnitee by a person or entity other than an
Indemnitor and which, if prosecuted successful, would result in a Loss for which
such Indemnitee is entitled to indemnification hereunder.
"TopLab" means SBCL's proprietary laboratory systems which
facilitate SBCL's internal automated laboratory test processing and reporting,
including but not limited to SBCL's Total Order Processing Laboratory system.
"Trade Secrets" means information related to the Disclosing Party
(1) which derives economic value, actual or potential, from not being generally
known to or readily ascertainable by other persons who can obtain economic value
from its disclosure or use, and (2) which is the subject of efforts by the
Disclosing Party that are reasonable under the circumstances to maintain its
secrecy. Without limitation, for ActaMed, ProviderLink and the ActaLab Software
are Trade Secrets, and for SBCL, the SBCL Software, SCAN Developments and
TopLab are Trade Secrets.
"Transaction Fee Amount" has the meaning set forth in Section
IV.C.1 of the Services Agreement.
"Transaction Fees" has the meaning set forth in Section IV.B of the
Services Agreement.
"Transfer Date" shall mean any one of, and "Transfer Dates" shall
mean more than one of the Region One Transfer Date, the Region Two Transfer
Date, the Region Three Transfer Date, and the Region Four Transfer Date.
"Transferred Employees" shall have the meaning given such term in
the Purchase Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
A-8
<PAGE>
"Transmission" means the electronic transmittal over the Network of
Transmittal Information in an approved document format.
"Transmittal Information" means information which an Automated
Provider gives ActaMed for communication to SBCL over the Network, or which SBCL
gives ActaMed for communication to an Automated Provider over the Network,
including all copies of same, and including without limitation, data relating to
laboratory records, clinical data, encounter data, test information, test codes
and provider identification numbers (other than UPINs)
"Variable Fees" has the meaning given it in Section IV.C.2 of the
Services Agreement.
A-9
<PAGE>
EXHIBIT II.B.2(a)
LAB EDI SERVICE AGREEMENT AMENDMENT PROVISIONS
III.B.2-1
<PAGE>
EXHIBIT II.B.2(b)
LAB EDI SERVICE AGREEMENT
III.B.7-1
<PAGE>
EXHIBIT III.B.7
REPORTS
A. REPORTS ACTAMED WILL PROVIDE TO SBCL
The following reports will be provided to SBCL by ActaMed on the
indicated schedule.
1. BILLING REPORTS
a. [*] SUMMARY REPORTS (POST-ACTAMED GATEWAY):
(1) Fixed Fee Sites
(a) Total Sites
(b) Total Requisitions
(c) Average Requisitions per Site
(2) Transaction Fee Sites
(a) Total Sites
(b) Total Requisitions
(c) Average Requisitions per Site
(3) PIF Sites
(a) Total Sites charged for the [*] that [*]
(with appropriate supporting detail)
(4) Label Printer Fees
(a) Total Sites charged for the Label printer
equipment fee (with appropriate supporting
detail)
b. [*] DETAILED FEES:
(1) List of Fixed Fee sites by lab
(2) List of Transaction Fee sites by lab
III.B.7-1
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(3) List of PIF Sites by lab
(4) List of sites with bar code printer paid by SBCL by
lab
c. CUSTOM DEVELOPMENT:
(1) Monthly itemization and accounting for the hours
worked for any projects active under a Custom
Development Fee, and a project status report on each
item worked
d. MONTHLY EXPENSE BILLINGS:
(1) Personnel in non-transferred regions, with
supporting detail
2. PERFORMANCE REPORTS
a. All reports necessary to verify and measure the
Performance Standards, including, but not limited to, the
following: (i) [*] help desk REPORTS, as set forth
in Exhibit III.C-2 - Customer Support Standards showing
performance statistics against the Performance Standards
and the number of calls received by type of problem
(detail problem coded); (ii) [*] network reports, as
set forth in Exhibit III.C-1 - Network Standards; (iii)
Performance Metrics reports against the Performance
Standards described in Exhibit III.C-1 & 2, including
comparison of actuals to standard for current month and
rolling prior 12 months.
b. Transfer BENCHMARK reports, as set forth in Exhibit
2.3.1(a) of the Assets Purchase Agreement.
c. Monthly Gateway reports (format to be mutually determined
once the ActaMed GATEWAY is active, but intended to be
generally similar to the SBCL November 1997 Gateway
Report).
d. As APPROPRIATE from time to time, in light of
technological advances, market conditions or industry
standards or other facts and circumstances, a report
describing ActaMed's plans to increase the performance
and capabilities of the Network and to improve Customer
Service beyond the minimum levels specified in Exhibits
III.C-1 and III.C-2.
e. Monthly report of SBCL clients that have deinstalled
(discontinued to use) Lab EDI Services.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
III.B.7-2
<PAGE>
f. An ongoing data base (to be created, kept current and
available for reporting) report of the current list of
clients approved for installation including date
received, Lab, Client ID, Client demographics and
expected date of installation.
3. SAS 70 REPORT
ActaMed will provide a report produced in accordance with
standards established by the American Institute of Certified Public Accountants'
Statement on Auditing Standards Number 70: Reports on the Processing of
Transactions by Service Organizations. ActaMed shall submit the first such
report to SBCL by the end of 1998.
B. REPORTS SBCL WILL PROVIDE TO ACTAMED
1. BILLING REPORTS
A. SBCL WILL MAKE AVAILABLE TO ACTAMED ACCESS TO DATA
RELATING TO:
(1) Fixed Fee Sites
(2) Total Sites (list of Fixed Fee Sites by Lab active
that month)
(3) List of Transaction Fee sites by Lab
B. FOLLOWING ACTAMED GATEWAY, MONTHLY EXPENSE BILLINGS (with
appropriate SUPPORTING detail):
(1) Gateway 1-800 charges to ActaMed
(2) Non-transferred local line charges
(3) Service Fees for ongoing support of ActaMed Gateway,
if any
(4) Service Fees for SBCL Gateway Services for
Transferred Sites, if any
2. PERFORMANCE REPORTS
a. Prior to the ActaMed Gateway, SBCL will continue to
provide ActaMed with copies of its standard monthly
Gateway report.
b. Timely reports on changes in SBCL that affect ActaMed and
its PERFORMANCE hereunder, as set forth in Section IX.
III.B.7-3
<PAGE>
3. STRATEGIC INFORMATION
Quarterly information on major trends within SBCL as
appropriate that are relevant to ActaMed and its performance hereunder, such as
new customers, lost customers, trends in lab requisition and result volumes,
compliance related issues, etc.
III.B.7-4
<PAGE>
EXHIBIT III.C-1
NETWORK SUPPORT STANDARDS
ACTAMED NETWORK AVAILABILITY
The ActaMed Network will be available 24 hours a day, 7 days a week with the
exception of Planned Down Hours. "Planned Down Hours" means that time which is
reasonably required for maintenance and problem resolution as reasonably
required and notwithstanding any other provision herein shall only occur during
the hours of [*] or on Federally recognized holidays.
HARDWARE AND MODEM AVAILABILITY
For each month, ActaMed shall maintain an "Availability Percentage" of at
least [*]. Hardware systems and modems are operational and available for
receiving/accepting calls as measured by an ActaMed systems management and
monitoring tool [*]. Hardware specifically includes the ActaMed host
machines required to process Lab EDI Services transactions, ActaMed
provisioned modems and circuit termination equipment servicing Automated
Providers using the ActaMed Network, and other third party provisioned
dial-in access service and devices relevant to the Lab EDI Services.
The "Availability Percentage" for Lab EDI Services shall be calculated on [*]
and will be based on data gathered through an automated Systems Management
and Reporting tool [*]. Similar automated measurement and reporting will be
implemented as soon as is practical for SCAN Sites transferred to the ActaMed
Gateway, but not later than 180 days following such transfer of the first
SCAN Site to the ActaMed Gateway. The Availability Percentage is calculated
as set forth below:
- Defined Hours are the total days in the month multiplied by 24
hours.
- Unplanned Hours are the hours experienced during the month in
which the ActaMed Network is not operable or otherwise not properly
transmitting valid Transmission as provided in the Agreement
excluding Planned Down Hours.
- Actual Hours are the Defined Hours minus the Unplanned Hours.
- Availability Percentage is determined by dividing the Actual Hours
by Defined Hours and multiplying the result by 100.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
III.C-1-1
<PAGE>
SUCCESSFULLY DELIVERED CALLS
For each month, ActaMed shall maintain a "Successfully Delivered Call
Percentage" of at least [*]. The "Successfully Delivered Call Percentage" is
the total of all Successfully Delivered Calls divided by the total of attempted
calls from all sources and multiplying the result by 100.
A Successfully Delivered Call shall mean a call made to ActaMed's premise
equipment from any source for the purpose of processing Lab EDI Services. as to
which ActaMed's equipment successfully offers service, to be measured by the
call service provider's equipment facilities including:
- calls delivered by an Interexchange Carrier ("IXC"), such as
Sprint, AT&T, Worldcom, etc., using toll-free dial-in service to
will be measured by the IXC carrier switch;
- calls delivered by a third party dial-in access provider will be
measured by the management capabilities of that provider's modem
pool; and
- calls delivered by a local service provider or by dedicated
toll-free dial-in service will be measured by ActaMed's
terminating premise equipment.
MODEM CONNECTIVITY
For each month, ActaMed shall maintain a "Modem Connectivity Percentage" of at
least [*]. The "Modem Connectivity Percentage" is determined by dividing the
total number of Successfully Connected Calls by the total of Successfully
Delivered Calls and multiplying the result by 100.
A Successfully Connected Call is a Successfully Delivered Call that establishes
and maintains successful modem connection as determined by the statistics
generated by the management and reporting functionality of the ActaMed
terminating modem bank and/or third party dial-in access equipment.
TRANSACTION PROCESSING
ActaMed acknowledges and agrees that all Transactions meeting the
requirements set forth next to one or both of the bullet points below
("Proposed Transaction") will be processed by the ActaMed Network. If
Proposed Transactions are not being processed by the ActaMed Network, it will
be treated as a Severity 1 problem. It is expected by the Parties that [*]
of connected and Proposed Transactions will be successfully processed within
ActaMed Network.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
III.C-1-2
<PAGE>
- - Any order transactions that are entered according to the applicable
specifications and edits of the Lab EDI software such as SCAN Software
or ActaLab Software or any other ordering software module approved by
ActaMed and SBCL that is connected to the ActaMed Network for the
purposes of entering lab orders and upon completion of the order entry
indicates to the operator that the order has been accepted for
Transmission to SBCL; and
- - Any result transactions transmitted by SBCL systems in accordance with
applicable specifications and containing sufficient information to allow
the ActaMed Network to determine the approved system to which the
transaction is to be delivered.
[*]
[*] The Parties agree that this is not a currently automated measurement and
is not included as a requirement of Section III.B.7, Reports.
HISTORICAL DATA FOR RE-TRANSMISSION
ActaMed will store all result transmission data on, and make it available in
accordance with the Services Agreement via, the ActaMed Gateway for a minimum of
[*].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
III.C-1-3
<PAGE>
EXHIBIT III.C-2
CUSTOMER SUPPORT STANDARDS
ACTAMED HELP DESK
The ActaMed Help Desk for all Lab EDI Services will be staffed Monday through
Friday 8:00 AM to 8:00 PM EST excluding federally recognized holidays. Issues
of any severity level can be reported during this time via any one of the
following methods:
- Telephone via ActaMed toll-free service (800 line);
- FAX;
- Internet e-mail to ActaMed help desk personnel; or
- Internet e-mail directly into the ActaMed Help Desk call tracking
system.
In addition,
- Internet web pages are being constructed to answer frequently asked
questions;
- By special arrangement, limited direct access to the ActaMed Help
Desk call tracking system is possible; and
- Using Internet e-mail and the assigned tracking number, the status
of calls can be retrieved at any time.
There shall be after hours support, which is typically limited to issues that
are defined as Severity 1 or Severity 2 as further defined below. These are
either issues that involve multiple users and major communications or systems
failures, or problems involving an outage of a single Automated Provider
(i.e. non-critical issues such as training questions, enhancement requests
and usage questions are usually handled during normal help desk hours.)
Service is initiated by calling the main Help Desk 800 number and leaving a
detailed message. Voice mail left after hours or on holidays will result in a
page to the appropriate on call analyst who will retrieve the message and
return the call and immediately initiate investigatory and corrective actions
as appropriate in accordance with Severity Levels.
III.C-2-1
<PAGE>
CALL TRACKING
Beginning at such time as the ActaMed SCAN help desk begins to accept client
calls from ActaMed Sites, which shall occur at a date mutually agreed upon by
the parties, all calls made to the ActaMed SCAN Help Desk will be logged into
ActaMed's "Support Magic" call tracking system, and will include at a minimum
the following information:
- Site ID (Machine ID)
- Site Name
- Caller Name
- Phone Number
- Local Lab
- Date of Call
- Time of Call
- Problem Code / Description
- Call Recipient / Analyst
- Problem Definition
- Call Status
- Solution Code / Clear Description of final resolution
- Severity Code
- Date and time of final resolution
ActaMed shall be responsible only for calls related to ActaMed Sites. Calls
from all other SCAN sites will continue to be supported by SBCL and will
continue to be tracked by SBCL processes as in force at that time.
SEVERITY CODES
Help Desk calls will be logged and appropriate escalations will be made based
upon severity codes assigned to each call. It is the responsibility of the
analyst handling the call to assign the severity level in accordance with the
severity level definitions described below. The definition of each
III.C-2-2
<PAGE>
severity level and the classification of call types into severity levels will
initially be as set forth below, with more specific definitions to be
determined through negotiation between ActaMed and SBCL. The definitions may
be reassessed and are subject to change by mutual consent of the Parties.
The ActaMed Help Desk's method of classifying calls into priority levels will
be reviewed periodically with the Oversight Committee. SBCL will be
responsible for defining additional situations and communicating to ActaMed
any requests on how to classify particular call situations.
SEVERITY 1
DEFINITION: A critical system or component is down or experiencing
degraded service causing SBCL or a customer's business functions to be
halted. Severity I issues will typically involve major system outages
that affect the service provided to many users.
REQUIRED ACTION: Immediate notification to those persons identified in
the Crisis Management document. [*] of Severity 1 issues should be
resolved within [*] with [*] updates between ActaMed and SBCL.
SEVERITY 2
DEFINITION: A single user is down; a component is experiencing degraded
service; consumable supplies are unavailable and does not have a
critical impact on the business, but may restrict function to some users
and may impact normal business operations.
REQUIRED ACTION: The help desk will asses the situation and verify that
setup or configuration problems are not the cause. After the original
assessment has been made, an ActaMed CIS representative will normally be
dispatched to correct or replace the failing component. In remote areas
where localized support is not available, a replacement component will
be shipped for next day delivery, and arrangements will be made to
provide assistance setting up or installing that component.
Arrangements will also be made to remove or arrange for the removal of
the failed component. [*] of Severity 2 calls should be resolved within
[*] with updates to the affected user every [*] or less.
SEVERITY 3
DEFINITION: A user's system is still operating but is experiencing
difficulties or a specially requested deliverable is unavailable.
REQUIRED ACTION: The Help Desk will make every attempt to resolve the
issue over the phone or using the tools available to them. If those
attempts are not successful, a ActaMed CIS representative might be
called upon to resolve the issue on site, but these issues will
typically have a lower priority than the Severity 2 issues listed above.
[*] of Severity 3 calls will be resolved within [*] with updates to
the affected user every [*] or less.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
III.C-2-3
<PAGE>
NEW SITE INSTALLATION
In accordance with the agreed upon procedures for installing New Sites (or [*]
Sites) that SBCL requests or approves for Lab EDI Services, ActaMed will:
- If required, phone line installation and new service will be
ordered on behalf of the Provider or SBCL on average within [*] of
receipt of new site notification and,
- Provide installation and training, including any hardware required
under Section IV.L of the Services Agreement, to properly prepare
and set up the new client to use Lab EDI Services within [*] of
receipt of new site notification and phone line availability; or
- PIF Sites will be installed within [*] from the time the
notification is received and phone service is available.
except that, (i) delays caused by the practice management system vendor or the
Provider, shall not be the responsibility of ActaMed; and (ii) SBCL and ActaMed
will, when necessary, cooperate in the development of site installation
schedules to reflect periods of high volumes of new installations and remote
installations (usually requiring air travel).
DE-INSTALLATIONS
When required by the Assets Purchase Agreement or this Agreement, ActaMed
will deinstall any Automated Provider within [*] of receipt of SBCL's
deinstallation request. Re-deployment of the deinstalled PC System for Lab
EDI Services will be in accordance with Section IV of the Services Agreement
and in accordance with the performance metrics of a New Site.
RETAINING
ActaMed will provide ongoing training support in a manner and at such frequency
as is reasonably required to maintain client satisfaction and ability to
continue to use Lab EDI Services effectively to process laboratory transactions.
SCAN CONSUMABLE SUPPLIES
ActaMed will provide, [*] consumable supplies required by all ActaMed Sites
for use of Lab EDI Services including printer paper, toner cartridges, backup
tape cartridges and labels that meet SBCL label specifications. ActaMed will
deliver or arrange for delivery of these as required for uninterrupted use of
Lab EDI Services. Client requests for such supplies that prevent use of Lab
EDI Services will be considered a Severity [*] problem.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
II.C-2-4
<PAGE>
MEASUREMENTS AND REPORTING
Measurement will begin when the problem is received by the ActaMed Help Desk at
which time it will be recorded into the computerized on-line problem management
tool. Measurement will end when the call is resolved satisfactorily and closed
by the ActaMed Help Desk representative. In the case of calls that have been
forwarded to an SBCL facility for questions or issues not covered by the ActaMed
Help Desk, the ActaMed Analyst will, except in those cases where the problem
determination or resolution is clearly the responsibility of SBCL because of the
nature of the call, take ownership of that call and follow it through any other
path it may take. So long as SBCL provides the information needed to resolve
such a call, ActaMed will also be made to document that call and close it out
with a detailed explanation of the final resolution. Where it is not possible
for the ActaMed Analyst to remain "on the call", it is the responsibility of the
SBCL personnel to notify the ActaMed Help Desk if the outcome is to be
documented in the help desk system.
Other measurements that will be made available on a monthly basis will come from
the ACD system. The variety of reports available based upon the call tracking
system and the ACD statistics will include:
<TABLE>
<CAPTION>
REPORT TARGET SERVICE LEVEL
------ --------------------
<S> <C>
Number of calls by category N/A, will vary
Calls by region N/A, will vary
Abandoned call rate *
Average hold time [*]
</TABLE>
* since there is no currently available SBCL baseline to be used to set
reasonable standards, ActaMed will record these metrics from the beginning of
its operations of the help desk. After the first four months of help desk
operation, ActaMed and SBCL will evaluate performance and set mutually-agreeable
metrics based on SBCL's actual performance and generally accepted performance
standards for similar services. In no case shall such metrics result in
standards lower than those generally found in the industry for similar services.
The percent of calls closed within the time frame objectives will be measured by
calculating, by priority level, the volume of calls closed within the time frame
objectives as a percentage of total calls opened.
The ActaMed Help Desk will use best efforts to accommodate any requests for
additional information as long as the collection of the information does not add
significant time and effort in logging the call. The ActaMed Help Desk
statistics will be reported to SBCL on a monthly basis. The means of
distribution is yet to be determined.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
III.C-2-5
<PAGE>
SATISFACTION LEVELS
For each year during the term of the Services Agreement, ActaMed will perform
client satisfaction surveys assessing Automated Providers' satisfaction with
ActaMed's Lab EDI Services. The format and content of the annual surveys shall
be determined by ActaMed except that ActaMed will afford SBCL reasonable
opportunity to review and comment thereon prior to its use. The annual survey
will be conducted at annual intervals.
III.C-2-6
<PAGE>
EXHIBIT IV.I
AVERAGE REVENUE/REQUISITION & MONTHLY
AVERAGE NUMBER OF REQUISITIONS
IV.I-1
<PAGE>
EXHIBIT V.A
MAINTENANCE
ActaMed will provide SBCL with the following hardware, network and application
(product) maintenance services which will be performed by ActaMed staff not
dedicated to SBCL enhancements. The cost of these maintenance services are
provided as a part of the annual Fixed Fee and Transaction Fees, and include the
following:
PRODUCT MAINTENANCE
- - Maintenance of the Network through both emergency and routine bug fixes
and scheduled maintenance releases;
- - Such changes and modifications to the Network required to manage
scalability and capacity issues associated with increased transaction
volumes;
- - Provision of routine, updated application documentation and training
materials;
- - Provision of periodic product updates to improve usability and to
improve existing features and functionality.
PERFORMANCE
- - Maintenance, monitoring and reporting of hardware, network and
communication systems regarding stability and performance as specified
in Exhibit III.C-1 Network Standards;
- - Changes required to maintain above service level commitments, including
changes and modifications required to manage scalability and capacity
issues associated with increased transaction volumes;
- - Technology upgrades to the Network (to include such things as fault
tolerance produces and services) will be included as part of ongoing
maintenance; and
- - Maintenance of appropriate connectivity to SBCL host systems to maintain
security provisions and the data integrity of Transmissions.
IV.I-2
<PAGE>
EXHIBIT V.B
YEAR 2000 WARRANTIES
ActaMed warrants that the SCAN Software and ActaLab Software as compiled on any
hardware and operating system platform designated in its documentation
("Platforms") will satisfy all of the following:
(a) Such software will properly process date-related information
from different centuries (19th through 21st). Results utilizing such software
will be consistent and correct whether or not dates being processed span
different centuries and will be given with the proper indication of century.
(b) Data involving date information which will be generated from
use of the software will be coded in a manner that captures, stores and displays
date-related information so that the software will properly access and process
the data regardless of the century involved.
(c) The software will properly process date-related data which had
been generated by previous versions of thereof regardless of the century
involved.
(d) The software interfaces with the operating system and other
software, and with devices, will properly exchange and use date-related
information regardless of the century involved, so long as such other software,
systems and devices provide date-related information in a compatible format.
(e) The software will check any date-related information provided
by the user, and by any devices, systems or software with which the software
interfaces, and will reject any date-related information which is not provided
in a format which the software will properly process. When data is rejected, the
software will generate an explanatory error message.
(f) The software will not have a feature which will cause it to
stop operating or to limit or alter its functions or performance because of a
date or time extending beyond 11:59:59 p.m. on December 31, 1999.
(g) The software will process information relating to years
beginning with 2000 properly, including recognizing that the year 2000 and every
fourth year thereafter is a leap year.
(h) The software (including but not limited to, runtime systems)
will function correctly if executing at the moment when the year changes from
1999 to 2000. The software setup and updates will not be affected by the
century change.
V.B-1
<PAGE>
EXHIBIT VII.C-1
CURRENT CONNECTIVITY ARRANGEMENTS
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Production No No Yes No Computer Based Patient Record
[*] Specs Sent No No Yes No Physician Practice
[*] Dormant No No No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Dormant No Yes No No CLinic
[*] Letter Sent No No Yes No Physician Practice
[*] Production No No Yes No Vendor Lab
[*] Production No Yes No No Medical Network
[*] Specs Sent No Yes No No CLinic
[*] Specs Sent No Yes No No Physician Practice
[*] Production No Yes No No ESRD
[*] Dormant No No Yes No Medical Network
[*] Specs Sent No No Yes No Medical Network
[*] Specs Sent No No No No Unknown
[*] Letter Sent No No No No Unknown
[*] Production No Yes No No Physician Practice
[*] Specs Sent No No No No Unknown
[*] Production No No No No Unknown
[*] Dormant No Yes No No Unknown
[*] Letter Sent No Yes No No Physician Practice
[*] Dormant No Yes No No Unknown
[*] Specs Sent No No No No Unknown
[*] Dormant No Yes No No Unknown
[*] Letter Sent No Yes No No CLinic
[*] Specs Sent No No No No Unknown
[*] Dormant No Yes No No ESRD
[*] Specs Sent No Yes No No CLinic
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-1
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Dormant No Yes No No Physician Practice
[*] Dormant No Yes No No Physician Practice
[*] Specs Sent No No No No Unknown
[*] Specs Sent No Yes No No Unknown
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No No No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No Yes No No Unknown
[*] Production No No Yes No Physician Practice
[*] Dormant No Yes No No Unknown
[*] Dormant No Yes No No Unknown
[*] Production No No Yes No Physician Practice
[*] Dormant No Yes No No Physician Practice
[*] Production No Yes No No Physician Practice
[*] Beta No Yes No No Charting Program
[*] Specs Sent No Yes No No Unknown
[*] Section I Sent No No No No CLinic
[*] Specs Sent No No Yes No Unknown
[*] Specs Sent No Yes No No ESRD
[*] Specs Sent No Yes No No Physician Practice
[*] Dormant No Yes No No CLinic
[*] Dormant No Yes No No CLinic
[*] Dormant No Yes No No Nursing Home
[*] Development No Yes No No Computer Based Patient Record
[*] Specs Sent No No No No Unknown
[*] Production No Yes No No ESRD
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-2
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Specs Sent No Yes No No Physician Practice
[*] Production No Yes No No CLinic
[*] Dormant No No No No Unknown
[*] Specs Sent No Yes No No Unknown
[*] Specs Sent No No No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Development No No Yes No Physician Practice
[*] Production No Yes No No Unknown
[*] Production No Yes No No Physician Practice
[*] Specs Sent No No Yes No Unknown
[*] Specs Sent No Yes No No Physician Practice
[*] Production No Yes No No Unknown
[*] Dormant No Yes No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Dormant No Yes No No CLinic
[*] Specs Sent No No Yes No CLinic
[*] Specs Sent No Yes No No Unknown
[*] Dormant No Yes No No CLinic
[*] Dormant No Yes No No Physician Practice
[*] Production No Yes No No Physician Practice
[*] Letter Sent No Yes No No Physician Practice
[*] Production No Yes No No Physician Practice
[*] Production No No Yes No Occupational Health
[*] No No No No Unknown
[*] Production No Yes No No Unknown
[*] Dormant No Yes No No Vendor Lab
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-3
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Production No Yes No No Medical Network
[*] Production No Yes No No Medical Network
[*] Dormant No No Yes No Medical Network
[*] Dormant No No Yes No Medical Network
[*] Development No No Yes No Medical Network
[*] Specs Sent No No Yes No Physician Practice
[*] Dormant No Yes No No CLinic
[*] Specs Sent No Yes No No CLinic
[*] Specs Sent No Yes No No CLinic
[*] Letter Sent No No No No Unknown
[*] Specs Sent No No No No Unknown
[*] Specs Sent No No Yes Yes Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Production No Yes No No CLinic
[*] Specs Sent No No Yes No Interface Engine
[*] Dormant No Yes No No Unknown
[*] Specs Sent No Yes No No Medical Network
[*] Specs Sent No Yes No No Unknown
[*] Specs Sent No No No No Physician Practice
[*] Specs Sent No No Yes No Interface Engine
[*] Specs Sent No No No No Unknown
[*] Dormant No No No No Unknown
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No No No No Unknown
[*] Specs Sent No Yes No No CLinic
[*] Specs Sent Yes No No No Physician Practice
[*] Dormant No Yes No No Unknown
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-4
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Production No Yes No No Physician Practice
[*] Dormant No Yes No No Physician Practice
[*] Production No No Yes Yes Medical Network
[*] Production No Yes No No ESRD
[*] Specs Sent No Yes No No Unknown
[*] Specs Sent No No No No Unknown
[*] Development No Yes No No Unknown
[*] Dormant No Yes No No ESRD
[*] Specs Sent No Yes No No Physician Practice
[*] Development No Yes No No Physician Practice
[*] Specs Sent No No Yes No Physician Practice
[*] Production No Yes No No Medical Network
[*] Specs Sent No No No No Unknown
[*] Specs Sent No Yes No No Clinical Trials
[*] Letter Sent No No No No Unknown
[*] Development No No Yes No Medical Network
[*] Production No No Yes No Occupational Health
[*] Development No Yes No No Physician Practice
[*] Beta No Yes No No Physician Practice
[*] Specs Sent No No Yes No Medical Network
[*] Specs Sent No Yes No No CLinic
[*] Specs Sent No Yes No No Physician Practice
[*] Development Yes No No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Development No No Yes No Physician Practice
[*] Letter Sent No Yes No No Physician Practice
[*] Production No Yes No No Physician Practice
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-5
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Specs Sent No No No No Physician Practice
[*] Dormant No Yes No No Vendor Lab
[*] Specs Sent No Yes No No CLinic
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No Yes No No Medical Network
[*] QA No No Yes Yes Physician Practice
[*] Production No Yes No No Physician Practice
[*] Specs Sent No No Yes No CLinic
[*] Specs Sent No No Yes No Physician Practice
[*] Specs Sent No Yes No No Unknown
[*] Production No No Yes Yes Physician Practice
[*] Letter Sent No No No No Unknown
[*] Dormant No Yes No No Unknown
[*] Dormant No Yes No No Unknown
[*] Dormant No Yes No No Unknown
[*] Specs Sent No No No No Unknown
[*] Production No Yes No No Physician Practice
[*] Production No No Yes No ESRD
[*] Dormant No Yes No No Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Beta No Yes No No Physician Practice
[*] Specs Sent No Yes No No Unknown
[*] Letter Sent No Yes No No Unknown
[*] Development No No Yes No Unknown
[*] Specs Sent No Yes No No Physician Practice
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-6
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No Yes No No Unknown
[*] Dormant No No Yes No Vendor Lab
[*] Letter Sent No No Yes No Physician Practice
[*] Letter Sent No Yes No No Medical Network
[*] Dormant No No No No Unknown
[*] Specs Sent No No Yes No Vendor Lab
[*] Specs Sent No No Yes No Computer Based Patient Record
[*] Specs Sent No No No No Physician Practice
[*] Development No Yes No No Physician Practice
[*] No Yes No No Unknown
[*] Specs Sent No No No No Unknown
[*] Production No No Yes No Vendor Lab
[*] No Yes No No ESRD
[*] Specs Sent No Yes No No Pharmaceutical Services
[*] Production No Yes No No Physician Practice
[*] Production No No Yes No CLinic
[*] Development No No No No Unknown
[*] Production No Yes No No Unknown
[*] Development No Yes No No ESRD
[*] Dormant No Yes No No Physician Practice
[*] Development No No Yes No Unknown
[*] Dormant No No No No Medical Network
[*] No No No No Unknown
[*] Dormant No Yes No No CLinic
[*] Specs Sent No Yes No No Pharmaceutical Services
[*] Specs Sent No Yes No No Unknown
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-7
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Specs Sent No Yes No No Physician Practice
[*] Production No Yes No No Physician Practice
[*] Dormant No Yes No No Physician Practice
[*] Dormant No No Yes No Nursing Home
[*] Specs Sent No Yes No No Unknown
[*] Development No No Yes No Physician Practice
[*] Specs Sent No No No No Unknown
[*] Production No Yes No No Physician Practice
[*] No No No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Specs Sent No No No No Unknown
[*] Specs Sent No No No No Unknown
[*] Section I Sent No No No No Unknown
[*] Production No Yes No No Physician Practice
[*] Specs Sent No Yes No No Physician Practice
[*] Specs Sent No No Yes No Unknown
[*] Specs Sent No No Yes No Unknown
[*] Specs Sent No Yes No No Physician Practice
[*] Production No Yes No No ESRD
[*] Specs Sent No No No No Unknown
[*] Production No Yes No No Physician Practice
[*] Specs Sent No Yes No No CLinic
[*] Dormant No Yes No No Unknown
[*] Specs Sent No Yes No No CLinic
[*] Letter Sent No Yes No No ESRD
[*] Production No No Yes Yes Unknown
[*] Dormant No Yes No No Unknown
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-8
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Production No Yes No No Nursing Home
[*] Dormant No Yes No No Physician Practice
[*] Specs Sent No Yes No No Unknown
[*] Beta No No Yes No Vendor Lab
[*] Specs Sent No No No No Unknown
[*] Development No Yes No No Physician Practice
[*] Specs Sent No Yes No No CLinic
[*] Dormant No No Yes No CLinic
[*] Development No Yes No No Unknown
[*] Dormant No No Yes No Unknown
[*] Specs Sent No No No No Unknown
[*] Dormant No Yes No No Physician Practice
[*] Dormant No Yes No No Unknown
[*] Specs Sent No No Yes No Physician Practice
[*] No No No No Unknown
[*] Letter Sent No Yes No No CLinic
[*] Specs Sent No No No No Unknown
[*] Dormant No No Yes No Unknown
[*] Specs Sent No Yes No No CLinic
[*] No No Yes No CLinic
[*] Dormant No Yes No No CLinic
[*] Dormant No Yes No No CLinic
[*] Production No Yes No No ESRD
[*] Specs Sent No No Yes No CLinic
[*] Specs Sent No Yes No No Unknown
[*] Production No Yes No No Unknown
[*] Dormant No Yes No No CLinic
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-9
<PAGE>
EXISTING VENDOR INTERFACE RELATIONSHIPS
<TABLE>
<CAPTION>
ORDERS RESULTS ORDERS AND
VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION
------------- -------------------- -------- --------- -------------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
[*] Specs Sent No No Yes No Unknown
[*] Dormant No Yes No No Medical Network
[*] Specs Sent No No No No Unknown
[*] Specs Sent No No Yes No Physician Practice
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
VII.C-1-10
<PAGE>
AMENDMENT NO. 1 TO
SERVICES AGREEMENT
This AMENDMENT NO. 1 TO SERVICES AGREEMENT ("Amendment No. 1") is
made and entered into this 15th day of May, 1998 by and between ACTAMED
CORPORATION, a Georgia Corporation ("ActaMed") and SMITHKLINE BEECHAM
CLINICAL LABORATORIES, INC., a Delaware Corporation ("SBCL").
WHEREAS, ActaMed and SBCL entered into a Services Agreement on
December 31, 1997 ("Services Agreement") and desire to amend same in connection
with the merger a subsidiary of Healtheon Corporation with and into ActaMed,
with the result that ActaMed will become a wholly-owned subsidiary of Healtheon.
NOW THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties, intending to be legally bound, agree as
follows:
1 DEFINITIONS.
Capitalized terms used in this Amendment No. 1 and not otherwise defined
herein have the meanings set forth in the Services Agreement.
2 AMENDMENTS.
2.1 [*] REMOVED FROM [*]. Section IV.C is replaced in its entirety as
follows:
"1. An amount (the "FIRST VARIABLE FEE") equal to (i) [*]
minus the aggregate of the amount billed to SBCL pursuant to Section
IV.B. above, excluding amounts attributable to any Provider office with
ProviderLink that is subsequently installed with the Scan Software or
ActaLab Software (the "FIRST TRANSACTION FEE AMOUNT") prior to the [*]
(ii) [*] minus the sum of (A) the First Transaction Fee Amount for the
period from the date hereof to the [*] and (B) the amount paid pursuant
to clause (i) above; and (iii) [*] minus the sum of (A) the First
Transaction Fee Amount for the period from the date hereof to the [*] and
(B) the amount paid pursuant to clauses (i) and (ii) above.
2. An amount (the "SECOND VARIABLE FEE") equal to (i)
[*] minus the aggregate of the amount paid plus amounts owed (whether or
not billed) pursuant to Section IV.M.1 below (the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
"PIF AMOUNT") prior to the [*]; (ii) [*] minus the sum of (A) the PIF
Amount for the period from the date hereof to the [*] and (B) the amount
paid pursuant to clause (i) above; and (iii) [*] minus the sum of (A) the
PIF Amount for the period from the date hereof to the [*] and (B) the
amount paid pursuant to clauses (i) and (ii) above; PROVIDED THAT if the
PIF Amount with respect to an annual period (other than the last such
annual period) is at least [*] of the aforementioned dollar amount for
that annual period, no payment shall be due under this Section IV.C.2 for
such annual period.
3. An amount (the "THIRD VARIABLE FEE" and together
with the First Variable Fee and Second Variable Fee, the "VARIABLE
FEES") equal to (i) [*] minus the aggregate of the amount billed to SBCL
attributable to any Provider office with ProviderLink that is
subsequently installed with the Scan Software or ActaLab Software (the
"THIRD TRANSACTION FEE AMOUNT") prior to the [*]; (ii) [*] minus the sum
of (A) the Third Transaction Fee Amount for the period from the date
hereof to the [*] and (B) the amount paid pursuant to clause (i) above;
and (iii) [*] minus the sum of (A) the Third Transaction Fee Amount for
the period from the date hereof to the [*] and (B) the amount paid pursuant
to clauses (i) and (ii) above.
4. Subject to Section IV.D, the Variable Fees shall be
paid annually within thirty (30) days after invoice therefor from
ActaMed or Healtheon, which shall be (i) submitted to SBCL within [*]
(ii) detail the calculation thereof, and (iii) reflect the Variable Fees
payable in respect of the most recently completed annual period only.
SBCL shall have Audit Rights with respect to any disputed amount of the
Variable Fees."
2.2 CONDITIONS TO BUSINESS ASSURANCE PAYMENTS. Section IV.D.1 is
hereby replaced in its entirety as follows:
"1. With respect to all Variable Fees, (i) such fees shall
cease to be payable if ActaMed shall fail to satisfy any of the Key
Performance Standards, or (ii) such fees (excluding the portion of the
First Variable Fee attributable to Transaction Fees generated from PIF
Sites) for the applicable year shall not be payable (but shall be
treated as paid for purposes of calculation of any amount payable in
the following year) if any of the following shall occur:
a. As of [*] ActaMed shall fail to have at least [*]
ActaMed Sites;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-2-
<PAGE>
b. As of [*] ActaMed shall fail to have at least [*]
ActaMed Sites; and
c. As of [*] ActaMed shall fail to have at least [*]
ActaMed Sites.
2.3 CONDITIONS TO BUSINESS ASSURANCE PAYMENTS. Section IV.D is hereby
further amended by adding the following Subsection 3 at the end of such Section:
"3. With respect to the Third Variable Fee, such fees also
shall not be payable (but shall be treated as paid for purposes of
calculating any amount payable in the following year) if any of the
following shall occur:
a. As of [*] ActaMed shall fail to have at least [*]
ActaMed Sites;
b. As of [*] ActaMed shall fail to have at least [*]
ActaMed Sites; and
c. As of [*] ActaMed shall fail to have at least [*]
ActaMed Sites.
2.4 [*] COSTS. Section IV.J is amended to insert at the end thereof:
"SBCL is not responsible for paying any [*] incurred by ActaMed or a Provider
relating to the provision of Lab EDI Services, including without limitation,
any [*], [*] and [*]."
2.5 REMOVAL OF [*] HARDWARE PURCHASES. Section IV.K.2.b is
replaced in its entirety as follows:
"b. In addition, ActaMed shall provide, prior to the [*] up to
[*] PC Systems for New Sites or Replacement Fixed Fee Sites in excess of
the [*] set forth in (a) above. Notwithstanding the above, this
obligation shall be reduced by each PC System the cost of which is
reimbursed to SBCL subject to Section IV.K.1 above."
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-3-
<PAGE>
2.6 EXCLUSIVE DEVELOPMENTS AMENDED. Section V.E is replaced in its
entirety as follows:
"E. DEVELOPMENT WORK REQUESTED BY SBCL.
1. SBCL may at any time request that ActaMed perform
additional development work. Subject to the terms of this Section
V.E, SBCL shall pay ActaMed for development services the work product
from which constitutes an Exclusive Development at no higher than the
then industry standard rates for similar services.
a. SBCL shall be entitled to request in writing
that ActaMed perform development services the resulting work from which
shall be for the exclusive benefit of SBCL (an "EXCLUSIVE DEVELOPMENT");
provided that, except as provided in Section V.E.1.b, SBCL shall not be
entitled to more than [*] Exclusive Development [*]. If ActaMed, before
9:00 AM (EST) of the [*] after the date on which such request is
received by ActaMed, delivers to SBCL [*] then, notwithstanding that
SBCL's request specified that the work would be an Exclusive Development,
the work so requested by SBCL shall be a "COMMON DEVELOPMENT." Under no
circumstances shall any SBCL requested development work that is required
for purposes of complying with Applicable Laws, Regulations or any
Regulatory Change constitute an Exclusive Development. Any SBCL
requested work that is (i) classified as a Common Development in
accordance with this Section V.E.1.a, or (ii) required to comply with
Applicable Laws, Regulations or any Regulatory Change, shall not be
counted for purposes of applying the limit on Exclusive Developments
under this Section V.E.1.a.
b. SBCL may request in writing that ActaMed
provide additional development work at any time. Such work shall
result in either a Common Development or Exclusive Development
pursuant to price and terms agreed to by the parties in accordance
with Section V.E.1.e below. Any work classified as an Exclusive
Development in accordance with this Section V.E.1.b shall not be
counted for purposes of applying the limit on Exclusive Developments
under this Section V.E.1.a.
c. ActaMed will not use or license the use of
any Exclusive Development (without regard to whether it constitutes a
SCAN Development or ActaLab Software) other than in support of Lab EDI
Services. Subject to the ownership and license rights under the
License Agreement, both
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-4-
<PAGE>
ActaMed and SBCL shall be entitled to make any use of a Common
Development. The terms of the foregoing two sentences shall survive
termination of this Agreement for any reason. ActaMed may charge SBCL
[*] the work product from which constitutes a Common Development. Any
such charge shall be [*] and shall be separately stated on invoices sent
to SBCL.
d. For purposes of this Section V.E, Exclusive
Developments shall include any Changes made pursuant to Section V.C
and paid for by SBCL by reason of Section V.C.4, to be designated as
Exclusive Developments in accordance with the procedures set forth in
this Section V.E.1.
e. Within [*] days after receiving SBCL's request
pursuant to Sections V.E.1.a or V.E.1.b, ActaMed shall notify SBCL of
ActaMed's prices and terms (including estimated completion date) for
performing such development work, which prices and terms SBCL shall not
unreasonably reject. Within twenty (20) days after receiving ActaMed's
notice, SBCL shall accept or reject ActaMed's prices and terms for
performing the development work. If SBCL provides notice accepting (i)
in respect of requests under Section V.E.1.a, ActaMed's prices and
terms, or (ii) in respect of requests under Section V.E.1.b (A)
ActaMed's prices and terms, and (B) ActaMed's designation of the work as
an Exclusive Development or Common Development, then ActaMed shall
perform such work (or cause such work to be performed) on the accepted
terms, and shall integrate the developed work into the ActaLab Software
or SCAN Developments, as applicable, and offer it as an additional
feature or function of Lab EDI Services, as soon as is reasonably
practicable.
If SBCL provides notice that it does not accept ActaMed's prices and
terms, SBCL and ActaMed shall negotiate in good faith an alternative
arrangement to the mutual satisfaction of the parties. If within [*]
SBCL and ActaMed cannot reasonably agree upon such an alternative
arrangement, then SBCL may engage a third party to perform the
development services for such work, subject to Section V.E.1.f. Work
performed by such a third party shall be (i) an Exclusive Development
without regard to the frequency limitation of Section V.E.1.a, subject
to Section V.E.1.f below, (ii) integrated by ActaMed into the ActaLab
Software or SCAN Developments, as applicable, as soon as is reasonably
practicable, and (iii) offered by ActaMed as an additional feature or
function of Lab EDI Services, as soon as is reasonably practicable.
SBCL and ActaMed shall cooperate in developing acceptance standards
and processes (the "ACCEPTANCE PROCESS") pursuant to which work
prepared by a third party, in accordance with industry standard
practices, shall be (i) reviewed, tested and modified, as necessary,
to conform with ActaMed's professional standards,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
the Performance Standards and ActaMed's compliance obligations under
Article VI, (ii) integrated into the ActaLab Software or SCAN
Developments, as applicable, and (iii) offered by ActaMed as an
additional feature or function of Lab EDI Services; provided, SBCL
shall reimburse ActaMed (at no higher than the then industry standard
rates for similar services) for any costs or expenses incurred by
ActaMed in any such testing, integration and offering of an additional
feature or function of Lab EDI Services under this Section V.E.1.e.
f. Any contract between ActaMed and SBCL (or a
third party developer and SBCL) for development of an Exclusive
Development shall allocate ownership of and other rights with respect
to the Exclusive Development, as between ActaMed and SBCL, in the
manner contemplated by the License Agreement and Development
Agreement, including, without limitation, Sections 2.1.4 and 2.3.2 of
the License Agreement.
2. If, at any time, SBCL chooses to contract with
ActaMed for a dedicated services team from ActaMed to handle
development of Changes to the Network, the Licensed Materials, or
SBCL's proprietary systems which are not required to be performed by
ActaMed pursuant to Section V.C and which are not requested pursuant
to Section V.E, ActaMed may elect whether to provide the dedicated
team and, if it so elects, shall do so only on terms and conditions
agreed to in advance by SBCL."
2.7 EXCLUSIVITY PERIOD. Section XIII.C.2 is hereby replaced in its
entirety as follows:
2. At any time prior to [*] ActaMed shall not provide services
to any Other Lab at the SBCL Sites transferred to ActaMed pursuant to
the Purchase Agreement, including without limitation, to install or be
instrumental in [*] located at such sites which [*] for services [*] or
otherwise provide [*]. A full calendar month shall be added to the date
set forth in the preceding sentence for each month after [*] in which
ActaMed, determined as of the first day of each succeeding month, has
failed to complete the development of a fully functional ActaLab
Software (as described in the Development Agreement) and deploy a fully
tested, accepted and operating version of such software at one or more
ActaMed Sites.
3 MISCELLANEOUS.
3.1 ENTIRE AGREEMENT. This Amendment No. 1 constitutes the entire
understanding between the parties with respect to amendment to the Services
Agreement and supersedes all proposals, communications and agreements between
the parties relating to such subject matter.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
No amendment, change, or waiver of any provision of this Amendment No. 1 will
be binding unless in writing and signed by both parties.
3.2 GOVERNING LAW. This Amendment No. 1 will be governed by and
construed in accordance with the laws of the State of Georgia applicable to
contracts made and performed therein.
3.3 SERVICES AGREEMENT PROVISIONS. All provisions of the Services
Agreement not modified by this Amendment No. 1 shall remain in full force and
effect. Subsections D, E and F of Section XVI of the Services Agreement shall
apply to this Amendment No. 1 as if fully set forth herein.
3.4 COUNTERPARTS. This Amendment No. 1 may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1
to the Services Agreement as of the date set forth above.
ACTAMED CORPORATION
By: /s/
---------------------------------------
Its: President & CEO
--------------------------------------
SMITHKLINE BEECHAM CLINICAL LABORATORIES,
INC.
By: /s/
---------------------------------------
Its: President
--------------------------------------
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<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
ASSETS PURCHASE AGREEMENT
between
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
and
ACTAMED CORPORATION
DATED
DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 PURCHASE AND SALE ........................................................2
Section 1.1 Agreement to Sell ..............................................2
Section 1.2 Other Software .................................................2
Section 1.3 Excluded Assets ................................................3
Section 1.4 Agreement to Purchase ..........................................3
Section 1.5 The Purchase Price .............................................3
Section 1.6 Series D Price .................................................4
Section 1.7 Purchase Price Adjustment ......................................5
Section 1.8 Number of Sites Adjustment .....................................5
ARTICLE 2 CLOSINGS .................................................................6
Section 2.1 Initial Closing ................................................6
Section 2.2 Staging of the Transactions ....................................6
Section 2.3 Regions to be Transferred ......................................7
Section 2.4 Procedures Applicable if Transfer Benchmarks Are Not Met .......8
Section 2.5 Deliveries by SBCL at Each of the Transfer Dates ...............9
Section 2.6 Deliveries by ActaMed at Each of the Transfer Dates ............9
Section 2.7 Prorations ....................................................10
Section 2.8 Non-Transferable Assets .......................................10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES ..........................................11
Section 3.1 By SBCL .......................................................11
Section 3.2 By ActaMed ....................................................16
ARTICLE 4 TRANSITION MATTERS ......................................................26
Section 4.1 Prior to Region Transfer ......................................26
Section 4.2 Region Transition Matters .....................................26
Section 4.3 General Covenants .............................................27
Section 4.4 Confidentiality of Trade Secrets ..............................29
Section 4.5 Efforts to Satisfy Conditions .................................30
Section 4.6 Expenses ......................................................31
Section 4.7 Antitrust Notification ........................................31
ARTICLE 5 ACTAMED COVENANTS TO SBCL ...............................................31
Section 5.1 Additional Covenants Of ActaMed ...............................31
Section 5.2 Informational Covenants Of ActaMed ............................35
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<PAGE>
ARTICLE 6 EMPLOYEE MATTERS ........................................................38
Section 6.1 Termination of Employment by SBCL and
Offer of Employment by ActaMed ..............................38
Section 6.2 Transitional Employee Leasing Arrangement .....................38
Section 6.3 ActaMed Compensation and Benefits .............................39
Section 6.4 Past Service Credit ...........................................39
Section 6.5 Termination of Employment; Nonsolicitation; Termination
of Agreement ................................................39
Section 6.6 Payment of Wage and Benefit Costs .............................39
Section 6.7 Taxes, Unemployment Insurance and Related Items ...............40
Section 6.8 Examination and Audit .........................................41
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED ..........................41
Section 7.1 Conditions Precedent To Obligations Of ActaMed ................41
Section 7.2 Conditions Precedent To The Obligations Of SBCL ...............42
ARTICLE 8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS ...................43
Section 8.1 Survival Of Representations, Warranties and Covenants .........43
Section 8.2 Obligation to Indemnify .......................................44
ARTICLE 9 DISPUTE RESOLUTION ......................................................49
Section 9.1 Informal Dispute Resolution ...................................49
Section 9.2 Arbitration ...................................................50
Section 9.3 Litigation ....................................................51
ARTICLE 10 TERMINATION ............................................................51
Section 10.1 Termination ...................................................51
Section 10.2 Risk of Loss ..................................................52
ARTICLE 11 MISCELLANEOUS ..........................................................53
Section 11.1 General Provisions ............................................53
</TABLE>
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ASSETS PURCHASE AGREEMENT
This Assets Purchase Agreement (this "ASSETS PURCHASE AGREEMENT" or
"AGREEMENT"), dated as of December 31, 1997, is an agreement by and between
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., a corporation organized and
existing under the laws of Delaware ("SBCL") and ACTAMED CORPORATION, a
corporation organized and existing under the laws of Georgia ("ACTAMED").
Capitalized terms used in this Assets Purchase Agreement and not otherwise
defined herein are defined in EXHIBIT A attached to this Assets Purchase
Agreement.
PREAMBLE
ActaMed is in the business of providing electronic data interchange
products and services to the health care industry, including its ProviderLink
software, and desires to develop business involving automated laboratory order
entry and results reporting services.
SBCL provides laboratory testing services to certain Providers who use SBCL
Software for electronic clinical laboratory test order entry and/or test result
reporting between an SBCL Lab and such Provider. In addition, SBCL uses the
SBCL Software to allow certain [*] to send laboratory test orders entered
electronically to an SBCL Lab and/or to have the test results reported
electronically back to [*] or the Provider ordering the test.
The Parties previously entered into a Development Agreement dated
October 31, 1997 pursuant to which ActaMed and SBCL are jointly developing the
ActaLab Software.
ActaMed desires to purchase and SBCL desires to sell certain assets
associated with SBCL's provision of Lab EDI Services, as more fully set forth
herein. Concurrently with the execution and delivery of this Purchase
Agreement, SBCL and ActaMed are entering into (i) a License Agreement whereby,
among other things, SBCL grants ActaMed an irrevocable non-exclusive license to
the SBCL Software (as defined therein); and (ii) a Services Agreement whereby
ActaMed agrees, among other things, to provide Lab EDI Services to Automated
Providers and SBCL agrees to pay certain compensation to ActaMed in connection
therewith. This Assets Purchase Agreement states the parties' agreements
relating to the purchase and sale of the SCAN Assets and certain transition
matters.
The Parties contemplate that there will be a staged transfer to
ActaMed of the SCAN Assets. The transfer of Region One SCAN Assets is to occur
on the Region One Transfer Date. The transfer of the other Regions will occur
sequentially when the Transfer Benchmarks for transfer of such Regions have been
met.
AGREEMENT
In consideration of the recitals and of the respective covenants,
representations, warranties and agreements herein contained, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
ARTICLE 1
PURCHASE AND SALE
SECTION 1.1 AGREEMENT TO SELL. SBCL hereby agrees to sell, convey,
assign, transfer and deliver to ActaMed, upon and subject to the terms and
conditions of this Assets Purchase Agreement, all right, title and interest of
SBCL in and to the following assets located in Region One, and, subject in
addition to fulfillment of the conditions precedent set forth in Section 2.3,
the following assets in Regions Two, Three, and Four, in every case free and
clear of all Liens:
1.1.1 The personal computers, modems, bar code
readers, bar code label printers, requisition and results printers and other
peripherals (not including [*]) and spare parts owned by SBCL and provided by
SBCL to Automated Providers for Lab EDI Services (or which comprised all or
part of such items located at an SBCL Site before the Applicable Transfer
Date, but not located at an SBCL Site on the Applicable Transfer Date),
including all documentation supplied to Automated Providers for purposes of
utilizing SBCL Software;
1.1.2 SBCL's contractual right to use the telephone
lines that are installed at an SBCL Site and are used by SBCL in providing Lab
EDI Services to the extent assignable and assumed by ActaMed;
1.1.3 The letter agreements, as amended, between SBCL
and Automated Providers relating to Automated Providers' use of SBCL's Lab EDI
Services;
1.1.4 The vendor contracts between SBCL and various
vendors who provide products or services to Automated Providers in connection
with SBCL's provision of Lab EDI Services to SBCL Sites to the extent assignable
and assumed by ActaMed;
1.1.5 All personal computers, peripherals, spare parts
and other fixed assets not located at an SBCL Site on the Applicable Transfer
Date, but used solely by the Transferred Employees and exclusively in connection
with SBCL's provision of software development, field or remote support for SBCL
Sites; and
1.1.6 SBCL's rights to the ActaLab Software.
SECTION 1.2 OTHER SOFTWARE.
1.2.1 In conjunction with the sale of each PC System and
each personal computer described in Section 1.1.5 (an "Employee Computer") to
ActaMed in accordance herewith, SBCL shall assign to ActaMed all of SBCL's
rights in the copies of Third Party Software (excluding any office software used
by the Employees, including without limitation, cc:mail) that, as of the
Applicable Transfer Date, are (i) installed by, or in accordance with the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
instructions of, SBCL and (ii) is resident on such PC System or Employee
Computer, which rights shall be sufficient to permit ActaMed to:
(a) continue using such copy of the Third Party
Software on the applicable PC System or Employee Computer,
(b) move such copy to a replacement computer so
long as the copy is deleted from the PC System or Employee Computer on which it
resides on the Applicable Transfer Date or subsequent transferee computer
system, and
(c) assign ActaMed's rights in such copy to a
purchaser of the applicable components of the PC System (but not to a purchaser
of any Employee Computer) on which it resides at the Applicable Transfer Date,
or replacement computer with respect to any PC System;
PROVIDED, that (A) ActaMed agrees to comply with any applicable terms and
conditions imposed by the supplier of such Third Party Software, (B) except as
expressly set forth herein, nothing in this Section 1.2 shall be construed as
assigning to ActaMed, or granting to ActaMed, any rights under any agreements
between SBCL and the vendors of such Third Party Software, and (C) nothing in
this Agreement shall be construed as conveying to ActaMed or any other party any
software installed on any PC System or Employee Computer other than by SBCL or
pursuant to SBCL's instructions.
1.2.2 SBCL shall transfer to ActaMed, proportionately
with the number of SBCL Sites transferred to ActaMed from time to time in
accordance with this Agreement, all of SBCL's rights in, including the
single-site licenses for, any copy of Microsoft Windows which was resident on
a PC System when it was delivered to SBCL by the manufacturer or other
supplier for installation at an SBCL Site, and subsequently removed by SBCL.
SBCL shall deliver the licenses to ActaMed.
SECTION 1.3 EXCLUDED ASSETS. The SCAN Assets shall not include
computers, modems, bar code readers, bar code label printers, requisition and
results printers and other peripherals and fixed assets acquired by SBCL for use
in providing Lab EDI Services, but which have never been so used.
SECTION 1.4 AGREEMENT TO PURCHASE. ActaMed hereby agrees to purchase
the SCAN Assets from SBCL, upon and subject to the terms and conditions of this
Assets Purchase Agreement and in reliance on the representations, warranties and
covenants of SBCL contained herein, for the Purchase Price and the execution and
delivery of the Assumption Agreement. ActaMed shall not assume or be
responsible for any liabilities or obligations of SBCL other than the
Liabilities assumed by virtue of the Assumption Agreement.
SECTION 1.5 THE PURCHASE PRICE. Subject to any adjustment pursuant to
Sections 1.7 or 1.8 hereof, the purchase price for the SCAN Assets and the
rights granted to ActaMed
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<PAGE>
pursuant to the License Agreement shall be [*]. The Purchase Price shall be
allocated among the SCAN Assets in the different Regions and the License
granted pursuant to the License Agreement as set forth in Schedule 1.5 hereto
(the "Purchase Price"). The Purchase Price shall be payable as follows:
1.5.1 on the Region One Transfer Date, in
consideration for the grant of rights pursuant to the License Agreement,
ActaMed will pay or issue to SBCL (A) [*] by wire transfer of immediately
available funds to an account designated by SBCL prior to the Region One
Transfer Date, and (B) [*] shares of ActaMed's Series D Preferred Stock;
1.5.2 on the Region One Transfer Date, in consideration
of the transfer to ActaMed of the SCAN Assets located in Region One, ActaMed
will issue to SBCL [*] shares of ActaMed's Series D Preferred Stock;
1.5.3 on the Region Two Transfer Date, in further
consideration of the grant to ActaMed of rights under the License Agreement,
and in consideration of the transfer to ActaMed of the SCAN Assets located in
Region Two, ActaMed will issue to SBCL the number of shares of ActaMed's
Series D Preferred Stock determined by dividing [*] plus [*] respectively,
by the Series D Price on such date;
1.5.4 on the Region Three Transfer Date, in further
consideration of the grant to ActaMed of rights under the License Agreement,
and in consideration of the transfer to ActaMed of the SCAN Assets located in
Region Three, ActaMed will issue to SBCL the number of shares of ActaMed's
Series D Preferred Stock determined by dividing [*] plus [*] respectively,
by the Series D Price on such date; and
1.5.5 on the Region Four Transfer Date, in further
consideration of the grant to ActaMed of rights under the License Agreement,
and in consideration of the transfer to ActaMed of the SCAN Assets located in
Region Four, ActaMed will issue to SBCL the number of shares of ActaMed's
Series D Preferred Stock determined by dividing [*] plus [*] respectively,
by the Series D Price on such date.
SECTION 1.6 SERIES D PRICE. For purposes hereof, the "Series D Price"
shall mean:
1.6.1 prior to ActaMed's initial Public Offering:
(a) [*] on the Region One Transfer Date and
the Region Two Transfer Date, [*] on the Region Three Transfer Date, and [*]
on the Region Four Transfer Date, subject to the provisions of subparagraphs
(b) and (c) below;
(b) if prior to any Transfer Date after the
Region One Transfer Date, ActaMed issues Qualified Preferred Stock, the Series
D Price on such Transfer Date shall be the Per Share Issue Price of such
Qualified Preferred Stock, and the Series D Price shall
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
thereafter remain constant for all subsequent Transfer Dates unless adjusted
(i) in accordance with this provision, upon a subsequent issuance of
Qualified Preferred Stock or (ii) in accordance with subparagraph (c) below;
or
(c) notwithstanding anything to the contrary in
this Section 1.6.1, if, on any Applicable Transfer Date, ActaMed has achieved
less than [*] of the revenues for the cumulative months or
quarters (as may be applicable based on the detail required for the New Business
Plan) prior to such Applicable Transfer Date as set forth in the New Business
Plan, then the Series D Price shall revert to [*] and
1.6.2 after ActaMed's initial Public Offering, if a
Transfer Date occurs at least thirty (30) trading days after the effective date
of such Public Offering, the average for such 30 days of (i) the mean between
the reported high and low sales prices for ActaMed Common Stock on each such
trading day, or (ii) if no sales are reported on any such trading day, the mean
between the bid and offered prices for ActaMed Common Stock on such trading day;
or, if the Transfer Date occurs prior to the 30th day following such initial
Public Offering (including the initial day of trading when computing the number
of days), the initial offering price for ActaMed Common Stock in such initial
Public Offering less the amount of any underwriters' discounts or commissions on
a per share basis, as set forth in the effective registration statement.
1.6.3 For purposes of Section 1.6, "Qualified Preferred
Stock" shall mean shares of ActaMed's preferred stock issued in an arm's length
transaction to one or more purchasers who are not ActaMed stockholders as of the
Region One Transfer Date for an aggregate purchase price of not less than
$7,000,000; and the "Per Share Issue Price" of such Qualified Preferred Stock
shall be the consideration per equivalent share of Common Stock received by
ActaMed for the Qualified Preferred Stock, adjusted backwards to the Region One
Transfer Date for any subdivision or combination of shares of ActaMed capital
stock or similar change in ActaMed's capital structure (whether by stock split,
stock dividend, merger, share exchange, consolidation or otherwise) since the
Region One Transfer Date.
SECTION 1.7 PURCHASE PRICE ADJUSTMENT. SBCL shall transfer all of
the SCAN Assets located in Region Three on the Region Three Transfer Date.
In the event that, by [*] SBCL has not provided [*] to ActaMed [*] described
in [*] of the Services Agreement, [*] to [*] by [*]. In such case, if,
subsequent to [*] SBCL provides [*] ActaMed shall [*] that SBCL [*]
pursuant to this provision [*].
SECTION 1.8 NUMBER OF SITES ADJUSTMENT. On any Transfer Date other
than the Region One Transfer Date, if the aggregate number of SBCL Sites
located in the Regions which were previously transferred to ActaMed in
accordance herewith, plus the aggregate number of SBCL Sites located in
Regions then being or subsequently to be transferred to ActaMed, is less than
[*] then the portion of the Purchase Price
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
otherwise payable on such Transfer Date shall be reduced to an amount equal
to the portion of the Purchase Price otherwise then payable times a fraction
the numerator of which shall be the number of SBCL Sites to be transferred on
such Transfer Date, and the denominator of which shall be [*] MINUS the
number of SBCL Sites transferred on previous Transfer Dates, and MINUS the
number of SBCL Sites located in Regions subsequently to be transferred;
PROVIDED that no such adjustment shall be made if such fraction is [*] or
more.
ARTICLE 2
CLOSINGS
SECTION 2.1 INITIAL CLOSING. Conveyance of SCAN Assets in each of the
Regions by SBCL to ActaMed shall take place as set forth in this Article Two.
Concurrently with the execution and delivery of this Assets Purchase Agreement,
SBCL and ActaMed have executed and delivered the License Agreement, the First
Amendment to the Development Agreement, the Services Agreement, the Third
Amendment to the Stockholders Agreement, the Third Amendment to the Registration
Rights Agreement, the Standstill Agreement, and such other documents as the
parties have reasonably requested, each of which shall be effective as of the
Region One Transfer Date. In addition, effective on or before such date,
ActaMed shall file in the office of the Secretary of State of Georgia its Fourth
Amended Articles.
SECTION 2.2 STAGING OF THE TRANSACTIONS.
2.2.1 The parties shall effect the transfer of the SCAN
Assets in as orderly a manner as possible and with minimal disruption to
Automated Providers. This Assets Purchase Agreement provides benchmarks that
will be used by the parties to measure the degree to which the transfer is
orderly and without disruption and provides steps the parties will take if the
benchmarks are not met to improve the transition process. Provided the
benchmarks are satisfied, the parties intend that all of the transfers be
completed as quickly as possible and that targeted transfer dates may be
accelerated in such circumstances.
2.2.2 At any time, upon not less than fifteen (15) days
written notice by SBCL to ActaMed, except to the extent a shorter period is
provided for in Section 2.2.3 hereof, SBCL shall in its sole discretion have the
right to accelerate the Region Two Transfer Date, the Region Three Transfer Date
or the Region Four Transfer Date to a date immediately after expiration of such
notice period (the "ACCELERATED TRANSFER DATE"). In such case, the transactions
contemplated by Sections 1.5.3, 1.5.4 and 1.5.5 above shall take place on such
Accelerated Transfer Date, in the manner specified in Sections 2.5 and 2.6
below, subject to the other terms and conditions of this Assets Purchase
Agreement.
2.2.3 In the event of any proposed issuance of Qualified
Preferred Stock, ActaMed shall provide SBCL with notice of its intent to
consummate such a transaction not less
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
than forty-five (45) days prior to doing so, and shall provide SBCL notice of
an affirmative obligation to issue Qualified Preferred Stock not less than
fifteen (15) days prior to issuance. In such event, SBCL shall in its sole
discretion have the right to notify ActaMed and cause one or more Accelerated
Transfer Dates to occur thirty (30) days after the giving of such notice,
and, if SBCL so designates, conditioned upon the occurrence of the proposed
sale of Qualified Preferred Stock. The number of shares Series D Preferred
Stock issued to SBCL on any such Accelerated Transfer Date(s) shall be
calculated as if such Accelerated Transfer Date(s) occurred prior to the
closing of the sale of such Qualified Preferred Stock.
SECTION 2.3 REGIONS TO BE TRANSFERRED.
2.3.1 The SCAN Assets located in Region One will be
transferred to ActaMed on the Region One Transfer Date. The parties will
cooperate to identify and resolve any problems that arise after the transfer of
such SCAN Assets to ActaMed.
2.3.2 Provided that the applicable Transfer Benchmarks
have been met for Region One Sites, and subject to SBCL's rights under Section
2.2.2 hereof, the SCAN Assets located in Region Two will be transferred to
ActaMed three (3) months after the Region One Transfer Date (the "REGION TWO
TRANSFER DATE"). ActaMed shall notify SBCL's Relationship Manager that it is in
compliance with the Transfer Benchmarks and wishes to close the transfer of the
SCAN Assets located in Region Two fifteen (15) days prior to the scheduled
Region Two Transfer Date. SBCL shall have seven (7) days to respond to
ActaMed's notice, indicating that SBCL either (i) will close the transfer on the
scheduled Region Two Transfer Date or (ii) that ActaMed's operations relative to
the Region One Sites fail to meet the Transfer Benchmarks. If SBCL determines
that ActaMed's operations relative to the Region One Sites fail to meet the
Transfer Benchmarks to allow for the transfer of SCAN Assets located in Region
Two, the provisions of Section 2.4 will apply. The parties will cooperate to
identify and resolve any problems that arise after the transfer of the SCAN
Assets located at Region Two Sites to ActaMed.
2.3.3 Provided that the applicable Transfer Benchmarks
have been met for Region One Sites and Region Two Sites on and after the Region
Two Transfer Date, and subject to SBCL's rights under Section 2.2.2 hereof, the
SCAN Assets located in Region Three will be transferred to ActaMed three (3)
months after the Region Two Transfer Date (the "REGION THREE TRANSFER DATE").
ActaMed shall notify SBCL's Relationship Manager that it is in compliance with
the Transfer Benchmarks and wishes to close the transfer of the SCAN Assets
located in Region Three fifteen (15) days prior to the scheduled Region Three
Transfer Date. SBCL shall have seven (7) days to respond to ActaMed's notice,
indicating that SBCL either (i) will close the transfer on the scheduled Region
Three Transfer Date or (ii) that ActaMed's operations relative to the Region One
Sites and Region Two Sites fail to meet the Transfer Benchmarks. If SBCL
determines that ActaMed's operations relative to the Region One Sites and Region
Two Sites fail to meet the Transfer Benchmarks to allow for the transfer of SCAN
Assets located in Region Three, the provisions of Section 2.4 will apply. The
parties will
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cooperate to identify and resolve any problems that arise after the transfer
of the SCAN Assets located at Region Three Sites to ActaMed.
2.3.4 Provided that the applicable Transfer Benchmarks
have been met for Region One Sites, Region Two Sites and Region Three Sites on
and after the Region Three Transfer Date, and subject to SBCL's rights under
Section 2.2.2 hereof, the SCAN Assets located in Region Four will be transferred
to ActaMed three (3) months after the Region Three Transfer Date (the "REGION
FOUR TRANSFER DATE"). ActaMed shall notify SBCL's Relationship Manager that it
is in compliance with the Transfer Benchmarks and wishes to close the transfer
of the SCAN Assets located in Region Four fifteen (15) days prior to the
scheduled Region Four Transfer Date. SBCL shall have seven (7) days to respond
to ActaMed's notice, indicating that SBCL either (i) will close the transfer on
the scheduled Region Four Transfer Date or (ii) that ActaMed's operations
relative to the Region One Sites, Region Two Sites and Region Three Sites fail
to meet the Transfer Benchmarks. If SBCL determines that ActaMed's operations
relative to the Region One Sites, Region Two Sites and Region Three Sites fail
to meet the Transfer Benchmarks to allow for the transfer of SCAN Assets located
in Region Four, the provisions of Section 2.4 will apply. The parties will
cooperate to identify and resolve any problems that arise after the transfer of
the SCAN Assets located at Region Four Sites to ActaMed.
SECTION 2.4 PROCEDURES APPLICABLE IF TRANSFER BENCHMARKS ARE NOT MET.
If, prior to any scheduled Transfer Date after the Region One Transfer Date,
SBCL determines that ActaMed has failed to meet the requisite Transfer
Benchmarks, ActaMed shall, on or prior to five (5) business days following the
scheduled Transfer Date, either (i) submit a written remediation plan to SBCL
detailing the steps required to accomplish such Transfer Benchmarks and the
means to achieving such steps, or (ii) notify SBCL, in writing, that ActaMed
believes the failure to meet such Transfer Benchmarks is for reasons beyond the
control of ActaMed, including without limitation, a failure by SBCL to perform
in accordance with the terms and conditions of the Services Agreement. Within
ten (10) business days following receipt of such a remediation plan or notice,
SBCL shall make a determination, considering available resources and the
contents of the plan or notice, as to whether the problem is remediable within a
reasonable period of time. If SBCL determines that the problem is remediable as
aforesaid, it shall set a date not less than thirty (30) nor more than ninety
(90) days from the scheduled Transfer Date as a measurement date (the
"Measurement Date") for satisfaction of the applicable Transfer Benchmarks. If
SBCL determines that the applicable Transfer Benchmarks are met on or before the
Measurement Date, then the original Transfer Date shall be reset for a date
immediately following the date which is ten (10) days after such applicable
Transfer Benchmarks were met, and on which date such applicable Transfer
Benchmarks continue to be met. If ActaMed disagrees with SBCL's determination
as to whether the problem is remediable, the dispute shall be resolved pursuant
to the provisions of Article IX hereof. If a Transfer Date is extended or reset
hereunder, all subsequent Transfer Dates will be rescheduled, subject to this
Section 2.4, at three (3) month intervals after the extended or reset Transfer
Date.
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SECTION 2.5 DELIVERIES BY SBCL AT EACH OF THE TRANSFER DATES. At each
of the Transfer Dates, SBCL shall execute and deliver to ActaMed the following
documents to the extent relating to the SCAN Assets in the Region being
transferred:
2.5.1 a Bill of Sale and Assignment (in the form
attached as EXHIBIT 2.5.1) covering the SCAN Assets for the Region being
transferred;
2.5.2 an SBCL Compliance Certificate (in the form
attached as EXHIBIT 2.5.2) pursuant to which SBCL will make the representations
and warranties as to itself and the SCAN Assets in the Region being transferred
contained in Section 3.1 hereof (other than the representations and warranties
contained in Sections 3.1.3, 3.1.4(a)-(e), 3.1.6(d) and 3.1.7(b), which shall be
made only on the Region One Transfer Date), which certificate shall attach
revised Disclosure Schedules to the extent necessary to make the representations
and warranties made on such Transfer Date (with the exceptions noted above) true
and correct in all material respects; PROVIDED that to the extent that any such
representation and warranty is dependent upon information provided by
Transferred Employee or other people employed by ActaMed, such representations
and warranties shall be given only to the best of SBCL's knowledge;
2.5.3 an SBCL Secretary's Certificate (in the form
attached as EXHIBIT 2.5.3);
2.5.4 any other consents or waivers obtained pursuant to
Section 7.1.5 covering the Region transferred, including consents to the
assignment and assumption of each of the Vendor Contracts applicable to the SCAN
Assets in the Region that ActaMed is assuming;
2.5.5 all of the books and records, including but not
limited to, books of account, leases, contracts, and customer lists, of SBCL
relating exclusively to the SCAN Assets for the Region transferred; and
2.5.6 such other documents or certificates as may be
reasonably requested by ActaMed.
SECTION 2.6 DELIVERIES BY ACTAMED AT EACH OF THE TRANSFER DATES. At
each of the Transfer Dates, ActaMed shall execute and deliver to SBCL the
following documents to the extent relating to the Region being transferred:
2.6.1 the applicable number of shares of Series D
Preferred Stock, as determined in accordance with Sections 1.5, 1.6 and 1.8 of
this Assets Purchase Agreement;
2.6.2 an Assumption Agreement (in the form attached
hereto as EXHIBIT 2.6.2) covering, for the Region transferred, (i) the Vendor
Contracts for the Region transferred, (ii) the Phone Lines and (iii) the
Provider Agreements for the Region transferred;
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2.6.3 an ActaMed Compliance Certificate (in the form
attached hereto as EXHIBIT 2.6.3), pursuant to which ActaMed will make the
representations and warranties contained in Section 3.2 hereof, which
certificate shall attach revised Disclosure Schedules to the extent necessary to
make the representations and warranties made on such Transfer Date true and
correct in all material respects;
2.6.4 an ActaMed Secretary's Certificate (in the form
attached hereto as EXHIBIT 2.6.4); and
2.6.5 such other documents or certificates as may be
reasonably requested by SBCL.
SECTION 2.7 PRORATIONS. All amounts previously paid or payable with
respect to the items identified on Schedule 2.7, or for any other items
reflecting actual costs incurred solely in connection with the provision of
Lab EDI Services which are to be prorated on the basis of days, for or in
respect of periods which straddle any Transfer Date shall be apportioned on a
pro rata basis based on the respective number of days in the pre-Transfer
Date and post-Transfer Date periods.
SECTION 2.8 NON-TRANSFERABLE ASSETS.
2.8.1 To the extent that any SCAN Asset which would
otherwise be transferred on an Applicable Transfer Date (a "TRANSFERRED ASSET")
is not capable of being sold, assigned, transferred, conveyed or delivered
without obtaining a Required Consent, or if such sale, assignment, transfer,
conveyance or delivery or attempted sale, assignment, transfer, conveyance or
delivery would constitute a violation of any Contract or License constituting or
relating specifically to a Transferred Asset, or a violation of any Regulation,
or would result in the imposition of any significant additional Liability or
obligation on SBCL or ActaMed, or a substantial diminution in the value or use
of such Transferred Asset, this Assets Purchase Agreement shall not constitute a
sale, assignment, transfer, conveyance or delivery of such Transferred Asset or
an attempted sale, assignment, transfer, conveyance or delivery thereof, nor
shall it constitute an assumption of any Liability under any Contract or License
constituting or relating specifically to such Transferred Asset. Any such
Transferred Asset and any Contract or License which constitutes or relates
exclusively to any such Transferred Asset or Assets shall be a "NON-TRANSFERABLE
ASSET". SBCL shall use its best efforts, and ActaMed shall reasonably cooperate
therein, to provide ActaMed with the benefit of any such Non-Transferable Asset.
2.8.2 Anything in this Assets Purchase Agreement to the
contrary notwithstanding, SBCL shall not be obligated to sell, assign, transfer,
convey or deliver, or cause to be sold, assigned, transferred, conveyed or
delivered to ActaMed, and ActaMed shall not be obligated to purchase or assume,
any Non-Transferable Asset without first having obtained all Required Consents
or prevented the imposition of such Liability or obligation or diminution in
value or use. Both before and after the Applicable Transfer Date, SBCL and
ActaMed shall use their collective best efforts to obtain any Required Consents
or to prevent the imposition of any
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such Liability or obligation or any such diminution in value or use so as to
transfer each such Non-Transferable Asset to ActaMed without adversely
modifying, amending or burdening such Non-Transferable Asset. Any costs
associated with such efforts shall be borne by SBCL.
2.8.3 To the extent that on a given Transfer Date, there
is any Non-Transferable Asset, SBCL shall, from and after such Transfer Date,
cooperate with ActaMed in any reasonable and lawful arrangement designed to
provide the benefit of such Non-Transferable Asset to ActaMed, and ActaMed, so
long as such benefit is so provided, shall satisfy or perform any Liability
under or in connection with such Non-Transferable Asset which would be a
Liability assumed by ActaMed if such Non-Transferable Asset were a Transferred
Asset. Any costs associated with such efforts shall be borne by SBCL.
2.8.4 At any time after a given Transfer Date, if any
Non-Transferable Asset becomes capable of being sold, assigned, transferred,
conveyed or delivered to ActaMed without a violating any Contract, License or
Regulation or resulting in the imposition of any significant additional
Liability or obligation on SBCL or ActaMed or a substantial diminution in the
value or use of such Asset, then, at such time, such Non-Transferable Asset
shall be deemed to have been sold, assigned, transferred, conveyed and delivered
to ActaMed effective as of the Applicable Transfer Date hereof pursuant to the
execution and delivery of a Bill of Sale and Assignment and an Assumption
Agreement with respect to the Transferred Assets on such Applicable Transfer
Date; PROVIDED, HOWEVER, that if and to the extent that SBCL has theretofore
provided ActaMed with comparable assets or compensation for such Asset, an
equitable adjustment shall be made between SBCL and ActaMed to effectuate fully
the intent of the foregoing provision.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 BY SBCL. Except as set forth on a Disclosure Schedule
hereto, SBCL hereby represents and warrants to ActaMed, and shall (except as
contemplated by Section 2.5.2 hereof) represent and warrant to ActaMed on each
Transfer Date as to itself and the SCAN Assets being transferred on such
Transfer Date, as follows:
3.1.1 CAPACITY AND VALIDITY. SBCL has the full power
and corporate authority necessary to enter into and perform its obligations
under this Assets Purchase Agreement and the other documents to be executed and
delivered by SBCL hereunder or in connection herewith (the "SBCL DOCUMENTS") and
to consummate the transactions contemplated hereby and thereby. This Assets
Purchase Agreement and all other SBCL Documents have been or will be duly
executed and delivered by SBCL, and constitute or will constitute the legal,
valid and binding obligations of SBCL, enforceable in accordance with their
respective terms except as enforceability may be limited by applicable equitable
principles, or by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect
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affecting the enforcement of creditors' rights generally. The execution,
delivery and performance of this Assets Purchase Agreement or any other SBCL
Document, and the consummation of the transactions contemplated hereby or
thereby, will not violate any provisions of the articles of incorporation or
bylaws of SBCL, or any Regulation or Court Order to which SBCL is subject.
3.1.2 ORGANIZATION, GOOD STANDING AND FOREIGN
QUALIFICATION. SBCL is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware, and has the corporate power and
authority to carry on its business in such places as it has been and is now
being conducted, and to own and lease the properties and assets which it now
owns or leases, in each case in connection with its provision of Lab EDI
Services.
3.1.3 PROJECTIONS.
(a) The aggregate costs reflected by the line
items [*] attached hereto as DISCLOSURE SCHEDULE 3.1.3 (the "PROJECTIONS")
are accurate in all material respects and do not omit to state any material
fact required to be stated therein to make such Projections not misleading;
PROVIDED that such Projections are indicative only of general expenses
(excluding one-time or transactional expenses, which include any expenses
incurred with respect to this transaction) for [*] projected to be incurred
in connection with SBCL's provision of Lab EDI Services to [*] SCAN Sites and
assume that ActaMed will provide services to only such number of SCAN Sites
and only in the same manner that SBCL did prior to transfer.
(b) The Projections were prepared in accordance
with the books and records of SBCL in all material respects, which books and
records have been properly maintained and are complete and correct in all
material respects.
(c) SBCL has not received any advice or
notification from its independent certified public accountants that SBCL has
used any improper accounting practice that would have the effect of not
reflecting or incorrectly reflecting in the Projections any expenses associated
with SBCL's provision of Lab EDI Services.
3.1.4 ABSENCE OF CHANGES. Except as contemplated by
this Assets Purchase Agreement, since December 1, 1997, SBCL's provision of Lab
EDI Services has been carried on only in the ordinary course of SBCL's business,
and there has not been any transaction or occurrence in which SBCL has:
(a) suffered or experienced any event or
condition materially increasing the expenses incurred by SBCL in the provision
of Lab EDI Services;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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(b) increased the rate of compensation payable or
to become payable by it to any of the Transferred Employees or agreed to do so,
except general hourly rate increases, normal merit increases and increases due
to promotions;
(c) failed to provide notice to ActaMed that it
hired or committed to hire any Person who will perform services directly
relating to SBCL's provision of Lab EDI Services, or terminated or received the
resignation of any Transferred Employee;
(d) through negotiation or otherwise, made any
commitment or incurred any Liability, whether or not enforceable, to any labor
organization affecting Transferred Employees;
(e) directly or indirectly paid or entered into a
Contract to pay any severance or termination pay to any Transferred Employee;
(f) experienced problems with the SCAN Network
or [*] (as defined in the Services Agreement) (such as network operations,
quality assurance or software development problems) which have materially and
adversely affected SBCL's provision of Lab EDI Services to SBCL Sites in
Regions not yet transferred to ActaMed pursuant to this Assets Purchase
Agreement.
3.1.5 REAL PROPERTY. SBCL neither owns nor leases
(either as lessee or lessor) any real property related exclusively to its
provision of Lab EDI Services.
3.1.6 PERSONAL PROPERTY.
(a) SBCL owns and has good title to the SCAN
Assets, free and clear of any and all Liens of any kind or nature.
(b) DISCLOSURE SCHEDULE 3.1.6 contains (i) a
sample configuration of a PC System which is representative of PC Systems
provided to Automated Providers by SBCL for the provision of Lab EDI Services,
and (ii) a list of the SCAN Assets in the Region being transferred, which list
is true and complete in all material respects to the best of SBCL's knowledge.
(c) SBCL does not lease any equipment, machinery
or other items of tangible personal property for use exclusively in the
provision of Lab EDI Services. SBCL does not lease any personal property as
lessor in connection with its provision of Lab EDI Services.
(d) As of the Region One Transfer Date, there
are not less than [*] SBCL Sites located in all Regions.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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3.1.7 COMPLIANCE WITH LAWS.
(a) To the best knowledge of SBCL, in its
provision of Lab EDI Services, SBCL has complied in all material respects with
all applicable Regulations relating to the provision of Lab EDI Services.
(b) To the best knowledge of SBCL, the SCAN
Software complies as of the Region One Transfer Date with all applicable
Regulations relating to SBCL's provision of Lab EDI Services.
(c) SBCL has obtained all consents or approvals
required from, has made all necessary filings with, and has provided all
required notices to, any governmental body or agency or any other third party in
connection with the execution and delivery of this Assets Purchase Agreement or
any of the SBCL Documents.
3.1.8 LITIGATION AND CLAIMS. There are no outstanding
Court Orders or quasi-judicial or administrative decisions to which SBCL is
subject relating to the SCAN Assets located at SBCL Sites and there is no
Litigation pending or, to SBCL's knowledge, threatened relating to (i) the SCAN
Assets located at SBCL Sites or (ii) SBCL's provision of Lab EDI Services. SBCL
has not been advised by any attorney representing it that there are any "loss
contingencies" (as defined in FASB 5), which would be required by FASB 5 to be
disclosed or accrued in SBCL's financial statements by reason of the Lab EDI
Services provided by SBCL.
3.1.9 CONTRACTS AND COMMITMENTS; WARRANTIES.
(a) DISCLOSURE SCHEDULE 3.1.9 contains, to the
best knowledge of SBCL, a list, which is true and correct in all material
respects, of all Vendor Contracts and all Contracts to which SBCL is a party
solely because it provides Lab EDI Services using the SCAN Network, except for
Contracts (other than Vendor Contracts) that (i) are terminable on thirty (30)
days or less notice by SBCL without any Liability, (ii) are described in any
other Section of the Disclosure Schedule hereto, or (iii) do not require
payments in excess of $5,000 in the aggregate following the date hereof (unless
renewed which renewal is at the discretion of ActaMed).
(b) Each of the Contracts listed in DISCLOSURE
SCHEDULE 3.1.9, or described in this Section 3.1.9, is in full force and effect.
No Default by SBCL under any of the terms or conditions set forth in any of the
Contracts to which SBCL is a party or any document or instrument related thereto
has occurred or been asserted by any party which could result in acceleration of
any obligations under or termination of the Contract. The execution, delivery
and performance of this Assets Purchase Agreement or any other SBCL Document,
and the consummation of the transactions contemplated hereby or thereby, will
not conflict with, result in a breach of, or constitute a Default under any
Contract to which SBCL is a party or by which it is bound, affect the
continuation, validity and effectiveness of any of such Contracts, or any terms
thereof, or result in the creation of any Lien upon any of the SCAN Assets
located at SBCL Sites, or result in the acceleration of the maturity of any
payment date of any of SBCL's
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obligations, or increase or adversely affect the obligations of SBCL
thereunder. SBCL has provided, upon request, true, correct and complete
copies of the Contracts referred to in DISCLOSURE SCHEDULE 3.1.9 to ActaMed
for review.
3.1.10 CONDITION OF ASSETS. To the best of SBCL's
knowledge, the PC Systems located at SBCL Sites in a Region to be transferred on
an Applicable Transfer Date are in good operating condition so as to allow, in
the aggregate, a level of connectivity with the SCAN Network which is consistent
with SBCL's historically experienced level of connectivity. No representation
or warranty is hereby given as to the condition or state of repair of any
individual component of a PC System.
3.1.11 BROKERS AND FINDERS. No third party is entitled
to receive any commission, fees or similar consideration in connection with the
transactions contemplated by this Assets Purchase Agreement based on any
arrangement or agreement made by or on behalf of SBCL.
3.1.12 INVESTMENT REPRESENTATIONS; LEGEND ON SHARES.
(a) SBCL hereby acknowledges that (i) the shares
of Series D Preferred Stock (or, if applicable, Conversion Shares) delivered
pursuant to this Assets Purchase Agreement have not been registered under the
Securities Act, and the resale of such shares is therefore subject to
restrictions imposed by federal and state securities laws including without
limitation that such shares cannot be sold or otherwise disposed of except in a
transaction which is registered under the Securities Act or exempted from
registration; (ii) ActaMed has advised SBCL, a reasonable time prior to the
execution of this Assets Purchase Agreement, that the shares have not been
registered under the Securities Act; and (iii) all certificates representing the
shares delivered to SBCL shall be stamped or otherwise imprinted with a legend
substantially in the following form (together with any other legend required by
state law), and that stop transfer orders will be given to ActaMed's transfer
agent:
"THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
ANY APPLICABLE STATE SECURITIES ACTS OR
EXEMPTIONS FROM SUCH REGISTRATIONS ARE
AVAILABLE."
(b) SBCL is an accredited investor (as such term
is defined in Rule 506 of Regulation D promulgated by the SEC) and is acquiring
the shares of Series D Preferred Stock (and, if applicable, Conversion Shares)
for its own account for investment purposes only, and not with a view to the
distribution, transfer, or assignment of the same in whole or in part. SBCL has
been represented by counsel and advisers, each of whom has been
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previously selected by SBCL, as SBCL has found necessary to consult
concerning this Assets Purchase Agreement and the shares to be issued
pursuant to this Assets Purchase Agreement. SBCL, either alone or with its
representative(s), has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the
prospective investment. SBCL and its counsel and other advisers have been
provided with such information concerning ActaMed as they have deemed
relevant with respect to SBCL's investment decision relating to the shares
being delivered to it. SBCL has had a reasonable opportunity to ask
questions and receive answers concerning the terms and conditions of the
transactions contemplated by this Assets Purchase Agreement, to discuss
ActaMed's business, management and financial affairs with the management of
ActaMed, and to obtain any additional information which ActaMed possesses or
can acquire without unreasonable effort or expense that is necessary to
verify the accuracy of the information furnished. SBCL has received
satisfactory responses from management of ActaMed to SBCL's inquiries.
3.1.13 THIRD PARTY SOFTWARE. SBCL has sufficient rights
and licenses in Third Party Software to convey the rights contemplated by
Section 1.2 hereof, free and clear of any liens, claims or encumbrances, in each
case subject to the exclusions and limitations expressly set forth in Section
1.2 hereof.
3.1.14 SCHEDULES. All Sections of the Disclosure
Schedule referenced in this Section 3.1 are true, correct and complete as of the
date of this Assets Purchase Agreement, and will be true, correct and complete
as of each Transfer Date. Matters disclosed in each such Section of the
Disclosure Schedule shall be deemed disclosed for purposes of the matters to be
disclosed in any Section of the Disclosure Schedule.
SECTION 3.2 BY ACTAMED. Except as set forth on a Disclosure Schedule
hereto, ActaMed hereby represents and warrants to SBCL, and will represent and
warrant to SBCL on each Transfer Date, as follows:
3.2.1 ORGANIZATION, GOOD STANDING AND AUTHORITY.
ActaMed is a duly organized and validly existing corporation in good standing
under the laws of the State of Georgia and has full corporate power and
authority to carry on its business, to own and operate its properties and
assets, and to consummate the transactions contemplated by this Assets Purchase
Agreement and the other documents to be executed and delivered by ActaMed
hereunder (the "ACTAMED DOCUMENTS"). ActaMed is currently engaged in the
ActaMed Business and is qualified to do business as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect. The Fourth Amended Articles have been duly filed and are
currently in effect. ActaMed has delivered to SBCL true, correct and complete
copies of the Fourth Amended Articles and the bylaws of ActaMed, including all
amendments thereto, as presently in effect. ActaMed has all governmental
licenses, authorizations, consents and approvals required to carry on the
ActaMed Business as now conducted and as proposed to be conducted and to own,
operate and lease its properties and
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assets, except for those licenses, authorizations, consents and approvals the
failure of which to have would not have a Material Adverse Effect.
3.2.2 AUTHORIZATION OF AGREEMENT, NO BREACH. The
execution and delivery of this Assets Purchase Agreement have been duly
authorized by all necessary corporate action on the part of ActaMed, and no
further corporate action of any nature is required pursuant to the Articles or
the bylaws of ActaMed. All Persons who have executed or will execute this
Assets Purchase Agreement, or any other agreement or document called for by this
Assets Purchase Agreement on behalf of ActaMed have been duly authorized to do
so by all necessary corporate action. This Assets Purchase Agreement and the
other ActaMed Documents have been duly executed and delivered by ActaMed and
constitute legal, valid and binding obligations of ActaMed, enforceable against
ActaMed in accordance with their respective terms, except as enforceability may
be limited by applicable equitable principles, or by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect affecting
the enforcement of creditors' rights generally. The execution, delivery and
performance of this Assets Purchase Agreement and the other ActaMed Documents
and the consummation of the transactions contemplated hereby and thereby will
not (1) violate or result in a breach of or Default or acceleration under the
Articles or the bylaws of ActaMed or any material contract to which ActaMed is a
party or is bound, (2) violate any Court Order, quasi-judicial or administrative
decision or award of any court, arbitrator, mediator, tribunal, administrative
agency or governmental body applicable to or binding upon ActaMed or upon the
securities, property or business of ActaMed or (3) violate any Regulation
relating to ActaMed, or to the securities, property, or business of ActaMed.
3.2.3 ACTAMED FINANCIAL STATEMENTS.
(a) DISCLOSURE SCHEDULE 3.2.3 hereto contains a
true and correct copy of (i) the balance sheets of ActaMed at December 31, 1995
and December 31, 1996 and the statements of operations, statements of
stockholders equity and statements of cash flows of ActaMed for the years ended
December 31, 1995 and December 31, 1996, which have been audited by Deloitte &
Touche, LLP independent accountants (the "ACTAMED FINANCIAL STATEMENTS"), and
(ii) the unaudited balance sheets of ActaMed at September 30, 1997 and the
statements of operations, statements of stockholders equity and statements of
cash flows of ActaMed for quarter ended September 30, 1997 (the "ACTAMED
UNAUDITED STATEMENTS").
(b) The ActaMed Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis during the
respective periods covered thereby. The ActaMed Financial Statements are
correct and complete and present fairly in all material respects the financial
position of ActaMed at the date of the balance sheets included therein and the
results of operations and cash flows of ActaMed for the respective periods
covered by the statements of operations and cash flows included therein.
ActaMed has no material obligations or liabilities of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or not due)
which would be required by GAAP to be
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disclosed in the ActaMed Financial Statements and which, either individually
or in the aggregate, would have a Material Adverse Effect and which are not
disclosed by the ActaMed Financial Statements.
(c) The ActaMed Unaudited Statements have been
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as otherwise disclosed therein)
and certified by the chief financial officer of ActaMed as presenting fairly the
financial condition and results of operations of ActaMed and any of its
Subsidiaries for the periods covered by the statements (subject to customary
exceptions for interim unaudited financial statements).
3.2.4 CONSENTS. No consent, approval or authorization
of, or qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of ActaMed is required in connection with (a)
the valid execution and delivery of the ActaMed Documents and (b) the issuance
of the shares of Series D Preferred Stock (and, if applicable, the Conversion
Shares), except the filing of the Fourth Amended Articles in the office of the
Secretary of State of the State of Georgia, which filing will be accomplished
concurrently with the execution and delivery of this Assets Purchase Agreement.
3.2.5 CAPITALIZATION.
(a) After giving effect to the authorization of
the shares of Series D Preferred Stock, the capital stock of ActaMed, as
authorized by its Articles consists of the authorized, issued and outstanding
capital stock set forth on DISCLOSURE SCHEDULE 3.2.5. None of such issued
shares is held in the treasury of ActaMed. ActaMed does not have outstanding
any stock or securities convertible into or exchangeable for any shares of its
capital stock and no Person has any right against ActaMed to subscribe for or to
purchase, or any options for the purchase, or any agreements providing for the
issuance, of any capital stock or any stock or securities convertible into
capital stock of ActaMed.
(b) All of the issued and outstanding shares
of ActaMed capital stock have been validly issued and are fully paid and
non-assessable. The shares of Series D Preferred Stock, when issued to SBCL
pursuant to this Assets Purchase Agreement, will be validly issued, fully
paid and nonassessable, will have the designations, preferences, limitations,
and relative rights set forth in the Articles and will be free and clear of
all liens, claims and encumbrances. Any and all of the Conversion Shares,
when issued, will be validly issued, fully paid and nonassessable.
3.2.6 REGISTRATION RIGHTS. Except as set forth in the
Registration Rights Agreement, ActaMed will not be under any obligation to
register under the Securities Act any of its then outstanding securities or any
of its securities which may thereafter be issued.
3.2.7 OFFERING. Subject to the accuracy of
representations and warranties by SBCL in Section 3.1 hereof, the issuance of
the shares of Series D Preferred Stock (and the
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issuance of the Conversion Shares) on the Applicable Transfer Date
constitutes a transaction exempt from the registration requirements of
Section 5 of the Securities Act, and from the qualification requirements of
any applicable state securities or "blue sky" laws.
3.2.8 CHANGES. Since the date of the latest ActaMed
Unaudited Statements, there has not been (i) any adverse change in the assets,
liabilities, financial condition or operations of the ActaMed Business from that
reflected in the ActaMed Financial Statements, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
had a Material Adverse Effect or (ii) any adverse change in the prospects of the
ActaMed Business or any other event or condition (or events or conditions) of
any character which, either individually or cumulatively, has had a Material
Adverse Effect.
3.2.9 SUBSIDIARIES. Other than EDI Services Inc.,
ActaMed has no Subsidiaries. Except as set forth in this Assets Purchase
Agreement, ActaMed does not own, or have the right to acquire, any securities or
other equity or ownership interest in any corporation, association or other
business entity or Person.
3.2.10 PENDING LITIGATION, ETC. There are no actions at
law, suits in equity or other proceedings or, to the knowledge of ActaMed,
investigations in any court, tribunal or by or before any other governmental or
public authority or agency or any arbitrator or arbitration panel or any
governmental or private third-party insurance agency, pending or, to the
knowledge of ActaMed, threatened against or affecting ActaMed that either
individually or in the aggregate, would have a Material Adverse Effect, or,
would question the validity or enforceability of this Assets Purchase Agreement,
the ActaMed Documents, or any of the transactions contemplated hereby and
thereby. ActaMed is not in default with respect to any Court Order.
3.2.11 TITLE TO PROPERTIES. ActaMed has good and
marketable title to its properties and assets and has good title to all its
respective leasehold interests, in each case subject to no Lien, other than as
set forth on DISCLOSURE SCHEDULE 3.2.11 hereto. DISCLOSURE SCHEDULE 3.2.11
accurately lists with respect to the personal property owned by ActaMed (i) each
financing statement, deed, agreement or other instrument which has been filed,
recorded or registered pursuant to any Regulation that names a business entity
as debtor or lessee or as the grantor or the transferor of the interest created
thereby, and (ii) as to each such financing statement, deed, agreement or other
instrument, the names of the debtor, lessee, grantor or transferor and the
secured party, lessor, grantee or transferee and the name of the jurisdiction in
which such financing statement, deed, agreement or other instrument has been
filed, recorded or registered.
3.2.12 INTELLECTUAL PROPERTY, ETC. ActaMed owns or
possesses the rights to use, free from burdensome restrictions or conflicts with
the rights of others, all Intellectual Property necessary for the conduct of the
ActaMed Business as now conducted and as proposed to be conducted. All licenses
constituting ActaMed's Intellectual Property are in full force and effect and
constitute legal, valid and binding obligation of the respective parties
thereto, and
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there have not been and are not any Defaults thereunder by any party. There
are no outstanding options, licenses, or material agreements of any kind
relating to the foregoing, nor is ActaMed bound by or a party to any options,
licenses or agreements of any kind with respect to such Intellectual
Property. ActaMed has not received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the
Intellectual Property rights of any other Person. To ActaMed's knowledge,
none of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of their best efforts to promote the interests of
ActaMed or that would conflict with the ActaMed Business as proposed to be
conducted. Neither the execution nor delivery of this Assets Purchase
Agreement, nor the carrying on of the ActaMed Business by the employees of
ActaMed, nor the conduct of the ActaMed Business as proposed, will, to
ActaMed's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a Default under, any Contract
under which any of such employees is now obligated. ActaMed does not believe
it is or will be necessary to utilize any inventions of any of its employees
(or people it currently intends to hire) made prior to their employment by
ActaMed.
3.2.13 COMPLIANCE WITH OTHER INSTRUMENTS. ActaMed is not
in violation of or in Default in any material respect under any term of its
organizational documents, any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment or decree, and is not in violation in
any material respect of any applicable Regulation, and to ActaMed's knowledge,
there is no state of facts which, with the passage of time or giving of notice
or both, would constitute any such violation or Default that would in the
aggregate have a Material Adverse Effect. The execution, delivery and
performance of and compliance with the ActaMed Documents, the issuance of the
shares of Series D Preferred Stock (and the Conversion Shares) and the
consummation of any other transaction contemplated by the ActaMed Documents have
not resulted and will not result in any such violation, or be in conflict with,
or constitute a Default under any of the foregoing, or result in the creation of
any Lien upon any of the properties or assets of ActaMed.
3.2.14 COMPLIANCE WITH LAW. ActaMed is in compliance
with all Regulations to which it is subject, the violation of which, either
individually or in the aggregate, would have a Material Adverse Effect. The
execution, delivery or performance of this Assets Purchase Agreement or any of
the other ActaMed Documents, and the consummation of the transactions
contemplated by the ActaMed Documents, will not cause ActaMed to be in violation
of any Regulation.
3.2.15 EMPLOYEES. To the knowledge of ActaMed, no
employee of ActaMed is in violation of any term of any employment contract,
patent disclosure agreement or any other Contract relating to the Intellectual
Property of ActaMed or the relationship of any such employee with such entity or
any other party.
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3.2.16 EMPLOYEE BENEFIT PLANS.
(a) DISCLOSURE SCHEDULE 3.2.16 contains a
current, correct and complete list of all the Employee Benefit Plans.
(b) All Employee Benefit Plans conform (and at
all times have conformed) in all material respects to, and are being
administered and operated (and have at all times been administered and operated)
in material compliance with, the requirements of ERISA, the Code and all other
applicable Regulations. All returns, reports and disclosure statements required
to be made under ERISA and the Code with respect to all such Employee Benefit
Plans have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA, involving any of the Employee Benefit Plans, that could subject
ActaMed to any material penalty or tax imposed under the Code or ERISA.
(c) Any Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code has been determined by the Internal Revenue Service to be so
qualified or an application for such determination is pending. Any such
determination that has been obtained remains in effect and has not been revoked,
and with respect to any application that is pending, ActaMed has no reason to
suspect that such application for determination will be denied. Nothing has
occurred since the date of any such determination that is reasonably likely to
affect adversely such qualification or exemption, or result in the imposition of
excise taxes or income taxes or unrelated business income under the Code or
ERISA with respect to any such Employee Benefit Plan.
(d) ActaMed and the ERISA Affiliates do not
sponsor or contribute to, and have not in the past sponsored or contributed to,
and have no Liability with respect to, any defined benefit plan subject to Title
IV of ERISA or any multi-employer plan (as defined in Section 3(37) of ERISA).
Neither ActaMed nor any ERISA Affiliate has any current or contingent obligation
to any multi-employer plan (as defined in Section 3(37) of ERISA). ActaMed does
not have any Liability with respect to any employee benefit plan or arrangement
other than with respect to the Employee Benefit Plans listed in DISCLOSURE
SCHEDULE 3.2.16.
(e) There are no pending or, to the knowledge of
ActaMed, threatened claims by or on behalf of any such Employee Benefit Plans,
or by or on behalf of any individual participants or beneficiaries of any such
Employee Benefit Plans, alleging any violation of ERISA or any other Applicable
Regulations, or claiming benefit payments (other than those made in the ordinary
operation of such plans), nor is there, to the knowledge of ActaMed, any basis
for such claim. Such Employee Benefit Plans are not the subject of any pending
(or to the knowledge of ActaMed, any threatened) investigation or audit by the
Internal Revenue Service, the U.S. Department of Labor or the Pension Benefit
Guaranty Corporation or any similar regulatory agency, foreign or domestic.
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(f) ActaMed has timely made all required payments
and contributions under the Employee Benefit Plans including the payment of all
insurance premiums. All such payments and contributions have been deducted
fully by ActaMed for federal income tax purposes. Such deductions have not been
challenged or disallowed by any governmental entity and ActaMed has no reason to
believe that such deductions are not properly allowable. ActaMed has not
incurred any Liability for any tax, excise tax, penalty or fee with respect to
any Employee Benefit Plan, and, to the best of ActaMed's knowledge, no event has
occurred and no circumstance exists or has existed that could give rise to any
such Liability.
(g) The execution of and performance of the
transactions contemplated by this Assets Purchase Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) result in
any payment, acceleration, vesting or increase in benefits with respect to any
employee or former employee of ActaMed, including one that would be an "excess
parachute payment" under Section 280G of the Code.
(h) ActaMed does not maintain any plan or
arrangement that provides post retirement medical benefits, post retirement
death benefits or other post retirement welfare benefits, other than to the
extent required by Part 6 of Title I of ERISA.
(i) ActaMed does not maintain or contribute to,
nor has it in the past maintained or contributed to, any "welfare benefit fund"
(within the meaning of Section 419 of the Code).
(j) Any Employee Benefit Plan that is a group
health plan (within the meaning of Section 4980B(g)(2) of the Code) complies and
has been administered in material respects in accordance with all of the
applicable requirements of Section 4980B of the Code, Part 6 of Title I of
ERISA, Title XXII of the Public Health Service Act, the Social Security Act and
all other applicable Regulations.
(k) Any Employee Benefit Plan that is a group
health plan (within the meaning of Section 4980D(f)(1) of the Code) complies and
has been administered in material respects in accordance with all of the
applicable requirements of Subtitle K of the Code, Part 7 of Title I of ERISA,
the Public Health Service Act and all other applicable Regulations, and
(l) Neither ActaMed nor any ERISA Affiliate has
contributed to a non-conforming group health plan (as that term is defined in
Code section 5000(c)) or incurred any tax liability under Code section 5000(a).
3.2.17 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) ActaMed is in compliance with all applicable
environmental Regulations applicable to the ActaMed Business with respect to all
discharges into the ground and surface water, emissions into the ambient air and
generation, accumulation,
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storage, treatment, recycling, transportation, labeling or disposal of waste
materials or process by-products, except violations which, either
individually or in the aggregate, would not have a Material Adverse Effect.
ActaMed is not liable for any material penalties, fines or forfeitures for
failure to comply with any of the foregoing. All licenses, permits or
registrations required for the ActaMed Business as presently conducted and
proposed to be conducted, under any environmental Regulations have been or
will, in a timely manner, be obtained or made, other than such licenses,
permits or registrations as to which the failure to obtain or make, either
individually or in the aggregate, will not have a Material Adverse Effect,
and ActaMed is in compliance therewith in all material respects.
(b) No release, emission or discharge into the
environment of hazardous substances, as defined under the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, or
hazardous waste, as defined under the Resource Conservation and Recovery Act, or
air pollutants as defined under the Clean Air Act, or pollutants, as defined
under the Clean Water Act, by ActaMed has occurred or is presently occurring on
or from any property owned or leased by ActaMed in excess of federal, state or
local permitted releases or reportable quantities, or other concentrations,
standards or limitations under the foregoing Regulations governing the
protection of health and the environment or under any other Regulations (then or
now applicable, as the case may be) other than such releases, emissions or
discharges, either individually or in the aggregate, would not have a Material
Adverse Effect.
(c) To its knowledge, ActaMed has never (1)
owned, occupied or operated a site or structure on or in which any hazardous
substance was or is stored, transported or disposed of in violation of any
environmental Regulations at such time as such site or structure was owned,
occupied or operated by ActaMed or at any other time, or (2) transported or
arranged for the transportation of any hazardous substance other than in full
compliance with all applicable environmental Regulations governing the ActaMed
Business or the storage, transportation or disposal of hazardous substances
except for such violations as, either individually or in the aggregate, would
not have a Material Adverse Effect. ActaMed has never caused or been held
legally responsible for any release or threatened release of any hazardous
substance, or received notification from any federal, state or other
governmental authority of any such release or threatened release, or that
ActaMed may be required to pay any costs or expenses incurred or to be incurred
in connection with any efforts to mitigate the environmental impact of any
release or threatened release, of any hazardous substance from any site or
structure owned, occupied or operated by ActaMed, except such releases or
threatened releases as, either individually or in the aggregate, would not have
a Material Adverse Effect.
3.2.18 INSURANCE. The ActaMed Business has fire,
casualty, liability, and business interruption insurance policies with
recognized insurers, in such amounts and with such coverage as set forth on
DISCLOSURE SCHEDULE 3.2.18.
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3.2.19 MATERIAL CONTRACTS AND AGREEMENTS. DISCLOSURE
SCHEDULE 3.2.19 lists the parties to, and subject matter of, all material
Contracts of the ActaMed Business, including without limitation, all employment
or labor contracts, leases or compensation plans. Except as set forth on such
Schedule, all Contracts set forth on such list are valid, binding, and in full
force and effect, without any breach by ActaMed or, to ActaMed's knowledge, any
other party thereto.
3.2.20 TAXES. All federal, state and other tax returns
of ActaMed required by law to be filed have been duly filed and all federal,
state and other Taxes, assessments, fees and other federal governmental charges
upon ActaMed or any of the properties, incomes or assets of ActaMed that are due
and payable have been paid. No extensions of the time for the assessment of
deficiencies have been granted to ActaMed in connection with any federal tax,
assessment, fee or other federal governmental charge. There are no Liens, on
any properties or assets of the ActaMed Business imposed or arising as a result
of the delinquent payment or the non-payment of any tax, assessment, fee or
other governmental charge that, either individually or in the aggregate, would
have a Material Adverse Effect.
(a) ActaMed has not assumed and is not liable for
any Tax liability of any other Person, including any predecessor corporation, as
a result of any purchase of assets or other business acquisition transaction;
(b) ActaMed has not indemnified or agreed to
indemnify any other Person or otherwise agreed to pay on behalf of any other
Person tax liability growing out of or which may be asserted on the basis of any
tax treatment adopted with respect to all or any aspect of such a business
acquisition transaction;
(c) The charges, accruals and reserves, if any,
on the books of ActaMed in respect of all Taxes for all fiscal periods to date
are adequate in accordance with GAAP, and ActaMed knows of no additional unpaid
assessments for such periods or other governmental charges payable by ActaMed in
connection with the execution and delivery of this Assets Purchase Agreement,
the ActaMed Documents or the issuance of the Shares of Series D Preferred Stock
by ActaMed, other than stock transfer taxes, recording fees and filing fees in
connection with state securities or "blue sky" filings.
3.2.21 INVESTMENT COMPANY. ActaMed is not an "investment
company", or an "affiliated person" of an "investment company", or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended, and ActaMed is not an "investment
adviser" or an "affiliated person" of an "investment adviser" as such terms are
defined in the Investment Advisers Act of 1940, as amended.
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3.2.22 LABOR RELATIONS. ActaMed is not engaged in any
unfair labor practices. There is:
(a) no unfair labor practice complaint pending
or, to the best of ActaMed's knowledge, threatened against ActaMed before the
National Labor Relations Board or any court or labor board, and no grievance or
arbitration proceedings arising out of or under collective bargaining agreements
is so pending or, to the best of ActaMed's knowledge, threatened,
(b) no strike, lock-out, labor dispute, slowdown
or work stoppage pending or, to the best of ActaMed's knowledge, threatened
against ActaMed, and
(c) no union representation or certification
question existing or pending with respect to the employees of ActaMed, and, to
the best knowledge of ActaMed, no union organization activity taking place,
other than such actions or proceedings as, either individually or in the
aggregate, would not have a Material Adverse Effect.
3.2.23 NO CONFLICT OF INTEREST. ActaMed is not indebted,
directly or indirectly, to any Substantial Holder, or, to ActaMed's knowledge,
to any Affiliate of a Substantial Holder, in any amount whatsoever. To the best
knowledge of ActaMed, no Substantial Holders, or any of their Affiliates, are
indebted to any firm or corporation with which ActaMed is affiliated or with
which ActaMed has a business relationship, or any firm or corporation which
competes with ActaMed. Except as contemplated by the ActaMed Documents, no
Substantial Holder, or, to ActaMed's knowledge, any Affiliate of a Substantial
Holder, is directly or indirectly interested in any contract with ActaMed or any
of its Subsidiaries.
3.2.24 BROKERS OR FINDERS. No broker, agent, finder or
consultant or other Person has been retained by or on behalf of ActaMed (other
than legal or accounting advisors), or is or may be entitled to be paid based
upon any agreements or understandings made by ActaMed in connection with the
transactions contemplated hereby.
3.2.25 FULL DISCLOSURE. This Assets Purchase Agreement,
the other ActaMed Documents, and any report or financial statement referred to
in this Section 3.2 hereof and any certificate, report, statement or other
writing furnished to SBCL by or on behalf of ActaMed in connection with the
negotiation of this Assets Purchase Agreement and the other ActaMed Documents
and the sale of the shares of Series D Preferred Stock, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
with respect to which disclosure has been requested and which is necessary to
make the statements contained herein or therein not misleading.
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ARTICLE 4
TRANSITION MATTERS
SECTION 4.1 PRIOR TO REGION TRANSFER.
4.1.1 SBCL CONTINUED OPERATION. Except (i) as
contemplated by the Implementation Plan, (ii) with the prior written consent
of ActaMed, or (iii) as necessary to effect the transactions contemplated by
this Assets Purchase Agreement, SBCL shall, with respect to all SBCL Sites in
each Region which has not been transferred, until the Applicable Transfer
Date for the Region:
(a) provide Lab EDI Services using the SCAN
Network in substantially the same manner as presently being conducted;
(b) use its best efforts to preserve its present
relationships with Automated Providers and vendors; and
(c) notify ActaMed of any development materially
and adversely affecting its ability to provide Lab EDI Services, and of any
governmental complaints, investigations or hearings (or written communications
indicating that the same is contemplated) or administrative proceedings,
involving its ability to provide Lab EDI Services, and permit its
representatives prompt access to all materials prepared in connection therewith.
4.1.2 SCAN EXPENSE STATEMENTS. SBCL will cooperate with
ActaMed and Ernst & Young, or another of the "Big 6" national accounting firms
chosen by ActaMed and approved by SBCL ("CPA"), and provide CPA access to SBCL's
business and accounting records relating to SBCL's provision of Lab EDI Services
so that CPA may prepare audited financial statements, as of December 31, 1995,
December 31, 1996, and December 31, 1997, with respect to SBCL's provision of
such services, to the extent required for ActaMed to complete a registration of
the ActaMed Common Stock with the Securities Exchange Commission. ActaMed will
be responsible for, and pay, the expense of said audit, and ActaMed and SBCL
shall use their collective best efforts to cause said audit to be completed on
or prior to April 30, 1998.
SECTION 4.2 REGION TRANSITION MATTERS.
4.2.1 IMPLEMENTATION PLAN. (a) As a further condition
precedent to the occurrence of the Region One Transfer Date, the parties have
prepared a detailed plan regarding the transition of SBCL Sites into ActaMed
Sites (the "IMPLEMENTATION PLAN"), a copy of which is attached hereto as
SCHEDULE 4.2.1. SBCL's nominees to the Implementation Committee shall review
the Implementation Plan and shall notify ActaMed as to any proposed changes to
the Implementation Plan on or prior to January 15, 1998. ActaMed shall
implement all such
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changes, except to the extent its designees to the Implementation Committee
reasonably believe that any such change would materially impact ActaMed's
ability to meet the Transfer Benchmarks or the Performance Standards (as
defined in the Services Agreement), or would have a Material Adverse Effect
on ActaMed. If SBCL's designees to the Implementation Committee disagree
with ActaMed's assessment of a proposed change, the dispute shall be resolved
in accordance with the provisions of Article IX hereof. The Implementation
Plan shall continue in force, without any modification in respect of the
disputed change, until resolution of the matter.
(b) In the event of any conflict between the
terms of the Implementation Plan, on the one hand, and this Assets Purchase
Agreement, the Services Agreement, the License or the Development Agreement, on
the other, the terms of the relevant Transaction Document shall govern and
control over those of the Implementation Plan.
4.2.2 IMPLEMENTATION COMMITTEE. ActaMed and SBCL shall
form an implementation committee, consisting of an equal number of
representatives of ActaMed and SBCL (the "IMPLEMENTATION COMMITTEE"), authorized
and directed to (i) apply the Implementation Plan to each Region prior to it
being transferred to ActaMed, (ii) oversee, manage and implement the transition
of SBCL Sites into ActaMed Sites in accordance with the Implementation Plan;
(iii) revise and adapt the Implementation Plan to changing circumstances; and
(iv) determine the steps to be taken by the parties in those instances where the
Implementation Plan does not address an issue or problem presented. The
Implementation Committee shall initially be comprised of the people named on
SCHEDULE 4.2.2 hereto. From such list, ActaMed and SBCL shall each designate
one person (each an "RELATIONSHIP MANAGER") who together will manage the
Implementation Committee.
4.2.3 ASSISTANCE FROM SBCL. SBCL will provide resources
to assist ActaMed in the transition of SBCL Sites to ActaMed Sites as more fully
provided in the Services Agreement.
SECTION 4.3 GENERAL COVENANTS.
4.3.1 ACCESS TO PROPERTIES. At all times prior to the
last Transfer Date, the Transferred Employees, attorneys, accountants, agents
and other authorized and designated representatives of ActaMed will be allowed
upon reasonable advance notice and with minimal disruption to SBCL's business
operations, reasonable access to the properties, books and records of SBCL
relating to the SCAN Assets located at SBCL Sites, including without limitation,
title documents, leases, customer lists, and other data that, in the reasonable
opinion of both ActaMed and SBCL, are required for ActaMed to obtain such
information as it may reasonably request about the Transferred Employees or such
SCAN Assets. ActaMed shall also be allowed reasonable opportunity to consult
with the officers, employees, accountants, counsel and agents of SBCL in
connection with such investigation.
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4.3.2 OTHER OFFERS AND EXCLUSIVE DEALING. Unless and
until notice of termination of this Assets Purchase Agreement prior to the last
Transfer Date pursuant to Article X hereof, SBCL shall not, acting in any
capacity, directly or indirectly, through any officer, director, employee,
agent, affiliate or otherwise of SBCL, (a) solicit, initiate or encourage
submission of proposals or offers from any Person, corporation or other entity
for the primary or specific purpose of selling the SCAN Assets located at SBCL
Sites, or relating to the provision of Lab EDI Services to Automated Providers,
(b) participate in any discussions or negotiations regarding, or, except as
required by a legal or judicial process, furnish to any other Person,
corporation or other entity any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to purchase the SCAN Assets located at
SBCL Sites or to obtain the right to provide Lab EDI Services to Automated
Providers, or (c) approve or undertake any such transaction. Nothing in this
Section 4.3.2 shall restrict what SBCL may otherwise do under the Services
Agreement.
4.3.3 CONSENTS AND APPROVALS. SBCL will use its best
efforts to obtain the waiver, consent and approval of all Persons whose
waiver, consent or approval (a) is required in order to consummate the
transactions contemplated by this Assets Purchase Agreement, or (b) is
required by any Contract to be assumed by ActaMed, or by any Court Order or
License to which SBCL is a party or subject on any Transfer Date in
connection with the provision of Lab EDI Services, and which would prohibit,
or require the waiver, consent or approval of such transactions, or under
which such transactions would, without such waiver, consent or approval,
constitute a Default under the provisions thereof, result in the acceleration
of any obligation thereunder, or give rise to a right of any party thereto to
terminate its obligations thereunder. All written waivers, consents and
approvals obtained by SBCL relating to a Region shall be provided to ActaMed
on the Transfer Date relating to such Region in form and content reasonably
satisfactory to ActaMed. Without limiting the generality of the foregoing,
SBCL shall cause the [*] to sell to ActaMed in accordance with the terms and
conditions of this Agreement the SCAN Assets located in Region Two on or
prior to December 31, 1998.
To the extent that SBCL's rights under any Contract or other SCAN
Asset to be assigned to ActaMed hereunder may not be assigned without the
consent of another Person which has not been obtained, this Assets Purchase
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof or be unlawful. If notwithstanding
the best efforts of SBCL described above any such consent shall not be obtained,
or if any attempted assignment would be ineffective or would impair ActaMed's
rights under the SCAN Asset in question so that ActaMed would not in effect
acquire the benefit of all such rights, ActaMed to the maximum extent permitted
by law, shall act after the Applicable Transfer Date as SBCL's agent in order to
obtain for it the benefits thereunder and shall cooperate, to the maximum extent
permitted by law, with SBCL in any other reasonable arrangement designed to
provide such benefits to ActaMed.
4.3.4 PUBLIC ANNOUNCEMENTS. The parties hereto are in
the process of jointly developing a plan (the "COMMUNICATION PLAN") for
communicating the transactions
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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contemplated by this Assets Purchase Agreement and the Services Agreement to
Automated Providers, Transferred Employees and the public, a draft of which
attached as SCHEDULE 4.3.4 hereto. The parties agree to use their collective
best efforts to complete the Communication Plan by January 6, 1998, and each
party agrees to abide by such Communication Plan. Without limiting the
foregoing, neither party shall send any communication to any Automated
Providers or Transferred Employee describing, or otherwise in connection
with, the transactions and relationships contemplated by this Agreement (and
such other agreements) unless the form and content of such communication
shall have been approved in advance by the other unless required by law or
judicial process, in which case notification shall be given to the other
party hereto prior to such disclosure.
4.3.5 STANDSTILL. At all times prior to the last
Transfer Date, ActaMed shall not consummate, or enter into any agreement with
respect to a Sale of Assets (as that term is defined in the Articles), without
the prior written consent of SBCL.
If, at any time prior to the last Transfer
Date, (i) ActaMed consummates any Merger, Share Exchange or Consolidation (as
such terms are defined in the Articles) (a "Combination"); (ii) the holders
of ActaMed stock immediately prior to the Combination are not the holders of
a majority of the voting stock of the surviving company of the Combination,
(iii) Michael K. Hoover no longer has (or has diminished) responsibility for
overseeing and, directly or indirectly, managing the transfer of the Regions
under Section 2.3, and (iv) the Transfer Date of any remaining Region does
not occur as scheduled under Section 2.3, then SBCL may withhold [*] of the
Fixed Fee (as defined in the Services Agreement) due on or after such
scheduled date or dates until such time as all Regions have been transferred.
SECTION 4.4 CONFIDENTIALITY OF TRADE SECRETS. Each party hereto agrees
not to use, copy or disclose the Trade Secrets of the other party, except as
permitted by this Assets Purchase Agreement and the other Transaction Documents.
Each party shall treat the other's Trade Secrets with at least that degree of
care it uses with respect to its own such Trade Secrets. SBCL will give access
to its Trade Secrets relating to its provision of Lab EDI Services to those
ActaMed personnel who have a need for such access and to no other Person
whatsoever. ActaMed will give access to its Trade Secrets relating to the
provision of Lab EDI Services to those SBCL personnel who have a need for such
access and to no other Person whatsoever. The requirements herein contained
with respect to non-disclosure and non-use and protection of each party's Trade
Secrets shall permanently survive termination of any other provisions of this
Assets Purchase Agreement or the other Transaction Documents. If any party is
ordered by a court, administrative agency, or other governmental body of
competent jurisdiction to disclose Trade Secrets, or if it is served with or
otherwise becomes aware of a motion or similar request that such an order be
issued, then such party will not be liable to the other party for disclosure of
Trade Secrets required by such order if the disclosing party complies with the
following requirements: (1) if an already issued order calls for immediate
disclosure, then the disclosing party shall immediately move for or otherwise
request a stay of such order to permit the other
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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party to respond; (2) the disclosing party promptly notifies the other party
of the motion or order; and (3) the disclosing party does not oppose a motion
or similar request by the other party for an order protecting the Trade
Secrets including joining or agreeing to (or non-opposition to) a motion for
leave to intervene by such other party. Notwithstanding anything to the
contrary contained in this Assets Purchase Agreement, SBCL may disclose to
the Office of Inspector General of the Department of Health and Human
Services (the "OIG") as part of the disclosure SBCL makes under its Integrity
Agreement the fact that SBCL and ActaMed have entered into the transactions
contemplated by the parties and any information relating to such transaction
or this Assets Purchase Agreement which SBCL determines, in good faith upon
advice of counsel, is required or, in light of SBCL's obligations under the
Integrity Agreement, appropriate for SBCL to make, or SBCL proposes to make
in response to a request for such information from the OIG, provided that
ActaMed shall be given opportunity (which shall be reasonable in light of all
facts and circumstances) to review and comment upon the information SBCL
intends to include in any such submission. In the event that any such
disclosure that SBCL intends to make includes any information that
constitutes Trade Secrets of ActaMed, SBCL will provide reasonable (in light
of all facts and circumstances, including the time frame in which such
disclosure is required to be made) assistance to ActaMed to take reasonable
steps to assure that such Trade Secrets of ActaMed are maintained in
confidence, including, but not limited to, (i) requesting that the OIG treat
such information as trade secrets within the meaning of the Freedom of
Information Act, 5 U.S.C. Section 552(b)(4), (ii) requesting of the OIG that
SBCL and ActaMed be given prior notice of an proposed release of such
information to Persons or entities outside of the OIG; (iii) requesting that
the OIG otherwise assure the confidentiality of the information provided by
ActaMed as if such information was a Trade Secret of SBCL [*] and taking
other reasonable steps that may be requested by ActaMed and to which SBCL
may, in its sole discretion, agree to assure that the OIG honors its
confidentiality obligations in that section; (iv) where such information is
to be provided in response to a request by the OIG, take reasonable steps to
narrow the request from the OIG in an appropriate manner in order to limit
the amount of information, if any, that constitutes Trade Secrets of ActaMed
covered by such request; and (v) make reasonable efforts to permit ActaMed,
with the concurrence of the OIG, to disclose such information directly to the
OIG, provided that in any such case, ActaMed shall give SBCL a timely
opportunity to review, comment upon and approv the information ActaMed
intends to include in such submission. The additional safeguards described in
subsections (i) through (v) above are designed to help assure the
confidentiality of the Trade Secrets, the disclosure of which would have a
material adverse impact on ActaMed. These additional provisions are not
intended to interfere with SBCL's ability to meet its disclosure obligations
under the Integrity Agreement. Each party shall promptly notify the other in
the event it receives an inquiry, investigation or request for information
from the OIG or other governmental agency into the matters relating to the
proposed transactions. The provisions of this Section 4.4 shall apply in
addition to similar provisions in the Services Agreement.
SECTION 4.5 EFFORTS TO SATISFY CONDITIONS. SBCL and ActaMed each agree
to use their respective best efforts to cause the Transfer Dates to occur as
currently scheduled. In
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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addition, SBCL agrees to use its best efforts to satisfy the conditions set
forth in Section 7.1 hereof, and ActaMed agrees to use its best efforts to
satisfy the conditions set forth in Section 7.2 hereof. In furtherance of the
foregoing, each party will use its best efforts to take all commercially
reasonable steps necessary or desirable and proceed diligently and in good
faith to satisfy each condition to the obligations of the other party
contained in this Assets Purchase Agreement and will not take or fail to take
any commercially reasonable action that could reasonably be expected to
result in the nonfulfillment of any such condition. Each of ActaMed and SBCL
further agrees to use its best efforts to (i) satisfy any conditions to the
transfer of a Region set forth in Section 2.3, and (ii) deliver any and all
documents to be delivered upon the transfer of a Region, as set forth in
Sections 2.5 and 2.6.
SECTION 4.6 EXPENSES. Except as otherwise provided herein, each of
the parties to this Assets Purchase Agreement shall bear its respective
expenses incurred in connection with the preparation, execution and
performance of this Assets Purchase Agreement and the transactions
contemplated hereby, including, without limitation, all fees and expenses of
agents, representatives, counsel and accountants.
SECTION 4.7 ANTITRUST NOTIFICATION. The parties have filed with the
United States Federal Trade Commission and the United States Department of
Justice the notification and report form required for the transactions
contemplated hereby and any supplemental or additional information which was
requested in connection therewith pursuant to the HSR Act. The filing fee
relating to such notification and report form will be borne equally.
ARTICLE 5
ACTAMED COVENANTS TO SBCL
SECTION 5.1 ADDITIONAL COVENANTS OF ACTAMED. ActaMed covenants and
agrees that:
5.1.1 SECURITIES LAW FILINGS. From and after
consummation of a Public Offering and for so long as a Permitted Owner holds
any Conversion Shares, ActaMed will timely file the reports required to be
filed by it under the Securities Act and the Exchange Act and the Regulations
adopted by the SEC thereunder, to the extent required from time to time to
enable the Permitted Owner to sell Conversion Shares without registration
under the Securities Act within the limitation of the exemptions provided by
(a) Rule 144 under the Securities Act, as such rule may be amended from time
to time, or (b) any similar Regulation hereafter adopted by the SEC. Upon
the request of the Permitted Owner, ActaMed will deliver to the Permitted
Owner a written statement as to whether it has complied with such
requirements.
5.1.2 TRANSACTIONS WITH SUBSTANTIAL HOLDERS. ActaMed
shall not, directly or indirectly, knowingly enter into any material
transaction or agreement with any of its Substantial Holders or any Affiliate
or officer of ActaMed or a Substantial Holder, or a material
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transaction or agreement in which a Substantial Holder or Affiliate or
officer of ActaMed or a Substantial Holder has a direct or indirect interest,
unless such transaction or agreement is on terms and conditions no less
favorable to ActaMed or any of its Subsidiaries than could be obtained at the
time in an arm's length transaction with a third Person that is not such a
Substantial Holder or Affiliate or officer of ActaMed or a Substantial
Holder, and such transaction or agreement has been reviewed and approved by a
majority of those members of ActaMed's Board of Directors who have no such
interest in the transaction. Except as provided in Section 11.1.4, this
Section shall not be enforceable against ActaMed by (i) any Person other than
a Permitted Owner or (ii) any Person not a party to this Assets Purchase
Agreement.
5.1.3 BUSINESS AND FINANCIAL COVENANTS. ActaMed
covenants that:
(a) Except for shares issued (i) upon exercise
of options granted in accordance with the Stock Option Plans, the Articles
and the Stockholders Agreement, (ii) upon conversion of shares of Preferred
Stock, (iii) in connection with a Public Offering, (iv) upon exercise of the
Warrant, or (v) as permitted under the Articles and the Stockholders
Agreement, ActaMed will not, and will not permit any of its Subsidiaries, to
hereafter issue or sell any shares or any securities convertible into, or any
warrants, rights, or options to purchase shares of, the capital stock of
ActaMed or such Subsidiary to any Person other than ActaMed, and ActaMed will
not pledge any of the capital stock of any Subsidiary to any Person. ActaMed
will not, in any event, issue or sell any shares of Series D Preferred Stock
to any Person other than SBCL or its Affiliates.
(b) Except as expressly permitted by the
Articles or the Stockholders Agreement, ActaMed shall not (except for the
advancement of money for expenses in the ordinary course of business) make,
or permit any of its Subsidiaries to make, any loans or advances to any
Person or have outstanding any investment in any Person, whether by way of
loan or advance to, or by the acquisition of the capital stock, assets or
obligations of, or any other interest in, any Person.
(c) Except as expressly permitted herein or by
the Articles or the Stockholders Agreement, neither ActaMed nor any of its
Subsidiaries shall declare or make (i) any payment or the incurrence of any
Liability to make any payment in cash, property or other assets as a dividend
or other distribution in respect of any shares of capital stock of ActaMed or
any Subsidiary, excluding, however, any dividends payable to ActaMed by a
Subsidiary or dividends which may be payable solely in ActaMed Common Stock
or the common stock of any Subsidiary and (ii) except as otherwise permitted
by the Transaction Documents or a stock option agreement under the Stock
Option Plans, any payment or the incurrence of any Liability to make any
payment in cash, property or other assets for the purposes of purchasing,
retiring or redeeming any shares of any class of capital stock of ActaMed or
any Subsidiary or any warrants, options or other rights to purchase any such
shares.
(d) Neither ActaMed nor any of its
Subsidiaries will amend or change its articles of incorporation or bylaws, or
violate or breach any of the provisions thereof.
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(e) Without the consent of a majority of the
Board of Directors:
(i) Other than debt in an amount no
greater than $2,000,000 incurred to fund the cash portion of the Purchase
Price, ActaMed shall not create, incur or suffer to exist, or permit any
Subsidiary to create, incur or suffer to exist, any debt other than: (a) debt
existing on the date hereof and included in the ActaMed Financial Statements
or incurred in the ordinary course of business between the date of the
ActaMed Financial Statements and the date hereof, and any renewals or
replacements of such debt not exceeding the principal amount of the debt
being replaced or renewed; and (b) debt not in excess of $1,000,000 in the
aggregate in any one calendar year.
(ii) ActaMed shall not create or
suffer to exist, or permit any Subsidiary to create or suffer to exist, any
obligations for the payment of rent for any property under leases or
agreements to lease, other than obligations for (a) the payment of rent
which, in the aggregate, do not exceed $1,000,000 annually and (b) payments
under leases set forth on DISCLOSURE SCHEDULE 3.2.19.
(iii) ActaMed shall not acquire, or
permit any Subsidiary to acquire, directly or indirectly, the assets of or
equity interests in any other business or entity, whether by purchase, merger
consolidation or otherwise in excess of $1,000,000.
(iv) ActaMed shall not effect an
initial Public Offering of any equity securities, other than equity
securities issued in a merger, totaling less than $15,000,000 (before
discounts and commissions) in gross proceeds to ActaMed, and at a per share
price of less than 2.5 times the then existing conversion price of the Series
A Preferred Stock.
5.1.4 CORPORATE EXISTENCE, BUSINESS, MAINTENANCE,
INSURANCE.
(a) ActaMed will at all times preserve and
keep in full force and effect its corporate existence and rights and
franchises deemed material to its business and those of its Subsidiaries,
except any Subsidiary of ActaMed may be merged into ActaMed or another
Subsidiary.
(b) ActaMed shall engage solely in the
business of developing healthcare information networks (with a principle
focus on the provision of lab order entry and results reporting services) and
businesses closely related thereto. ActaMed (and any Subsidiary) will not
purchase or acquire any property other than property useful in and related to
such business.
(c) ActaMed will maintain or cause to be
maintained in good repair, working order and condition all properties used or
useful in the business of ActaMed and any Subsidiary and from time to time
will make or cause to be made all appropriate repairs,
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renewals and replacements thereof. ActaMed and any Subsidiary will at all
times comply in all material respects with the provisions of all material
leases to which it is a party or under which it occupies property so as to
prevent any loss or forfeiture thereof or thereunder.
(d) ActaMed will maintain or cause to be
maintained, with financially sound and reputable insurers, appropriate
insurance with respect to its properties and business and the properties and
business of any Subsidiary against loss or damage.
5.1.5 REPURCHASE OF SHARES OF PREFERRED STOCK.
Except as provided in Article Three, Section 5.1 of the Fourth Amended
Articles, ActaMed shall not, and shall not permit any of its Subsidiaries or
any Affiliate of ActaMed to, directly or indirectly, redeem or repurchase or
make any offer to redeem or repurchase any shares of (i) Preferred Stock
other than Series D Preferred Stock, unless ActaMed, such Subsidiary or such
Affiliate has offered to repurchase shares of Preferred Stock PRO RATA, from
all holders of outstanding shares of Preferred Stock, including without
limitation the Series D Preferred Stock, upon the same terms, or (ii) Series
D Preferred Stock unless ActaMed, such Subsidiary or such Affiliate has
offered to repurchase shares of Series D Preferred Stock PRO RATA, from all
holders of outstanding shares of Series D Preferred Stock upon the same terms.
5.1.6 COMPENSATION. All awards of compensation,
including, but not limited to, salary, bonus and awards of stock options made
to executive officers and/or directors of ActaMed shall be determined by
ActaMed in accordance with the terms of the Stockholders' Agreement and the
Articles.
5.1.7 SFA AMENDMENT. ActaMed shall deliver to SBCL,
within five (5) business days of the Region One Transfer Date, a duly
executed and delivered Amendment to that certain Amended and Restated
Development Agreement, dated the 21st day of November, 1996, but effective as
of the 3rd day of December, 1993, by and between ActaMed and The SFA Limited
Partnership, which Amendment shall provide, on terms satisfactory to SBCL and
its counsel, that the SBCL Software, the ActaLab Software and any
Intellectual Property developed under the Development Agreement shall not
constitute "ActaMed Technology," as defined in such Amended and Restated
Development Agreement with The SFA Limited Partnership.
5.1.8 NEW BUSINESS PLAN. Within thirty days after
the Region One Transfer Date, the Board of Directors of ActaMed will approve
and adopt a new business plan (the "NEW BUSINESS PLAN") for ActaMed covering
the years 1998 and 1999, which shall include projected financial data,
including statements of operations, and operational data, including number of
sites and transactions per site. The new business plan shall provide monthly
data for 1998 and quarterly data for 1999. By June 30, 1999, the Board of
Directors of ActaMed will approve and adopt an addendum to the plan, covering
the same items of financial and operational data, for the year 2000,
presented on a monthly basis. The nominal values set forth in the New
Business Plan shall not deviate from analogous figures presented in ActaMed's
existing business plan, a copy of which was forwarded to SBCL prior to
December 1, 1997, by more than seven percent (7%).
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Section 5.2 INFORMATIONAL COVENANTS OF ACTAMED. ActaMed covenants
and agrees that it shall deliver the following information to any Permitted
Owner for so long as (except as set forth in Section 5.2.6) such Permitted
Owner shall hold [*] of the aggregate outstanding shares of Preferred
Stock or Conversion Shares (considered as a single class) or until such time
as ActaMed shall have consummated a Public Offering:
5.2.1 AUDITED ANNUAL FINANCIAL STATEMENTS. As soon
as practicable and, in any case, within one hundred and twenty (120) days
after the end of each fiscal year, financial statements of ActaMed,
consisting of the balance sheet of ActaMed as of the end of such fiscal year
and the statements of operations, statements of stockholders equity and
statements of cash flows of ActaMed for such fiscal year, setting forth in
each case, in comparative form, the figures for the preceding fiscal year,
all in reasonable detail and fairly presented in accordance with GAAP applied
on a consistent basis throughout the periods reflected therein, except as
stated therein, and accompanied by an opinion thereon of Ernst & Young, or
other independent certified public accountants selected by ActaMed of good
and recognized national standing in the United States.
5.2.2 QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As
soon as practicable and, in any case, within forty-five (45) days after the
end of each of the first three fiscal quarters in each fiscal year, unaudited
financial statements of ActaMed setting forth the balance sheet of ActaMed at
the end of each such fiscal quarter and the statements of operations and
statements of cash flows of ActaMed for each such fiscal quarter and for the
year to date, and setting forth in comparative form figures as of the
corresponding date and for the corresponding periods of the preceding fiscal
year, all in reasonable detail and certified by an accounting officer of
ActaMed as complete and correct, as having been prepared in accordance with
GAAP consistently applied (except as otherwise disclosed therein) and as
presenting fairly, in all material respects, the financial position of
ActaMed and any of its Subsidiaries and results of operations and cash flows
thereof subject, in each case, to customary exceptions for interim unaudited
financial statements.
5.2.3 MONTHLY UNAUDITED FINANCIAL STATEMENTS. As
soon as available, but in any event within thirty (30) days after the end of
each calendar month, copies of the unaudited balance sheet of ActaMed as at
the end of such calendar month and the related unaudited statements of
operations and cash flows for such calendar month and the portion of the
calendar year through such calendar month, in each case setting forth in
comparative form the figures for the corresponding periods of (a) the
previous calendar year and (b) the budget for the current year, prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein (except as otherwise disclosed therein) and
certified by the chief financial officer of ActaMed as presenting fairly the
financial condition and results of operations of ActaMed and any of its
Subsidiaries (subject to customary exceptions for interim unaudited financial
statements).
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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5.2.4 MANAGEMENT'S ANALYSIS. All the financial
statements delivered pursuant to Sections 5.2.2 and Section 5.2.3 shall be
accompanied by an informal narrative description of material business and
financial trends and developments and significant transactions that have
occurred in the appropriate period or periods covered thereby.
5.2.5 BUDGETS. As soon as practicable, but in any
event within thirty (30) days prior to the commencement of a fiscal year, an
annual operating budget for such fiscal year, approved by the Board of
Directors, including monthly income and cash flow projections and projected
balance sheets as of the end of each quarter within such fiscal year.
Extensions of such due date shall not be unreasonably withheld.
5.2.6 INSPECTION. Upon reasonable notice, ActaMed
shall, and shall cause any of its Subsidiaries to, permit any Permitted Owner
(so long as it owns [*] or more of the outstanding capital stock of ActaMed)
by its representatives, agents or attorneys:
(a) to examine all books of account, records,
reports and other papers of ActaMed or such Subsidiary except to the extent
that such action would, in the reasonable opinion of counsel, constitute a
waiver of the attorney/client privilege,
(b) to make copies and take extracts from any
thereof, except for information which is confidential or proprietary,
(c) to discuss the affairs, finances and
accounts of ActaMed or such Subsidiary with ActaMed's or such Subsidiary's
officers and independent certified public accountants (and by this provision
ActaMed hereby authorizes said accountants to discuss with the Permitted
Owner and its representatives, agents or attorneys the finances and accounts
of ActaMed or such Subsidiary), and
(d) to visit and inspect, at reasonable times
and on reasonable notice during normal business hours, the properties of
ActaMed and such Subsidiary.
Notwithstanding any provision herein to the contrary, the provisions of this
Section 5.2.6 are in addition to any rights of a Permitted Owner under the
Georgia Business Corporation Code and shall in no way limit such rights.
The expenses of the Permitted Owner in connection with any
such inspection shall be for the account of the Permitted Owner.
Notwithstanding the foregoing sentence, it is understood and agreed by
ActaMed that all reasonable expenses incurred by ActaMed or such Subsidiary,
any officers, employees or agents thereof or the independent certified public
accountants therefor, shall be expenses payable by ActaMed and shall not be
expenses of the Permitted Owner making the inspection.
Notwithstanding anything to the contrary, SBCL shall be
permitted access to any information of, or related to, any customer of
ActaMed that is a competitor of SBCL only to the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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extent ActaMed is not subject to confidentiality undertakings with respect to
such information; PROVIDED that such limitation shall not prevent SBCL or
auditors retained by SBCL, or if ActaMed so requires for reasons of
confidentiality only auditors retained by SBCL, from confirming the amount of
royalties payable to it under the License Agreement or Services Agreement by
reason of connectivity between Providers and commercial laboratories other
than SBCL Labs.
5.2.7 OTHER INFORMATION. ActaMed shall deliver the
following provided that in the reasonable opinion of counsel to ActaMed such
disclosure will not constitute a waiver of the attorney/client privilege, the
breach of any secrecy covenant or the release of information regarding
competitors of the Permitted Owner:
(a) promptly after the submission thereof to
ActaMed, copies of any detailed reports (including the auditors' comment
letter to management, if any such letter is prepared) submitted to ActaMed by
its independent auditors in connection with each annual or interim audit of
the accounts of ActaMed made by such accountants;
(b) promptly, and in any event within ten (10)
days after obtaining knowledge thereof, notice of the institution of any
suit, action or proceeding (other than a proceeding of general application
which is not directly against ActaMed or one or more of the Subsidiaries),
the happening of any event or, to the best knowledge of ActaMed, the
assertion or threat of any claim against ActaMed or any of the Subsidiaries
which, either individually or in the aggregate, would have a Material Adverse
Effect;
(c) promptly upon, and in any event within
thirty (30) days after obtaining knowledge thereof, notice of any breach of,
Default under or failure to comply with any material term under this Article
V or any material adverse change in ActaMed's relationship with its major
customers, suppliers, employees or other entity with which ActaMed has a
business relationship;
(d) with reasonable promptness, a notice of
any default by ActaMed or any of its Subsidiaries under any material
agreement to which it is a party;
(e) with reasonable promptness, copies of all
written materials furnished to directors;
(f) promptly (but in any event within ten (10)
days) after the filing of any document or material with the SEC, a copy of
such document or material;
(g) promptly after the record date set by the
Board of Directors to determine the stockholders entitled to vote at
ActaMed's annual meeting of stockholders (but in any event ten (10) days
prior to such meeting), a list of all stockholders of ActaMed and their
respective holdings; and
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(h) promptly upon request therefor, such other
data, filings and information as the Permitted Owner may from time to time
reasonably request.
ARTICLE 6
EMPLOYEE MATTERS
SECTION 6.1 TERMINATION OF EMPLOYMENT BY SBCL AND OFFER OF EMPLOYMENT
BY ACTAMED. Effective as of the close of business on January 1, 1998 or such
later date as mutually agreed by SBCL and ActaMed, but not later than January
29, 1998 (the "Termination Date"), SBCL will terminate the employment of the
individuals listed on Schedule VI. As soon as practicable following the
Region One Transfer Date, ActaMed will offer employment to each of the
individuals listed on Schedule VI, which employment shall become effective as
of the day following the Termination Date (the "Hire Date"). Each individual
listed on Schedule VI who accepts ActaMed's offer of employment shall be
referred to herein as a "Transferred Employee." In connection with the
termination of employment of the individuals listed on Schedule VI, SBCL
shall take such action with respect to compensation and benefits for such
individuals as described in the SBCL undertakings section of Schedule VI.
SECTION 6.2 TRANSITIONAL EMPLOYEE LEASING ARRANGEMENT. For each
Transferred Employee, the "Transitional Employee Leasing Arrangement" shall
extend for the period from the Hire Date until the earlier of:
6.2.1 the Transfer Date for the Region to which a
Transferred Employee is assigned; or
6.2.2 five business days after the date SBCL provides
written notice to ActaMed with respect to such Transferred Employee, if SBCL
determines that it no longer wishes to have a Transferred Employee assigned
to provide leased services to SBCL pursuant to this Agreement.
During the Transitional Employee Leasing Arrangement period, ActaMed shall
require, as a condition of the continued employment of each Transferred
Employee, that each Transferred Employee report to SBCL, and continue to
comply with SBCL's policies and procedures in the course of each such
Transferred Employee's employment by ActaMed. Notwithstanding the foregoing,
Transferred Employees shall be under ActaMed's supervision, direction and
control, subject to the general oversight and guidance of SBCL. In
performing services for SBCL pursuant to this Article VI, the Transferred
Employees shall have the status of common law employees of ActaMed, and
neither the Transferred Employees nor ActaMed shall act as or be employees or
agents of SBCL.
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SECTION 6.3 ACTAMED COMPENSATION AND BENEFITS. ActaMed shall, out of
its own funds, provide each Transferred Employee with compensation and
benefits as set forth on Schedule VI.
SECTION 6.4 PAST SERVICE CREDIT. The service of each Transferred
Employee with SBCL or any of its Affiliates shall be counted for purposes of
determining eligibility to participate or to vest in benefits under any
compensation or benefit plan, program or arrangement now or hereafter
maintained by ActaMed to the same extent that such service was credited or
otherwise counted under any Benefit Plan in which such Transferred Employee
was eligible to participate with SBCL immediately prior to the Region One
Transfer Date.
SECTION 6.5 TERMINATION OF EMPLOYMENT; NONSOLICITATION; TERMINATION
OF AGREEMENT.
6.5.1 ActaMed will not terminate without cause the
employment of any Transferred Employee before the date determined under
Section 6.2.1 or 6.2.2, without the advance written consent of SBCL.
6.5.2 ActaMed shall be responsible for assigning
Transferred Employees to principal work locations, which shall be the same as
the locations to which such Transferred Employees were assigned as of
December 31, 1997. Except as may otherwise be agreed by SBCL and ActaMed in
a writing signed by the parties, SBCL shall make the business facilities to
which Transferred Employees are currently assigned available to ActaMed for
the purpose of location assignments of Transferred Employees until not later
than the [*] anniversary of the Transfer Date of the Region to which a
Transferred Employee is assigned.
6.5.3 SBCL shall not solicit the employment of, hire
or employ any Transferred Employee until after the earlier of (i) such
Transferred Employee's termination of employment by ActaMed with cause, (ii)
such Transferred Employee's voluntary resignation from ActaMed, [*] (iii) [*]
or (iv) the termination of this Assets Purchase Agreement pursuant to Section
10.1, in which event ActaMed shall, at SBCL's request, use its best efforts
to cooperate with SBCL in facilitating SBCL's solicitation to re-hire such
Transferred Employees.
SECTION 6.6 PAYMENT OF WAGE AND BENEFIT COSTS.
6.6.1 PERIOD FROM JANUARY 1, 1998 THROUGH THE HIRE
DATE. For the period beginning January 1, 1998 and extending through the Hire
Date, with respect to each individual identified on SCHEDULE VI as a
Transferred Employee, ActaMed shall reimburse SBCL for such individuals' base
salary, paid time off, the employer-paid portion of employment and
unemployment insurance or taxes, the employer-paid portion of premiums
payable with respect to all insured benefits, with respect to medical and
dental benefits for individuals who participate in the self-insured medical
and dental program sponsored by SBCL, the pro rated portion of the excess, if
any, of a reasonable premium cost for such coverage, as determined by
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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SBCL, over the amount paid by such individual for such coverage, the present
value of additional accruals under the SmithKline Beecham Pension Plan, as
determined by the Plan's actuary and employer contributions payable under the
SmithKline Beecham Retirement Savings Plan. SBCL will bill such employee
costs to ActaMed by or before January 31, 1998, and ActaMed will remit
payment to SBCL for such employee costs within 30 days of receipt of the bill
for such costs.
6.6.2 DURING TRANSITION. Except as otherwise
provided in SCHEDULE VI, SBCL will reimburse ActaMed for certain direct
compensation and benefit costs incurred by ActaMed with respect to each
Transferred Employee during the Transitional Employee Leasing Arrangement
period (as hereinafter defined, the "Employee Costs"). For purposes of this
Article VI, Employee Costs will include base salary, paid time off pursuant
to the paid time off policy described in SCHEDULE VI, the employer-paid
portion of employment and unemployment insurance or taxes, the employer-paid
portion of premiums payable with respect to the insured benefits set forth on
SCHEDULE VI, employer contributions made under any ActaMed qualified defined
contribution plan, and with respect to short term disability benefits for
individuals who participate in the self-insured short term disability plan
sponsored by ActaMed, the pro rated portion of the excess, if any, of a
reasonable premium cost for such coverage, as determined by ActaMed, over the
amount paid by such individual for such coverage. In addition, for each
Transferred Employee, for each of 1998 and 1999, Employee Costs will include
an amount equal to [*] of [*] to such Transferred Employee [*], the [*] is
the [*] during which such Transferred Employee was [*], and the [*]. ActaMed
will bill such Employee Costs to SBCL monthly, and SBCL will remit payment to
ActaMed for such Employee Costs within 30 days of receipt of the bill for
such costs.
6.6.3 STAY BONUS AND BONUS.
(a) Stay Bonus. SBCL will reimburse ActaMed
for [*] of the stay bonus payments described in SCHEDULE VI and actually made
by ActaMed within thirty (30) days following SBCL's receipt of the bill for
such costs.
(b) Bonus. ActaMed will pay, and SBCL will
reimburse ActaMed for, bonus payments as described in the bonus provisions of
SCHEDULE VI.
SECTION 6.7 TAXES, UNEMPLOYMENT INSURANCE AND RELATED ITEMS. ActaMed
agrees to accept and hereby accepts full and exclusive responsibility for the
payment of any and all contributions or taxes, or both, for any unemployment
insurance or taxes, medical and old age retirement benefits, pensions or
annuities now or hereafter imposed under any law of the United States or any
State, which are measured by the wages, salaries or other remuneration paid
to persons employed by ActaMed on the work covered by this Article VI or in
any way connected
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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therewith; and ActaMed shall reimburse SBCL for any of the contributions or
taxes, or both, or any part thereof, if SBCL may be required by law to pay
the same or any part thereof.
SECTION 6.8 EXAMINATION AND AUDIT. For the Transitional Employee
Leasing Arrangement period, and for three calendar years after final payment is
made to ActaMed by SBCL pursuant to Section 6.6, ActaMed shall establish and
maintain relevant books, records, payroll records, receipts, documents, papers
and any other data or information which support and substantiate the charges
made to and payments received from SBCL under Section 6.2. During such time,
SBCL or its designated representative shall have access to and the right to
examine any relevant books, records, documents, papers, receipts and any other
data or information of ActaMed relating to ActaMed's obligations under this
Article VI.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED
SECTION 7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED. The
obligations of ActaMed to consummate the transactions contemplated by this
Assets Purchase Agreement shall be subject to the satisfaction, on or before the
Applicable Transfer Date, of each and every one of the following conditions, all
or any of which may be waived, in whole or in part, by ActaMed for purposes of
consummating such transactions, but without prejudice to any other right or
remedy which ActaMed may have hereunder as a result of any misrepresentation by,
or breach of any agreement, covenant or warranty of SBCL contained in this
Assets Purchase Agreement or any Schedule, certificate or instrument furnished
or caused to be furnished by SBCL hereunder.
7.1.1 REPRESENTATIONS TRUE. The representations and
warranties made by SBCL in this Assets Purchase Agreement, with any
exceptions set forth in the Disclosure Schedules attached to the Compliance
Certificate, shall be true and correct in all material respects on the
Applicable Transfer Date, with the same force and effect as if such
representations and warranties had been made on and as of such Applicable
Transfer Date. The Disclosure Schedules shall not identify any item
indicating that the business or financial condition of SBCL or SBCL's
provision of or ability to provide Lab EDI Services to SBCL Sites has been
materially and adversely impacted, or which would impair SBCL's ability to
perform its obligations hereunder, including its ability to deliver the SCAN
Assets to ActaMed.
7.1.2 COVENANTS. All of the terms, covenants and
conditions in this Assets Purchase Agreement and the other SBCL Documents to be
complied with or performed by SBCL on or prior to the Region One Transfer Date
shall have been complied with and performed in all material respects.
7.1.3 NO INJUNCTION, ETC. No action, proceeding,
investigation or Regulation shall have been instituted, threatened or proposed
before any court, governmental
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agency or legislative body to enjoin, restrain, prohibit, or obtain
substantial damages in respect of, or which is related to, or arises out of,
this Assets Purchase Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of the provision of
Lab EDI Services, if such action, proceeding, investigation or Regulation, in
the reasonable judgment of ActaMed, would make it inadvisable to consummate
the transactions contemplated on such Transfer Date.
7.1.4 APPROVAL OF LEGAL MATTERS. All actions,
proceedings, instruments and documents deemed necessary or appropriate by
ActaMed or their counsel to effectuate this Assets Purchase Agreement and the
consummation of the transactions contemplated hereby, or incidental thereto, and
all other related legal matters, shall have been approved by such counsel.
7.1.5 GOVERNMENTAL APPROVALS. All governmental and
other consents and approvals, if any, necessary to permit the consummation of
the transactions contemplated by this Assets Purchase Agreement on such Transfer
Date shall have been received by ActaMed.
SECTION 7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SBCL. The
obligations of SBCL to consummate the transactions contemplated by this Assets
Purchase Agreement shall be subject to the satisfaction, on or before each
Transfer Date, of each and every one of the following conditions, all or any of
which may be waived, in whole or in part, by SBCL for purposes of consummating
such transactions, but without prejudice to any other right or remedy which SBCL
may have hereunder as a result of any misrepresentation by, or breach of any
agreement, covenant or warranty of ActaMed contained in this Assets Purchase
Agreement, or any certificate or instrument furnished by it hereunder.
7.2.1 REPRESENTATIONS TRUE. The representations and
warranties made by ActaMed in this Assets Purchase Agreement, with any
exceptions set forth in the Disclosure Schedules attached to the Compliance
Certificate, shall be true and correct in all material respects on the
Applicable Transfer Date, with the same force and effect as if such
representations and warranties had been made on and as of such Applicable
Transfer Date. The Disclosure Schedules shall not identify any item indicating
that the business or financial condition of ActaMed has been materially and
adversely impacted, or which would impair ActaMed's ability to perform its
obligations hereunder.
7.2.2 COVENANTS. All of the terms, covenants and
conditions in the ActaMed Documents to be complied with or performed by ActaMed
on or prior to the Transfer Date shall have been complied with and performed in
all material respects.
7.2.3 NO INJUNCTION, ETC. No action, proceeding,
investigation or Regulation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit, or obtain substantial damages in respect of, or which is related to,
or arises out of, this Assets Purchase Agreement or the consummation of the
transactions contemplated hereby, or which is related to or arises out of the
business of ActaMed, if such action, proceeding, investigation or Regulation, in
the reasonable judgment of
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SBCL, would make it inadvisable to consummate the transactions contemplated
on such Transfer Date.
7.2.4 APPROVAL OF LEGAL MATTERS. All actions,
proceedings, instruments and documents deemed necessary or appropriate by SBCL
or its counsel to effectuate this Assets Purchase Agreement and the consummation
of the transactions contemplated hereby, or incidental hereto, and all other
related legal matters, shall have been approved by such counsel.
7.2.5 GOVERNMENTAL APPROVALS. All governmental and
other consents and approvals, if any, necessary to permit the consummation of
the transactions contemplated by this Assets Purchase Agreement shall have been
received by SBCL.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
AND INDEMNIFICATION
SECTION 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
8.1.1 SURVIVAL OF SBCL REPRESENTATIONS, WARRANTIES
AND COVENANTS. ActaMed and SBCL acknowledge and agree that, as contemplated
by Section 4.3.1, prior to each of the Transfer Dates, ActaMed intends to
perform such investigation of the SCAN Assets to be transferred on such
Transfer Date and related Lab EDI Services provided by SBCL as ActaMed may
deem appropriate; PROVIDED, HOWEVER, no investigation by ActaMed shall
diminish or otherwise affect any of the representations, warranties,
covenants or agreements made or to be performed by SBCL pursuant to this
Assets Purchase Agreement or ActaMed's right to rely fully upon such
representations, warranties, covenants and agreements. All such
representations, warranties, covenants and agreements made or to be performed
by SBCL pursuant to this Assets Purchase Agreement shall survive the
execution and delivery hereof and each of the Transfer Dates hereunder
indefinitely except to the extent limited by this Section 8.1.1. The
representations and warranties shall terminate and expire, (a) with respect
to any General Claim based on a breach thereof (other than one based on a
breach of Section 3.1.3 hereof) with respect to which a Claims Notice has not
been given, after [*] from the Transfer Date of the SCAN Assets as to which
the representation and warranty was made, (b) with respect to any General
Claim based upon a breach of Section 3.1.3 hereof, after the earlier of (i)
[*] or (ii) [*] days after the Region Four Transfer Date, and (c) with
respect to a Tax Claim, on the later of (i) the [*] after the date upon which
the Liability to which any such Tax Claim may relate is barred by all
applicable statutes of limitation and (ii) the [*] after the date upon which
any claim for refund or credit related to such Tax Claim is barred by all
applicable statutes of limitation. A Claims Notice for a General Claim based
on a breach of covenant may be given at any time up to the [*] of the date on
which the breach of such covenant occurred. With respect to any Ownership
Claim, Undisclosed Liability Claim or any type of claim not specifically
addressed
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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above, such representations, warranties, covenants and agreements shall
survive without limit of time.
8.1.2 SURVIVAL OF ACTAMED REPRESENTATIONS, WARRANTIES
AND COVENANTS. All the representations, warranties, covenants and agreements,
made or to be performed by ActaMed pursuant to this Assets Purchase
Agreement shall survive the execution and delivery hereof indefinitely except
to the extent limited by this Section 8.1.2. No investigation by SBCL shall
diminish or otherwise affect any of the representations, warranties,
covenants or agreements made or to be performed by ActaMed pursuant to this
Assets Purchase Agreement or SBCL's right to rely fully upon such
representations, warranties, covenants and agreements. All such
representations, warranties, covenants and agreements shall be considered to
have been relied upon by SBCL and shall survive the delivery to SBCL of the
shares of Series D Preferred Stock (and the Conversion Shares). The
representations and warranties shall terminate and expire (a) with respect to
a General Claim based on a breach thereof for which a Claims Notice has not
been given, after [*] from the Transfer Date with respect to which such
representation and warranty was made, (b) with respect to a Tax Claim, on the
later of (i) the [*] after the date upon which the Liability to which any
such Tax Claim may relate is barred by all applicable statutes of limitation
and (ii) the [*] after the date upon which any claim for refund or credit
related to such Tax Claim is barred by all applicable statutes of limitation
and (c) with respect to the covenants of ActaMed set forth in Sections 5.1.3
and 5.1.6 hereof, upon the closing of a Public Offering. A Claims Notice for
a General Claim based on a breach of covenant may be given at any time up to
the [*] of the date on which the breach of such covenant occurred. With
respect to any Ownership Claim, Undisclosed Liability Claim or any type of
claim not specifically addressed above, such representations, warranties,
covenants and agreements shall survive without limit of time.
SECTION 8.2 OBLIGATION TO INDEMNIFY.
8.2.1 OBLIGATIONS OF SBCL TO INDEMNIFY. Subject to the
limitations of Sections 8.1.1, 8.2.6 and 8.2.9, SBCL agrees to indemnify and
hold harmless each ActaMed Indemnitee against and in respect of:
(a) all Losses imposed upon or incurred by any
ActaMed Indemnitee by reason of or resulting from:
(i) a breach of any representation or
warranty of SBCL contained in or made pursuant to this Assets Purchase
Agreement other than the representation contained in Section 3.1.3(a); or
(ii) any nonfulfillment of any covenant or
agreement of SBCL contained in or made pursuant to this Assets Purchase
Agreement; or
(iii) any Liability of SBCL not assumed by
ActaMed hereunder, including without limitation any Liability for any Taxes
attributable to ownership of
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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SCAN Assets or SBCL's provision of Lab EDI Services in a Region prior to its
Transfer Date in accordance herewith.
(b) any and all actions, suits, claims,
proceedings, investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation, reasonable legal fees
and expenses) incident to any Loss in connection with Section 8.2.1(a) or to the
enforcement of this Section 8.2.1;
(c) all Losses imposed upon or incurred by any
ActaMed Indemnitee by reason of or resulting from any Litigation pending or
threatened, arising out of or relating to the provision of Lab EDI Services at
an SBCL Site hereunder, regardless of whether it is disclosed in any Section of
the Disclosure Schedule called for by Section 3.1 or Section 2.5.2 hereof;
PROVIDED, HOWEVER that, to the extent that any such Loss arises out of the
actions of a Transferred Employee, SBCL shall only be obligated to indemnify and
hold harmless an ActaMed Indemnitee hereunder if such Transferred Employee was
acting subject to SBCL's general oversight and guidance pursuant to Section 6.2
hereof.
8.2.2 OBLIGATION OF ACTAMED TO INDEMNIFY. Subject to
the limitations of Section 8.1.2 and Section 8.2.6, ActaMed agrees to indemnify
and hold harmless each SBCL Indemnitee against and in respect of:
(a) all Losses imposed upon or incurred by any
SBCL Indemnitee by reason of or resulting from:
(i) a breach of any representation or
warranty of ActaMed contained in or made pursuant to this Assets Purchase
Agreement; or
(ii) any nonfulfillment of any covenant or
agreement of ActaMed contained in or made pursuant to this Assets Purchase
Agreement; and
(iii) any Liability of ActaMed (other than
a Liability indemnified by SBCL pursuant to Section 8.2.1) attributable to
ownership of SCAN Assets or ActaMed's provision of Lab EDI Services in a Region
after its Transfer Date in accordance herewith; PROVIDED that if the Services
Agreement provides for indemnification for any such Liability, then no such
claim shall be brought hereunder.
(b) any and all actions, suits, claims,
proceedings, investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation, reasonable legal fees
and expenses) incident to any Loss in connection with Section 8.2.2(a) or to the
enforcement of this Section 8.2.2.
(c) all Losses imposed upon or incurred by any
SBCL Indemnitee by reason of or resulting from any Litigation pending or
threatened, arising out of or relating to use of SCAN Assets at an ActaMed Site
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after such site became an ActaMed Site hereunder, regardless of whether it is
disclosed in the Disclosure Schedule by reason of Section 3.2 or Section
2.6.3 hereof.
(d) all Losses imposed upon or incurred by SBCL
by reason of SBCL premises being used by Transferred Employees on or after the
Hire Date.
8.2.3 CLAIMS NOTICE. A Claim shall be made by any
Indemnitee by delivery of a Claims Notice to the Indemnifying Party requesting
indemnification and specifying the basis on which indemnification is sought and
the amount of asserted Losses and, in the case of a Third Party Claim,
containing (by attachment or otherwise) such other information as such
Indemnitee shall have concerning such Third Party Claim.
8.2.4 PROCEDURES INVOLVING NON-THIRD PARTY CLAIMS. If
the Claim involves a matter other than a Third Party Claim, the Indemnifying
Party shall have forty-five (45) days to object to such Claim by delivery of a
written notice of such objection to such Indemnitee specifying in reasonable
detail the basis for such objection. If an objection is timely made by the
Indemnifying Party, the Indemnifying Party and the Indemnitee shall cooperate in
the compromise of the Claim with ultimate resolution of the validity of such
Claim to be determined under Article IX. Failure to object in a timely manner
shall constitute a final and binding acceptance of the Claim by the Indemnifying
Party on behalf of all Indemnitors, and the Claim shall be paid in accordance
with Section 8.2.8 hereof.
8.2.5 PROCEDURES INVOLVING THIRD PARTY CLAIMS. The
obligations and liabilities of the parties hereunder with respect to a Third
Party Claim shall be subject to the following terms and conditions:
(a) The Indemnitee shall give the Indemnifying
Party written notice of a Third Party Claim promptly after receipt by the
Indemnitee of notice thereof, and the Indemnifying Party may undertake the
defense, compromise and settlement thereof by representatives of its own
choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee
to notify the Indemnifying Party of such claim shall not relieve the
Indemnifying Party of any liability that it may have with respect to such claim
except to the extent the Indemnifying Party demonstrates that the defense of
such claim is prejudiced by such failure. The assumption of the defense,
compromise and settlement of any such Third Party Claim by the Indemnifying
Party shall be an acknowledgment of the obligation of the Indemnifying Party to
indemnify the Indemnitee with respect to such claim hereunder. If the
Indemnitee desires to participate in, but not control, any such defense,
compromise and settlement, it may do so at its sole cost and expense. If,
however, the Indemnifying Party fails or refuses to undertake the defense of
such Third Party Claim within ten (10) days after written notice of such claim
has been given to the Indemnifying Party by the Indemnitee, the Indemnitee shall
have the right to undertake the defense, compromise and settlement of such claim
with counsel of its own choosing. In the circumstances described in the
preceding sentence, the Indemnitee shall, promptly upon its assumption of the
defense of such claim, make a Claim as specified in
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Section 8.2.1(b) or 8.2.2(b) which shall be deemed a Claim that is not a
Third Party Claim for the purposes of the procedures set forth herein.
(b) If, in the reasonable opinion of the
Indemnitee, any Third Party Claim or the litigation or resolution thereof
involves an issue or matter which could have a material adverse effect on the
business, operations, assets, properties or prospects of the Indemnitee
(including, without limitation, the administration of the tax returns and
responsibilities under the tax laws of the Indemnitee), the Indemnitee shall
have the right to control the defense, compromise and settlement of such Third
Party Claim undertaken by the Indemnifying Party, and the reasonable costs and
expenses of the Indemnitee in connection therewith shall be included as part of
the indemnification obligations of the Indemnifying Party hereunder. If the
Indemnitee shall elect to exercise such right, the Indemnifying Party shall have
the right to participate in, but not control, the defense, compromise and
settlement of such Third Party Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim
involving the asserted liability of the Indemnifying Party under this Article
shall be made without the prior written consent by or on behalf of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
If the Indemnifying Party assumes the defense of such a Third Party Claim, (1)
no compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnitee's consent unless (a) there is no finding or admission of
any violation of law or any violation of the rights of any Person and no effect
on any other claim that may be made against the Indemnitee (b) the sole relief
provided is monetary damages that are paid in full by the Indemnifying Party and
(c) the compromise or settlement includes, as an unconditional term thereof, the
giving by the claimant or the plaintiff to the Indemnitee of a release, in form
and substance reasonably satisfactory to the Indemnitee, from all liability in
respect of such Third Party Claim, and (2) the Indemnitee shall have no
liability with respect to any compromise or settlement thereof effected without
its consent.
8.2.6 LIMITATIONS ON INDEMNIFICATION.
(a) No Party to this Assets Purchase Agreement
shall be entitled to indemnification under this Assets Purchase Agreement to the
extent that such Party's Losses are increased or extended by the willful
misconduct, violation of law or bad faith of such Party.
(b) No Indemnifying Party shall be required to
indemnify an Indemnitee with respect to any Loss arising out of or with
respect to a Claim unless the amount of such Loss, when aggregated with all
other such Losses, shall (i) exceed [*], at which time Claims may be asserted
to the extent that all Losses or Asserted Liabilities are in excess of such
threshold amount; PROVIDED, however, that such threshold amount shall not
apply to any (a) Loss which results from or arises out of an Ownership Claim,
a Tax Claim or Undisclosed Liability Claim, (b) Loss which results from or
arises out of fraud or intentional misrepresentation or an intentional breach
of a representation,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
warranty, covenant or agreement in this Assets Purchase Agreement; (c) Claim
which is based upon Section 8.2.1(a)(iii) or 8.2.2(a)(iii) or (d) Loss which
results from or arises out of any Litigation incident to any of the matters
referred to in the foregoing clauses (a) and (b); and (ii) be less than [*],
PROVIDED that such cap shall not apply to (a) a General Claim which is based
upon a breach by SBCL of its representations and warranties set forth in
Sections 3.1.7(a) or (b) hereof or a breach of its covenant set forth in
Section 4.4 hereof, (b) a General Claim which is based upon a breach by
ActaMed of its representation and warranty set forth in Section 3.2.14 or a
breach of its covenant set forth in Section 4.4 hereof, or (c) a Claim which
is based upon Section 8.2.1(a)(iii) or 8.2.2(a)(iii). Notwithstanding the
foregoing, for any breach of Section 3.1.6(a)-(c), SBCL shall indemnify each
ActaMed Indemnitee for any individual Loss in excess of [*] per item of
tangible personal property and any aggregate Loss exceeding [*] for items of
tangible personal property.
8.2.7 NO RELEASE FOR FRAUD. Nothing contained in this
Assets Purchase Agreement shall relieve or limit the liability of any Party or
any officer or director of such Party from any Liability arising out of or
resulting from common law fraud or intentional misrepresentation in connection
with the transactions contemplated by this Assets Purchase Agreement or in
connection with the delivery of any of the Transaction Documents. Each Party
shall have a right to indemnification for any Loss incurred as the result of any
common law fraud or intentional misrepresentation by any other Party or any
officer or director of such other Party without regard to the Threshold Amount,
the maximum liability or any period of limitation.
8.2.8 PAYMENT.
(a) If any Party is required to make any payment
under this Article, such Party shall promptly pay the Indemnified Party the
amount so determined. If there is a dispute as to the amount or manner of
determination of any indemnity obligation owed under this Article, the
Indemnifying Party shall nevertheless pay when due such portion, if any, of the
obligation as shall not be subject to dispute. The difference, if any, between
the amount of the obligation ultimately determined as properly payable under
this Article and the portion, if any, theretofore paid shall bear interest as
provided in Section 8.2.8(c).
(b) Any items as to which an Indemnified Party is
entitled to payment under this Article may be paid by set-off against amounts
payable to the Indemnifying Party to the extent that such amounts are sufficient
to pay such items.
(c) If all or part of any indemnification
obligation under this Assets Purchase Agreement is not paid when due, then the
Indemnifying Party shall pay the Indemnified Party interest on the unpaid
principal amount of the obligation from the date the amount became due until
payment in full, at the per annum rate of interest announced from time to time
by NationsBank South, N.A., to be its "prime rate."
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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8.2.9 SPECIAL INDEMNITY AS TO PROJECTIONS.
Notwithstanding Section 8.2.6(b), SBCL shall pay to ActaMed any amount by
which (x) the aggregate general expenses incurred by ActaMed for goods and
services reflected on SCHEDULE 3.1.3 under the Subtotals [*] in connection
with ActaMed's provision of Lab EDI Services to the Fixed Fee Sites (as
defined in the Services Agreement), taking into account that the Projections
are based on [*] SCAN Sites, the number of SCAN Sites actually transferred to
ActaMed and the staging of their transfer, excluding one-time or
transactional expenses (which amount shall include any expenses incurred with
respect to this transaction), and less any increased expenses incurred as a
result of providing the Agreed Services (as defined in the Services
Agreement) in a different manner than SBCL did prior to the transfer of such
SCAN Sites exceeds (y) [*] of the Projections.
8.2.10 EXCLUSIVE REMEDY. Except for equitable remedies
and any action for common law fraud, the remedies provided in this Article
constitute the sole and exclusive remedies for recovery against the
Indemnifying Party based upon this Assets Purchase Agreement.
ARTICLE 9
DISPUTE RESOLUTION
SECTION 9.1 INFORMAL DISPUTE RESOLUTION. Any dispute between the
parties arising out of or with respect to this Assets Purchase Agreement,
either with respect to the interpretation of any provision of this Assets
Purchase Agreement or with respect to the performance by ActaMed or SBCL,
shall be resolved as provided in this Article.
9.1.1 INFORMAL DISPUTE RESOLUTION. Prior to the
initiation of formal dispute resolution procedures, the parties shall first
attempt to resolve their dispute informally, as follows:
(a) The Relationship Managers for each Party
shall meet for the purpose of endeavoring to resolve such dispute. They
shall meet as often as the parties reasonably deem necessary in order to
gather and furnish to the other all information with respect to the matter in
issue which the parties believe to be appropriate and germane in connection
with its resolution. The Relationship Managers shall discuss the problem and
negotiate in good faith in an effort to resolve the dispute without the
necessity of any formal proceeding. During the course of negotiations, all
reasonable requests made by one Party to another for nonprivileged
information, reasonably related to this Assets Purchase Agreement, shall be
honored in order that each of the parties may be fully advised of the other's
position.
(b) If, within fifteen (15) days after a matter
has been identified for resolution pursuant to this Article, either of the
Relationship Managers concludes in good faith that amicable resolution
through continued negotiation in this forum does not appear likely,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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the matter will be escalated by formal written notification to the SBCL
President and the ActaMed President. The Parties will use their respective
best efforts to cause the SBCL President and the ActaMed President to meet to
attempt to resolve the dispute.
(c) Formal proceedings for the resolution of a
dispute may not be commenced until the earlier of: (i) the date on which the
SBCL President and the ActaMed President conclude in good faith that amicable
resolution through continued negotiation of the matter does not appear
likely; or (ii) thirty (30) days after the dispute has been referred to the
SBCL President and the ActaMed President.
9.1.2 FORMAL PROCEEDINGS PERMITTED. The provisions of
this Section 9.1 shall not be construed to prevent a party from instituting,
and a party being authorized to institute, formal proceedings earlier to
avoid the expiration of any applicable limitations period or any period
provided for in Section 8.1.
SECTION 9.2 ARBITRATION. If the parties are unable to resolve any
controversy arising under this Assets Purchase Agreement as contemplated by
Section 9.1 and if such controversy is not subject to Article VIII or Section
9.3, then such controversy shall be submitted to mandatory and binding
arbitration at the election of either party (the "Disputing Party") pursuant
to the following conditions:
9.2.1 SELECTION AND REPLACEMENT OF ARBITRATORS. The
Disputing Party shall notify the AAA and the other party in writing
describing in reasonable detail the nature of the dispute (the "DISPUTE
NOTICE"). Each of the parties shall select a neutral arbitrator in
accordance with the rules of AAA, and the two arbitrators so selected shall
select a third neutral arbitrator (the three arbitrators referred to in this
Section being hereinafter referred to as the "PANEL").
9.2.2 CONDUCT OF ARBITRATION. The Panel shall allow
reasonable discovery as permitted by the Federal Rules of Civil Procedure, to
the extent consistent with the purpose of the arbitration. The panel shall
have no power or authority to amend or disregard any provision of this
Section. The arbitration hearing shall be commenced promptly and conducted
expeditiously, with each of ActaMed and SBCL being allocated one-half of the
time for the presentation of its case. Unless otherwise agreed to by the
parties, an arbitration hearing shall be conducted on consecutive days.
9.2.3 REPLACEMENT OF ARBITRATOR. Should an arbitrator
refuse or be unable to proceed with arbitration proceedings as called for by
this Section, such arbitrator shall be replaced by an arbitrator selected in
accordance with the rules of the AAA.
9.2.4 FINDINGS AND CONCLUSIONS. The Panel rendering
judgment upon disputes between parties as provided in this Section shall,
after reaching judgment and award, prepare and distribute to the parties a
writing describing the findings of fact and conclusions of law relevant to
such judgment and award and containing an opinion setting forth the reasons
for
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the giving or denial of any award. The award of the Panel shall be final and
binding on the parties, and judgment thereon may be entered in a court of
competent jurisdiction.
9.2.5 PLACE OF ARBITRATION HEARINGS. Arbitration
hearings hereunder shall be held in Washington, D.C.
9.2.6 TIME OF THE ESSENCE. The Panel is instructed that
time is of the essence in the arbitration proceeding. The Panel shall render
its judgment or award within fifteen (15) days following the conclusion of
the hearing. Recognizing the express desire of the parties for an
expeditious means of dispute resolution, the Panel shall limit or allow the
parties to expand the scope of discovery as may be reasonable under the
circumstances.
SECTION 9.3 LITIGATION.
9.3.1 IMMEDIATE INJUNCTIVE RELIEF. In the event of a
breach of the confidentiality obligations set forth in this Assets Purchase
Agreement, or in the event a party makes a good faith determination that a
breach of the terms of this Assets Purchase Agreement by the other party is
such that the damages to such party resulting from the breach will be so
immediate, so large or severe, and so incapable of adequate redress after the
fact that a temporary restraining order or other immediate injunctive relief
is a necessary remedy, then such party may file a pleading with a court
seeking immediate injunctive relief. If a party files a pleading with a
court seeking immediate injunctive relief and this pleading is challenged by
the other party and the injunctive relief sought is not awarded in
substantial part (or in the event of a temporary restraining order is vacated
upon challenge by the other party), the party filing the pleading seeking
immediate injunctive relief shall pay all of the costs and attorneys' fees of
the party successfully challenging the pleading.
9.3.2 JURISDICTION. ActaMed and SBCL each consent to
venue in Philadelphia, Pennsylvania and to the nonexclusive jurisdiction of
competent Pennsylvania state courts or federal courts located in Philadelphia
for all litigation which may be brought, subject to the requirement for
arbitration hereunder, with respect to the terms of, and the transactions and
relationships contemplated by, this Assets Purchase Agreement.
ARTICLE 10
TERMINATION
SECTION 10.1 TERMINATION.
10.1.1 METHOD OF TERMINATION. This Assets Purchase
Agreement and the transactions contemplated hereby may be terminated at any
time prior to a Transfer Date:
(a) by the mutual consent of SBCL and ActaMed;
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(b) by SBCL by written notice of termination to
ActaMed given after ActaMed shall have failed to meet the Transfer Benchmarks
with respect to a Region by any applicable Measurement Date;
(c) by ActaMed, if SBCL shall (1) fail to
perform in any material respect its agreements contained herein required to
be performed by it on or prior to such Transfer Date, or (2) materially
breach any of its representations, warranties or covenants contained herein;
(d) by SBCL, if ActaMed shall (1) fail to
perform in any material respect its agreements contained herein required to
be performed by it on or prior to such Transfer Date, or (2) materially
breach any of its representations, warranties or covenants contained herein;
(e) by either SBCL or ActaMed if there shall be
any order, writ, injunction or decree of any court or governmental or
regulatory agency binding on ActaMed or SBCL which prohibits or restrains
ActaMed or SBCL from consummating the transactions contemplated by this
Assets Purchase Agreement, provided that ActaMed and SBCL shall have used
their best efforts to have any such order, writ, injunction or decree lifted
and the same shall not have been lifted within thirty (30) days after entry;
(f) by SBCL if SBCL terminates the Services
Agreement; or
(g) by ActaMed if ActaMed terminates the
Services Agreement.
10.1.2 NOTICE OF TERMINATION. Notice of termination of
this Assets Purchase Agreement, as provided for in this Article, shall be
given by the party so terminating to the other party in accordance with
Section 11.1.1 of this Assets Purchase Agreement. Any such termination shall
be effective as of the date of such notice, unless otherwise provided in such
notice.
10.1.3 EFFECT OF TERMINATION. If this Assets Purchase
Agreement is terminated pursuant to Section 10.1 then, with respect to all
transactions contemplated by this Assets Purchase Agreement as to which no
Transfer Date has occurred (the "Future Transfers"), the obligations of the
parties as to such Future Transfers shall become void and of no further force
and effect, and each party shall pay the costs and expenses incurred by it in
connection with this Assets Purchase Agreement as set forth herein and no
party (nor any of its officers, directors, employees, agents, representatives
or stockholders) shall be liable to any other party for any costs, expenses,
damages (direct or indirect) or loss of anticipated profits for Future
Transfers.
SECTION 10.2 RISK OF LOSS. SBCL assumes all risk of destruction, loss
or damage due to fire or other casualty to the SCAN Assets located at SBCL
Sites. SBCL shall remit all insurance proceeds relating to SCAN Assets not
transferred by reason of such destruction, loss or
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damage to ActaMed. If ActaMed and SBCL are unable to agree upon the amount
of such insurance proceeds applicable to the affected SCAN Assets, the
dispute shall be resolved jointly by the independent accounting firms then
employed by ActaMed and SBCL, and if said accounting firms do not agree, they
shall appoint a nationally recognized accounting firm, whose determination of
the dispute shall be final and binding.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 GENERAL PROVISIONS.
11.1.1 NOTICES. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to
have been given if (1) delivered by hand or if mailed by United States
registered or certified mail, return receipt requested, first class postage
prepaid, (2) sent by Federal Express or similar overnight courier service to
the parties or their assignees, or (3) sent by telecopy to the number set
forth below and promptly followed by a written copy sent by any other means
specified herein, addressed as follows:
If to SBCL:
SmithKline Beecham Clinical Laboratories, Inc.
1201 South Collegeville Road
Collegeville, PA 19426
Attention: John B. Okkerse, Jr., PhD, President
Telephone: [*]
Telecopy: [*]
with a copy to:
SmithKline Beecham Corporation
One Franklin Plaza
16th and Race Streets
Philadelphia, PA 19103
Attention: General Counsel-U.S.
Telephone: [*]
Telecopy: [*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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If to ActaMed:
ActaMed Corporation
Suite 600
7000 Central Parkway
Atlanta, Georgia 30328
Attention: Chief Financial Officer
Telephone: (770) 352-1600
Telecopy: (770) 352-1815
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John C. Weitnauer, Esq.
Telephone: (404) 881-7780
Telecopy Number: (404) 881-7777
(a) If delivered personally, the date on which
a notice, request, instruction or document is delivered shall be the date on
which such delivery is made and, if delivered by mail, telecopy, Federal
Express or other overnight courier, the date on which such notice, request,
instruction or document is first received shall be the date of delivery.
(b) Any party hereto may change its address
specified for notices herein by designating a new address by notice in
accordance with this Section 11.1.
(c) Failure of any party to send a copy of any
notice to counsel for the other Party shall not affect in any way the
validity of such notice to other party.
11.1.2 FURTHER ASSURANCES. Each party covenants that at
any time, and from time to time, after any Transfer Date, it will execute
such additional instruments and take such actions as may be reasonably
requested by the other party to confirm or perfect or otherwise to carry out
the intent and purposes of this Assets Purchase Agreement.
11.1.3 WAIVER. Any failure on the part of any party
hereto to comply with any of its obligations, agreements or conditions
hereunder may be waived by any other party to whom such compliance is owed.
No waiver of any provision of this Assets Purchase Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver.
11.1.4 ASSIGNMENT. This Assets Purchase Agreement shall
not be assignable by any of the parties hereto without the written consent of
the other party hereto, and
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no rights under this Assets Purchase Agreement may be transferred without the
consent of the non-transferring party, except that:
(a) the rights of ActaMed under this Assets
Purchase Agreement may be transferred to any Person that acquires all or
substantially all of the business or assets of ActaMed related to the ActaLab
Software and the Network (whether by purchase of assets, merger or other
corporate reorganization), [*];
(b) the rights of SBCL under this Assets
Purchase Agreement may be transferred before or after the last Transfer Date
in connection with a transfer of shares of Series D Preferred Stock made in
accordance with the provisions of the Stockholders' Agreement; and
(c) all the rights of SBCL may be transferred
to an Affiliate of SBCL or an acquiror of substantially all of its assets
(whether by purchase of assets, merger or other corporate reorganization).
Any attempted assignment without such consent shall be void. If the parties
cannot agree upon whether a company competes with SBCL, the parties shall
resolve the dispute pursuant to Article IX. Any assignment with consent does
not release the assigning party from any of its obligations under this Assets
Purchase Agreement unless the consent so states. Any transferee of SBCL
permitted pursuant to clause (b) above shall execute and deliver to ActaMed
an instrument satisfactory to it agreeing to be bound by the provisions
hereof and of the Stockholders' Agreement and the Registration Rights
Agreement.
11.1.5 BINDING EFFECT. Subject to the limitations on
transfer set forth in Section 11.1.4, this Assets Purchase Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, executors, administrators,
successors and assigns.
11.1.6 KNOWLEDGE. The use of the terms "to ActaMed's
knowledge" or words of similar import shall refer to the facts known to [*]
Michael K. Hoover and [*] after reasonable inquiry. The use of the
terms "to SBCL's knowledge" or words of similar import shall refer to the
facts known to [*] after reasonable inquiry.
11.1.7 HEADINGS. The section and other headings in this
Assets Purchase Agreement are inserted solely as a matter of convenience and
for reference, and are not a part of this Assets Purchase Agreement.
11.1.8 ENTIRE AGREEMENT. This Assets Purchase Agreement
and the Exhibits, Schedules, certificates and other documents delivered
pursuant hereto or incorporated
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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herein by reference, contain and constitute the entire agreement among the
parties hereto and supersede and cancel any prior agreements,
representations, warranties, or communications, whether oral or written,
among the parties hereto relating to the transactions contemplated hereby or
the subject matter herein. This Assets Purchase Agreement may be changed,
waived, discharged or terminated only by an agreement in writing signed by
(a) ActaMed and (b) SBCL or, after the last of the Transfer Dates, the
holder(s) of a majority of the Shares of Series D Preferred Stock and any
Conversion Shares considered as a single class.
11.1.9 GOVERNING LAW. Except for the matters referred
to by Section 9.3, this Assets Purchase Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
11.1.10 COUNTERPARTS. This Assets Purchase Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
11.1.11 PRONOUNS. All pronouns used herein shall be
deemed to refer to the masculine, feminine or neutral gender as the context
requires.
11.1.12 TIME OF ESSENCE. Time is of the essence in this
Assets Purchase Agreement.
11.1.13 SCHEDULES AND EXHIBITS. All Schedules and
Exhibits attached to this Assets Purchase Agreement are by this reference
made a part hereof.
[SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Assets Purchase
Agreement under seal as of the day and year first above written.
ActaMed Corporation
/s/
-----------------------------------
By: Michael K. Hoover
Its: President
SmithKline Beecham Clinical
Laboratories, Inc.
/s/
-----------------------------------
By: John B. Okkerse Jr.
Its: President
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EXHIBIT A
DEFINITIONS
"AAA" means the American Arbitration Association.
"ActaLab Software" means the ActaLab Software, as defined under the
License Agreement.
"ActaMed" means ActaMed Corporation, a Georgia corporation.
"ActaMed Business" means the business of developing and selling
information systems and related technology for the healthcare industry.
"ActaMed Common Stock" means the $.01 par value common stock of
ActaMed.
"ActaMed Documents" has the meaning given in Section 3.2.1 of the
Assets Purchase Agreement.
"ActaMed Financial Statements" has the meaning given in Section
3.2.3(a) of the Assets Purchase Agreement.
"ActaMed Indemnitee" means ActaMed and its directors, officers,
employees, affiliates and permitted assigns.
"ActaMed Network" means the EDI system and network operated by
ActaMed for electronic laboratory test order entry and/or results reporting,
which includes the Network Software and ActaMed's gateway and hardware and
computer systems needed to operate that software.
"ActaMed President" means the President of ActaMed, presently
Michael Hoover, or should ActaMed be restructured in any manner, the officer
of ActaMed having top authority over ActaMed's operations.
"ActaMed Site" means a Provider [*] utilizing the Network for
Lab EDI Services that was an SBCL Site on the Transfer Date of the Region in
which such Provider [*] is located.
"ActaMed Unaudited Statements" has the meaning given in Section
3.2.3(a) of the Assets Purchase Agreement.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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"Applicable Transfer Date" means, with respect to an SBCL Site, the
Transfer Date of the Region in which the SBCL Site is located.
"Articles" means the Fourth Amended and Restated Articles of
Incorporation of ActaMed, as the same may be hereafter amended from time to
time.
"Assumption Agreement" the agreement attached as EXHIBIT 2.6.2 to
the Assets Purchase Agreement.
"Automated Provider" means a Provider [*] who or which, on the
Transfer Date of the Region in which the Provider [*] is located, uses the
SCAN Network to send clinical laboratory test orders to an SBCL Lab or to
receive test result reports from an SBCL Lab.
"Claim" means any claim for indemnification under Article VIII of
the Assets Purchase Agreement, including but not limited to a General Claim,
a Tax Claim or an Ownership Claim.
"Claims Notice" means a written notice of an indemnification claim
delivered pursuant to Section 8.2.3 of the Assets Purchase Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Communication Plan" shall have the meaning assigned in Section
4.3.4.
"Contract" means any written contract, agreement, lease, plan,
instrument or other document, commitment, arrangement, undertaking, practice
or authorization that is or may be binding on any Person or its property
under applicable law.
"Conversion Shares" means the shares of ActaMed Common Stock issued
or issuable upon the conversion of, unless specified otherwise, all of the
Preferred Shares.
"Court Order" means any judgment, decree, writ, injunction, order
or ruling of any federal, state or local court or governmental or regulatory
body or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach of or default under any Contract or
License, (b) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under any
Contract or License or (c) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to a
right of termination, renegotiation or acceleration under any Contract or
License.
"Development Agreement" means the Development Agreement between
SBCL and ActaMed dated October 31, 1997 for the initial development of the
ActaLab Software.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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"Dispute Notice" has the meaning given in Section 9.2.1 of the
Assets Purchase Agreement.
"Disputing Party" has the meaning given in Section 9.2 of the
Assets Purchase Agreement.
"EDI" means electronic data interchange.
"Employee Benefit Plan" means any pension, retirement
profit-sharing, deferred compensation, bonus, incentive, performance, stock
option, phantom stock, stock purchase, restricted stock, medical,
hospitalization, vision, dental or other health, life, disability, severance,
termination or other employee benefit plan, program, arrangement, agreement
or policy, whether written or unwritten, to which ActaMed contributes or is
obligated to contribute, is a party to or is otherwise bound, or with respect
to which ActaMed may have any Liability.
"Employee Computer" shall have the meaning assigned in Section
1.2.1 of this Assets Purchase Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means (i) a member of any "controlled group," as
defined in Section 414(b) of the Code, of which ActaMed is a member, (ii) a
trade or business, whether or not incorporated, under common control (within
the meaning of Section 414(c) of the Code) with ActaMed, or (iii) a member of
any affiliated service groups (within the meaning of Section 414(m) of the
Code) of which ActaMed is a member.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FASB 5" means Statement of Financing Accounting Standards No. 5
issued by the Financial Accounting Standards Board in March 1975.
"Fourth Amended Articles" means the Fourth Amended and Restated
Articles of Incorporation of ActaMed.
"GAAP" means generally accepted accounting principles.
"General Claim" means any claim other than a Tax Claim, Ownership
Claim or Undisclosed Liability Claim based upon, arising out of or otherwise
in respect of any inaccuracy in any representation or warranty or any breach
of any covenant or agreement made or to be performed by a Party pursuant to
this Assets Purchase Agreement.
"HSR Act" means Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the Regulations promulgated thereunder.
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"Implementation Committee" has the meaning given in Section 4.2.2
of the Assets Purchase Agreement.
"Implementation Plan" has the meaning given in Section 4.2.1 of
the Assets Purchase Agreement.
"Indemnifying Party" means the Party obligated to provide
indemnification pursuant to Sections 8.2.1 or 8.2.2 of the Assets Purchase
Agreement.
"Indemnitee" means a Party seeking indemnification under Sections
8.2.1 or 8.2.2 of the Assets Purchase Agreement.
"Integrity Agreement" shall have the meaning given in the Services
Agreement.
"Intellectual Property" means copyrights, trademarks, service
marks, trade names, patents, applications therefor, technology rights and
licenses, computer software (including, without limitation, any source or
object codes therefor or documentation relating thereto), computer software
licenses, trade secrets, franchises, know-how, inventions and intellectual
property rights.
"Lab EDI Services" means electronic connectivity services enabling
an Automated Provider to send Transmittal Information electronically to an
SBCL Lab and/or to receive electronically Transmittal Information from an
SBCL Lab utilizing the Network.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of or by any
Person (other than endorsements of notes, bills and checks presented to banks
for collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute, contingent, matured, unmatured or other.
"License Agreement" means the License Agreement between SBCL and
ActaMed dated the date of the Assets Purchase Agreement and described in the
preamble to the Assets Purchase Agreement.
"License" means any license, franchise, notice, permit, easement,
right, authorization or filing.
"Lien" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or claim
of any nature whatsoever on any property or property interest.
"Litigation" means any lawsuit, action, claim, arbitration,
administrative or other proceeding, criminal prosecution or governmental
investigation or inquiry involving or affecting a Party or its business,
assets or Contracts to which it is a party or by which it or its business,
assets or Contracts may be bound or affected.
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"Losses" means any and all demands, claims, actions or causes of
action, assessments, losses, diminution in value, damages (including special
and consequential damages), liabilities, costs, and expenses, including
without limitation, interest, penalties, cost of investigation and defense,
and reasonable attorneys' and other professional fees and expenses.
"Material Adverse Effect" means a material adverse effect on the
business or financial condition of ActaMed or on the ability of ActaMed to
conduct the ActaMed Business or the impairment of ActaMed's ability to
perform its obligations under the ActaMed Documents.
"Network" means the SCAN Network and/or the ActaMed Network.
"Network Software" means ActaMed's personal computer version of the
ProviderLink and ActaLink presentation and network software programs, under
whatever name marketed, and the SBCL Software and the ActaLab Software, and
all Changes to them, which are licensed to Automated Providers and which
allow access to the Network for the transmission of laboratory test order
entries and reception of test result information.
"New Business Plan" means the New Business Plan for ActaMed
prepared in accordance with Section 5.1.8 of this Assets Purchase Agreement.
"OIG" shall have the meaning assigned in Section 4.4 of this Assets
Purchase Agreement.
"Ownership Claim" means any claim arising out of or otherwise in
respect of any inaccuracy in the representations and warranties set forth in
Sections 3.1.1, 3.1.2, 3.1.6 or 3.1.13, or 3.2.1, 3.2.2, 3.2.11, or 3.2.12 of
the Assets Purchase Agreement.
"Panel" has the meaning set forth in Section 9.2.1.
"PC Systems" means the assets described in Section 1.1.1 of the
Assets Purchase Agreement.
"Performance Standards" has the meaning given such term in the
Services Agreement.
"Permitted Owner" means SBCL or a successor owner of SBCL's Series
D Preferred Stock or Conversion Shares permitted under the Stockholders
Agreement among ActaMed and its stockholders, as amended from time to time.
"Person" means any individual, corporation, trust, estate, business
trust, general or limited partnership, limited liability company, limited
liability partnership, unincorporated association or other legal entity.
"Phone Lines" means SBCL's contractual right to use certain phone
lines, as more fully described in Section 1.1.2 of this Assets Purchase
Agreement.
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"Preferred Stock" means the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock.
[*] means an [*].
"Projections" shall have the meaning assigned in Section 3.1.3 of
this Assets Purchase Agreement.
"Provider" means a physician, clinic, hospital, patient service
center (other than [*]) or other provider of clinical health care services.
"Provider Agreements" means the contracts described in Section
1.1.3 of this Assets Purchase Agreement.
"Public Offering" means a bona fide firm commitment underwritten
offering of ActaMed Common Stock pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission
pursuant to the Securities Act.
"Region" means any one of Region One, Region Two, Region Three, or
Region Four.
"Region Four" means the Region described on SCHEDULE 2.2(d)
"Region Four Sites" are the SCAN Sites located in Region Four.
"Region Four Transfer Date" has the meaning given in Section 2.3.4
of the Assets Purchase Agreement.
"Region One" means the Region described on SCHEDULE 2.2(a)
"Region One Sites" are the SCAN Sites located in Region One.
"Region One Transfer Date" means December 31, 1997.
"Region Three" means the Region described on SCHEDULE 2.2(c).
"Region Three Sites" are the SCAN Sites located in Region Three.
"Region Three Transfer Date" has the meaning given in Section 2.3.3
of the Assets Purchase Agreement.
"Region Two" means the Region described on SCHEDULE 2.2(b).
"Region Two Sites" are the SCAN Sites located in Region Two.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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"Region Two Transfer Date" has the meaning given in Section 2.3.2
of the Assets Purchase Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated May 3, 1994, as amended as of the date hereof and as the same
may be amended from time to time, by and among ActaMed and the stockholders
of ActaMed signatory thereto.
"Regulation" means any statute, law, ordinance, regulation,
requirement, order or rule of any federal, state, or local government or
other governmental agency or body or of any other type of regulatory body, or
any governmental or administrative interpretation of any thereof, including,
without limitation, (i) those covering health, safety, environmental, energy,
transportation, bribery, record keeping, zoning, antidiscrimination,
antitrust, wage and hour, and price and wage control matters, (ii)
requirements imposed by any governmental or regulatory body which must be
satisfied to qualify for Medicare reimbursements, and (iii) any and all
federal, state and local health care laws relating to or covering the methods
and ways in which Lab EDI Services and other related or incidental services
or benefits, if any, are provided to the Automated Providers, including, but
not limited to, 42 U.S.C. Section 1395nn and the Clinical Laboratory
Improvements Act of 1988, as amended.
"Relationship Manager" has the meaning given in Section 4.2.2 of
the Assets Purchase Agreement.
"Required Consents" means any and all licenses, waivers, consents
or approvals from other parties to Contracts necessary to consummate the
transactions contemplated hereby and by any Exhibit hereto.
"SBCL" means SmithKline Beecham Clinical Laboratories, Inc., a
Delaware corporation.
"SBCL Documents" has the meaning given in Section 3.1.1 of the
Assets Purchase Agreement.
"SBCL Lab" means any location at which SBCL or its Affiliates
provide, or may in the future provide, clinical laboratory testing services,
regardless of the computer systems or software, if any, used by such lab for
lab order entry and results reporting.
"SBCL President" shall mean the President of SBCL, presently John
B. Okkerse, Jr., Ph.D., or should SBCL be restructured in any manner, the
officer of SBCL having top authority over SBCL's operations.
"SBCL Site" means an Automated Provider utilizing the SCAN Network
for Lab EDI Services on the Transfer Date of the Region in which such
Automated Provider is located.
"SBCL Software" means SBCL Software, as defined in the License
Agreement.
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"SCAN Assets" means the assets described in subsections 1.1.1
through 1.1.6 of the Assets Purchase Agreement.
"SCAN Network" means the SBCL Software and SBCL's hardware and
computer systems needed to operate the SBCL Software which enables Automated
Providers to place laboratory test orders electronically to an SBCL Lab
and/or to receive test result reports electronically from an SBCL Lab.
"SCAN Site" means either an SBCL Site or an ActaMed Site.
"SCAN Software" means the SBCL SCAN-TM- software licensed to
ActaMed pursuant to the License Agreement.
"Schedule" means any of the lists or disclosure schedules referred
to herein.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Series A Convertible Preferred
Stock of ActaMed.
"Series B Preferred Stock" means the Series B Convertible Preferred
Stock of ActaMed.
"Series C Preferred Stock" means the Series C Convertible Preferred
Stock of ActaMed.
"Series D Preferred Stock" means the Series D Convertible Preferred
Stock of ActaMed.
"Services Agreement" means the Services Agreement, made and entered
into as of the date hereof, between ActaMed and SBCL.
"Standstill Agreement" means the Standstill Agreement, dated the
date hereof between SBCL and ActaMed.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of May 3, 1994, as amended as of the date hereof and as the same may be
amended from time to time, between ActaMed and the stockholders of ActaMed
who are signatories thereto.
"Stock Option Plans" means ActaMed's 1997 Stock Option Plan, 1996
Directors Stock Option Plan, 1995 Stock Option Plan, 1994 Stock Option Plan,
1993 Stock Option Plan and 1992 Stock Option Plan.
A-8
<PAGE>
"Subsidiary" means a corporation, limited liability company,
partnership, association, trust, joint venture or other entity in which
ActaMed or SBCL, as the case may be, has, directly or indirectly, an equity,
ownership or proprietary interest of greater than ten percent (10%).
"Substantial Holder" means an officer or employee of ActaMed who is
the beneficial owner of one percent (1%) or more of the outstanding voting
power or the outstanding equity (on a fully diluted basis) of ActaMed.
"Tax Claim" means any claim based upon, arising out of or otherwise
in respect of any inaccuracy in any representation or warranty or breach of
any covenant or agreement made or to be performed by a Party pursuant to this
Assets Purchase Agreement related to any Taxes.
"Taxes" means any federal, state, county, local and other taxes,
including without limitation, income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, gross receipts taxes, franchise taxes, taxes on
earnings and profits, employment and payroll related taxes, property taxes,
real property transfer taxes, Federal Insurance Contributions Act taxes,
taxes on value added and import duties, whether or not measured in whole or
in part by net income, imposed by the United States or any political
subdivision thereof or by any Jurisdiction other than the United States or
any political subdivision thereof.
"Third Party Claim" means any claim, suit or proceeding (including,
without limitation, a binding arbitration or an audit by any taxing
authority) that is instituted against an Indemnitee by a Person other than an
Indemnitor and which, if prosecuted successful, would result in a Loss for
which such Indemnitee is entitled to indemnification hereunder.
"Third Party Software" means software that SBCL licensed from third
parties for use in delivery of Lab EDI Services, including without limitation
software known as pkZip and pkUnzip, ProCom, and Reach Out.
"Trade Secrets" means information related to a Party (1) which
derives economic value, actual or potential, from not being generally known
to or readily ascertainable by other Persons who can obtain economic value
from its disclosure or use, and (2) which is the subject of efforts by said
Person that are reasonable under the circumstances to maintain its secrecy.
Without limitation, for ActaMed, ProviderLink and the ActaLab Software are
Trade Secrets, and for SBCL, the SBCL Software is a Trade Secret.
"Transaction Documents" means the Assets Purchase Agreement, the
Development Agreement, the License Agreement, the Services Agreement and all
documents executed or delivered in connection with the foregoing.
"Transfer Benchmarks" means the criteria set forth on EXHIBIT
2.3.1, timely achievement of which shall determine whether the SCAN Assets
relating to SCAN Sites in the
A-9
<PAGE>
next Region to be transferred shall be transferred by SBCL to ActaMed
pursuant to the Assets Purchase Agreement.
"Transferred Employees" means the employees listed on SCHEDULE VI
hereto.
"Transfer Date" shall mean any one of and "Transfer Dates" shall
mean more than one of the Region One Transfer Date, the Region Two Transfer
Date, the Region Three Transfer Date, and the Region Four Transfer Date.
"Transmittal Information" means information which an Automated
Provider gives ActaMed for communication to SBCL over the Network, or which
SBCL gives ActaMed for communication to an Automated Provider over the
Network, including all copies of same, and including without limitation, data
relating to laboratory records, clinical data, encounter data, test
information, test codes and provider identification numbers (other than UPINs)
"Undisclosed Liability Claim" means any claim arising out of or
otherwise in respect of any inaccuracy in the representations and warranties
set forth in Sections 3.2.3 or 3.2.8 of the Assets Purchase Agreement.
"Vendor Contracts" means the Contracts described in Section 1.1.4
of the Assets Purchase Agreement.
"Warrant" means the Warrant to purchase 450,450 shares of ActaMed
Common Stock at an exercise price of $5.00 issued by ActaMed to International
Business Machines Corporation in December 1996.
A-10
<PAGE>
Exhibit 2.3.1
TRANSFER BENCHMARKS
CLIENT SATISFACTION MEASUREMENTS
ActaMed will provide such level of satisfactory Agreed Services (as
defined in the Services Agreement) measured as set forth below. The
following "Transfer Benchmarks" will be used as the measurement for
proceeding to the transfer of Region Two Sites, Region Three Sites and Region
Four Sites.
REQUISITION VOLUME
The first Transfer Benchmark shall be sustaining the monthly average
number of Requisitions on a per-Site basis. More specifically, ActaMed shall
measure each month the volume of Requisitions for the ActaMed Sites in each
Transferred Region. It shall then calculate the average monthly per-Site
Requisition volume. This calculated average shall then be compared (i) to
the mean of the average monthly per-Site Requisition volumes for the same
Region for the twelve months immediately preceding the month for which the
measurement was made and (ii) to the mean of the average monthly per-Site
Requisition volumes for all non-Transferred Regions during the same time
period. If ActaMed's average monthly per-Site Requisition volume for the
measured period, as adjusted for seasonality, is within 90% of each of (i)
and (ii), above, then ActaMed will have met this benchmark.
For Region One, SBCL shall provide within thirty (30) days after the
Region One Transfer Date the monthly Requisitions and Sites for
January-December 1997. For all other Regions, the monthly Requisitions and
Sites for the twelve months prior to the Applicable Transfer Date shall be
provided on the Applicable Transfer Date.
CUSTOMER SURVEYS
The second Transfer Benchmark shall be sustaining levels of support and
client acceptance satisfactory to SBCL, in its reasonable discretion,
determined by comparing Transfer Surveys of the Automated Providers in each
Transferred Region to a corresponding Initial Survey for such Automated
Providers.
The Initial Survey shall be a survey, in a format and with content
approved by SBCL in advance, which shall be performed by ActaMed within
thirty (30) days after each Transfer Date. Such survey shall solicity
performance and service-related comments from the Automated Providers about
SBCL's provision of Lab EDI Services for that Region. The initial survey
shall be sent to ten percent (10%) of the Sites in each Region, selected at
random by ActaMed.
The Transfer Surveys for each Region shall be identical to the Initial
Survey for such Region and shall be sent to the same Automated Providers, to
the greatest extent possible, as the Initial
<PAGE>
Survey (and to replacement Automated Providers where not possible). The
Transfer Surveys shall solicit performance and service-related comments from
the Automated Providers about ActaMed's provision of Lab EDI Services for
each Region. The Transfer Surveys shall be performed for each applicable
Region within thirty (30) days prior to the each scheduled Transfer Date;
provided, that a Transfer Survey for a given Region shall only solicit
information pertaining to the period between the last Transfer Date and the
next scheduled Transfer Date.
CUSTOMER COMPLAINTS
The third and final Transfer Benchmark will be the absence of a material
number (materiality to be determined by SBCL in its reasonable discretion
relative to the frequency and severity of complaints) of documented problems
and Automated Providers ceasing to do business with SBCL Labs citing issues
related to Lab EDI Services provided by ActaMed. SBCL will provide ActaMed
with copies of any such documented problems within fifteen (15) days of their
receipt.
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<PAGE>
Exhibit 2.5.1
BILL OF SALE AND ASSIGNMENT
This is a Bill of Sale and Assignment from SmithKline Beecham Clinical
Laboratories, Inc., a Delaware corporation ("SBCL"), to ActaMed Corporation,
a Georgia corporation ("ActaMed"), pursuant to a certain Assets Purchase
Agreement dated as of December ___, 1997 between SBCL and ActaMed (the
"Assets Purchase Agreement"). Capitalized terms used and not defined herein
shall have the meanings set forth in the Assets Purchase Agreement.
1. For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, SBCL hereby sells, assigns, transfers, conveys
and delivers to ActaMed, its successors and assigns, to have and to hold
forever:
(a) all of its right, title and interest in and to the SCAN Assets
located at SCAN Sites in Region ___, listed on Exhibit A attached hereto,
free and clear of all mortgages, liens, pledges, security interests, charges,
claims and other encumbrances of any nature whatsoever other than those
disclosed in the Assets Purchase Agreement or any Schedule thereto; and
(b) all of its rights in the single-copy licenses granting the
right to use the Third Party Software (i) installed by, or in accordance with
the instructions of, SBCL and (ii) resident on a PC System conveyed to
ActaMed in accordance with the preceding subparagraph (a), which rights are
in accordance with the provisions of Section 1.2.1 of the Assets Purchase
Agreement; and
(c) all of its rights in the single-site licenses for Microsoft
Windows to the extent contemplated by Section 1.2.2 of the Assets Purchase
Agreement.
The assets described in the foregoing subparagraphs (a) -- (c) are
hereinafter referred to as the "Transferred Assets."
2. From and after the Region ___ Transfer Date, upon request of
ActaMed, SBCL shall duly execute, acknowledge and deliver all such further
assignments, documents of transfer or conveyance, powers of attorney and
assurances and do such further acts as may be reasonably required to convey
to and vest in ActaMed and protect its rights, title and interest in
enjoyment of all the Transferred Assets and as may be appropriate otherwise
to carry out the transactions contemplated by the Assets Purchase Agreement
and this Bill of Sale and Assignment.
3. In the event of a conflict between the terms and conditions of this
Bill of Sale and Assignment and the terms and conditions of the Assets
Purchase Agreement, the terms of the Assets Purchase Agreement shall govern,
supersede and prevail.
4. Notwithstanding anything herein to the contrary, the terms and
conditions of the Assets Purchase Agreement shall survive the execution and
delivery of this Bill of Sale and Assignment.
<PAGE>
5. This instrument shall be governed by and construed in accordance
with the laws of the State of Georgia.
6. This instrument shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
have duly executed and delivered this Bill of Sale and Assignment as of this
___ day of _______________, 199_.
SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC.
By:_____________________________________
Title:
Acknowledged and agreed:
ACTAMED CORPORATION
By: _____________________________
Title:
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<PAGE>
Exhibit 2.5.2
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
COMPLIANCE CERTIFICATE
The undersigned certifies that he is a __________________________ of
SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation
("SBCL"), and that as such he is authorized to execute this certificate by
and on behalf of the SBCL and, pursuant to Section 2.5.2 of the Assets
Purchase Agreement, dated as of December __, 1997 (the "Asset Purchase
Agreement"), between SBCL and ActaMed Corporation, a Georgia corporation
("ActaMed"), and further certifies that:
a. The representations and warranties of SBCL, [other than the
representations and warranties contained in Sections 3.1.3, 3.1.4(a) - (e),
3.1.6(d) and 3.1.7(b),] contained in the Assets Purchase Agreement, as
supplemented by the Disclosure Schedule attached hereto, are true and correct
in all material respects at and as of the date hereof as though such
representation and warranties were made at and as of the date hereof.
b. SBCL has duly performed and complied with each covenant and
condition required by the Assets Purchase Agreement to be performed or
complied with before or on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand as of this ___ day of
____________, 199_.
By: ____________________________________
Name:
Title:
** Bracketed text to be included on Region Two Transfer Date, Region Three
Transfer Date, and Region Four Transfer Date only.
<PAGE>
Exhibit 2.5.3
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
CERTIFICATE OF THE ASSISTANT SECRETARY
The undersigned certifies that he is the Secretary of SmithKline Beecham
Clinical Laboratories, Inc., a Delaware corporation (the "Company"), and that
as such he is authorized to execute and deliver this certificate by and on
behalf of the Company, and further certifies that:
a. Attached hereto as Exhibit "A" is a true, correct and complete
copy of the Company's Certificate of Incorporation, as certified by the
Secretary of State of the State of Delaware; said Certificate of
Incorporation is in full force and effect as of the date hereof; since the
date of certification by the Secretary of State of the State of Delaware
there have been no amendments, alterations or modifications of such
Certificate of Incorporation; and no action has been taken by the Company in
contemplation of any such amendment or the dissolution, merger or
consolidation of the Company.
b. Attached hereto as Exhibit "B" is a true, correct and complete
copy of the Bylaws of the Company as in effect on the date hereof, and there
have been no additional amendments authorized with respect thereto.
c. Attached hereto as Exhibit "C" is a copy of the resolutions
duly adopted by the Board of Directors of the Company on December 29, 1997,
with respect to the Asset Purchase Agreement and the transactions
contemplated hereby, and such resolutions have not been rescinded or amended
in any respect and are in full force and effect on the date hereof.
d. Each of the following persons now is, and at all times
including and since ___________________, 199_, has been a duly elected
officer or employee of the Company, holding the office or position in the
Company set forth opposite his name below, and the signature of each such
person appearing opposite his name below is his genuine signature:
[Name and title] _______________________________________
[Name and title] _______________________________________
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
____________, 199_.
By: _________________________________
Assistant Secretary
<PAGE>
I, __________________________, ________________________ of SmithKline
Beecham Clinical Laboratories, Inc., a Delaware corporation, do hereby
certify that ____________________ is the duly elected Assistant Secretary of
the Company, and that the signature appearing above is his genuine signature.
IN WITNESS WHEREOF, I have herewith set my hand this ___ day of
_____________, 199_.
__________________________________________
[Title]
-2-
<PAGE>
Exhibit 2.6.2
ASSUMPTION AGREEMENT
This is an Assumption Agreement by ActaMed Corporation, a Georgia
Corporation ("ActaMed"), in favor of SmithKline Beecham Clinical
Laboratories, Inc., a Delaware corporation ("SBCL"), pursuant to and in
accordance with Section 2.6.2 of the Assets Purchase Agreement, dated as of
December ___, 199_ (the "Assets Purchase Agreement") between SBCL and
ActaMed. Capitalized terms used and not defined herein shall have the
meanings set forth in the Assets Purchase Agreement.
1. For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound, ActaMed
hereby assumes:
(a) all of SBCL's contractual liabilities arising on or after the
date hereof with respect to the Phone Lines installed at SCAN Sites in Region
___;
(b) all of SBCL's duties and obligations arising on or after the
date hereof under such Provider Agreements as relate to Automated Providers
located in Region ___; and
(c) all of SBCL's duties and obligations arising on or after the
date hereof pursuant to the Vendor Contracts relating to the provision of
products or services in connection with SBCL's provision of Lab EDI Services
in Region ________.
ActaMed undertakes to perform the liabilities set forth in the preceding
subparagraphs (the "Liabilities") in accordance with their respective terms,
effective as of the date hereof.
2. From and after the Region ___ Transfer Date, ActaMed will, from
time to time, at the reasonable request of SBCL, duly execute, acknowledge
and deliver all such additional instruments, notices, releases, certificates,
powers of attorney, assurances and other documents and do all such further
acts as SBCL may reasonably require in order to effectively assume the
Liabilities and as may be appropriate otherwise to carry out the transactions
contemplated by the Assets Purchase Agreement and this Assumption Agreement.
3. In the event of any conflict between the terms and conditions of
this Assumption Agreement and the terms of the Assets Purchase Agreement, the
terms of the Assets Purchase Agreement shall govern, supersede and prevail.
4. If the assumption by ActaMed of any Liability is invalid or
unenforceable in any jurisdiction, it shall be ineffective to the extent of
such invalidity or unenforceability without invalidating or rendering
unenforceable the assumption by Purchaser of the remaining Liabilities.
<PAGE>
5. Notwithstanding anything herein to the contrary, the terms and
conditions of the Assets Purchase Agreement shall survive the execution and
delivery of this Assumption of Liabilities.
6. This instrument shall be governed by and construed in accordance
with the laws of the State of Georgia.
7. This instrument shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned have caused this Assumption
Agreement to be executed this ___ day of ________________, ______.
ACTAMED CORPORATION
By: _________________________________
Name:
Title:
Acknowledged and agreed:
SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC.
By: ____________________________
Name:
Title:
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<PAGE>
Exhibit 2.6.3
ACTAMED CORPORATION
COMPLIANCE CERTIFICATE
The undersigned certifies that he or she is a
_______________________________ of ActaMed Corporation, a Georgia corporation
("ActaMed"), and that as such he or she is authorized to execute this
certificate by and on behalf of ActaMed and, pursuant to Section 2.6.3 of the
Assets Purchase Agreement, dated as of December ___, 1997 (the "Asset
Purchase Agreement"), between SmithKline Beecham Clinical Laboratories, Inc.
("SBCL") and ActaMed, and further certifies that:
a. The representations and warranties of ActaMed contained in the
Assets Purchase Agreement, as supplemented by the Disclosure Schedule
attached hereto are true and correct in all material respects at and as of
the date hereof as though such representation and warranties were made at and
as of the date hereof.
b. ActaMed has duly performed and complied with each covenant and
condition required by the Assets Purchase Agreement to be performed or
complied with before or on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand as of this ___ day of
____________, 199_.
By: ______________________________
Name:
Title:
<PAGE>
Exhibit 2.6.4
ACTAMED CORPORATION
CERTIFICATE OF THE SECRETARY
The undersigned certifies that he is the Secretary of ActaMed
Corporation, a Georgia corporation (the "Company"), and that as such he is
authorized to execute and deliver this certificate by and on behalf of the
Company, and further certifies that:
a. Attached hereto as Exhibit "A" is a true, correct and complete
copy of the Company's Articles of Incorporation, as certified by the
Secretary of State of the State of Georgia; said Articles of Incorporation
are in full force and effect as of the date hereof; since the date of
certification by the Secretary of State of the State of Georgia there have
been no amendments, alterations or modifications of such Articles of
Incorporation; and no action has been taken by the Company in contemplation
of any such amendment or the dissolution, merger or consolidation of the
Company.
b. Attached hereto as Exhibit "B" is a true, correct and complete
copy of the Bylaws of the Company as in effect on the date hereof, and there
have been no additional amendments authorized with respect thereto.
c. Attached hereto as Exhibit "C" is a copy of the resolutions
duly adopted by the Board of Directors of the Company on December __, 1997,
with respect to the Assets Purchase Agreement and the transactions
contemplated hereby, and such resolutions have not been rescinded or amended
in any respect and are in full force and effect on the date hereof.
d. Each of the following persons now is, and at all times
including and since ___________________, 199_, has been a duly elected
officer or employee of the Company, holding the office or position in the
Company set forth opposite his or her name below, and the signature of each
such person appearing opposite his or her name below is his or her genuine
signature:
[Name and title] _______________________________________
[Name and title] _______________________________________
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
________________, 199_.
By: ________________________________
Secretary
<PAGE>
I, _________________________, _________________________ of ActaMed
Corporation, a Georgia corporation, do hereby certify that _________________
is the duly elected Secretary of the Company, and that the signature
appearing above is his genuine signature.
IN WITNESS WHEREOF, I have herewith set my hand this ___ day of
_______________, 199_.
_______________________________________
[Title]
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<PAGE>
ACTAMED CORPORATION
CERTIFICATE OF THE SECRETARY
The undersigned certifies that he is the Secretary of ActaMed
Corporation, a Georgia corporation (the "Company"), and that as such he is
authorized to execute and deliver this certificate by and on behalf of the
Company, and further certifies that:
a. Attached hereto as Exhibit "A" is a true, correct and complete
copy of the Company's Articles of Incorporation, as certified by the
Secretary of State of the State of Georgia; said Articles of Incorporation
are in full force and effect as of the date hereof; since the date of
certification by the Secretary of State of the State of Georgia there have
been no amendments, alterations or modifications of such Articles of
Incorporation; and no action has been taken by the Company in contemplation
of any such amendment or the dissolution, merger or consolidation of the
Company.
b. Attached hereto as Exhibit "B" is a true, correct and complete
copy of the Bylaws of the Company as in effect on the date hereof, and there
have been no additional amendments authorized with respect thereto.
c. Attached hereto as Exhibit "C" is a copy of the resolutions
duly adopted by the Board of Directors of the Company on December 19, 1997,
with respect to the Assets Purchase Agreement and the transactions
contemplated hereby, and such resolutions have not been rescinded or amended
in any respect and are in full force and effect on the date hereof.
d. Each of the following persons now is, and at all times
including and since January 1, 1997, has been a duly elected officer or
employee of the Company, holding the office or position in the Company set
forth opposite his or her name below, and the signature of each such person
appearing opposite his or her name below is his or her genuine signature:
Michael K. Hoover, President and CEO /s/
_________________________________________
Nancy J. Ham, Sr. Vice President /s/
_________________________________________
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of
December, 1997.
By: /s/
_________________________________________
Lewis R. Belote
Secretary
<PAGE>
I, Nancy J. Ham, Senior Vice President of ActaMed Corporation, a Georgia
corporation, do hereby certify that Lewis R. Belote is the duly elected
Secretary of the Company, and that the signature appearing above is his
genuine signature.
IN WITNESS WHEREOF, I have herewith set my hand this 31st day of
December, 1997.
/s/
_________________________________________
Nancy J. Ham
Senior Vice President
-2-
<PAGE>
AMENDMENT NO. 1 TO
ASSETS PURCHASE AGREEMENT
This AMENDMENT NO. 1 TO ASSETS PURCHASE AGREEMENT ("Amendment No. 1")
is made and entered into this 18th day of May, 1998 by and between HEALTHEON
CORPORATION, a Delaware corporation ("Healtheon"), ACTAMED CORPORATION, a
Georgia corporation ("ActaMed") and SMITHKLINE BEECHAM CLINICAL LABORATORIES,
INC., a Delaware corporation ("SBCL").
WHEREAS, ActaMed and SBCL entered into an Assets Purchase Agreement on
December 31, 1997 ("Purchase Agreement"); and
WHEREAS, ActaMed has entered into that certain "Agreement and Plan of
Reorganization by and among Healtheon Corporation, MedNet Acquisition Corp. and
ActaMed Corporation dated as of February 24, 1998, (the "Healtheon Merger
Agreement"), and, in order to permit the closing of the Healtheon Merger
Agreement, the parties wish to amend the Purchase Agreement as set forth below.
NOW THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties, intending to be legally bound, agree as
follows:
1. DEFINITIONS.
Capitalized terms used in this Amendment No.1 and not otherwise defined
herein have the meanings set forth in the Purchase Agreement.
2. AMENDMENTS.
2.1 ACTAMED REFERENCES. Except as the context may require otherwise or
this Amendment specifies otherwise, the term "ActaMed" shall be deemed to refer
to Healtheon wherever it appears in the Purchase Agreement.
2.2 PURCHASE PRICE. Sections 1.5.4. and 1.5.5 are each amended by
substituting the phrase "Common Stock of Healtheon" for the phrase "ActaMed's
Series D Preferred" and by substituting the term "Healtheon Stock Price" for the
term "Series D Price."
2.3 HEALTHEON STOCK PRICE. Section 1.6 is amended as follows:
2.3.1 The caption shall be changed to "HEALTHEON STOCK PRICE" and
the term "Series D Price" in the lead-in clause shall be replaced with the term
"Healtheon Stock Price".
-1-
<PAGE>
2.3.2 Section 1.6.1 (a) is amended by inserting the phrase
"divided by the Exchange Ratio" after "[*]" and "[*]".
2.3.3 Section 1.6.1 (c) is amended by inserting the phrase
"divided by the Exchange Ratio on the Region Three Transfer Date or the Region
Four Transfer Date, as applicable" after "[*]".
2.3.4 Section 1.6.3 is replaced in its entirety as follows:
"1.6.3 For purposes of Section 1.6, "Qualified Preferred
Stock" shall mean shares of Healtheon's preferred stock issued
in an arm's length transaction to one or more purchasers who
are not ActaMed or Healtheon's stockholders as of the Merger
Effective Date for an aggregate purchase price of not less
than $7,000,000; and the "Per Share Issue Price" of such
Qualified Preferred Stock shall be the consideration per
equivalent share of Common Stock received by Healtheon for the
Qualified Preferred Stock multiplied by the Exchange Ratio,
adjusted backwards to the Merger Effective Date for any
subdivision or combination of shares of Healtheon capital
stock or similar change in Healtheon's capital structure
(whether by stock split, stock dividend, merger, share
exchange, consolidation or otherwise) since the Merger
Effective Date."
2.4 DELIVERIES AT EACH OF THE TRANSFER DATES. Section 2.6 is replaced
in its entirety as follows:
"SECTION 2.6. DELIVERIES AT EACH OF THE TRANSFER
DATES. At each of the Transfer Dates, the following
documents shall be executed and delivered to SBCL to
the extent relating to the region transferred:
2.6.1. by Healtheon, the applicable
number of shares of Common Stock of Healtheon, as
determined in accordance with Sections 1.5, 1.6 and 1.8
of this Assets Purchase Agreement;
2.6.2. by either Healtheon or ActaMed,
an Assumption Agreement (in the form attached hereto as
EXHIBIT 2.6.2) covering, for the Region transferred,
(i) the Vendor Contracts for the Region transferred,
(ii) the Phone Lines and (iii) the Provider Agreements
for the Region transferred;
2.6.3 by Healtheon and ActaMed, a
Compliance Certificate (in the form attached hereto as
EXHIBIT 2.6.3), pursuant to which Healtheon and ActaMed
will jointly and severally make the representations and
warranties contained in Section 3.2 hereof, which
certificate shall attach revised Disclosure Schedules
to the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-2-
<PAGE>
extent necessary to make the representations and warranties
made on such Transfer Date true and correct in all material
respects;
2.6.4 by Healtheon, a Secretary's Certificate
(in the form attached hereto as EXHIBIT 2.6.4); and
2.6.5 by either Healtheon or ActaMed, such
other documents or certificates as may be reasonably requested by
SBCL."
2.5 REPRESENTATIONS AND WARRANTIES.
2.5.1 INVESTMENT REPRESENTATIONS OF SBCL. Section 3.1.12 is
amended by deleting the parentheticals referencing the "Conversion Shares" in
each of subsections (a) and (b), and by adding the words "or Common Stock of
Healtheon" after the term "Series D Preferred Stock" in each of subsections (a)
and (b).
2.5.2 BY ACTAMED AND HEALTHEON. The lead-in paragraph of Section
3.2 is replaced in its entirety as follows:
"SECTION 3.2. BY ACTAMED AND HEALTHEON. Except as set
forth on a Disclosure Schedule hereto, for
representations to be made on any Transfer Date after
the Merger Effective Date, ActaMed and Healtheon hereby
jointly and severally represent and warrant to SBCL,
and will jointly and severally represent and warrant to
SBCL on each such Transfer Date, as follows:"
Other than as specifically set forth in Sections 2.5.3 through 2.5.9 of this
Amendment No. 1, each of the representations and warranties set forth in
Sections 3.2.1 through 3.2.25 of the Purchase Agreement are amended as necessary
to the effect that such representations and warranties shall be made on any
Transfer Date after the Merger Effective Date by both ActaMed and Healtheon.
2.5.3 FINANCIAL STATEMENTS. Section 3.2.3 is amended as follows:
2.5.3.1 Subsection (a) is amended by adding the following
text at the end of such subsection:
"DISCLOSURE SCHEDULE 3.2.3 hereto also contains a true
and correct copy of (i) the balance sheets of Healtheon
at December 31, 1996 and December 31, 1997 and the
statements of operations, statements of stockholders
equity and statements of cash flows of Healtheon for
the years ended December 31, 1996 and December 31,
1997, which have been audited by Ernst & Young,
independent accountants (the "HEALTHEON FINANCIAL
STATEMENTS"), and (ii) the
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unaudited balance sheets of Healtheon at March 31,
1998 and the statements of operations, statements of
stockholders equity and statements of cash flows of
Healtheon for quarter ended March 31, 1998 (the
"HEALTHEON UNAUDITED STATEMENTS")."
2.5.3.2 Subsection (b) is amended by adding the phrase "and
the Healtheon Financial Statements" after the term "ActaMed Financial
Statements" wherever such term appears in such subsection, by inserting the word
"respective" prior to the phrase "financial position", by inserting the phrase
"and Healtheon" after the term "ActaMed" wherever such term appears in such
subsection, and by replacing the introduction to the final sentence, "ActaMed
has" with the introduction "ActaMed and Healtheon have".
2.5.3.3 Subsection (c) is amended by adding the phrase "and
the Healtheon Unaudited Statements after the term "ActaMed Unaudited
Statements", by inserting the word "respective" prior to the term "chief
financial officer", by inserting the phrase "and Healtheon" after the phase
"chief financial officer of ActaMed" and by inserting the phrase "and Healtheon
and its Subsidiaries" after the phrase "ActaMed and its Subsidiaries".
2.5.4 CONSENTS. Section 3.2.4 is amended by inserting the words
"or Healtheon" after the word "ActaMed" in the third line thereof, by
substituting the term "Common Stock of Healtheon" for the term "Series D
Preferred Stock" in item (b), and by deleting the parenthetical in item (b) and
the remainder of the Section following such parenthetical.
2.5.5 CAPITALIZATION. Section 3.2.5 is amended by substituting
the term "Common Stock of Healtheon" for the term "Series D Preferred Stock"
throughout the Section. Section 3.2.5 shall be further amended by deleting the
phrase "will have the designations, preferences, limitations and relative rights
set forth in the Articles" from subsection (b) and by deleting the final
sentence of subsection (b).
2.5.6 REGISTRATION RIGHTS. Section 3.2.6 is amended by
substituting the term "Investors' Rights Agreement" for "Registration Rights
Agreement," and by adding the clause "except for such securities which may be
granted registration rights pursuant to the terms of the Investors' Rights
Agreement" at the end of such Section.
2.5.7 OFFERING. Section 3.2.7 is amended by substituting the term
"Common Stock of Healtheon" for "Series D Preferred Stock" and by deleting the
parenthetical.
2.5.8 CHANGES. Section 3.2.8 is amended by adding the subsection
designation "(a)" at the beginning of such Section and by adding a new
subsection (b) as follows:
"Since the date of the latest Healtheon Unaudited
Statements, there has not been (i) any adverse change
in the assets, liabilities, financial condition or
operations of Healtheon from that reflected in the
Healtheon Financial Statements, other than changes in
the ordinary course of business, none of which
individually or in the
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aggregate has had a Material Adverse Effect or (ii)
any adverse change in the prospects of the business
of Healtheon or any other event or condition (or
events or conditions) of any character which,
either individually or cumulatively, has had a
Material Adverse Effect."
2.5.9 FULL DISCLOSURE. Section 3.2.25 is amended by inserting the
words "and Common Stock of Healtheon" after the term "Series D Preferred Stock."
2.6 AUDIT. Section 4.1.2 is amended by replacing the term "ActaMed
Common Stock" with "Common Stock of Healtheon" and by deleting the clause "on or
prior to April 30, 1998" and replacing it with the clause "in an expedient
fashion as required."
2.7 STANDSTILL. Section 4.3.5 is replaced in its entirety by the
following:
"4.3.5. STANDSTILL. At all times prior to the last
Transfer Date, neither Healtheon nor ActaMed shall
consummate, or enter into any agreement with respect
to, any merger, share exchange or consolidation or sale
of substantially all of its assets, nor shall Healtheon
dispose of the capital stock of ActaMed, without the
prior written consent of SBCL."
2.8 COVENANTS TO SBCL. Article V is replaced in its entirety by the
following:
"ARTICLE V
COVENANTS TO SBCL
SECTION 5.1 ADDITIONAL COVENANTS. ActaMed and
Healtheon, as applicable, covenant and agree as
follows:
5.1.1 TRANSACTIONS WITH AFFILIATES. For so
long as either (i) SBCL is a stockholder of Healtheon
or any successor to this agreement or (ii) the Services
Agreement (or any successor agreement for Lab EDI
Services), including all extensions and renewals
thereof, remains in effect, Healtheon shall not,
directly or indirectly, knowingly enter into any
material transaction or agreement with any of its
Affiliates, or a material transaction or agreement in
which an Affiliate of Healtheon has a direct or
indirect interest, unless such transaction or agreement
is on terms and conditions no less favorable to
Healtheon or any of its Subsidiaries than could be
obtained at the time in an arm's length transaction
with a third Person that is not such an Affiliate, or
unless such transaction or agreement has been reviewed
and approved by either a majority of those members of
Healtheon's
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Board of Directors who have no such interest in the
transaction or a majority of the shareholders,
voting in good faith. This Section is in
furtherance and not in limitation of Healtheon's
obligations under Section 144 of the Delaware
Corporation Law.
5.1.2 CORPORATE EXISTENCE, BUSINESS,
MAINTENANCE, INSURANCE. For so long as the Services
Agreement (or any successor agreement for Lab EDI
Services), including all extensions and renewals
thereof, remains in effect:
(a) Neither Healtheon nor ActaMed will
enter into any agreement for the disposition of all or
substantially all of the assets used in the provision
of Lab EDI Services, including by way of a merger,
consolidation, share exchange, or, in the case of
Healtheon, sale of the capital stock of ActaMed, if
such a sale will have a material impact on the
provision of Lab EDI Services.
(b) Healtheon, either independently or
through ActaMed, shall continue to engage in the
business of developing information networks (with a
meaningful focus on the provision of lab order entry
and results reporting services as one of Healtheon's
core businesses) and businesses related thereto.
(c) ActaMed and Healtheon will maintain
or cause to be maintained in good repair, working order
and condition all properties used in the business of
Healtheon and any Subsidiary related to the provision
of Lab EDI Services and from time to time will make or
cause to be made all appropriate repairs, renewals and
replacements thereof. Healtheon and any such
Subsidiary will at all times comply in all material
respects with the provisions of all material leases to
which it is a party or under which it occupies property
related to the provision of Lab EDI Services so as to
prevent any loss or forfeiture thereof or thereunder.
(d) Healtheon will maintain or cause to
be maintained, with financially sound and reputable
insurers, insurance in amounts approved by Healtheon's
Board of Directors with respect to its properties and
business and the properties and business of any
Subsidiary against loss or damage.
SECTION 5.2. INFORMATIONAL COVENANTS OF HEALTHEON.
Healtheon covenants and agrees that it shall deliver
the following information to SBCL so long as the
Services Agreement remains in effect (including any
extensions or renewal thereof) or until such time as
Healtheon shall have consummated a Public Offering.
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5.2.1. MANAGEMENT'S ANALYSIS. All the
financial statements delivered pursuant to the Investor
Rights Agreement shall be accompanied by an informal
narrative description of material business and
financial trends and developments and significant
transactions that have occurred in the appropriate
period or periods covered thereby.
5.2.2. BUDGETS. As soon as practicable, but
in any event within thirty (30) days prior to the
commencement of a fiscal year, an annual operating
budget for such fiscal year, approved by the Board of
Directors, including monthly income and cash flow
projections and projected balance sheets as of the end
of each quarter within such fiscal year. Extensions of
such due date shall not be unreasonably withheld.
5.2.3. INSPECTION. Except as provided in
Section 5.2.5, below, upon reasonable notice, and no
more frequently than two (2) times per year, Healtheon
shall, and shall cause its Subsidiaries to, permit SBCL
by its representatives, agents or attorneys:
(a) to examine all books of account,
records, reports and other papers of Healtheon or such
Subsidiary,
(b) to make copies and take extracts
from any thereof,
(c) to discuss the affairs, finances
and accounts of Healtheon or such Subsidiary with
Healtheon's or such Subsidiary's officers and
independent certified public accountants (and by this
provision Healtheon hereby authorizes said accountants
to discuss with SBCL and its representatives, agents or
attorneys the finances and accounts of Healtheon or
such Subsidiary), and
(d) to visit and inspect, at reasonable
times and on reasonable notice during normal business
hours, the properties of Healtheon and any Subsidiary.
Notwithstanding any provision herein to the contrary,
the provisions of this Section 5.2.3 are in addition to
any rights which SBCL may have as a Healtheon
stockholder under the Delaware Corporation Law and
shall in no way limit such rights.
The expenses of SBCL in connection with any such
inspection shall be for the account of SBCL.
Notwithstanding the foregoing
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<PAGE>
sentence, it is understood and agreed by Healtheon
that all reasonable expenses incurred by Healtheon
or such Subsidiary, any officers, employees or
agents thereof or the independent certified public
accountants therefor, shall be expenses payable by
Healtheon and shall not be expenses of SBCL.
5.2.4 OTHER INFORMATION Except as provided in
Section 5.2.5 below, for so long as SBCL continues to
own at least [*] of the aggregate number of shares of
Healtheon Common Stock now or hereafter acquired by it
as a direct result of the Region transfers completed under
this Agreement, Healtheon shall deliver courtesy copies of
the following information, as requested by and furnished to
the SBCL-nominated board member, or, if there is no
such SBCL-nominated board member, as requested by the
President of SBCL, to up to three employees of, or in-house
counsel to, SBCL designated by SBCL in writing
(and who initially shall be [*]):
(a) promptly after the submission
thereof to Healtheon, copies of any detailed reports
(including the auditors' comment letter to management,
if any such letter is prepared) submitted to Healtheon
by its independent auditors in connection with each
annual or interim audit of the accounts of Healtheon
made by such accountants;
(b) promptly, and in any event within
ten (10) days after obtaining knowledge thereof, notice
of the institution of any suit, action or proceeding
(other than a proceeding of general application which
is not directly against Healtheon or one or more of its
Subsidiaries), the happening of any event or, to the
best knowledge of Healtheon, the assertion or threat of
any claim against Healtheon or any of its Subsidiaries
which, either individually or in the aggregate, would
have a Material Adverse Effect;
(c) promptly upon, and in any event
within thirty (30) days after, obtaining knowledge
thereof, notice of any material breach of, Default
under or failure to comply with any material term under
this Article V of this Agreement or any change in
Healtheon's relationship with its major customers,
suppliers, employees or other entity with which
Healtheon has a business relationship if such breach
would have a Material Adverse Effect;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE>
(d) with reasonable promptness, a
notice of any material default by Healtheon or any of
its Subsidiaries under any agreement to which it is a
party if such breach would have a Material Adverse
Effect;
(e) with reasonable promptness, copies
of all written materials furnished to directors;
(f) promptly (but in any event within
ten (10) days) after the filing of any document or
material with the SEC, a copy of such document or
material;
(g) promptly after the record date set
by the Board of Directors to determine the stockholders
entitled to vote at Healtheon's annual meeting of
stockholders (but in any event ten (10) days prior to
such meeting), a list of all stockholders of Healtheon
and their respective holdings; and
(h) promptly upon request therefor,
such other data, filings and information as the
SBCL-nominated Healtheon Board representative may from time
to time reasonably request, or, if there is no such
SBCL-nominated board member, as the President of SBCL
may from time to time reasonably request, in either
case to the extent consistent with Section 220 of the
Delaware Corporation Law.
5.2.5 EXCLUDED INFORMATION. Notwithstanding
the provisions of Sections 5.2.3 and 5.2.4, SBCL shall
not have the right to inspect, receive, review or
otherwise have access to any information or documents
which, in the reasonable opinion of Healtheon's counsel
would constitute any of the following: (i) a waiver of
the attorney-client privilege; (ii) the disclosure of
any third-party confidential or proprietary
information, disclosure of which is restricted by a
written non-disclosure agreement or applicable law; or
(iii) the disclosure of any confidential or proprietary
information of Healtheon or any of its affiliated
entities which relates to any areas of Healtheon's
business, with which, in the reasonable opinion of the
Board of Directors of Healtheon, SBCL or its affiliates
compete (collectively, the "Excluded Information").
Notwithstanding Section 5.2.4 above, in the event of a
Change of Control of Healtheon by an Acquirer that has
a class of securities registered under the Exchange Act
(a "Public Company"), SBCL shall no longer have the
information rights set forth in this Section
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<PAGE>
5.25. In the event of a Change in Control of
Healtheon by an Acquirer (other than a Public
Company) that is a direct competitor of SBCL, SBCL
shall continue to have the information rights set
forth in Section 5.2.4, but only insofar as the
information to be obtained upon the exercise of
such rights relates to Lab EDI Services provided,
to be provided, or alleged by SBCL to have been
required to be provided, by ActaMed or Healtheon.
For purposes of this Section 5.2.5, a "Change of
Control" shall mean the sale or other transfer in a
single transaction or series of related
transactions to a person or group of affiliated
persons (the "Acquiror") of shares of Healtheon
Common Stock representing more than 50% of the
voting power of all Healtheon Common Stock then
outstanding.
Notwithstanding the foregoing limitations of this
Section 5.2.5, independent auditors retained by SBCL
shall have the right to review any Excluded Information
which, in their reasonable opinion, is necessary to
determine or confirm (i) the amount of royalties
payable to SBCL under the License Agreement by reason
of connectivity between Providers and commercial
laboratories other than SBCL Labs or (ii) the revenues
of ActaMed for purposes of Section 1.6 hereof.
5.2.6 CONFIDENTIALITY OBLIGATIONS. Subject to
Section 4.4, all information disclosed to or obtained
by SBCL pursuant to this Section 5.2 (including any
Excluded Information which may be inadvertently
disclosed to or obtained by SBCL hereunder) shall be
deemed to be the confidential information of Healtheon
and SBCL agrees that it shall treat such information
with the same degree of care that it uses to protect
its own confidential information of a similar nature
and shall only disclose such information to those
employees of SBCL who have a need to know such
information in order to enforce SBCL's rights under
this Agreement and the License Agreement. In the event
that SBCL obtains any copies of any Excluded
Information, SBCL shall promptly return all copies of
such information to Healtheon upon request or promptly
after the SBCL employees in possession of Excluded
Information gain actual knowledge that it is Excluded
Information."
2.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Section 8.1.2 is
amended by deleting the word "ActaMed" from the caption, by replacing the word
"ActaMed" with the words "ActaMed or Healtheon" throughout the Section and by
replacing the term "Series D Preferred Stock" with the term "Common Stock of
Healtheon."
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<PAGE>
2.10 INDEMNITY OF SBCL. Section 8.2.1 is amended by adding the clause
"including, without limitation, Section 5.2.6 hereof" at the end of subsection
(a)(ii).
2.11 INDEMNITY OF ACTAMED AND HEALTHEON. Section 8.2.2 is amended by
(i) deleting the word "ActaMed" in the caption and replacing it with the words
"ActaMed and Healtheon", (ii) by replacing the words "ActaMed agrees" in the
lead-in paragraph with the words "ActaMed and Healtheon, jointly and severally
agree," (iii) by replacing the word "ActaMed" in subsections (a)(i), (ii) and
(iii) with the words "ActaMed or Healtheon", and (iv) by adding the clause
"including, without limitation, representations and warranties made by ActaMed
prior to the Merger Effective Date" at the end of subsection (a)(i).
2.12 SPECIAL INDEMNITY AS TO PROJECTIONS. Section 8.2.9 is amended by
inserting the clause "as such Lab EDI Services are presently provided, without
regard to any additional expenses incurred as a result of the acquisition of
ActaMed by Healtheon" after the parenthetical "(as defined in the Services
Agreement)".
2.13 NOTICES. Section 11.1.1 is amended by adding the following:
"If to Healtheon:
Healtheon Corp.
4600 Patrick Henry Drive
Santa Clara, CA 95054
Attention: General Counsel
Telephone: (408) 876-5000
Telecopy: (408) 876-5175"
2.14 ASSIGNMENT. Section 11.1.4(b) is amended by replacing the term
"Series D Preferred Stock" with the term "Common Stock of Healtheon" and by
replacing the term "Stockholders' Agreement" with the term "Affiliate Agreement
prior to a Public Offering."
2.15 ENTIRE AGREEMENT. Section 11.1.8 is amended by deleting the text
after the term "SBCL."
2.16 ADDED DEFINITIONS. The following definitions are added to Exhibit
A to the Purchase Agreement. If such terms are defined in said Exhibit A, the
existing definitions shall be deleted in their entirety and the following shall
replace the existing definitions:
"Affiliate Agreement" means the ActaMed Corporation
Affiliate Agreement, dated as of May , 1998, between
Healtheon and SBCL.
"Common Stock of Healtheon" means the common stock,
$.0001 par value, of Healtheon.
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"Exchange Ratio" shall have the meaning given to such
term in the Healtheon Merger Agreement.
"Healtheon Merger Agreement" means the Agreement and
Plan of Reorganization, dated February 24, 1998, by and
among Healtheon Corporation, MedNet Acquisition Corp.
and ActaMed Corporation.
"Investors' Rights Agreement" means the Amended and
Restated Investors' Rights Agreement, dated as of May
__, 1998, between Healtheon and the persons and
entities listed on Schedules A and B thereto.
"Material Adverse Effect" means a material adverse
effect on the business or financial condition of either
Healtheon or ActaMed or on the ability of either
Healtheon or ActaMed to conduct the ActaMed Business,
including to provide Lab EDI Services, or the
impairment of the ability of either Healtheon or
ActaMed to perform its respective obligations under the
ActaMed Documents.
"Merger Effective Date" means the date on which the
transactions contemplated by the Healtheon Merger
Agreement become effective.
"New Business Plan" means for the business plan of
ActaMed presented to SBCL on April 29, 1998, approved
by the ActaMed board of directors on May 5, 1998 and in
the form approved by the Healtheon board of directors
on May 14, 1998, covering (i) for the years 1998 and
1999, projected financial data, including statements of
operations, and operational data, including number of
sites and transactions per site and (ii) for the year
2000, number of sites.
"Public Offering" means a bona fide firm commitment
underwritten offering of the Common Stock of Healtheon
or the ActaMed Common Stock, as the case may be,
pursuant to a registration statement filed with and
declared effective by the Securities and Exchange
Commission pursuant to the Securities Act.
2.17 DELETED DEFINITIONS. The definitions for the following terms set
forth in Exhibit A to the Purchase Agreement are deleted in their entirety:
"Conversion Shares"
"Permitted Owner"
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"Preferred Stock" and "Series A Preferred Stock," "Series B
Preferred Stock" and "Series C Preferred Stock"
"Stock Option Plans"
3. MISCELLANEOUS.
3.1 ENTIRE AGREEMENT. This Amendment No.1 constitutes the entire
understanding between the parties with respect to amendment of the Purchase
Agreement and supersedes all proposals, communications and agreements between
the parties relating to such subject matter. No amendment, change, or waiver of
any provision of this Amendment No.1 will be binding unless in writing and
signed by all parties.
3.2 GOVERNING LAW. This Amendment No.1 will be governed by and
construed in accordance with the laws of the State of Georgia applicable to
contracts made and performed therein.
3.3 PURCHASE AGREEMENT PROVISIONS. Except as otherwise provided, all
provisions of the Purchase Agreement not modified by this Amendment No. 1 shall
remain in full force and effect.
3.4 COUNTERPARTS. This Amendment No. 1 may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Amendment No. 1
to the Purchase Agreement as of the date set forth above.
HEALTHEON CORPORATION
By: /s/ W. Michael Long
-------------------------------------
Its: CEO
------------------------------------
ACTAMED CORPORATION
By: /s/ Michael K. Hoover
-------------------------------------
Its: President & CEO
------------------------------------
SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC.
By: /s/ John B. Okkersee Jr.
-------------------------------------
Its: President
------------------------------------
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CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXECUTION
LICENSE AGREEMENT
between
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
and
ACTAMED CORPORATION
December 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 ActaLab Software . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Confidential Information . . . . . . . . . . . . . . . . . . . . 2
1.4 Derivative Work. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Exclusive Developments . . . . . . . . . . . . . . . . . . . . . 2
1.7 Health Care Field. . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Information Services . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Object Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Other Lab. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 ProviderLink . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 [*]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.14 Related Entity . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 SBCL Software. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 SBCL Trademark . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 SCAN Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 SCAN Developments. . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.20 Source Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.21 Specifications . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.22 Territory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.23 Third Party Software . . . . . . . . . . . . . . . . . . . . . . 4
1.24 Trigger Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 - LICENSE GRANTS; RELATED PROVISIONS . . . . . . . . . . . . . . . 4
2.1 SCAN Development License . . . . . . . . . . . . . . . . . . . . 4
2.2 ActaLab Development License. . . . . . . . . . . . . . . . . . . 5
2.3 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Technology Transfer. . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 - SCAN DEVELOPMENTS OWNERSHIP; RELATED PROVISIONS. . . . . . . . . 6
3.1 Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4 - LICENSE BACK . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 License Grant. . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Term of License. . . . . . . . . . . . . . . . . . . . . . . . . 8
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<S> <C>
4.3 Sublicenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Usage Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 ActaLab Software Escrow. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 5 - MARKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 By ActaMed . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.2 By SBCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE 6 - DEVELOPMENT AGREEMENT AMENDMENTS . . . . . . . . . . . . . . . .11
ARTICLE 7 - WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.1 Warranty of Title and Noninfringement. . . . . . . . . . . . . .11
7.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . .12
7.3 Disclaimers. . . . . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE 8 - INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
8.2 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
8.3 Infringement . . . . . . . . . . . . . . . . . . . . . . . . . .13
8.4 Claims Notice. . . . . . . . . . . . . . . . . . . . . . . . . .13
8.5 Procedures Involving Non-Third Party Claims. . . . . . . . . . .13
8.6 Procedures Involving Third Party Claims. . . . . . . . . . . . .14
8.7 No Release for Fraud . . . . . . . . . . . . . . . . . . . . . .15
8.8 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE 9 - LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . .16
ARTICLE 10 - CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE 11 - ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .16
11.1 By SBCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
11.2 By ActaMed . . . . . . . . . . . . . . . . . . . . . . . . . . .17
11.3 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
ARTICLE 12 - DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . . .17
12.1 Informal Dispute Resolution. . . . . . . . . . . . . . . . . . .17
12.2 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . .18
12.3 Immediate Injunctive Relief. . . . . . . . . . . . . . . . . . .19
12.4 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . .19
12.5 Continued Performance; Continuation of Licenses. . . . . . . . .19
ARTICLE 13 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .20
13.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . .20
13.2 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . .20
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<S> <C>
13.3 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . .20
13.4 No Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
13.5 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
13.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . .21
13.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
13.8 Governing Law; Interpretation. . . . . . . . . . . . . . . . . .21
</TABLE>
SCHEDULES
Schedule A SBCL Software
Schedule B Amendments to Development Agreement
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CONFIDENTIAL TREATMENT REQUESTED
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("License Agreement") dated December 31, 1997
(the "Effective Date") is by and between SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC., a Delaware corporation ("SBCL") and ACTAMED CORPORATION, a
Georgia corporation ("ActaMed").
WHEREAS, SBCL and ActaMed have entered into an Assets Purchase
Agreement dated of even date herewith (the "Purchase Agreement") pursuant to
which ActaMed has agreed to purchase certain assets owned by SBCL and used to
provide certain services to health care service providers;
WHEREAS, the Purchase Agreement contemplates that the parties will
enter into a license agreement substantially on the terms set forth herein, as
well as a Services Agreement (the "Services Agreement") pursuant to which
ActaMed shall provide certain services to SBCL and to health care service
providers;
WHEREAS, SBCL and ActaMed have previously entered into a Development
Agreement dated October 31, 1997 (the "Development Agreement") pursuant to which
ActaMed agreed to perform certain development services; and
WHEREAS, the parties desire to amend the provisions of the Development
Agreement pursuant to which SBCL authorized ActaMed to use SBCL software and
related materials in the performance of work under the Development Agreement,
and pursuant to which the parties allocated ownership of deliverables created
under the Development Agreement and intellectual property rights therein;
NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, SBCL and ActaMed agree as
follows:
ARTICLE 1 - DEFINITIONS
1.1 "ACTALAB SOFTWARE" means (i) any updated, upgraded, corrected, modified,
or enhanced version of ProviderLink created by or for ActaMed, and any
Derivative Works made from ProviderLink by or for ActaMed, and any other
Software owned and employed by ActaMed in providing Information Services
or related services in accordance with the terms of the Services
Agreement, in each case embodying, incorporating or practicing the SBCL
Software or any portion thereof, (ii) any compiler or other program
reasonably required to create Object Code from the Source Code of the
foregoing or use any of the foregoing in the provision of Information
Services, and (iii) any Documentation relating to any of the
<PAGE>
foregoing created by or for ActaMed. Without limiting the foregoing,
"ActaLab Software" shall include [*] (as the term is defined in the
Services Agreement).
1.2 "AFFILIATE" of an entity means a company or other person controlling,
controlled by or under common control with such entity.
1.3 "CONFIDENTIAL INFORMATION" means any and all proprietary information
disclosed or made available by a party hereto to the other party
pursuant to this License Agreement, whether in written, oral, magnetic,
photographic, optical or other form and whether now existing or
hereafter created, including, without limitation, all trade secrets,
know-how, information systems, technology, data, computer programs,
processes, methods, operational procedures, plans, strategies or
results, and other information of a similar nature that is not generally
disclosed by such party to the public. Without limiting the foregoing,
ActaMed's Confidential Information shall include the Source Code and
Documentation for the ProviderLink Software and ActaLab Software, and
SBCL's Confidential Information shall include the Source Code and
Documentation for the SBCL Software and the SCAN Developments.
Confidential Information shall not include any information which (a) is
proven by written evidence to have been in the receiving party's
possession prior to disclosure by the other party; (b) is received from
a third party having the right to disclose such information; (c) is or
hereafter becomes public knowledge through no act or fault of the
receiving party; or (d) is proven by written evidence to have been
independently developed by the receiving party without access to the
Confidential Information of the other party.
1.4 "DERIVATIVE WORK" means a work that is based upon one or more
preexisting works, such as a revision, modification, translation,
abridgment, condensation, expansion, or any other form in which such
preexisting works may be recast, transformed, translated or adapted, and
that, if prepared without authorization of the owner of the copyright in
such preexisting work, would constitute a copyright infringement.
1.5 "DOCUMENTATION" means manuals (e.g., user, utility reference and
language reference) and other written materials that relate to
particular Software, including materials useful for the operation of the
Software by a user (collectively, "USER DOCUMENTATION"), and information
(e.g., data flows, data structures, control logic, flow diagrams, and
principles of operation) useful for design, modification and maintenance
of the Source Code by a programmer (collectively, "PROGRAMMER
DOCUMENTATION").
1.6 "EXCLUSIVE DEVELOPMENTS" shall have the meaning ascribed to it by
Section V.E of the Services Agreement.
1.7 "HEALTH CARE FIELD" means the provision of electronic data interchange
technology relating to patients, patient-related services or the
practice of medicine, to Providers, Healthcare Payors and Healthcare
Administrators. "Healthcare Payor," for the purposes of this
definition, means any person or entity that pays for the provision of
healthcare services,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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including without limitation employers, insurance companies,
regional healthcare alliances, and federal, state and local
governmental agencies. "Healthcare Administrator" means those
entities engaged in the administration of healthcare services,
including without limitation managed care companies, utilization
review companies and third party administrators. Notwithstanding
the foregoing, "Health Care Field" shall exclude services relating
to or provided to [*].
1.8 "INFORMATION SERVICES" means the transmission of orders for laboratory
tests and/or laboratory test results and reports.
1.9 "OBJECT CODE" means the form of Software resulting from the translation
or processing of the Source Code by a computer into machine language or
intermediate code in a form that is not convenient to human
understanding but which is appropriate for execution or interpretation
by a computer, together with related User Documentation.
1.10 "OTHER LAB" shall have the meaning ascribed to it by the Services
Agreement.
1.11 "PROVIDERLINK" means the ActaMed proprietary Software known as
ProviderLink as it exists on the Effective Date, together with any
updates, upgrades, enhancements, modifications or Derivative Works made
thereto or therefrom by or for ActaMed other than under the licenses
granted by this License Agreement, and the Specifications and
Documentation relating to and of the foregoing prepared by or for
ActaMed.
1.12 [*].
1.13 "PROVIDERS" means physicians, clinics, hospitals and other providers of
clinical health care services other than [*].
1.14 "RELATED ENTITY" means an entity that is engaged in the laboratory
testing business and in which SBCL or an SBCL affiliate has a legal or
beneficial ownership of ten percent (10%) or more.
1.15 "SBCL SOFTWARE" means the Software described in Schedule A hereto.
"SBCL Software" shall in no event be construed to include [*] or Third
Party Software.
1.16 "SBCL TRADEMARK" means SBCL's trade names, logos, trademarks, trade
devices, product names and/or service marks.
1.17 "SCAN AGREEMENTS" means the Development Agreement, Purchase Agreement,
Services Agreement and this License Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
1.18 "SCAN DEVELOPMENTS" means (i) any updated, upgraded, corrected,
modified, or enhanced version of the SBCL Software created by or for
ActaMed under the rights granted by this License Agreement, and (ii) any
Documentation relating to any of the foregoing created by or for
ActaMed, provided, that SCAN Developments shall in no event be construed
to include the ActaLab Software.
1.19 "SOFTWARE" means computer programming code consisting of Object Code
and/or Source Code and/or associated procedural code, as applicable,
including updates and revisions thereto.
1.20 "SOURCE CODE" means program instructions and codes written by humans
with the intention that the instructions and codes be compiled and
interpreted by a computer, including all existing commentary,
explanations, control procedures, record layouts for all files and
program listings-source codes, design documentation, user manuals,
programmers' guides, system guides, current compilation instructions,
and all other User Documentation and Programmer Documentation.
1.21 "SPECIFICATIONS" means a description of the design, operating
procedures, performance, functions and other requirements for Software.
1.22 "TERRITORY" means the United States of America, including all
territories and possessions thereof.
1.23 "THIRD PARTY SOFTWARE" means Software that SBCL prior to the Effective
Date licensed from third parties for use in delivery of automated order
entry and results reporting services, including without limitation
Software known as [*] and [*].
1.24 "TRIGGER DATE" shall have the meaning ascribed to it by Section 4.4.1
hereof.
ARTICLE 2 - LICENSE GRANTS; RELATED PROVISIONS
2.1 SCAN DEVELOPMENT LICENSE. Subject to the terms and conditions of this
License Agreement, SBCL hereby grants ActaMed a perpetual, irrevocable,
nonexclusive, non-transferable (except as otherwise expressly set forth
herein) right and license in the Health Care Field in the Territory to:
2.1.1 possess and use the SBCL Software to update, upgrade, enhance,
modify and create Derivative Works from the SBCL Software and
otherwise create SCAN Developments; and
2.1.2 possess and use, update, upgrade, enhance, modify and create
Derivative Works from the SBCL Software, SCAN Developments and
ActaLab Software;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
2.1.3 possess and use the SBCL Software and SCAN Developments for the
purposes of performing ActaMed's obligations under the SCAN
Agreements; and
2.1.4 possess and use the SCAN Developments for the purpose of
providing Information Services in support of the laboratory
testing services offered by Other Labs only to the extent such
SCAN Developments do not constitute Exclusive Developments under
the Service Agreement.
The foregoing license shall include the right to (i) sublicense the SBCL
Software and/or SCAN Developments to one or more contractors performing
the activities described in Sections 2.1.1 or 2.1.2 hereof for ActaMed's
benefit and for ActaMed's account, and (ii) sublicense Providers, [*]
and Other Labs to use the Object Code version of the SBCL Software
and/or the SCAN Developments as ActaMed reasonably determines necessary
or appropriate in connection with its provision of the services
contemplated by Section 2.1.3, in each case provided that each
sublicensee executes a written agreement (x) prohibiting such
sublicensee from disclosing SBCL Confidential Information or using the
same other than as contemplated by this Section 2.1, and (y) precluding
the sublicensee or any of its employees or agents from gaining or
holding any right or interest in the SBCL Software.
2.2 ACTALAB DEVELOPMENT LICENSE
2.2.1 GRANT. Subject to the terms and conditions of this License
Agreement, SBCL hereby grants ActaMed a perpetual, irrevocable,
nonexclusive, non-transferable (except as otherwise expressly set
forth herein) right and license to possess and use the SBCL
Software to update, upgrade, enhance, modify and create
Derivative Works from ProviderLink and otherwise create ActaLab
Software pursuant to the Development Agreement and otherwise.
The license granted by this Section 2.2.1 shall survive the
termination of this License Agreement.
2.2.2 OWNERSHIP. Ownership of Deliverables (as defined by the
Development Agreement) relative to the ActaLab Software shall be
governed by Section 5 of the Development Agreement, as amended.
Ownership of all other ActaLab Software and all intellectual
property rights therein (including but not limited to copyrights
and all renewals and extensions thereof) shall vest in ActaMed,
except that nothing in this Agreement shall be construed to
transfer to ActaMed, or otherwise divest SBCL of SBCL's ownership
of, the SBCL Software or SCAN Developments or the patents,
copyrights, trade secrets and other intellectual property rights
therein. ActaMed shall own the ActaLab Software Exclusive
Developments.
2.3 CONDITIONS.
2.3.1 As a material inducement for SBCL's grant of the licenses
contemplated by this Agreement and the amendments to the
Development Agreement contemplated by
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
Article 6 of this Agreement, ActaMed hereby covenants and
agrees that, except as SBCL may authorize in writing, ActaMed
(and any sublicensee of ActaMed) shall use the ActaLab
Software solely within the Territory and solely in the Health
Care Field.
2.3.2 ActaMed further covenants and agrees that, except as SBCL may
otherwise agree in writing, ActaMed shall not use or license the
use of the ActaLab Software Exclusive Developments for the
benefit of any party other than in support of SBCL's laboratory
testing services.
2.4 TECHNOLOGY TRANSFER. SBCL, within thirty (30) days following the
Effective Date, shall provide ActaMed with one copy of all currently
existing SBCL Software not previously provided in connection with the
Development Agreement or otherwise. Thereafter, during the term of the
Services Agreement, SBCL shall promptly provide ActaMed with such
updates, upgrades and enhancements to the SBCL Software as SBCL, in its
sole discretion, may make or have made during the term of the Services
Agreement.
2.5 ROYALTIES.
2.5.1 If ActaMed uses the SBCL Software, SCAN Developments or ActaLab
Software in the provision of Information Services to [*] ActaMed
shall agree to pay SBCL a royalty equal to [*] of Royalty
Revenues for the Royalty Period applicable to such [*]. "Royalty
Revenues," for these purposes, means the [*] ActaMed collects for
such Information Services. The "Royalty Period," with respect to
Software or services provided in support of a given [*] means
the [*] period commencing on the date [*].
2.5.2 The royalties accruing pursuant to this Section 2.4 shall be
payable on a [*] basis, and shall be due within [*] days
following the end of the [*] in which they accrue. Each such
royalty payment shall be accompanied by a report showing, by each
[*] the total Royalty Revenue collected during the applicable
[*] and the royalty amount due in respect of such Royalty
Revenue.
ARTICLE 3 - SCAN DEVELOPMENTS OWNERSHIP; RELATED PROVISIONS
3.1 OWNERSHIP.
3.1.1 Subject to the provisions of Section 3.2 hereof, SBCL, as between
ActaMed and SBCL, shall have sole and exclusive ownership in and
title to the SBCL Software and SCAN Developments, including all
intellectual property rights therein. Without limiting the
foregoing, the SCAN Developments shall be "works made for hire"
for
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
the benefit of SBCL. To the extent that any of the SCAN
Developments, by operation of law, may not be works made for
hire, or to the extent ActaMed otherwise would retain any rights
in the SCAN Developments, ActaMed, subject to the provisions of
Section 3.2.2 hereof, hereby assigns to SBCL the ownership of any
patent or copyright in the SCAN Developments and SBCL shall have
the right to obtain and hold in its own name copyrights, patents,
registrations and similar protections which may be available with
respect to the SCAN Developments.
3.1.2 Nothing in this Agreement shall be construed to transfer to SBCL,
or otherwise divest ActaMed of ActaMed's ownership of,
ProviderLink, the ActaLab Software or the patents, copyrights,
trade secrets and other intellectual property rights therein,
provided, that, subject to the provisions of Section 3.2.1
hereof, ActaMed hereby grants SBCL a perpetual, nonexclusive,
royalty-free license (with right of sublicense) under such
intellectual property rights to use, possess, update, upgrade,
enhance, modify, reproduce, market, distribute and sell the SCAN
Developments.
3.1.3 ActaMed shall provide SBCL with the Source Code for the SCAN
Developments on or before the first release of the same to a
commercial customer or the use of the same in providing a
commercial service (the "Release Date") and, thereafter, on or
before the Release Date of any updates, upgrades, enhancements or
modifications thereto and, in any event, [*] during the term of
the Services Agreement (including any renewal terms thereof).
3.2 LIMITATIONS.
3.2.1 SBCL covenants and agrees that, prior to the expiration or
termination of the Services Agreement, it shall not use, or
sublicense any other party to use, the SCAN Developments except
(i) in the Territory solely for the purpose of performing
Information Services in support of the laboratory testing
services offered [*] that has not been transferred to ActaMed
pursuant to the Purchase Agreement, and (ii) outside of the
Territory. In the event SBCL uses the SCAN Developments to
provide Information Services in support of [*] within the
Territory, SBCL shall pay ActaMed a usage fee to be negotiated by
the parties, such usage fee to be determined in accordance with
the provisions, and during the term, of the Services Agreement.
3.2.2 Except to the extent such SCAN Developments constitute Exclusive
Developments, nothing in this Agreement shall be construed to (i)
grant SBCL or any other party ownership of such portions of the
SCAN Developments as are devoted solely to the process of
checking patient eligibility for third party payor benefits or
reimbursement, or claim status checking (collectively,
"Eligibility Services"), or (ii) grant SBCL any right or license
to use the SCAN Developments for the purposes of performing or
providing Eligibility Services, except that SBCL shall not be
required to delete or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
remove the Eligibility Code from the SCAN Developments prior
to exercising the rights and licenses granted by this Article
3.
ARTICLE 4 - LICENSE BACK
4.1 LICENSE GRANT. Subject to the provisions of this Article 4, ActaMed
hereby grants SBCL an irrevocable, nonexclusive, non-transferable
(except as expressly set forth herein) right and license in the
Territory in the Health Care Field to:
4.1.1 possess and use the ActaLab Software to create [*] and update,
upgrade, modify, enhance and create Derivative Works from [*]
(such Derivative Works being referred to herein as the [*]) as
SBCL reasonably determines necessary to perform Information
Services in support of laboratory test services offered by SBCL
and/or Related Entities, including without limitation to ensure
compliance with laws and regulations applicable to the business
of SBCL and Related Entities, PROVIDED, that SBCL covenants and
agrees that it shall not exercise the licenses granted by this
Section 4.1.1 prior to the earlier of [*] (the "Trigger Date");
and
4.1.2 possess and use [*] and [*] for internal business purposes of
SBCL and Related Entities, including without limitation the
provision of Information Services to Providers in support of
their respective laboratory testing services, PROVIDED, that
SBCL covenants and agrees that it shall not exercise the licenses
granted by this Section 4.1.2 prior to the date on which the
Services Agreement expires as a result of ActaMed's notice of
nonrenewal or the date on which the Services Agreement terminates
for ActaMed's breach, as applicable.
4.2 TERM OF LICENSE. The licenses granted by this Article 4 shall expire on
the second anniversary of the date on which SBCL first uses ActaLabSB on
a commercial basis in support of SBCLs laboratory testing services.
4.3 SUBLICENSES. The licenses granted by Section 4.1 shall include the
right to (a) sublicense the ActaLab Software, and [*] to one or more
contractors performing any of the foregoing for the benefit and account
of SBCL or a Related Entity, and (b) sublicense Providers to use the
Object Code version of [*] as reasonably may be required to provide the
services contemplated by Section 4.1.2, in each case provided that each
sublicensee executes a written agreement (x) prohibiting such sublicensee
from disclosing ActaMed Confidential Information or using the same other
than as contemplated
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
by this Article 4, and (y) precluding the sublicensee or any of
its employees or agents from gaining or holding any right or
interest in the ActaLab Software.
4.4 USAGE FEES.
4.4.1 SBCL, in addition to the other consideration contemplated by the
SCAN Agreements, agrees to pay, as a royalty, a Usage Fee on each
Royalty Transaction. For the purposes of this Section 4.4.1:
(i) "Royalty Transaction" means a Requisition (as defined in
the Services Agreement) entered [*] (pursuant to Sections
XII.E.1.b or XII.E.3.c. of the Services Agreement) to or
for a site other than one of the Permitted Number of
sites.
(ii) "Usage Fee" means the lesser of (i) [*] per Requisition
and [*] of the Transaction Fee then prevailing under
Article IV of the Services Agreement or (ii) [*] of an
amount competitive with the market for Information
Services, such amount [*] to be calculated in accordance
with the principles established by Section IV of the
Services Agreement.
(iii) "Permitted Number" means [*] the number of sites [*] the
largest number of sites with respect to which [*].
4.4.2 The royalties accruing pursuant to this Section 4.4 shall be
payable on a [*] and shall be due within [*] days following the
end of the [*] in which they accrue. Each such royalty payment
shall be accompanied by a report showing the manner in which the
payment amount was calculated.
4.5 ACTALAB SOFTWARE ESCROW.
4.5.1 Promptly upon the execution of this License Agreement, ActaMed
shall give written notice to Fort Knox Escrow Services, Inc.
("Fort Knox") instructing Fort Knox to add SBCL to the list of
Licensees maintained pursuant to that certain Master Escrow
Agreement dated February 20, 1995 (the "Escrow Agreement").
ActaMed shall deposit the Source Code for all ActaLab Software in
accordance with the terms of the Escrow Agreement on or before
the first release of the same to a commercial customer or the use
of the same in providing a commercial service (the "Release
Date") and, thereafter, on or before the Release Date of any
updates, upgrades,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
enhancements or modifications thereto and, in any event, no
less often than once [*] during the term of the Services
Agreement (including any renewal terms thereof).
4.5.2 ActaMed, within thirty (30) days of the date of this Agreement
shall enter into an amendment to the Escrow Agreement with Fort
Knox, reasonably acceptable to SBCL in form and substance, to the
effect that Fort Knox, at SBCL's request and expense, agrees to
inspect the deposit materials supplied by ActaMed for the purpose
of confirming their identity and completeness.
4.5.3 ActaMed, promptly upon SBCL's demand made at any time following
the Trigger Date, shall notify Fort Knox in accordance with
Section 4.1(a) of the Escrow Agreement to deliver the Source Code
for the ActaLab Software to SBCL, which notice shall be
accompanied by the fees specified in such Section 4.1(a).
4.5.4 ActaMed covenants and agrees to maintain the Escrow Agreement in
full force and effect during the term of the Services Agreement,
and acknowledges that its failure to do so will constitute a
material breach of this License Agreement and the Services
Agreement.
4.5.5 ActaLab hereby appoints SBCL as its attorney in fact for the
limited purpose of providing to Fort Knox the notices
contemplated by this Section 4.4.1 and 4.4.3.
ARTICLE 5 - MARKINGS
5.1 BY ACTAMED. ActaMed shall reproduce SBCLs copyright notice on all SBCL
Software and SCAN Developments in accordance with the practice
prevailing in the software industry. Subject to the foregoing sentence:
5.1.1 ActaMed, on or before the date on which ActaMed switches any site
from the SBCL gateway to the ActaMed gateway (as described in
Section II.B of the Services Agreement), shall remove SBCL
Trademarks from the sign-on screen for the ActaLab Software and
SCAN Developments resident on the computer at such site, and from
any other screens that might reasonably suggest that SBCL, rather
than ActaMed, is the source of the Information Services provided
using such Software; and
5.1.2 ActaMed, with the reasonable assistance of SBCL's Distribution
Service Representatives in accordance with Section II.B.4 of the
Services Agreement, shall remove SBCL Trademarks from any
equipment owned or controlled by ActaMed and located at a given
site within three (3) months of the Transfer Date for such site,
but in any event prior to the date on which ActaMed transfers
ownership of such equipment to any other party.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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5.2 BY SBCL. SBCL shall reproduce ActaMeds copyright notice on all copies
of the ActaLab Software in accordance with the practice prevailing in
the software industry.
ARTICLE 6 - DEVELOPMENT AGREEMENT AMENDMENTS
The parties hereby agree to amend the Development Agreement as set forth in
Schedule B hereto.
ARTICLE 7 - WARRANTIES
7.1 WARRANTY OF TITLE AND NONINFRINGEMENT.
7.1.1 ActaMed represents and warrants to SBCL that:
(i) Unless ActaMed provides SBCL with advance written notice
to the contrary in accordance with Section 5.2(b) of the
Development Agreement, ActaMed is and will be the sole
author of all works used by ActaMed in preparing the
ActaLab Software and SCAN Developments;
(ii) ActaMed shall require all officers, employees,
contractors, representatives and agents who provide
services with respect to the ActaLab Software, SBCL
Software or SCAN Developments under the SCAN Agreements
to assign to ActaMed all intellectual property rights
created or arising therein;
(iii) Subject to the provisions of Section 7.1.2 hereof,
ActaMed has and will have full and sufficient right in
the ActaLab Software to grant the licenses and rights
contemplated by Article 4 of this License Agreement, free
and clear of any liens, claims or encumbrances;
(iv) Subject to the provisions of Section 7.1.2 hereof, the
terms and conditions set forth in Article 3 hereof are
sufficient to convey to SBCL all right, title and
interest in and to the SCAN Developments, and following
such conveyance neither ActaMed nor any third party shall
retain any right, title or interest in the SCAN
Developments other than the licenses expressly set forth
herein; and
(v) Subject to the provisions of Section 7.1.2 hereof, none
of the ActaLab Software or SCAN Developments infringes
any patents, copyrights, trademarks, or other
intellectual property rights (including trade secrets),
privacy or similar rights of any third party, nor has any
claim of such infringement been threatened or asserted.
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7.1.2 SBCL represents and warrants to ActaMed that:
(i) SBCL is the sole author of the SBCL Software;
(ii) SBCL has required all officers, employees, contractors,
representatives and agents who prior to the date of this
Agreement provided services with respect to the Software
to assign to SBCL all intellectual property rights
created or arising therein;
(iii) SBCL has and will have full and sufficient right in the
SBCL Software to grant the licenses and rights
contemplated by Article 2 of this License Agreement, free
and clear of any liens, claims or encumbrances; and
(iv) none of the SBCL Software provided to ActaMed by SBCL
hereunder infringes any patents, copyrights, trademarks,
or other intellectual property rights (including trade
secrets), privacy or similar rights of any third party,
nor has any claim of such infringement been threatened or
asserted.
7.2 AUTHORIZATION. Each of ActaMed and SBCL represents and warrants that,
as of the Effective Date of this License Agreement (i) it is duly
authorized to enter into this License Agreement, and (ii) it is free of
any obligation or restriction that would prevent it either from entering
into or performing this License Agreement.
7.3 DISCLAIMERS. THE FOREGOING WARRANTY IS IN LIEU OF ANY OTHER WARRANTY,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WHICH ARE HEREBY
SPECIFICALLY EXCLUDED AND DISCLAIMED. WITHOUT LIMITING THE FOREGOING,
(i) NOTHING IN THIS LICENSE AGREEMENT SHALL BE CONSTRUED TO EXPAND OR
EXTEND THE WARRANTIES ACTAMED GRANTS IN THE OTHER SCAN AGREEMENTS WITH
RESPECT TO THE ACTALAB SOFTWARE OR SCAN DEVELOPMENTS, AND (ii) SUBJECT
TO SUCH WARRANTIES AND REPRESENTATIONS AS ARE CONTAINED IN THE OTHER
SCAN AGREEMENTS, ACTAMED ACKNOWLEDGES THAT SBCL IS LICENSING THE SBCL
SOFTWARE TO ACTAMED ON AN AS IS BASIS, AND HEREBY DISCLAIMS ANY
WARRANTIES WITH RESPECT TO THE OPERATION THEREOF.
ARTICLE 8 - INDEMNITY
8.1 GENERAL. Each party hereto shall indemnify, defend and hold harmless the
other party and its officers, employees, representatives and agents
against any and all damages, losses, or expenses suffered or paid as a
result of any claims, demands, suits, causes of action,
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proceedings, awards, judgments, and liabilities (including
reasonable attorneys fees) incurred in litigation, arbitration
or otherwise, assessed, incurred, or sustained (each, a Claim)
with respect to or arising out of the breach by the
Indemnifying Party of any representation, warranty, covenant
or agreement made herein.
8.2 SERVICES. ActaMed shall indemnify, defend and hold harmless SBCL and
its officers, employees, representatives and agents against any Claim
arising from or relating to ActaMeds provision of the ActaLab Software,
SCAN Developments or any services, in each case in support of any Other
Lab pursuant to this License Agreement. SBCL shall indemnify, defend
and hold harmless ActaMed and its officers, employees, representatives
and agents against any Claim arising from or relating to SBCLs provision
of the SCAN Developments or any services outside the Territory or to [*]
as contemplated by Section 3.2 hereof.
8.3 INFRINGEMENT.
8.3.1 ActaMed, subject to the provisions of Section 8.3.2 hereof, shall
indemnify, defend and hold harmless SBCL and the Related Entities
and their respective officers, employees, representatives and
agents against any Claim alleging the ActaLab Software or any
SCAN Development infringes or constitutes misappropriation of any
U.S. or foreign patent or any other U.S. or foreign proprietary
right of a third party.
8.3.2 SBCL shall indemnify, defend and hold harmless ActaMed and its
Affiliates and their respective officers, employees,
representatives and agents against any Claim alleging the SBCL
Software infringes or constitutes misappropriation of any U.S. or
foreign patent or any other U.S. or foreign proprietary right of
a third party.
8.4 CLAIMS NOTICE. A Claim shall be made by any entity or individual
eligible for indemnification pursuant to this Article 8 (an Indemnitee)
by delivery of a Claims Notice to the party owing a duty of
indemnification under this Article 8 (the Indemnifying Party) requesting
indemnification and specifying the basis on which indemnification is
sought and the amount of asserted Losses (as defined in the Services
Agreement) and, in the case of a Third Party Claim (as defined in the
Services Agreement), containing (by attachment or otherwise) such other
information as such Indemnitee shall have concerning such Third Party
Claim.
8.5 PROCEDURES INVOLVING NON-THIRD PARTY CLAIMS. If the Claim involves a
matter other than a Third Party Claim, the Indemnifying Party shall
raise any objection to such Claim within a reasonable period of time by
delivery of a written notice of such objection to such Indemnitee
specifying in reasonable detail the basis for such objection. If an
objection is timely interposed by the Indemnifying Party, the
Indemnifying Party and the Indemnitee shall cooperate in the compromise
of the Claim or resolve any disagreement in accordance with Article 12
hereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
8.6 PROCEDURES INVOLVING THIRD PARTY CLAIMS. The obligations and
liabilities of the parties hereunder with respect to a Third Party Claim
shall be subject to the following terms and conditions:
8.6.1 The Indemnitee shall give the Indemnifying Party written notice
of a Third Party Claim promptly after receipt by the Indemnitee
of notice thereof, and the Indemnifying Party may undertake the
defense, compromise and settlement thereof by representatives of
its own choosing reasonably acceptable to the Indemnitee. The
failure of the Indemnitee to notify the Indemnifying Party of
such claim shall not relieve the Indemnifying Party of any
liability that they may have with respect to such claim except to
the extent the Indemnifying Party demonstrates that the defense
of such claim is prejudiced by such failure. The assumption of
the defense, compromise and settlement of any such Third Party
Claim by the Indemnifying Party shall be an acknowledgment of the
obligation of the Indemnifying Party to indemnify the Indemnitee
with respect to such claim hereunder. If the Indemnitee desires
to participate in, but not control, any such defense, compromise
and settlement, it may do so at its sole cost and expense. If,
however, the Indemnifying Party fails or refuses to undertake the
defense of such Third Party Claim within ten (10) days after
written notice of such claim has been given to the Indemnifying
Party by the Indemnitee, the Indemnitee shall have the right to
undertake the defense, compromise and settlement of such claim
with counsel of its own choosing. In the circumstances described
in the preceding sentence, the Indemnitee shall, promptly upon
its assumption of the defense of such claim, make a Claim as
specified in Section 8.3 which shall be deemed a Claim that is
not a Third Party Claim for the purposes of the procedures set
forth herein.
8.6.2 If, in the reasonable opinion of the Indemnitee, any Third Party
Claim or the litigation or resolution thereof involves an issue
or matter which could have a material adverse effect on the
business, operations, assets, properties or prospects of the
Indemnitee, the Indemnitee shall have the right to control the
defense, compromise and settlement of such Third Party Claim
undertaken by the Indemnifying Party, and the reasonable costs
and expenses of the Indemnitee in connection therewith shall be
included as part of the indemnification obligations of the
Indemnifying Party hereunder. If the Indemnitee shall elect to
exercise such right, the Indemnifying Party shall have the right
to participate in, but not control, the defense, compromise and
settlement of such Third Party Claim at its sole cost and
expense.
8.6.3 No settlement of a Third Party Claim involving the asserted
liability of the Indemnifying Party under this Article shall be
made without the prior written consent by or on behalf of the
Indemnifying Party, which consent shall not be unreasonably
withheld or delayed. If the Indemnifying Party assumes the
defense of such a Third Party Claim, (1) no compromise or
settlement thereof may be effected by the Indemnifying Party
without the Indemnitee's consent unless (a) there is no finding
or
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admission of any violation of law or any violation of the
rights of any person and no effect on any other claim that may be
made against the Indemnitee (b) the sole relief provided is
monetary damages that are paid in full by the Indemnifying Party
and (c) the compromise or settlement includes, as an
unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnitee of a release, in form and substance
satisfactory to the Indemnitee, from all liability in respect of
such Third Party Claim, and (2) the Indemnitee shall have no
liability with respect to any compromise or settlement thereof
effected without its consent.
8.7 NO RELEASE FOR FRAUD. Nothing contained in this Agreement shall relieve
or limit the liability of a party or any officer or director of such
party from any Liability arising out of or resulting from common law
fraud or intentional misrepresentation in connection with the
transactions contemplated by this Agreement or in connection with the
delivery of this Agreement. Each ActaMed Indemnitee or SBCL Indemnitee,
as the case may be, shall have a right to indemnification for any Loss
incurred as the result of any common law fraud or intentional
misrepresentation by SBCL or ActaMed, respectively, or any officer or
director thereof.
8.8 PAYMENT.
8.8.1 If any party is required to make any payment under this Article
8, such party shall promptly pay the Indemnified Party the amount
so determined. If there is a dispute as to the amount or manner
of determination of any indemnity obligation owed under this
Article 8, the Indemnifying Party shall nevertheless pay when due
such portion, if any, of the obligation as shall not be subject
to dispute. The difference, if any, between the amount of the
obligation ultimately determined as properly payable under this
Article 8 and the portion, if any, theretofore paid shall bear
interest as set forth in Section 8.8.3 hereof.
8.8.2 Any items as to which an Indemnified Party is entitled to payment
under this Article may be paid by set off against amounts payable
to the Indemnifying Party to the extent that such amounts are
sufficient to pay such items.
8.8.3 If all or part of any indemnification obligation under this
Agreement is not paid when due, then the Indemnifying Party shall
pay the Indemnified Party interest on the unpaid principal amount
of the obligation from the date the amount became due until
payment in full, at the per annum rate of interest announced from
time to time by NationsBank South, N.A., to be its "prime rate."
8.9 SURVIVAL. The provisions of this Article 8 shall survive the
termination of this License Agreement.
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<PAGE>
ARTICLE 9 - LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY IN TORT, CONTRACT OR OTHERWISE
FOR ANY LOST PROFITS, SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL
DAMAGES ARISING OUT OF, OR IN CONNECTION WITH THIS LICENSE AGREEMENT THAT THE
OTHER PARTY, OR ANY THIRD PARTY, MAY INCUR, EXPERIENCE OR CLAIM, EVEN IF THE
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH CLAIM.
ARTICLE 10 - CONFIDENTIALITY
In the course of exercising this License Agreement each party will likely obtain
Confidential Information of the other party. The parties agree to safeguard
against the unauthorized use and disclosure of any Confidential Information and
to use the same degree of care that each uses to protect its own information of
a similar nature, but in no event less than a reasonable degree of care under
the circumstances. Neither party to this License Agreement will disclose the
other party's Confidential Information to any third person, except (i) with the
prior written consent of the other party; (ii) to the extent necessary to comply
with law or legal process, in which event the party making the disclosure will,
subject to applicable law, notify the other party as promptly as practicable
prior to making any disclosure and seek confidential treatment of the
information; (iii) to the extent necessary, as a part of its normal reporting or
review procedure to its parent company, or its auditors and attorneys on a
confidential basis; or (iv) in connection with the enforcement of the party's
rights hereunder or under any related agreements. The parties hereto agree to
restrict disclosure of the Confidential Information solely to its employees or
others under its control who have a need to know the same in furtherance of the
purposes of this License Agreement and who have been directed and contractually
or legally restricted from disclosing the Confidential Information at least to
the degree required under this License Agreement. Each party shall be liable to
the other for any breach of the covenants of confidentiality contained herein by
its agents or employees. The provisions of this section shall survive the
expiration or termination of this License Agreement.
ARTICLE 11 - ASSIGNMENT
11.1 BY SBCL. SBCL may assign all of its rights and obligations under this
License Agreement or any license granted hereunder to any Affiliate, or
to any corporation or other entity pursuant to a merger, consolidation,
or other reorganization. SBCL agrees to notify ActaMed of any such
assignment, in writing, specifying the name and address of the other
entity.
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<PAGE>
11.2 BY ACTAMED. ActaMed may assign all of its rights and obligations under
this License Agreement or any license granted hereunder to any Affiliate
or to any other corporation or other entity pursuant to a merger,
consolidation, or other reorganization. ActaMed agrees to notify SBCL
at least thirty (30) days prior to the date of any such assignment, in
writing, specifying the name and address of the assignee.
Notwithstanding the foregoing:
(i) Nothing in this License Agreement shall be construed to
authorize ActaMed to assign this License Agreement to any
assignee if such assignee or any Affiliate of the
assignee is engaged in the business of performing
laboratory services similar to those performed by SBCL as
of the date of the assignment, and
(ii) SBCL shall have the right to require ActaMed to void the
assignment if the assignee or any Affiliate of the
assignee enters the business of performing laboratory
services similar to those performed by SBCL as of the
date of this Agreement or the date of the assignment.
11.3 OTHER. Except as expressly set forth in this Article 11 and except as
the other party may consent in writing, neither party may assign or
transfer this License Agreement or any right or obligation hereunder to
any third party, and any attempt to do so in contravention of this
Article 11 shall be void and shall have no force or effect.
ARTICLE 12 - DISPUTE RESOLUTION
12.1 INFORMAL DISPUTE RESOLUTION. Any dispute between the parties arising out
of or with respect to this License Agreement, either with respect to the
interpretation of any provision of this Agreement or with respect to the
performance by ActaMed or SBCL, shall be resolved as provided in this
Article.
12.1.1 Prior to the initiation of formal dispute resolution procedures,
the parties shall first attempt to resolve their dispute
informally, as follows:
(i) The Representatives (as defined in the Services
Agreement) for each party shall meet for the purpose of
endeavoring to resolve such dispute. They shall meet as
often as the parties reasonably deem necessary in order
to gather and furnish to the other all information with
respect to the matter in issue which the parties believe
to be appropriate and germane in connection with its
resolution. The Representatives shall discuss the
problem and negotiate in good faith in an effort to
resolve the dispute without the necessity of any formal
proceeding. During the course of negotiations, all
reasonable requests made by one party to another for
nonprivileged information, reasonably
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related to this Agreement, shall be honored in order that
each of the parties may be fully advised of the other's
position.
(ii) If, within fifteen (15) days after a matter has been
identified for resolution pursuant to this Article,
either of the Representatives concludes in good faith
that amicable resolution through continued negotiation in
this forum does not appear likely, the matter will be
escalated by formal written notification to the SBCL
President and the ActaMed President (both as defined in
the Services Agreement). The parties will use their
respective best efforts to cause the SBCL President and
the ActaMed President to meet to attempt to resolve the
dispute.
(iii) Formal proceedings for the resolution of a dispute may
not be commenced until the earlier of: (i) the date on
which the SBCL President and the ActaMed President
conclude in good faith that amicable resolution through
continued negotiation of the matter does not appear
likely; or (ii) thirty (30) days after the dispute has
been referred to the SBCL President and the ActaMed
President.
12.1.2 The provisions of this Article 12 shall not be construed to
prevent a party from instituting, and a party is authorized to
institute, formal proceedings earlier to avoid the expiration of
any applicable limitations period.
12.2 ARBITRATION. If the parties are unable to resolve any controversy
arising under this Agreement as contemplated by Section 12.1 and if such
controversy is not subject to Section 12.3 or Section 12.4, then such
controversy shall be submitted to mandatory and binding arbitration at
the election of either Party (the Disputing Party) pursuant to the
following conditions:
12.2.1 The Disputing Party shall notify the AAA and the other Party in
writing describing in reasonable detail the nature of the dispute
(the "DISPUTE NOTICE"). The parties shall each select a neutral
arbitrator in accordance with the rules of AAA and the two (2)
arbitrators selected shall select a third neutral arbitrator.
The three (3) arbitrators so selected are herein referred to as
the "PANEL."
12.2.2 The Panel shall allow reasonable discovery as permitted by the
Federal Rules of Civil Procedure, to the extent consistent with
the purpose of the arbitration. The Panel shall have no power or
authority to amend or disregard any provision of this Article 12.
The arbitration hearing shall be commenced promptly and conducted
expeditiously, with each of ActaMed and SBCL being allocated
one-half of the time for the presentation of its case. Unless
otherwise agreed to by the parties, an arbitration hearing shall
be conducted on consecutive days.
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12.2.3 Should any arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section, such
arbitrator shall be replaced by an arbitrator selected in
accordance with the rules of the AAA and consistent with this
Article 12.
12.2.4 The Panel rendering judgment upon disputes between parties as
provided in this Article 12 shall, after reaching judgment and
award, prepare and distribute to the parties a writing describing
the findings of fact and conclusions of law relevant to such
judgment and award and containing an opinion setting forth the
reasons for the giving or denial of any award. The award of the
arbitrator shall be final and binding on the parties, and
judgment thereon may be entered in a court of competent
jurisdiction.
12.2.5 Arbitration hearings hereunder shall be held in Washington D.C.
or another mutually agreeable location.
12.2.6 The Panel shall be instructed that time is of the essence in the
arbitration proceeding. The Panel shall render its judgment or
award within fifteen (15) days following the conclusion of the
hearing. Recognizing the express desire of the parties for an
expeditious means of dispute resolution, the arbitrator shall
limit or allow the parties to expand the scope of discovery as
may be reasonable under the circumstances.
12.3 IMMEDIATE INJUNCTIVE RELIEF. The nonbreaching party may file a pleading
with a court seeking immediate injunctive relief in the event the other
party commits a breach of the confidentiality obligations set forth in
this Agreement, SBCL violates the limitations imposed by Section 3.2
hereof, ActaMed violates the limitations imposed by Section 2.2 or 2.3
hereof, or in the event a party makes a good faith determination that a
breach of the terms of this Agreement by the other party is such that
the damages to such party resulting from the breach will be so
immediate, so large or severe, and so incapable of adequate redress
after the fact that a temporary restraining order or other immediate
injunctive relief is a necessary remedy. If a party files a pleading
with a court seeking immediate injunctive relief and this pleading is
challenged by the other party and the injunctive relief sought is not
awarded in substantial part (or in the event of a temporary restraining
order is vacated upon challenge by the other party), the party filing
the pleading seeking immediate injunctive relief shall pay all of the
costs and attorneys fees of the party successfully challenging the
pleading.
12.4 JURISDICTION. ActaMed and SBCL each consent to venue in Philadelphia,
Pennsylvania and to the nonexclusive jurisdiction of competent
Pennsylvania state courts or federal courts located in Philadelphia for
all litigation which may be brought, subject to the requirement for
arbitration hereunder, with respect to the terms of, and the
transactions and relationships contemplated by, this Agreement.
12.5 CONTINUED PERFORMANCE; CONTINUATION OF LICENSES. Each party agrees to
continue performing its obligations under this Agreement while any
dispute is being resolved unless
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and until such obligations are terminated or expire in accordance with
the provisions by the termination or expiration of this Agreement not
in dispute. Nothing in this Agreement shall be construed as altering
the perpetual and irrevocable nature of the licenses granted by this
Agreement or as authorizing any arbitrator or court in any way to
enjoin or otherwise interfere with the proper exercise of such
licenses by either party hereto.
ARTICLE 13 - MISCELLANEOUS
13.1 FURTHER ASSURANCES. From time to time SBCL and ActaMed and their
respective officers, employees, contractors, representatives and agents,
shall confirm the provisions of this Agreement by execution and delivery
of such assignments, confirmations or other written instruments as may
be reasonably requested by the other party in order to vest each party
with the rights mentioned in this Agreement. ActaMed and SBCL shall
obtain appropriate assignments, covenants and obligations from its
officers, employees, representatives, agents and any contractors hired
to carry out its obligations under the SCAN Agreements prior to their
performance thereof to ensure SBCL or ActaMed, as the case may be, may
own the rights specified in this Agreement.
13.2 INTEGRATION. This License Agreement (including all of the Schedules
hereto) supersedes all prior agreements and understandings between the
parties with respect to the subject matter of this License Agreement,
and is intended by the parties as the complete and exclusive statement
of their agreement, and supersedes all prior understandings and
agreements, whether oral or written, between the parties with respect to
the same subject matter.
13.3 FORCE MAJEURE. Each party shall be excused from delays in performing or
from its failure to perform hereunder to the extent that such delays or
failures result from causes beyond the reasonable control of such party;
PROVIDED that, in order to be excused from delay or failure to perform,
such party must act diligently to remedy the cause of such delay or
failure.
13.4 NO AGENCY. Each party hereto, is acting solely as an independent
contractor. In no way is either party to be construed as the agent or
to be acting as the agent of the other party in any respect. Each party
has the sole obligation to supervise, manage, contract, direct, procure,
perform, or cause to be performed all work to be carried out by such
party under any SCAN Agreement.
13.5 NO WAIVER. No delay or omission by either party to exercise any right
arising upon any noncompliance with, or breach of, any covenant,
condition or agreement to be performed by the other party shall impair
any such right or be construed to be a waiver thereof. A waiver by
either of the parties hereto of any noncompliance with, or breach of,
any covenant, condition or agreement to be performed by the other
party must be in writing and signed by both parties. No waiver of any
right upon any one occurrence of noncompliance or breach
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shall be construed to be a waiver of any succeeding noncompliance or
breach. Unless stated otherwise, all remedies provided for in this
License Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to either party at law, in
equity, or otherwise.
13.6 SEVERABILITY. If any term, covenant, condition or provision of this
License Agreement or the application thereof to any circumstance shall
be invalid or unenforceable to any extent, the remaining terms,
covenants, conditions and provisions of this License Agreement shall not
be affected thereby and each remaining term, covenant, condition and
provision of this License Agreement shall be valid and enforceable to
the fullest extent permitted by law. If any provision of this License
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
13.7 NOTICES. If one party is required or desires to give notice to the
other, such notice shall be deemed given if mailed by U.S. mail, first
class, postage prepaid, or via a nationally recognized overnight
carrier, with all freight charges prepaid, and addressed as follows (or
as subsequently noticed to the other party):
If to SBCL: SmithKline Beecham Clinical Laboratories, Inc.
1201 S. Collegeville Road
Collegeville, PA 19426
ATTN: [*]
If to ActaMed: ActaMed Corporation
7000 Central Parkway Suite 600
Atlanta, GA 30328
ATTN: MIKE HOOVER
13.8 GOVERNING LAW; INTERPRETATION. This License Agreement shall be
construed, interpreted and enforced under the laws of the Commonwealth
of Pennsylvania, excluding its provisions regarding conflicts of law.
The section and subsection headings used herein are for reference and
convenience only, and shall not enter into the interpretation hereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed on the date set forth below.
SMITHKLINE BEECHAM CLINICAL ACTAMED CORPORATION
LABORATORIES, INC.
BY: /s/ John B. Okkerse, Jr. BY: /s/ Michael K. Hoover
--------------------------- -------------------------
NAME: John B. Okkerse, Jr. NAME: Michael K. Hoover
--------------------------- -------------------------
TITLE: President TITLE: President
--------------------------- -------------------------
DATE: 12-31-97 DATE: 12-31-97
--------------------------- -------------------------
<PAGE>
SCHEDULE A
SBCL SOFTWARE
- - SBCL proprietary Software known as [*] (including without limitation
the [*]) and [*].
- - Download programs and routines and other SBCL proprietary Software
reasonably required to perform Information Services as SBCL is
performing them as of the date of the License Agreement.
- - Documentation owned by SBCL and related to any of the foregoing.
- - Specifications owned and possessed by SBCL with respect to the
foregoing.
- - Such Specifications for the Software known as [*] and [*] as SBCL
determines reasonably necessary for the SBCL Software, SCAN Developments
and ActaLab Software [*] and [*].
- - Such updates, upgrades, corrections, modifications, and enhancements to
any of the foregoing created during the term of the Services Agreement.
- - All patents, patent applications, copyrights, trade secrets, know-how,
information and other intellectual property rights that are currently
owned or controlled by SBCL and that are embodied or practiced in the
foregoing.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
SCHEDULE B
AMENDMENTS TO DEVELOPMENT AGREEMENT
SBCL and ActaMed hereby agree this day of December, 1997, to amend their
Development Agreement October 31, 1997, as set forth herein as of the effective
dates set forth herein.
1. Effective as of the date of the Development Agreement, Article I
of the Development Agreement is hereby amended to include the following
additional or revised definitions:
"ActaLab Software" has the meaning ascribed to it by the License
Agreement.
"Deliverable" means all Software, Documentation and other
materials developed by ActaMed under this Agreement and described in a
Statement of Work.
"License Agreement" means that certain License Agreement between
SBCL and ActaMed dated December 22, 1997.
"SBCL Software" has the meaning ascribed to it by the License
Agreement.
"SOW No. 1" shall mean the Statement of Work dated October 31,
1997.
2. The second "Whereas" clause is hereby deleted.
3. The fourth "Whereas" clause is hereby revised to delete the words
"to SBCL."
4. Section 5.1(a) of the Development Agreement is hereby revised as
of the date of the Development Agreement to read as follows:
(a) The parties hereby acknowledge and agree that:
(i) The Deliverables under SOW No. 1 do not
[*] the SBCL Software, but instead [*] which will be used in conjunction
with and/or will be integrated into ActaMed's ProviderLink software.
All Deliverables (including but not limited to, the ActaLab Software)
under SOW No. 1, and all intellectual property rights (including but not
limited to copyrights and all renewals and extensions thereof) in such
Deliverables, shall be [*]. Subject to the provisions of Section
5(a)(iv) hereof, SBCL hereby grants, transfers and assigns all of its
right, title and interest in such Deliverables, including patents,
copyrights, trade secrets and other intellectual property developed or
acquired in the course of creating such Deliverables, to ActaMed and
ActaMed shall have the right to obtain and hold in its own name
copyrights,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
patents, registrations and similar protections which may be available
with respect to such Deliverables.
(ii) The parties contemplate that additional
SOWs may be entered into from time to time for the purpose of enhancing,
modifying or upgrading the ActaLab Software (an "ActaLab SOW"). All
Deliverables under an ActaLab SOW and all intellectual property rights
(including but not limited to copyrights and all renewals and extensions
thereof) in such Deliverables, shall be [*]. Subject to the provisions
of Section 5(a)(iv) hereof, SBCL hereby grants, transfers and assigns all
of its right, title and interest in such Deliverables, including patents,
copyrights, trade secrets and other intellectual property developed or
acquired in the course of creating such Deliverables, to ActaMed and
ActaMed shall have the right to obtain and hold in its own name
copyrights, patents, registrations and similar protections which may be
available with respect to such Deliverables.
(iii) The parties contemplate that additional
SOWs may be entered into from time to time for the purpose of enhancing,
modifying or upgrading the SBCL Software (a "SCAN Development SOW").
Ownership of any Deliverables under a SCAN Development SOW, and
ownership of any intellectual property rights therein (including but not
limited to copyrights and all renewals and extensions thereof), shall be
governed in all respects by Article 3 of the License Agreement. Subject
to the provisions of Section 5(a)(iv) hereof, ActaMed hereby grants,
transfers and assigns all of its right, title and interest in such
Deliverables, including patents, copyrights, trade secrets and other
intellectual property developed or acquired in the course of creating
such Deliverables, to SBCL.
(iv) Nothing in this Section 5(a) shall be
construed to transfer to ActaMed, or otherwise divest SBCL of SBCL's
ownership of, the SBCL Software and, subject to the licenses granted by
the License Agreement, SBCL (as between SBCL and ActaMed) shall be the
sole owner of the patents, copyrights, trade secrets and other
intellectual property rights therein. Nothing in this Section 5(a)
shall be construed to transfer to SBCL, or otherwise divest ActaMed of
ActaMed's ownership of, any software or work of authorship owned by
ActaMed as of the effective date of the Development Agreement and,
subject to the licenses granted by the License Agreement, ActaMed (as
between SBCL and ActaMed) shall be the sole owner of any patent,
copyright, trade secret right or other intellectual property right
therein.
(v) Any Statement of Work, by mutual agreement
of the parties, may include limitations and restrictions on ActaMed's use of the
applicable Deliverables in support of laboratory testing services of commercial
laboratories other than SBCL.
6. Sections 5.1(d) and (e) and Section 5.2(a) as of the date of this
Amendment are hereby deleted from the Development Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
7. In the event of conflict between the Development Agreement and
the License Agreement, the License Agreement shall control.
9. Except as expressly set forth herein, the Development Agreement
shall continue in full force and effect as originally executed by the parties.
10. Nothing in this Agreement shall be construed to modify or change
in any respect the ownership and use rights with respect to Exclusive
Developments (as defined in the Services Agreement between SBCL and ActaMed
dated the date hereof) pursuant to the License Agreement and Section V of said
Services Agreement.
In witness whereof, the parties have caused this Amendment to be
signed this day of December, 1997.
SMITHKLINE BEECHAM CLINICAL ACTAMED CORPORATION
LABORATORIES, INC.
BY: /s/ BY: /s/
---------------------------- ---------------------------
NAME: John B. Okkersee Jr. NAME: Michael K. Hoover
-------------------------- -------------------------
TITLE: President TITLE: President
------------------------- ------------------------
DATE: DATE:
-------------------------- -------------------------
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
DEVELOPMENT AGREEMENT
THIS AGREEMENT is made as of this 31 day of October, 1997, by
and between SmithKline Beecham Clinical Laboratories, Inc., a Delaware
corporation with offices located at 1201 S. Collegeville Road, Collegeville, PA
19426 ("SBCL"), and ActaMed Corporation, a Georgia corporation with offices
located at 7000 Central Parkway, Suite 600, Atlanta, GA 30328 ("ACTAMED").
WHEREAS, ACTAMED has expertise in software development, installation and
implementation, systems analysis and design, data processing and computer
programming;
WHEREAS, ACTAMED employs a staff of qualified technical personnel whose
services ACTAMED is willing to provide to SBCL on a temporary or project basis;
WHEREAS, SBCL desires to have ACTAMED provide certain services and
personnel to SBCL for the project described in the attached Statement of Work;
and
WHEREAS, the parties desire to agree upon the terms and conditions under
which ACTAMED may provide such services and personnel to SBCL.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings and shall include the plural as well as the singular:
"Affiliate" means any corporation or other entity which controls, is
controlled by, or is under common control with SBCL, and any joint venture or
partnership in which SBCL is a partner or joint venturer, or any other entity in
which SBCL has an interest and to which it supplies or receives information
processing services. A corporation or other entity shall be deemed to control
another corporation or entity if it owns, directly or indirectly, more than
fifty percent (50%) of the voting shares or other interest, or has the power to
elect more than half the directors, of such other corporation or entity.
"Confidential Information" means any and all proprietary information
disclosed or made available by a party hereto to the other party in the course
of performing hereunder, whether in written, oral, magnetic, photographic,
optical or other form and whether now existing or hereafter created, including,
without limitation, all trade secrets, know-how, information systems,
technology, data, computer programs, processes, methods, operational procedures,
plans, strategies or results, and other information of a similar nature that is
not generally disclosed by such party to the public.
<PAGE>
Confidential Information shall not include any information which (a) is proven
by written evidence to have been in a receiving party's possession prior to
disclosure by the other party; (b) is received from a third party having the
right to disclose such information; (c) is or hereafter becomes public knowledge
through no act or fault of a receiving party; or (d) is proven by written
evidence to have been independently developed by a receiving party without
access to the Confidential Information of the other party.
"Deliverables" means all Software, Documentation and other materials
developed for or delivered to SBCL by ACTAMED under this Agreement and described
in a Statement of Work.
"Derivative Work" means a work that is based upon one or more preexisting
works, such as a revision, modification, translation, abridgment, condensation,
expansion, or any other form in which such preexisting works may be recast,
transformed, translated or adapted, and that, if prepared without authorization
of the owner of the copyright in such preexisting work, would constitute a
copyright infringement.
"Documentation" means manuals (e.g., user, utility reference and language
reference) and other written materials that relate to particular Software,
including materials useful for the operation of the Software by a user, and
information (e.g., data flows, data structures, control logic, flow diagrams,
and principles of operation) useful for design, modification and maintenance of
the source code by a programmer. Documentation also shall include any
Maintenance Modifications or Enhancements thereto created by ACTAMED from time
to time, and such additional materials as may be described in a Statement of
Work.
"Enhancements" means changes or additions, other than Maintenance
Modifications, to Software and related Documentation, including all new
releases, that improve functions, add new functions, or significantly improve
performance by changes in system design or coding.
"Error" means any error, problem, or defect resulting from (a) an incorrect
functioning of Software, or (b) an incorrect or incomplete statement of diagram
in Documentation, if such an error, problem or defect renders the Software
inoperable, causes the Software to fail to meet the Specifications thereof,
causes the Documentation to be inaccurate or incomplete in any material respect,
causes incorrect results or causes incorrect functions to occur when any such
materials are used.
"Maintenance Modifications" means any modifications or revisions, other
than Enhancements, to Software or Documentation that correct Errors, support new
releases of the operating systems with which the Software is designed to
operate, support new input/output devices or provide other incidental updates
and corrections.
"Services" means the software development, design, analysis, data
processing, computer programming, consulting, training and/or such other
services and duties to be provided to SBCL under this Agreement and described in
a Statement of Work.
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<PAGE>
"Software" means computer programming code, including updates and revisions
thereto, which conform to the Specifications and includes both object code
(i.e., machine-readable) and source code (i.e., human-readable), and associated
procedural code, all as more fully described in a Statement of Work. Software
also shall include any Maintenance Modifications and Enhancements thereto
created by ACTAMED from time to time.
"Specifications" means the description of the design, operating procedures,
performance, functions and other requirements for the Software set forth in a
Statement of Work.
"Statement of Work" or "SOW" means a written instrument in substantially
the form of Exhibit A attached hereto which is signed on behalf of both parties
by their authorized representatives.
ARTICLE II
SERVICES
2.1 SERVICES. SBCL hereby retains ACTAMED to provide the Services and
Deliverables, and ACTAMED hereby agrees to provide the Services and
Deliverables, in the manner described in this Agreement and in Statements of
Work issued from time to time hereunder. The Services and Deliverables shall
conform to the Specifications set forth in the applicable SOW.
2.2 SCHEDULE; LOCATION. SBCL, at its own expense, shall furnish to
ACTAMED access to appropriate computer personnel, as well as all relevant
Documentation, Specifications and source code in its possession and necessary
for ACTAMED to provide the Services and Deliverables. ACTAMED will provide the
Services and deliver the Deliverables on or before the dates (the "Schedule")
and at the location(s) set forth in a SOW. Delivery of any intermediate
Deliverables, or status reports thereon, also shall be on the dates specified in
the Schedule. No variation or modification shall be made to the Schedule
without the prior written consent of SBCL and ACTAMED.
2.3 Personnel.
(a) ACTAMED shall provide fully trained, competent and skilled
personnel for performance of the Services.
(b) Promptly upon execution of this Agreement, each party shall
notify the other party of the name, business address and telephone number of its
Contract Administrator. The Contract Administrators of each party shall be
responsible for arranging all meetings, visits and consultations between the
parties that are of a nontechnical nature. The Contract Administrator also
shall be responsible for receiving all notices under this Agreement and for all
administrative matters such as invoices, payments and amendments.
(c) Each SOW shall state the name, business address and telephone
number of the Project Managers for each party. The Project Managers of each
party designated for a particular
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<PAGE>
SOW shall, with respect to such SOW, be responsible for technical and
performance matters, and the delivery, receipt and acceptance of the
Deliverables and technical information.
2.4 PROGRESS REPORTS AND MEETINGS. At either party's reasonable written
request from time to time during the performance of this Agreement, but at least
once each month, and at no additional cost, the Project Managers and any other
personnel either party may designate shall meet to review the progress of the
project described in a particular SOW. At each such meeting, ACTAMED shall
provide SBCL with a written status report, which shall include but not be
limited to, any problem that, in ACTAMED's reasonable judgment, might cause any
increase in the budgeted costs for such project or adversely affect ACTAMED's
ability to meet the Schedule or the Specifications.
2.5 Change Order Procedures.
(a) REQUIREMENT OF CHANGE ORDERS. All changes, modifications and
additions to the obligations of either party under this Agreement or any SOW
requires a written change order (a "Change Order"). Either party may initiate a
Change Order by submitting a written request for a Change Order to the other
party along with an explanation of reasons as to why such a modification is
desirable or necessary.
(b) CHANGE ORDER CONTENTS. All Change Orders must contain:
(i) a description of any additional work to be performed
and/or changes to the performance required of either party, including the
estimated number and skill level of personnel necessary to make such changes
and/or additions and the availability of such personnel over the ensuing period;
(ii) a statement of the impact of the work or changes on the
Services, Deliverables, Schedule, costs or other requirements of this Agreement
or a SOW;
(iii) acceptance test procedures for such work, if
applicable; and
(iv) signatures of duly authorized individuals of each
party.
(c) ACCEPTANCE OF CHANGE ORDER. Within ten (10) days of the
submission of a Change Order request from one party to the other, the receiving
party shall notify the other party of its acceptance or rejection. SBCL may, in
its sole discretion, reject any Change Order requested by ACTAMED. ACTAMED may
not decline to accept any Change Order requested by SBCL that, together with any
prior accepted Change Orders, do not substantially affect the nature of the
Deliverables, their performance or functionality, and does not change the
Schedule by more than two man day or dollar amounts by more than 2%.
2.6 CONTROLLING DOCUMENT. In the event any provision contained in this
Agreement conflicts with any part of a SOW, the provision set forth in the SOW
shall take precedence.
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<PAGE>
ARTICLE III
COMPENSATION; PAYMENT AND EXPENSES
3.1 COMPENSATION. Amounts and method of payment for all Services and
Deliverables to be provided under this Agreement shall be set forth in each SOW.
3.2 PAYMENT. Unless otherwise specified in the applicable SOW, (a)
ACTAMED shall submit invoices to SBCL for payment for Services and Deliverables
within thirty (30) calendar days after the close of each month during which
Services were rendered and/or Deliverables were delivered to SBCL; and (b) all
undisputed invoices shall be due and payable within [*] days of SBCL's
receipt of such invoice and acceptance of the Services and/or Deliverables. All
invoices shall specifically refer to the applicable SOW, indicate the period of
performance and provide reasonable detail with respect to the Services and
Deliverables to which they relate, including, if applicable, time and labor
spent in providing the Services, cost of materials and travel and living
expenses. Supporting documentation called for by SBCL's standard reimbursement
policies shall accompany any such invoice. Payment in accordance with these
terms shall represent full and complete compensation for all Services and
Deliverables provided pursuant hereto, and for any inventions, improvements,
copyrights, patent rights and other intellectual property rights assigned, as
more fully set forth below.
3.3 RECORDS AND AUDITS. ACTAMED shall maintain complete and accurate
accounting records in accordance with sound accounting practices to
substantiate ACTAMED's charges and shall preserve such records for a period
of at least [*] after completion of the pertinent work. SBCL shall have
access to such records for purposes of audit, either through its own
representatives or through an accounting firm selected and paid by SBCL. Any
such review of ACTAMED's records shall be conducted at reasonable times
during business hours, and no more than twice annually.
3.4 TAXES. ACTAMED assumes all responsibility and liability for the
payment of any federal, state, or local income taxes due on money received from
SBCL hereunder, and shall be responsible for all employment taxes and
withholding with respect to its employees and contractors.
3.5 EXPENSES. Except as otherwise agreed by SBCL in writing, ACTAMED
shall bear all of its own expenses arising from performance of its obligations
under this Agreement and each SOW, including, without limitation, expenses for
transportation, living facilities, work spaces, utilities, management, clerical
and reproduction services, supplies, and the like.
ARTICLE IV
DELIVERY; ACCEPTANCE AND MAINTENANCE
4.1 DELIVERY. ACTAMED shall deliver all Deliverables for testing and
acceptance in the manner set forth in the applicable SOW.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
4.2 TESTING.
(a) Upon receipt of the Deliverables, SBCL shall test the
Deliverables to determine whether they meet the Specifications and any other
requirements set forth in the SOW.
(b) Unless otherwise specified in the applicable SOW, such testing
shall be conducted in accordance with the following testing procedures and
criteria:
(i) SBCL will notify ACTAMED, in writing, that it is
accepting or rejecting the Deliverables within thirty (30) days after receipt.
Any notice of rejection shall set forth the grounds for rejection. ACTAMED
shall use its best efforts to remedy any failures of the Deliverables to meet
the Specifications, and shall deliver corrected Deliverables to SBCL as soon as
possible.
(ii) Upon receipt of corrected Deliverables, SBCL shall
have [*] within which to test them and inform ACTAMED of its acceptance or
rejection.
This procedure may be repeated any number of times; PROVIDED, HOWEVER, that
if SBCL detects errors in the Deliverables or the Deliverables fail to meet the
Specifications, SBCL may withhold payment under the applicable SOW until the
errors in the Deliverables are corrected or the Deliverables meet the
Specifications.
(c) If SBCL detects errors in the Deliverables or the Deliverables
fail to meet the Specifications after it has tested them twice, SBCL shall
thereafter have, until it accepts the Deliverables, the right to terminate this
Agreement or the applicable SOW upon written notice to ACTAMED. Upon such
termination, ACTAMED shall retain all payments SBCL has made to it up to the
date of termination, SBCL shall retain all Deliverables received by such date,
and SBCL shall have no further obligations to pay any amounts to ACTAMED under
this Agreement.
4.3 ACCEPTANCE. If SBCL does not detect any Errors or any failure of
the Deliverables to meet the Specifications after a performance of the tests
described in Section 4.2, SBCL shall accept the Deliverables by issuing a
written confirmation of acceptance to ACTAMED, which shall be effective as of
the date of successful completion of the tests.
ARTICLE V
OWNERSHIP AND CONFIDENTIALITY
5.1 OWNERSHIP OF WORK PRODUCT BY SBCL.
(a) SBCL and ACTAMED agree that any Deliverables prepared under
this Agreement, including modifications to software owned by ACTAMED, and
ownership of all intellectual property rights, including but not limited to
copyrights and all renewals and extensions thereof, in such works shall [*].
SBCL and ACTAMED agree to and hereby grant, transfer and assign such right,
title and interest in the Deliverables, including patents, copyrights and
trade secrets for purposes of, and to the extent necessary and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
consistent with this Section 5.1(a). From time to time SBCL and ACTAMED, and
their respective officers, employees, contractors, representatives and agents,
shall confirm the foregoing assignment by execution and delivery of such
assignments, confirmations or other written instruments as may be reasonably
requested by the other party in order to vest each party with the rights
mentioned in this Section 5.1(a). ACTAMED shall obtain appropriate assignments,
covenants and obligations from its officers, employees, representatives, agents
and any contractors hired to carry out its obligations under this Agreement
prior to their performance under any SOW to ensure SBCL and ACTAMED may own the
rights specified in this Section 5.1(a).
(b) ACTAMED agrees that it shall not, directly or indirectly,
produce, develop or participate in the production or development of any work,
materials documentation or software similar to any Deliverable or Specification,
or utilize any techniques, methods or know-how relating to the aforementioned
items, for the period beginning as of the date hereof and ending on the date on
which the last phase any Deliverable was scheduled under an SOW to be delivered
to SBCL for testing and acceptance, or the date the last phase any such
Deliverable was actually delivered to SBCL for testing and acceptance, whichever
is later; PROVIDED, HOWEVER, nothing contained in this Section 5.1(b) shall
prohibit ACTAMED from purchasing any work, documentation or software similar in
function or purpose to any of the Deliverables or Specifications that is
produced or developed independently by a third party without access, reference
or knowledge of the Deliverables, Specifications or any other SBCL Confidential
Information. SBCL reserves the right to audit and inspect any work, materials,
documentation or software developed or purchased by ACTAMED at any time that is
similar to any Deliverable or Specification for purposes of ensuring compliance
with the confidentiality provisions of this Agreement.
(c) ACTAMED agrees that if, during [*] beginning with the date on
which the last phase of any Deliverable was scheduled under SOW No. 1 to be
delivered to SBCL for testing and acceptance, or the date the last phase of
any such Deliverable was actually delivered to SBCL for testing and
acceptance, whichever is later, ACTAMED, directly or indirectly, produces,
develops or participates in the production or development of any laboratory
test ordering and result reporting software, ACTAMED will not permit any
software engineer, designer or similar person (whether an employee or
independent contractor) that participated in the production or development of
the Services or Deliverables or who otherwise had access to SBCL Confidential
Information to participate, directly or indirectly, in such production or
development.
(d) Notwithstanding anything to the contrary in this Agreement,
both SBCL and ACTAMED agree not to exercise or to authorize any other party to
exercise any of SBCL's or ACTAMED's ownership rights or privileges with respect
to any of the Deliverables, including without limitation, the right to use,
license, sell, deliver, transfer or incorporate such Deliverables into any other
product for any reason without the prior written consent of the other party.
Neither party shall have any obligation to give their consent for purposes of
this Section 5.1(d).
(e) SBCL and ACTAMED agree not to reveal any Deliverable, in whole
or in part, to anyone outside of ACTAMED or SBCL without the prior written
consent of the other party, or to any officer, employee, contractor,
representative or agent of ACTAMED or SBCL who is not
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
covered by the restrictions on confidentiality and use contained herein.
ACTAMED further agrees not to use, sell, deliver, transfer or reveal any
Specification, in whole or in part, to anyone outside of ACTAMED without SBCL's
prior written consent, or to any officer, employee, contractor, representative
or agent of ACTAMED who is not covered by the restrictions on confidentiality
and use contained herein.
5.2 PREEXISTING WORKS.
(a) In the event that any Deliverable or part thereof constitutes
a Derivative Work of any preexisting works owned by either party, or in the
event either party requires the other party's preexisting works in order to
perform under this Agreement, each party hereby grants to the other party and
its Affiliates a non-exclusive, worldwide, royalty-free right and license to
use, execute, reproduce, display, perform and distribute internally such
preexisting works for the sole and limited purpose of developing the
Deliverables and performing the Services in accordance with this Agreement. All
rights not granted herein are specifically reserved. For purposes of this
Section 5.2, "preexisting works" shall include, but not be limited to, the
Specifications (including the specifications for the [*] and [*]
systems) and "SBCL SCAN" software, in the case of SBCL, and the "Provider Link"
software, in the case of ACTAMED.
(b) In the event that any Deliverable or part thereof constitutes
a Derivative Work of preexisting works not owned by SBCL or ACTAMED, SBCL or
ACTAMED, as the case may be, shall ensure that the other party and its
Affiliates have a non-exclusive, worldwide, royalty-free right and license to
use, execute, reproduce, display, perform and distribute internally such
preexisting works for the sole and limited purpose of developing the
Deliverables and performing the Services in accordance with this Agreement.
SBCL and ACTAMED each agree to notify the other party in writing of any
pre-existing work, or portion thereof, which either or them does not own prior
to the incorporation of such pre-existing work in the Deliverables. Such notice
shall identify: (i) the pre-existing work which is not owned, (ii) the owner of
such pre-existing work, (iii) SBCL's or ACTAMED's, as the case may be, right to
use such pre-existing work, (iv) the nature of SBCL's or ACTAMED's right to
grant to the other party the license contemplated herein, and (v) it shall grant
the other party the aforesaid rights and license.
5.3 OBLIGATION OF CONFIDENTIALITY.
(a) SBCL and ACTAMED each acknowledge and agree that during the
term of this Agreement, they shall have access to certain Confidential
Information of the other party. SBCL and ACTAMED each agree to keep such
Confidential Information in strict confidence and shall not disclose it to any
person, firm, partnership or corporation other than to its officers, employees,
contractors, representatives and agents who have a need to know such information
in order to perform hereunder or under a SOW, nor use the same for any purpose
other than performance hereunder or under a SOW. SBCL and ACTAMED,
respectively, shall advise all officers, employees, contractors, representatives
and agents with access to the other party's Confidential Information of the
confidentiality obligations with respect thereto under this Agreement.
Notwithstanding the foregoing, SBCL and ACTAMED shall be and remain liable and
responsible
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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for the confidentiality obligations of their respective officers, employees,
contractors, representatives and agents. In addition to the foregoing, SBCL and
ACTAMED shall protect and safeguard the other party's Confidential Information
by using the same degree of care, but no less than a reasonable degree of care
to prevent the unauthorized use, dissemination or publication of such
Confidential Information as they each use to protect their own confidential or
proprietary information of a like nature. Upon request by the other party, SBCL
and ACTAMED shall require any or all of its officers, employees, contractors,
representatives and agents to sign a confidentiality agreement prepared by the
other party and approved by SBCL or ACTAMED, as the case may be, which affirms
such officers, employees, contractors, representatives or agents obligations in
regards to the Confidential Information.
(b) SBCL and ACTAMED each acknowledge and agree that the terms and
conditions with respect to confidentiality are reasonable and necessary for the
protection of each of the party's Confidential Information and to prevent damage
or loss to the other party. SBCL and ACTAMED further agree that any breach or
threatened breach of such provisions will cause the other party irreparable harm
for which there is no adequate remedy at law. Therefore, SBCL and ACTAMED each
agree that the nondisclosing party shall be entitled, in addition to any other
remedies available, to injunctive or other equitable relief to require specific
performance or to prevent a breach of the foregoing confidentiality provisions.
(c) Upon the breach of any provision, early termination or
completion of this Agreement or any SOW, SBCL and ACTAMED each agree to cease
all use and make no further use of the Confidential Information disclosed to it
by the other party and shall, upon the written request of the other party,
promptly return all such Confidential Information, including any copies used or
distributed to any of its officers, employees, contractors, representatives and
agents, and retain no copies.
(d) The confidentiality obligations of this Section 5.3 shall
survive termination of this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 WARRANTY OF TITLE AND NONINFRINGEMENT.
(a) ACTAMED represents and warrants to SBCL that:
(i) unless ACTAMED provides SBCL with advance written
notice to the contrary in accordance with Section 5.2(b), ACTAMED is and will be
the sole author of all works used by ACTAMED in preparing any and all
Deliverables;
(ii) ACTAMED shall require all officers, employees,
contractors, representatives and agents who provide Services or Deliverables
hereunder to assign to ACTAMED all intellectual property rights created or
arising in the performance of the Services and Deliverables for purposes
consistent with Article V;
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(iii) ACTAMED has and will have full and sufficient right to
assign or grant the rights granted pursuant to this Agreement, free and clear of
any liens, claims or encumbrances; and
(iv) none of the Deliverables infringe any patents,
copyrights, trademarks, or other intellectual property rights (including trade
secrets), privacy or similar rights of any third party, nor has any claim of
such infringement been threatened or asserted.
(b) SBCL represents and warrants to ACTAMED that:
(i) SBCL has and will have full and sufficient right to
assign or grant the rights granted pursuant to this Agreement, free and clear of
any liens, claims or encumbrances; and
(ii) none of the Specifications, software and any other
materials provided to ActaMed by SBCL hereunder infringe any patents,
copyrights, trademarks, or other intellectual property rights (including trade
secrets), privacy or similar rights of any third party, nor has any claim of
such infringement been threatened or asserted.
6.2 WARRANTIES OF CONFORMITY, PERFORMANCE AND COMPLIANCE. ACTAMED
represents and warrants to SBCL that:
(a) all Services and Deliverables shall be performed or provided
in a workmanlike manner and with professional diligence and skill;
(b) no portion of the Software contains any unauthorized code such
as a virus, Trojan horse, worm or other software routine or hardware component
designed to permit unauthorized access to disable, erase or otherwise harm the
Software, hardware, or data automatically, with the passage of time or under the
control of a person other than SBCL; and
(c) the Software includes acceptable Specifications so that any or
all such Software and any related hardware will not abruptly end or provide
invalid or incorrect results during the operation of SBCL's business due to
issues related to Year 2000 compliance. "Year 2000 compliance" requires that
the Specifications of the Software and related hardware include, but not be
limited to: date data century recognition, calculations that accommodate same
century and multi-century formulas and date values, and date data interface
values that reflect the century. The Software and related hardware shall be
used by SBCL prior to, during and after the calendar year 2000. The
Specifications of the Software and related hardware to ensure Year 2000
compliance shall be supplied by ACTAMED at no additional cost to SBCL.
6.3 AVOIDANCE OF INFRINGEMENT. In performing Services under this
Agreement, ACTAMED agrees to avoid designing or developing any items that
infringe any patents, copyrights or other intellectual property rights of any
third party. If SBCL or ACTAMED becomes aware of any such possible infringement
in the course of performing work under any SOW issued hereunder, SBCL or
ACTAMED, as the case may be, shall immediately so notify the other party in
writing.
-10-
<PAGE>
6.4 INDEMNIFICATION.
(a) SBCL and ACTAMED, respectively, shall indemnify and hold the
other party harmless from and against all loss, liability, costs, charges,
claims or damages to any persons or property, arising out of this Agreement, a
SOW or the provision of the Services or Deliverables where caused by its own
fault or negligence, or the fault or negligence of its officers, employees,
contractors, representatives or agents. SBCL and ACTAMED also shall indemnify
and hold the other party harmless from and against all loss, liability, costs,
charges, claims or damages which may arise as a consequence of or grow out of
any injury, illness or death of its officers, employees, contractors,
representatives or agents who are engaged in the performance of the Services
under this Agreement or a SOW.
(b) ACTAMED shall defend or settle, at its own expense, any and
all suits, actions, proceedings or claims against SBCL charging that any part of
the Services infringes any patent, trademark, trade secret, copyright or other
intellectual property right of any person or entity. SBCL and ACTAMED shall
defend or settle, each at its own expense, any and all suits, actions,
proceedings or claims against the other party charging that the use, copying,
modification, disclosure or distribution of any part of the Deliverables or
Documentation provided by SBCL or ACTAMED, as the case may be, infringes any
patent, trademark, trade secret, copyright or other intellectual property right
of any person or entity not a party hereto. Each party will pay actual costs of
the other party, including all legal fees and any damages awarded in any such
suit or proceeding, and will indemnify and hold that other party harmless from
all other liability incurred in connection with such action.
(c) SBCL and ACTAMED each agree to (i) promptly notify the other
party in writing of any claim for which it is seeking indemnification; (ii) at
the other party's request and expense, give assistance reasonably required for
the defense of any such claim; and (iii) give the other party control of the
defense and/or settlement of such claim; PROVIDED, HOWEVER, that the other party
may participate in such defense and/or settlement at its option and expense.
(d) If any part of the Services or Deliverables is or is likely to
become the subject of such a suit, action or claim, at no expense to the other
party, SBCL or ACTAMED may: (i) obtain sufficient rights to allow the other
party to use the Services or Deliverables as contemplated hereunder; or (ii)
substitute non-infringing services or deliverables acceptable to the other party
and substantially similar to the Services and Deliverables described in the SOW.
Any such replacement services and deliverables shall be subject to all of the
terms and conditions of this Agreement, including without limitation, the
foregoing indemnification provisions.
6.5 SURVIVAL. The provisions of this Section shall survive the
termination of this Agreement.
-11-
<PAGE>
ARTICLE VII
TERM AND TERMINATION
7.1 TERM. This Agreement shall commence on the date hereof and shall
remain in force for a period of one (1) year unless sooner terminated as
provided herein; PROVIDED, HOWEVER, this Agreement shall remain in effect
with respect to any Statements of Work already issued hereunder at the time
of such termination until such Statements of Work are themselves terminated
and/or performance thereunder is completed.
7.2 TERMINATION OF SOWS. SBCL may terminate any or all SOWs
outstanding, or any portion thereof, upon fifteen (15) business days' written
notice in the event that SBCL reasonably determines that ActaMed has failed to
meet any of the milestone dates for completing a phase of work, as set forth in
the project plan for the applicable SOW; provided however, that SBCL
acknowledges that ActaMed's timely performance may be dependent upon SBCL's
timely performance, and therefore SBCL may not so terminate if ActaMed's failure
to meet a milestone date is (i) the result of SBCL's failure to timely perform,
or (ii) because the parties are still engaged in the testing and acceptance
process for that milestone. Upon receipt of notice of such termination, ACTAMED
shall inform SBCL of the extent to which performance has been completed through
such date, and collect and deliver to SBCL whatever work product then exists in
the manner prescribed by SBCL. Subject to Section 4.2(c), ACTAMED shall be paid
for all work performed and accepted through the date of termination, provided
that such payment shall not be greater than the payment that would have become
due if the work had been completed. ACTAMED may not terminate any SOW once
ACTAMED has entered into such SOW.
7.3 TERMINATION OF AGREEMENT. SBCL or ACTAMED may terminate this
Agreement for cause, as provided below, upon [*] prior written notice. SBCL
and ACTAMED may terminate this Agreement or any SOW at any time upon mutually
written agreement. This Agreement shall continue to remain in effect with
respect to any SOW already issued hereunder until such SOW is itself
terminated and/or performance thereunder is completed.
7.4 TERMINATION IN THE EVENT OF BREACH. In the event of any material
breach of this Agreement or a SOW by either party, the other party may
terminate this Agreement or the applicable SOW without waiving any remedies
or rights available to such other party at law or in equity. Such
termination shall be in writing upon at least [*] prior written notice to the
party in breach specifying the nature of the breach. The party in breach
shall have the opportunity to cure such breach during such [*] period. If
the breach has been cured by the end of such period, this Agreement and the
applicable SOW will not terminate.
7.5 INSOLVENCY. Either party may immediately terminate this Agreement
if the other party is declared insolvent or bankrupt; the property of the other
party is assigned for the benefit of creditors, levied upon under execution, or
seized by virtue of any writ of any court of law; a petition for declaration of
bankruptcy or reorganization is filed against the other party in any court and
not dismissed in ninety (90) days; or a trustee or receiver is appointed for the
other party. In the event of any such insolvency or bankruptcy, all licenses
granted hereunder shall be considered licenses to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-12-
<PAGE>
intellectual property, and SBCL shall be entitled to retain the licenses granted
herein, subject to ACTAMED's right to terminate this Agreement for reasons other
than bankruptcy or insolvency as expressly provided in this Agreement. In the
event that a court or other legal or administrative tribunal, directly or
through an appointed master, trustee or receiver, assumes partial or complete
control over the assets of a party to this Agreement based on the insolvency or
bankruptcy of such party, the bankrupt or insolvent party shall promptly notify
the court or other tribunal of the confidentiality obligations under this
Agreement, and that Confidential Information received from the other party under
this Agreement remains the property of the other party. In addition, the
bankrupt or insolvent party shall, to the extent permitted by law, take all
steps necessary or desirable to maintain the confidentiality of the other
party's Confidential Information and to insure that the court, other tribunal or
appointee maintains such information in confidence in accordance with the terms
of this Agreement.
7.6 CONSEQUENCES OF TERMINATION. Upon termination of this Agreement,
ACTAMED shall:
(a) immediately cease work as provided in the notice of
termination, and shall cease to represent itself as providing services to SBCL;
and
(b) deliver to SBCL (i) a report describing the current state of
the Services and Deliverables to be provided by ACTAMED under this Agreement and
any applicable SOWs at the date of termination; (ii) all SBCL Confidential
Information in its possession; and (iii) all work product, Software, materials
and Documentation related to the Services and Deliverables in whatever state of
development they may exist on the date of termination.
ARTICLE VIII
MISCELLANEOUS
8.1 FORCE MAJEURE. Each party shall be excused from delays in
performing or from its failure to perform hereunder to the extent that such
delays or failures result from causes beyond the reasonable control of such
party; PROVIDED that, in order to be excused from delay or failure to perform,
such party must act diligently to remedy the cause of such delay or failure.
8.2 NO AGENCY. ACTAMED, in rendering performance under this Agreement
and any SOW, is acting solely as an independent contractor. SBCL does not
undertake by this Agreement or otherwise to perform any obligation of ACTAMED,
whether by regulation or contract. In no way is ACTAMED to be construed as the
agent or to be acting as the agent of SBCL in any respect. ACTAMED has the sole
obligation to supervise, manage, contract, direct, procure, perform, or cause to
be performed all work to be carried out by ACTAMED hereunder.
8.3 NO WAIVER. No delay or omission by either party to exercise any
right arising upon any noncompliance with, or breach of, any covenant, condition
or agreement to be performed by the other party shall impair any such right or
be construed to be a waiver thereof. A waiver by either of the parties hereto
of any noncompliance with, or breach of, any covenant, condition or agreement to
be performed by the other party must be in writing and signed by both parties.
No waiver of any
-13-
<PAGE>
right upon any one occurrence of noncompliance or breach shall be construed to
be a waiver of any succeeding noncompliance or breach. Unless stated otherwise,
all remedies provided for in this Agreement shall be cumulative and in addition
to and not in lieu of any other remedies available to either party at law, in
equity, or otherwise.
8.4 SEVERABILITY. If any term, covenant, condition or provision of this
Agreement or the application thereof to any circumstance shall be invalid or
unenforceable to any extent, the remaining terms, covenants, conditions and
provisions of this Agreement shall not be affected thereby and each remaining
term, covenant, condition and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
8.5 NOTICES. If one party is required or desires to give notice to the
other, such notice shall be deemed given if mailed by U.S. mail, first class,
postage prepaid, or via a nationally recognized overnight carrier, with all
freight charges prepaid, and addressed as follows (or as subsequently noticed to
the other party):
If to SBCL:
SmithKline Beecham Clinical Laboratories, Inc.
1201 S. Collegeville Road
Collegeville, PA 19426
ATTN: [*]
----------------------------
If to ACTAMED:
ActaMed Corporation
7000 Central Parkway
Suite 600
Atlanta, GA 30328
ATTN: Mike Hoover
----------------------------
8.6 ASSIGNMENT. SBCL may assign all of its rights and obligations under
this Agreement, SOWs or any license granted hereunder to any Affiliate, or to
any corporation or other entity pursuant to a merger, consolidation, or other
reorganization. SBCL agrees to notify ACTAMED of any such assignment, in
writing, specifying the name and address of the other entity. ACTAMED may not,
without the prior written consent of SBCL, assign or transfer this Agreement or
any right or obligation hereunder, and any attempt to do so in contravention of
this Section 8.6 shall be void and of no force and effect.
8.7 GOVERNING LAW; INTERPRETATION. This Agreement and all SOWs shall be
construed, interpreted and enforced under the laws of the Commonwealth of
Pennsylvania, excluding its provisions regarding conflicts of law. The section
and subsection headings used herein are for reference and convenience only, and
shall not enter into the interpretation hereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-14-
<PAGE>
8.8 ENTIRE AGREEMENT. This Agreement, the SOWs issued from time to time
hereunder and the schedules and exhibits attached hereto or thereto, constitute
the entire agreement concerning the subject matter covered herein and supersede
all prior oral or written agreements, understandings and promises relating
thereto. This Agreement may not be modified or amended except by an instrument
in writing declared to be an amendment hereto and executed by both parties.
This Agreement may be executed in several counterparts, all of which taken
together shall constitute one single agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in the manner appropriate to each as of the day and year first above
written.
ACTAMED CORPORATION SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC.
By: /s/ By: /s/
------------------------ --------------------------------
Mike Hoover Rich Davis
President Vice President
Information Resources
Dated: 10/31/97 Dated: 10/30/97
--------------------- -----------------------------
-15-
<PAGE>
EXHIBIT A
STATEMENT OF WORK
This is a Statement of Work entered into on this 31st day of October, 1997,
between SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation
with offices located at 1201 S. Collegeville Road, Collegeville, PA 19426
("SBCL"), and ActaMed Corporation, a Georgia corporation with offices located at
7000 Central Parkway, Suite 600, Atlanta, GA 30328 ("ACTAMED"), under the
Development Agreement, dated as of October 31, 1997.
1. PROJECT MANAGERS:
for SB: [*]
1201 So. Collegeville Rd.
Collegeville, PA 19426
VOICE: [*]
FAX: [*]
E-MAIL: [*]
for ACTAMED: [*]
7000 Central Parkway
Suite 600
Atlanta, Georgia 30328
VOICE: [*]
FAX: [*]
E-MAIL: [*]
2. GENERAL DESCRIPTION OF PROJECT:
ACTAMED will "port" the SBCL Scan system to its ActaLink architecture,
substantially re-engineering the system by re-writing most if not all of
the source code, thereby creating a new product, "ACTALAB," which
incorporates all of the requirements and functionality [*] of SBCL SCAN as
depicted by the actual SBCL SCAN system and its associated documentation.
This re-engineering will also incorporate ActaLink architecture,
functionality and components as appropriate to create a fully integrated
product that benefits from the functionality of the ActaLink product. This
will include functionality to perform an eligibility check at the time of
order entry and to associate the resulting billing and eligibility
information with each order for all payers available to ACTAMED.
A complete description and overview of the project is provided as
Attachment 1 to this Statement of Work, which includes:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-16-
<PAGE>
- Description of Specifications
- Description of Deliverables
- Description and Location of Services
- Project Schedule and Resources
- Testing procedures and Acceptance Criteria
3. PAYMENT SCHEDULE
For the Services and Deliverables to be provided hereunder, SBCL will pay
ACTAMED the aggregate sum of [*] in accordance with the following schedule.
The payment for each Deliverable shown below is due within [*] of receipt
of the corresponding sign-off from SBCL, as set forth in more detail in
Attachment 1, Section 5. The amount payable to ACTAMED by SBCL under this
SOW is based on the estimates outlined in Attachment 2.
<TABLE>
<CAPTION>
% OF TOTAL AMOUNT DELIVERABLE/MILESTONE
---------- ------ ---------------------
<C> <C> <C>
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
</TABLE>
ACTAMED CORPORATION SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC.
By: /s/ By: /s/
------------------------ --------------------------------
Mike Hoover Rich Davis
President Vice President
Information Resources
Dated: 10/31/97 Dated: 10/30/97
--------------------- -----------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-17-
<PAGE>
AMENDMENT TO DEVELOPMENT AGREEMENT
SBCL and ActaMed hereby agree this 31st day of December, 1997, to amend their
Development Agreement October 31, 1997, as set forth herein as of the
effective dates set forth herein.
1. Effective as of the date of the Development Agreement, Article I of
the Development Agreement is hereby amended to include the following
additional or revised definitions:
"ActaLab Software" has the meaning ascribed to it by the License
Agreement.
"Deliverable" means all Software, Documentation and other materials
developed by ActaMed under this Agreement and described in a Statement of
Work.
"License Agreement" means that certain License Agreement between
SBCL and ActaMed dated December 31, 1997.
"SBCL Software" has the meaning ascribed to it by the License
Agreement.
"SOW No. 1" shall mean the Statement of Work dated October 31, 1997.
2. The second "Whereas" clause is hereby deleted.
3. The fourth "Whereas" clause is hereby revised to delete the words
"to SBCL."
4. Section 5.1(a) of the Development Agreement is hereby revised as
of the date of the Development Agreement to read as follows:
(a) the parties hereby acknowledge and agree that:
(i) The Deliverables under SOW No. 1 do not
constitute modifications or enhancements to the SBCL Software, but
instead constitute a new Windows- and JAVA-based product which will be
used in conjunction with and/or will be integrated into ActaMed's
ProviderLink software. All Deliverables (including but not limited to,
the ActaLab Software) under SOW No. 1, and all intellectual property
rights (including but not limited to copyrights and all renewals and
extensions thereof) in such Deliverables, shall be owned solely and
exclusively by ActaMed. Subject to the provisions of Section 5(a)(iv)
hereof, SBCL hereby grants, transfers and assigns all of its right, title
and interest in such Deliverables, including patents, copyrights, trade
secrets and other
<PAGE>
intellectual property developed or acquired in the course of creating
such Deliverables, to ActaMed and ActaMed shall have the right to obtain
and hold in its own name copyrights, patents, registrations and similar
protections which may be available with respect to such Deliverables.
(ii) The parties contemplate that additional SOWs
may be entered into from time to time for the purpose of enhancing,
modifying or upgrading the ActaLab Software (an "ActaLab SOW"). All
Deliverables under an ActaLab SOW and all intellectual property rights
(including but not limited to copyrights and all renewals and extensions
thereof) in such Deliverables, shall be owned solely and exclusively by
ActaMed. Subject to the provisions of Section 5(a)(iv) hereof, SBCL hereby
grants, transfers and assigns all of its right, title and interest in such
Deliverables, including patents, copyrights, trade secrets and other
intellectual property developed or acquired in the course of creating such
Deliverables, to ActaMed and ActaMed shall have the right to obtain and
hold in its own name copyrights, patents, registrations and similar
protections which may be available with respect to such Deliverables.
(iii) The parties contemplate that additional SOWs
may be entered into from time to time for the purpose of enhancing,
modifying or upgrading the SBCL Software (a "SCAN Development SOW").
Ownership of any Deliverables under a SCAN Development SOW, and ownership
of any intellectual property rights therein (including but not limited to
copyrights and all renewals and extensions thereof). shall be governed in
all respects by Article 3 of the License Agreement. Subject to the
provisions of Section 5(a)(iv) hereof, ActaMed hereby grants, transfers
and assigns all of its right, title and interest in such Deliverables,
including patents, copyrights, trade secrets and other intellectual
property developed or acquired in the course of creating such
Deliverables, to SBCL.
(iv) Nothing in this Section 5(a) shall be
construed to transfer to ActaMed, or otherwise divest SBCL of SBCL's
ownership of, the SBCL Software and, subject to the licenses granted by the
License Agreement, SBCL (as between SBCL and actaMed) shall be the sole
owner of the patents, copyrights, trade secrets and other intellectual
property rights therein. Nothing in this Section 5(a) shall be construed
to transfer to SBCL, or otherwise divest ActaMed of ActaMed's ownership of,
any software or work of authorship owned by ActaMed as of the effective
date of the Development Agreement and, subject to the licenses granted by
the License Agreement, ActaMed (as between SBCL and ActaMed) shall be the
sole owner of any patent, copyright, trade secret right or other
intellectual property right therein.
(v) Any Statement of Work, by mutual agreement
of the parties, may include limitations and restrictions on ActaMed's use
of the applicable
2
<PAGE>
Deliverables in support of laboratory testing services of commercial
laboratories other than SBCL.
6. Sections 5.1(d) and (e) and Section 5.2(a) as of the date of this
Amendment are hereby deleted from the Development Agreement.
7. In the event of conflict between the Development Agreement and the
License Agreement, the License Agreement shall control.
9. Except as expressly set forth herein, the Development Agreement
shall continue in full force and effect as originally executed by the parties.
10. Nothing in this Agreement shall be construed to modify or change in
any respect the ownership and use rights with respect to Exclusive
Developments (as defined in the Services Agreement between SBCL and ActaMed
dated the date hereof) pursuant to the License Agreement and Section V of
said Services Agreement.
In witness whereof, the parties have caused this Amendment to be
signed this 31st day of December, 1997.
SMITHKLINE BEECHAM CLINICAL ACTAMED CORPORATION
LABORATORIES, INC.
BY: /s/ John B. Okkenele Jr. BY: /s/ Michael K. Hoover
---------------------------- ---------------------------
NAME: John B. Okkenele Jr. NAME: Michael K. Hoover
------------------------- ------------------------
TITLE: President TITLE: President
------------------------ -----------------------
DATE: 12-31-97 DATE: 12-31-97
------------------------ -----------------------
3
<PAGE>
SECOND AMENDMENT TO DEVELOPMENT AGREEMENT
SmithKline Beecham Clinical Laboratories, Inc. ("SBCL") and Healtheon
Corporation ("Healtheon") hereby agree this 14th day of October, 1998, to
amend the Development Agreement dated October 31, 1997, as amended, by and
between ActaMed Corporation and SBCL, which was assumed by Healtheon on May
18, 1998, as follows:
1. Section 7.1 of the Development Agreement is hereby replaced in its
entirety by the following:
"7.1 TERM. This Agreement shall commence on the date hereof and shall
remain in effect until October 31, 1999 or such later date as mutually
agreed upon by the parties for the purposes of completing the work
required under Statements of Work adopted hereunder."
SMITHKLINE BEECHAM CLINICAL HEALTHEON CORPORATION
LABORATORIES, INC.
By: /s/ Donald F. Parmen By: /s/ Jack Dennison
--------------------------- ---------------------------
Name: Donald F. Parmen Name: Jack Dennison
--------------------------- ---------------------------
Title: Assistant Secretary Title: Vice President
--------------------------- ---------------------------
Date: October 14, 1998 Date: October 14, 1998
--------------------------- ---------------------------
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
SERVICES, DEVELOPMENT AND LICENSE AGREEMENT
This Agreement made this 15th day of December, 1997 (the "Effective
Date"), is by and between Healtheon Corporation, a Delaware corporation with
offices at 87 Encina Ave., Palo Alto, CA 94301 ("Healtheon") and Beech Street
Corporation, a Georgia Corporation with offices at 173 Technology, Irvine,
California 92618 ("BSC").
WHEREAS, the parties have agreed to form an alliance to address the
information technology needs of BSC, develop new applications designed to
address the information service needs of companies providing managed care and
other administrative services and pursue other ventures which may be of mutual
interest to the parties. The parties hereby agree as follows:
1. DEFINITIONS.
1.1 "ADDITIONAL APPLICATIONS" shall mean those applications which are
developed by Healtheon, but excluding the Developed Applications and the
Healtheon Platform Software, which are designed to run on the Healtheon
Platform.
1.2 "BSH DIVISION" shall mean the division of Healtheon which shall
be organized to perform the Services hereunder.
1.3 "BSC CLIENT" shall mean those clients of BSC including but not
limited to, health care medical providers (E.G., physicians, hospitals, other
care facilities, and ancillary providers), third party administrators, preferred
provider organizations, health maintenance organizations, employers, unions,
governmental entities, credit card companies, reinsurance companies, health
benefit or workers' compensation software vendors, and medical management
vendors, which use BSC Managed Care Services or as to which BSC has incorporated
such entities' services into BSC Managed Care Services.
1.4 "BSC MANAGED CARE SERVICES" shall mean the following types of
services provided by BSC to BSC Clients: personal health management (demand
management), workers' compensation medical bill review, case management,
pre-admission review, concurrent review, discharge planning, hospital bill
audit, retrospective non-network bill review and fee negotiation, health care
provider contracting and management, data reporting, computer operations,
service bureau services, consulting and other support services and such other
related new products/services that BSC shall develop subsequent to the execution
of this Agreement. Notwithstanding the foregoing, Managed Care Services shall
not include any service where the primary service provided by BSC is either (i)
access to and/or use of the BSC On-Line Service to obtain repricing services or
(ii) other repricing services offered by BSC to BSC Clients which use all or a
portion of the repricing functionality of the Developed Applications The
Management Committee shall determine whether services based upon other
functionality of the Developed Applications shall be excluded from the
definition of "BSC Managed Care Services" at the time that the relevant
specifications for such Developed Applications are being developed.
Notwithstanding the foregoing, workers' compensation medical bill review
services shall be included as part of the BSC Managed Care Services regardless
of whether such services are offered alone or in conjunction with other BSC
Managed Care Services.
<PAGE>
1.5 "BSC ON-LINE SERVICE" shall mean the on-line service provided by
BSC to BSC Clients which incorporates all or a portion of the Developed
Applications and any derivative works thereof.
1.6 "DEVELOPED APPLICATIONS" shall mean those applications and any
improvements thereto which are developed by Healtheon hereunder and which are
designed to run on the Healtheon Platform, as more fully described on Exhibit B.
1.7 "DEVELOPMENT WORK" shall mean the work to be performed hereunder
by Healtheon to develop the Developed Applications.
1.8 "END USER" shall mean any employee, partner, agent or other
representative of (i) BSC, or (ii) a BSC Client; who is authorized to access
the BSC On-Line Service in conjunction with obtaining BSC Managed Care Services.
1.9 "HEALTHEON PLATFORM" shall mean the Healtheon Platform Software,
as well as certain industry standard software applications, tools, and processes
which provide the operating environment which enables the use of Healtheon
developed applications as part of an on-line service which is accessible through
the Internet by using industry standard web browsers.
1.10 "HEALTHEON PLATFORM SOFTWARE" shall mean the proprietary
operating system and other software which has been developed by Healtheon (but
excluding the Developed Applications and the Additional Applications) which is
part of the operating system of the Healtheon Platform.
1.11 "SERVICES" shall mean those information technology services
described on Exhibit A.
2. PERFORMANCE OF THE SERVICES AND THE DEVELOPMENT WORK
2.1 PERFORMANCE OF THE SERVICES. Healtheon, through personnel
assigned to its BSH Division, shall perform the Services at certain sites
controlled by BSC and/or Healtheon. The initial scope of the Services is set
forth as Exhibit A. Exhibit A may be amended with the written consent of the
parties.
2.2 PERFORMANCE OF THE DEVELOPMENT WORK. Healtheon shall design,
develop, test, and complete the Developed Applications. The specifications for
each Developed Application shall be developed jointly and mutually approved by
the parties. In conjunction with the development of each set of specifications,
the parties shall jointly develop a mutually agreeable detailed project plan,
which shall be attached hereto as Exhibit B. Such project plan shall describe,
in a degree of detail reasonably satisfactory to the parties, all tasks and
responsibilities required for the successful and timely completion of the
development and delivery of the applicable Developed Applications, including the
projected costs.
3. PROJECT MANAGEMENT
3.1 PERSONNEL RESOURCES. Healtheon and BSC shall each commit the
number of qualified and experienced personnel which are reasonably necessary to
perform their respective obligations under this Agreement and as further
outlined in the project plan(s). Healtheon shall have the sole right and
obligation to hire, supervise, manage, contract, direct, procure, perform or
cause to be performed all work to be performed by Healtheon and its personnel
hereunder. Healtheon, at its option, may engage third parties to render services
in connection with the performance of the Services and/or Development Work
contemplated hereunder, which may include engaging the services of certain BSC
employees to
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provide certain information technology services. All Healtheon employees
utilized to provide the Services shall have entered into Healtheon's standard
form of employee nondisclosure agreement.
3.2 PROJECT MANAGEMENT. Each party shall designate a project manager
(the "Project Managers") and appropriate technical resource persons to
coordinate the development and implementation of the project plan(s). The
Project Managers shall be responsible for resolving any matters arising under
this Agreement and the Services and Development Work contemplated hereunder. In
the event that the Project Managers are not able to resolve a dispute, such
dispute shall be resolved by the Management Committee, as described in Section
3.3.
3.3 MANAGEMENT COMMITTEE. The parties shall each designate an equal
number of management-level personnel to serve on the Management Committee. The
Management Committee shall conduct status meetings on a monthly basis detailing
the performance of the Services and Development Work during the prior four (4)
week period and the work planned to be performed during the upcoming four (4)
week period. The Management Committee shall be responsible for resolving any
disputes which have not been resolved by the Project Managers. The Management
Committee shall be responsible for determining whether services based upon the
Developed Applications shall be included or excluded from the definition of "BSC
Managed Care Services" for the purposes of this Agreement. If such services are
not excluded, then the Management Committee shall be responsible for
establishing the applicable financial arrangements, if any, pursuant to which
such services may be offered by BSC.
3.4 CHANGES TO SERVICES, DEVELOPMENT WORK AND PROJECT PLAN. The scope
of the Services, the Development Work and the project plans shall not be changed
in any material respect without the prior written agreement of the parties,
which agreement shall not be unreasonably withheld.
4. OWNERSHIP AND LICENSE RIGHTS.
4.1 OWNERSHIP. BSC acknowledges and agrees that all of the work
product produced or developed by Healtheon in connection with Healtheon's
performance of the Services and/or Development Work to be provided hereunder,
including, but not limited to, all technology of any nature whatsoever, all
notes, records, drawings, designs, inventions, improvements, developments,
discoveries, trade secrets and any copyrightable material, including but not
limited, to the Developed Applications, and all patentable inventions,
conceived, made or discovered by Healtheon, solely or in collaboration with
others, during the period of this Agreement and which relate in any manner to
the Services and/or Development Work to be performed hereunder or which
Healtheon may be directed to undertake or investigate in performing the Services
and/or the Development Work, including any derivative works of any of the
foregoing (collectively the "Work Product"), is the sole property of Healtheon,
but excluding BSC's contracts and contracted rates with BSC's providers, which
may be incorporated into the Work Product. Subject only to the license rights
to be granted by Healtheon to BSC in Section 5.1, below, BSC acknowledges and
agrees that Healtheon shall have all proprietary rights in and to the Work
Product, including, without limitation, all copyrights, patents and trade secret
rights, all moral rights, all contract and licensing rights, and all claims and
causes of action of any kind with respect to any of the foregoing, whether now
known or hereafter to become known, and that Healtheon shall have the sole and
exclusive right to use, modify and exploit the Work Product in any manner that
Healtheon may choose.
4.2 PROPRIETARY NOTICES. BSC shall not remove or alter any trademark,
trade name, copyright, or other proprietary notices, legends, symbols, or labels
appearing on or in materials pertaining to the Work Product. Each portion of
the Healtheon documentation reproduced by BSC shall include the
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intellectual property notice or notices appearing in or on the corresponding
portion of such materials as delivered by Healtheon hereunder.
5. LICENSE AND SERVICE RIGHTS.
5.1 LICENSE RIGHTS. In consideration for the development fees paid to
Healtheon pursuant to Section 7.1, Healtheon hereby grants to BSC a nonexclusive
and nontransferable, fully-paid, perpetual right and license, exercisable at
BSC's primary operations site, to: (i) install, use, copy, modify, create
derivative works and maintain the Developed Applications, in object code and
source code form, solely as (a) part of the BSC On-Line Services which are
offered to BSC Clients in conjunction with the BSC Managed Care Services
obtained by such BSC Clients and to enable world-wide remote access by End Users
in conjunction with the BSC On-Line Service and (b) for BSC's internal use in
providing BSC Managed Care Services to BSC Clients, and (ii) use the Work
Product (excluding the Developed Applications and any derivative works thereof)
delivered to BSC by Healtheon hereunder in conjunction with the operations of
BSC's Managed Care Services. BSC shall not use, sublicense or otherwise
distribute the Healtheon Platform Software or the Work Product, including the
Developed Applications and any derivative works thereof, in any other manner
except as expressly stated herein. The BSC's primary operations site is
anticipated to be in Irvine, California. BSC may from time to time designate
another site to be its primary operations site by providing Healtheon with
thirty (30) days' prior written notice of such redesignation. Notwithstanding
the foregoing, BSC shall make no more than two (2) copies of the source code
relating to the Developed Applications (the "Source Code") and shall restrict
access to such Source Code to only those employees who require such access to
enable BSC to use the Source Code as in the manner contemplated herein and
otherwise secure and protect such Source Code consistent with its own practices
regarding its most highly confidential information.
5.2 OPTION TO LICENSE ADDITIONAL APPLICATIONS. Healtheon hereby
agrees to grant to BSC a nonexclusive and nontransferable, right and license, to
use the Additional Applications as may be licensed at the option of BSC, as part
of the services to be offered to BSC Clients in conjunction with the BSC Managed
Care Services, and to enable worldwide access to End Users in conjunction with
the BSC On-Line Service. The fee for such license shall be [ * ] each
such Additional Application as may be licensed by BSC, net of any third-party
royalty obligations. Each such license agreement for Additional Applications
shall be on commercially reasonable terms and conditions. BSC shall not use,
sublicense or otherwise distribute the Additional Applications in any other
manner except as expressly stated herein.
5.3 OPTION TO LICENSE HEALTHEON PLATFORM SOFTWARE. Subject to the
payment of the license fee set forth below, Healtheon hereby grants to BSC a
nonexclusive and nontransferable, right and license, exercisable at BSC's
primary operational site, to use the Healtheon Platform Software as part of
the Healtheon Platform to be deployed at BSC's primary operational site to
run the Developed Applications and such Additional Applications which may be
licensed from Healtheon, as part of the BSC On-Line service or other BSC
Managed Care Service to be offered to BSC Clients in conjunction with the BSC
Managed Care Services obtained by such BSC Client, and to enable world-wide
access and use by End Users at remote locations in conjunction with the use
of the BSC On-Line Service and to make a single back-up copy. The applicable
one-time, up front fee for such license shall be [ * ] payable upon
such commercially reasonable terms as the parties may agree to at the time of
BSC's exercise of its rights hereunder. BSC shall not have the right to use,
sublicense or otherwise distribute the Healtheon Platform Software in any
other manner except as
[ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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expressly stated herein. BSC shall be solely responsible for the costs
associated with acquiring all third-party hardware and software and
implementation services necessary to deploy the Healtheon Platform at BSC's
site. In the event the BSC exercises its rights hereunder, Healtheon shall make
available to BSC maintenance services on such commercially reasonable terms and
conditions as may be agreed to by the parties.
5.4 OPTION TO USE HEALTHEON SERVICE. If, following the completion
of the Developed Applications, BSC declines to use its licensed rights under
Section 5.1, Healtheon hereby agrees to enter into a Healtheon Service
Agreement with BSC containing Healtheon's standard terms and conditions
whereby Healtheon shall provide BSC and BSC Clients with access to an on-line
service which includes the Developed Applications. Healtheon shall offer such
service to BSC and the BSC Clients at a rate [ * ] as may be mutually
agreed to by the parties, based upon the actual margins of the on-line
service.
6. THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS
6.1 THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS. In order to perform
the Services contemplated hereunder (but excluding Services relating solely to
the Developed Applications), BSC represents that Healtheon will need to have
access only to the third-party technology and software listed on Exhibit C which
is licensed and/or deployed by BSC (the "Third-Party Technology and Software").
BSC hereby agrees to use commercially reasonable efforts to obtain, at its own
expense, all necessary consents, licenses and/or assignments which may be
necessary in order for Healtheon to perform the such Services. Healtheon shall
use commercially reasonable efforts to cooperate with BSC to assist BSC in
obtaining any necessary consents, licenses and/or assignments to Third-Party
Technology and Software. In the event that any Development Work requires access
to or use of any other third-party technology or software, the Management
Committee shall be responsible for obtaining any necessary rights.
6.2 BSC TECHNOLOGY AND LICENSE RIGHTS. During the term of this
Agreement, BSC hereby grants to Healtheon a nonexclusive and nontransferable
right and license to use, modify and copy all technology and software owned by
BSC which is necessary for Healtheon to perform the Services and Development
Work.
7. FEES AND PAYMENT; GAIN SHARING
7.1 FEES AND EXPENSES, PAYMENT. BSC shall pay Healtheon the Fees and
Expenses, as set forth in Exhibit D for the Services and the Development Work to
be performed hereunder (the "Fees"). Healtheon shall submit invoices to BSC on
a bi-weekly basis for the Fees when due, corresponding to applicable payroll
cycles. Invoices shall be due and payable within ten (10) days after receipt.
7.2 OTHER EXPENSES. Healtheon shall have sole responsibility for
payment of compensation to its personnel and shall pay and report, for all
personnel assigned to perform services hereunder, federal and state income tax
withholding, social security taxes, and unemployment insurance applicable to
such personnel. Healtheon shall bear sole responsibility for any health or
disability insurance, retirement benefits, or other welfare or pension benefits
(if any) to which its own personnel may be entitled.
7.3 REVENUE SHARING. In the event that BSC declines to use its
licensed rights under Section 5.1 and Healtheon provides services in accordance
with Section 5.4 for any current or future BSC Client
[ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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which (i) utilizes any of the Developed Applications and (ii) such BSC
Client has entered into a written contract for one or more of BSC's Managed
Care Services (a "Qualified BSC Client"), then BSC shall pay to Healtheon the
Applicable Percentage (as defined below) of Net Revenues (as defined below
with respect to repricing services) with respect to each such Qualified BSC
Client. "Net Revenues" shall mean the revenues received by BSC from a
Qualified BSC Client for BSC Managed Care Services less any fees paid by BSC
to any third party which facilitates the sale or delivery of BSC's Managed
Care Services, including but not limited to leased network fees, broker fees,
commissions paid to outside third parties, fees payable to Healtheon pursuant
to Section 5.4, subcontractor vendor fees and other such reasonable and
customary fees as may apply from time to time. The "Applicable Percentage"
with respect to BSC's repricing services shall be as follows: [ * ]
The revenue sharing described above will be reviewed by the Management
Committee periodically, and at least on an annual basis, to determine that
the cost savings objectives are being achieved and to determine the
appropriate applicable percentage for other BSC Managed Care Services which
are performed through the Healtheon service as the applicable Developed
Applications are deployed as part of the Healtheon service. Additionally if
other significant cost savings are identified they will be reviewed by the
Management Committee to determine appropriate sharing.
7.4 THIRD-PARTY HARDWARE AND SOFTWARE. In the event that it is
reasonably necessary for Healtheon to purchase or license any third-party
hardware and/or software in order to perform the Services and/or the Development
Work, the Project Managers shall determine whether such third-party hardware
and/or software should be purchased and/or licensed by BSC or Healtheon and how
the costs and ownership shall be allocated between the parties.
7.5 TAXES. All Fees and payments are exclusive of all taxes, duties
or levies, however designated or computed. BSC shall be responsible for and pay
all taxes upon payments due under this Agreement including, but not limited to,
sales, use, or value-added taxes, duties, withholding taxes and other
assessments now or hereafter imposed on or in connection with this Agreement,
exclusive of taxes based upon Healtheon's net income.
7.6 AUDIT RIGHTS. Each of the parties shall have the right,
exercisable no more frequently than once per calendar quarter and exercisable
upon thirty (30) days prior written notice, to audit the appropriate books and
records of the other party during regular business hours to review the
calculations of the amounts payable pursuant to Section 7. The costs of such
audit shall be borne by the auditing party, unless the results of such audit
reveal an underpayment (or overpayment) of more than ten percent (10%) for a
twelve month period, in which case the reasonable expenses of the auditing party
shall be reimbursed by the other party. The parties shall promptly pay (or
refund) to the other, the amounts of any underpayments (or overpayments).
8. CONFIDENTIALITY
8.1 CONFIDENTIAL INFORMATION. The parties acknowledge that in the
course of performing under this Agreement, each party may be exposed to or
acquire information which is proprietary to or confidential to the other party,
its suppliers or customers ("Confidential Information"). Any and all such
Confidential Information of one party in any form obtained by the other party or
its employees, agents,
[ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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or representatives in the performance of this Agreement shall be deemed to be
confidential and proprietary information of such party. The parties agree to
hold such Confidential Information in strict confidence, to only permit use of
such Confidential Information by its employees and agents having a need to know
in connection with performance under this Agreement, and not to copy, reproduce,
sell, assign, license, market, transfer, give or otherwise disclose the
Confidential Information of the other party to third parties or to use such
Confidential Information for any purposes whatsoever, except as expressly
contemplated by this Agreement, without the express written permission of the
other party and to advise each of their employees, agents, and representatives
of their obligations to keep such information confidential. Work Product shall
be deemed to be the Confidential Information of Healtheon.
8.2 EXCEPTIONS TO CONFIDENTIAL INFORMATION. Confidential Information
shall not include information that (i) was, as of the time of its disclosure, or
thereafter becomes part of the public domain through a source other than the
receiving party; (ii) the receiving party can demonstrate was known to the
receiving party as of the time of its disclosure; (iii) the receiving party can
demonstrate was independently developed by the receiving party without use of
the Confidential Information; or (iv) the receiving party can demonstrate was
subsequently learned from a third party not under a confidentiality obligation
to the providing party. In the event that a receiving party is required to
disclose certain Confidential Information of a disclosing party pursuant to
applicable law, court order or government authority, the receiving party shall
provide reasonable notice to the disclosing party prior to such disclosure and
shall cooperate with the disclosing party to obtain protection from such
disclosure.
9. REPRESENTATIONS AND WARRANTIES
9.1 WARRANTIES FOR SERVICES AND THE DEVELOPMENT WORK. Healtheon
hereby represents and warrants that (i) each person assigned to perform the
Services and/or the Development Work shall have the proper skill, training and
background so as to be able to perform the such Services and/or Development
Work in a competent and professional manner and (ii) all Services and/or
Development Work and any Work Product and other materials or documentation
delivered under this Agreement shall have been completed in a thorough and
professional manner. In the event of a breach of Healtheon's representations
and warranties under this Section 9.1, Healtheon's sole obligation shall be to
promptly correct any defects identified by BSC, provided that BSC provides
Healtheon with written notice within thirty (30) days of becoming aware of the
defective work.
9.2 THIRD-PARTY TECHNOLOGY. BSC hereby represents and warrants that
it has obtained all necessary consents, licenses and/or assignments with respect
to the Third-Party Technology and Software which is licensed and/or deployed by
BSC and which are necessary in order for Healtheon to perform the Services and
Development Work to be performed hereunder.
9.3 AUTHORITY. Healtheon and BSC each hereby represents and warrants
to the other that it is duly organized and validly existing under the laws of
the jurisdiction in which it is organized, in good standing therein, and has the
power to enter into this Agreement and to perform its obligations hereunder and,
furthermore, that the performance by it of its obligations under this Agreement
has been duly authorized by all necessary corporate or other action and will not
violate any provision of law or regulation or of any corporate charter or
bylaws.
9.4 INFRINGEMENT. Healtheon and BSC each hereby represents and
warrants to the other that any information or technology provided by it to the
other party in order to define the specifications or to accomplish the
development objectives of this Agreement does not infringe, violate,
misappropriate, or
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in any manner contravene or breach any U.S. patent or any trademark, copyright,
trade secret right, license or other property, or proprietary right of any third
party.
9.5 NO IMPLIED WARRANTIES. THE WARRANTIES STATED ABOVE IN THIS
SECTION 9 ARE THE ONLY WARRANTIES MADE BY EITHER PARTY. THE PARTIES DO NOT MAKE
AND HEREBY DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
THE PARTIES ACKNOWLEDGES THAT COMPLEX COMPUTER SOFTWARE AND SERVICES, SUCH AS
THE DEVELOPED APPLICATIONS AND THE SERVICES, ARE RARELY FREE OF DEFECTS OR
ERRORS AND HEALTHEON DOES NOT WARRANT THE SAME.
10. LIMITATION OF LIABILITY
EXCLUSION OF CERTAIN DAMAGES. [ * ] UNDER NO CIRCUMSTANCES AND
UNDER NO LEGAL THEORY SHALL EITHER PARTY HAVE ANY LIABILITY FOR LOSS OF
PROFITS, CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10.2 LIMITATION OF LIABILITY. [ * ] IN NO EVENT SHALL
EITHER PARTY'S AGGREGATE LIABILITY FOR ALL MATTERS ARISING OUT OF THE SUBJECT
MATTER OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE [ * ].
The remedies provided herein are the parties' sole and exclusive remedies.
11. INDEMNIFICATION
11.1 INDEMNIFICATION. Healtheon agrees to hold harmless and defend
BSC from and against any and all claims, demands, suits, actions, or
proceedings, arising out of any actual or alleged infringement by Healtheon of
any copyright or any U.S. patent, trademark, or trade secret right or other
proprietary right, with respect to the Work Product and Healtheon Platform
Software, as delivered by Healtheon hereunder and used by BSC in accordance with
the terms of this Agreement. BSC agrees to hold harmless and defend Healtheon
from and against any and all claims, demands, suits, actions, or proceedings,
arising out of any actual or alleged infringement by Healtheon of any copyright
or any U.S. patent, trademark, or trade secret right or other proprietary right
which arises out of BSC's failure to obtain any necessary consents, licenses, or
assignments with respect to any Third-Party Technology or Software which has
been licensed and/or deployed by BSC and which is necessary in order for
Healtheon to perform the Services (but excluding Services relating solely to the
Developed Applications).
11.2 LIMITATIONS. Healtheon shall have no indemnity obligation for
claims resulting from or alleged to result from (i) development work performed
by Healtheon in compliance with BSC's specifications where Healtheon's method of
compliance has been specifically compelled by the terms of BSC's specifications;
or (ii) BSC's use of the Work Product in combination with any hardware or
software not furnished by or authorized by Healtheon hereunder, if such
combination is the cause of such claim and the Work Product is not material to
the claim, or any modifications which have been made by BSC if such modification
is the cause of the claim. In addition, Healtheon shall have no indemnity
[ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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obligation for claims of infringement resulting or alleged to result from BSC's
failure within a reasonable time frame to implement any replacement or
modification which conforms to the requirements of Section 11.4 herein. BSC
shall have no indemnity obligations for claims resulting from or alleged to
result from Healtheon's breach of any Third-Party Technology or Software rights
where appropriate consents, licenses and/or assignments were obtained and
provided to Healtheon and Healtheon failed to adhere to the terms of applicable
consents, licenses and/or assignments.
11.3 PAYMENT AND COOPERATION. Subject to the limitations set forth in
Section 11.2 above, the indemnifying party shall pay all losses, damages,
damages, settlements, expenses, costs and reasonable attorney's fees, incurred
by the indemnified party arising out of the matters set forth in Section 11.1
provided that such payment shall be contingent on: (i) cooperation by the
indemnified party with the indemnifying party in the defense and or settlement
thereof, at the indemnifying party's expense; and (ii) allowing the
Indemnifying Party to control the defense and all related settlement
negotiations. The indemnified party shall give the indemnifying party prompt
written notice of any such claim to enable the indemnifying party to defend or
mitigate the claim.
11.4 REMEDY. If, in the event of an infringement action pertaining to
the Work Product, including the Developed Applications, and/or Healtheon
Platform Software and BSC's use of the such Work Product and/or Healtheon
Platform Software is disrupted, Healtheon shall, at its option, (i) provide BSC
with access to software which is functionally equivalent to the infringing
elements of the Work Product and/or Healtheon Platform Software as applicable,
without additional charge; (ii) modify the infringing portions of the Work
Product and/or Healtheon Platform Software, as applicable, to avoid the
infringement; or (iii) obtain a license for BSC to continue use of such Work
Product and/or Healtheon Platform Software, as applicable, for the term of the
applicable license and pay, on an annual basis, if Healtheon elects not to
acquire a perpetual license, the additional fee required for such license(s).
11.5 LIMITATIONS. SECTION 11 SETS FORTH THE PARTIES' SOLE OBLIGATION,
AND THE SOLE RECOURSE AGAINST THE OTHER PARTY IN THE EVENT OF ANY CLAIM OF
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
12. TERM AND TERMINATION
12.1. TERM. This Agreement shall continue for a fixed term of five
(5) years from the date hereof (the "Term") unless terminated earlier under
the provisions of this Section 12 or by the mutual agreement of the parties.
Notwithstanding the foregoing, (i) the license granted in Section 5.1 shall
have a perpetual term unless terminated earlier pursuant to Section 12.3 or
12.4, or by the mutual consent of the parties; and (ii) the license granted
in Section 5.3, if exercised, shall continue for a term of [ * ] from
the Effective Date and shall renew automatically for successive additional
[ * ] terms unless terminated earlier pursuant to Section 12.3 or
12.4, or by the mutual consent of the parties.
12.2 TERMINATION FOR CONVENIENCE. Either party may terminate this
Agreement upon one hundred-eighty (180) days prior written notice to the other
for any reason. Promptly following the notice of termination the parties shall
use good faith efforts to agree to a commercially reasonable transition plan
which will enable the parties' to mitigate to on-going expenses during the
notice period.
12.3 TERMINATION BY EITHER PARTY FOR DEFAULT. If either party
defaults in the performance of any material provision of this Agreement, then
the non-defaulting party may give written notice to the defaulting party that if
the default is not cured within thirty (30) days of such notice the Agreement
will be terminated. If the non-defaulting party gives such notice and the
default is not cured during the thirty
[ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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(30) day period, then the Agreement shall automatically terminate at the end of
that thirty (30) day period.
12.4 INSOLVENCY. Either party may terminate this Agreement by written
notice to the other, and may regard the defaulting party as in default of this
Agreement, if the defaulting party becomes insolvent, makes a general assignment
for the benefit of creditors, suffers or permits the appointment of a receiver
for its business or assets, becomes subject to any proceeding under any
bankruptcy or insolvency law whether domestic or foreign, or has wound up or
liquidated, voluntarily or otherwise.
12.5 EFFECT OF TERMINATION. The provisions of Sections 7 (solely with
respect to Fees and other payments which were due and payable as of the date of
termination), 4, 8, 10, 11, and 13 (to the extent applicable) shall survive the
termination of this Agreement for any reason. All other rights and obligations
of the parties shall cease upon termination of this Agreement. In the event of
a termination, neither party shall be entitled to any refund of the fees paid or
cost incurred for the development performed hereunder. Provided that this
Agreement is not terminated by Healtheon pursuant to either Section 12.3 or 12.4
or by BSC pursuant to Section 12.2, upon termination, Healtheon shall deliver to
BSC a copy of each Developed Application which has been completed as of the date
of termination, in source and object code form, and the related user
documentation, and, in the event of the exercise of BSC's option pursuant to
Section 5.3, Healtheon shall deliver to BSC a copy of Healtheon Platform
Software in object code form.
12.6 RETURN OF MATERIALS. Within thirty (30) days after the
termination of this Agreement, each party shall return to the other, all
Confidential Information, and other material of any kind which is the property
of the other party.
13. GENERAL
13.1 NO EXCLUSIVITY OR RESTRICTION ON OTHER ACTIVITY. Except as
expressly set forth in this Agreement, nothing herein shall preclude either
party from entering into agreements to obtain similar services or development
work from third parties or from providing similar services or development work
to third parties.
13.2 RELATIONSHIP OF PARTIES. The relationship of the parties shall
be that of independent contractors. Neither party will represent that it has any
authority to assume or create any obligation, express or implied, on behalf of
the other party, or to represent the other party as agent, employee, or in any
other capacity, except as specifically provided herein.
13.3 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding on
and inure to the benefit of the respective parties and their permitted
successors and assigns. Neither party shall not transfer, assign, sublicense or
subcontract any right or obligation hereunder, except as expressly provided
herein. In the event of a change in control of BSC, BSC shall be permitted to
assign this Agreement to the surviving or new corporation acquiring all or
substantially all of the business and assets of BSC by merger, acquisition,
consolidation or otherwise, with the prior written consent of Healtheon, which
consent shall not be unreasonably withheld. BSC may assign its rights under
this Agreement to an entity which is controlled by BSC with the prior written
consent of Healtheon, which consent shall not be unreasonably withheld. It
shall not be unreasonable for Healtheon to withhold its consent if any proposed
assignment would materially increase Healtheon's obligations under this
Agreement or materially increase the scope of BSC's rights (including but not
limited to the grant of rights contained in Section 5) or if such proposed
assignee is a competitor of Healtheon.
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13.4 NO WAIVER. Either party's failure to exercise any right under
this Agreement shall not constitute a waiver of any other terms or conditions of
this Agreement with respect to any other or subsequent breach, nor a waiver by
such party of its right at any time thereafter to require exact and strict
compliance with the terms of this Agreement.
13.5 NOTICES. All notices or other communications which are required
or permitted to be given hereunder shall be in writing and shall be sent to the
address of the recipient set forth below or such other address as the recipient
may designate by notice given in accordance with the provisions of this Section
with copies to:
In the case of Healtheon: In the case of BSC:
Healtheon Corporation Beech Street Corporation
87 Encina Avenue 173 Technology
Palo Alto, California 94301 Irvine, California 92618
Attn: President Attn: President and COO
Copy to: General Counsel Copy to: Chief Financial Officer
Any such notice shall be delivered by either (i) first class registered or
certified airmail, postage prepaid, and shall be deemed to have been served
forty-eight (48) hours after posting; or (ii) express courier service, service
fee prepaid, and shall be effective upon delivery.
13.6 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
13.7 SEVERABILITY. The invalidity of one or more phrases, sentences,
clauses or articles contained in this Agreement shall not affect the remaining
portions of this Agreement or any part thereof; and in the event that one or
more phrases, sentences, clauses or articles shall be declared void or
unenforceable this Agreement shall be amended to include only such portions of
such phrases, sentences, clauses or articles that are not invalid, void or
unenforceable.
13.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, along with the
Exhibits attached hereto, sets forth the entire agreement between the parties
and supersedes any other prior proposals, agreements and representations between
them related to its subject matter, whether written or oral, including but not
limited to the Letter of Intent between the parties. No modifications or
amendments to this Agreement shall be binding upon the parties unless made in
writing and duly executed by authorized officials of both parties.
13.9 ATTORNEYS FEES. The prevailing party in any dispute shall be
entitled to collect from the other party the prevailing party's reasonable
attorneys' fees and costs in connection with the enforcement of this Agreement.
13.10 NON-SOLICITATION OF EMPLOYEES. Neither party shall solicit the
services or employment of any employee or agent of the other party for a period
beginning at the Effective Date and ending on the termination date of this
Agreement, without the prior written consent of the other party. The soliciting
party, who violates this Section 13.10, shall pay to the other party an amount
equal to one (1) year's salary for any solicited employee of the other party, as
liquidated damages and not as a penalty. The amount of annual salary shall be
the annual salary in effect at the date the employee was solicited. For
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purposes of this Section, the term "employee" means current or former
employees of the other party who were employed by the other party at any time
during the period beginning on the Effective Date and ending on the date on
which the nonsolicitation period above terminates. Initiation by an
individual of contact regarding employment or response by an individual to an
advertisement or other generally available notice, shall not constitute
solicitation.
13.11 BANKRUPTCY. The parties agree that the Agreement and any related
agreements are contracts under which Healtheon is a licensor of rights to
intellectual property within the scope of Section 101 of the United States
Bankruptcy Code and that BSC shall have all the rights of a licensee set forth
in Section 365(n) of the Bankruptcy Code. Upon the commencement of a bankruptcy
petition involving either party, the other party shall be entitled to retain and
may fully exercise all rights and licenses available under the Bankruptcy Code.
13.12 USE OF NAME. Neither party shall use the name of the other party,
or refer to the other party, directly or indirectly, in any advertising, sales
presentation, news release, information provided to any profession or trade
publication, or any other promotional or informational material, for any purpose
whatsoever, or in any manner indicate any endorsement or support of any product,
without such party's prior written approval.
13.13 RESIDUAL INFORMATION. Without prejudice to either party's
proprietary rights, neither party shall be liable for using general ideas,
concepts and know-how that may be gained as a result of exposure to or contact
with the other party or its materials.
13.14 ESCROW. Healtheon agrees that it will put the Healtheon Platform
Software and the Developed Applications, as they are developed, in escrow with
an independent escrow agent. The escrow agreement will be on terms and
conditions which are mutually agreeable to parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first written above.
Healtheon Corporation Beech Street Corporation
By: /s/ By: /s/
-------------------------------- --------------------------------
Title: President & CEO Title: President & CEO
----------------------------- -----------------------------
Date: 12/15/97 Date: 12/15/97
-------------------------------- --------------------------------
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EXHIBIT A
SERVICES
Healtheon will operate and maintain BSC's information technology infrastructure
and data processing functionality and related services, including the following
types of services, as necessary and agreed to by the parties:
- maintain hardware operations
- maintain software infrastructure
- maintain data network(s)
- desktop computing
- provide internal and external technical support
- provide project planning and management
- software installation
- hardware installation
- provide user technical support
- provide user training
- provide IT personnel management services
- provide IT consulting services
- provide custom software solution design and development services
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EXHIBIT B
DEVELOPMENT WORK OVERVIEW
Healtheon shall provide an engineering team staffed with up to forty engineers
by December 31, 1998 to perform the general development tasks set forth below (
the "Development Team"). The Development Team will begin staffing during
January, 1998 and is anticipated to be fully staffed by December 31, 1998.
Unless otherwise agreed to by the parties, the Development Team will remain
fully staffed during calendar years 1999, 2000 and 2001 and will reduce its
staffing during calendar year 2002, depending upon the resources need to fulfill
the Development Work in accordance with the project plans which are developed by
the parties pursuant to Section 2.2. In the event that the applicable project
plans, as they are agreed to by the parties pursuant to Section 2.2, require
additional personnel resources, the parties will revise the Development Team
staffing commitments hereunder. The Development Team will develop the following
types of internet-based solutions, but not limited to, with the objective of
creating a Network Computing PPO/Managed Care capability:
- - Claims Repricing
- - Integrated Provider Management System
- - Demand Management(Personal Health Management)
- - Interfaces to internal and external systems (which are not "custom
development")
Phase 1 of the Development Work will consist of developing appropriate Project
Plans and related design specifications and cost estimates to be approved by
Management Committee. The work products of this phase will consist of:
1. An overall Project Plan;
2. Specific Project Plans and general specifications for Claims
Repricing and Integrated Provider Management; and
3. General specifications for the Demand Management service and
internet integration of the Demand Management service.
Phase 1 is anticipated to take approximately sixty work days to complete with
interim deliverables as tasks are completed and submitted to the Management
Committee for approval.
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EXHIBIT C
THIRD-PARTY TECHNOLOGY AND SOFTWARE
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EXHIBIT D
FEES AND EXPENSES
1. FEES AND EXPENSE FOR SERVICES AND "CUSTOM DEVELOPMENT" WORK.
[ * ] of the "costs" incurred by Healtheon which are associated
with performing the Services and any "custom" development work performed on
behalf of BSC.
For the purposes of this Agreement, "Custom" development work shall mean
any development work performed to meet BSC's own specifications which is not
anticipated to be reusable for other Healtheon clients.
2. FEES AND EXPENSE FOR DEVELOPMENT WORK FOR THE DEVELOPED APPLICATIONS
[ * ] of the "costs" incurred by Healtheon which are associated
with developing the Developed Applications.
3. DEFINITION OF "COST."
For the purposes of this Agreement "cost" shall be defined as follows:
A. For employees/contractors assigned to perform the Services and/or
Development Work on a full-time basis, "cost" will include direct expenses
(such as salary, benefits, recruiting, consulting, travel, etc.), support
expenses (rent, phone, computing, office expenses) and allocated expenses
(such as management, administration, other overhead cost, etc.). The
average hourly loaded cost per employee is currently approximately
[ * ] per hour.
B. For Healtheon's employees that are not assigned to perform the
Services and/or Development Work on a full-time basis, they will charge their
time performing or supporting the Services and/or Development Work based on a
set rate, which is subject to change based on the cost structure of Healtheon.
The initial rates are :-
Level 1 [ * ] per hour
Level 2 [ * ] per hour
Level 3 [ * ] per hour
C. For Healtheon's employees that are not generally assigned to perform
the Services and/or Development Work on a regular basis, they will charge their
time providing short term consulting services to this project based on a reduced
standard consulting rate. The current rates, [ * ] are :-
Level 1 [ * ] per hour
Level 2 [ * ] per hour
Level 3 [ * ] per hour
Cost for additional capital equipment or computer processing needed to perform
the Services or Development Work will be invoiced separately.
[ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
SERVICES, DEVELOPMENT AND LICENSE AGREEMENT
This Agreement made this 30th day of September, 1997 (the "Effective
Date"), is by and between Healtheon Corporation, a Delaware corporation with
offices at 87 Encina Ave., Palo Alto, CA 94301 ("Healtheon") and Brown &
Toland Physician Services Organization, with offices at 1388 Sutter Street,
Suite 400, San Francisco, CA 94109 ("B&T").
WHEREAS, the parties have agreed to form an alliance to address the
information technology needs of B&T, develop new applications designed to
address the needs of physician practice groups, and pursue other ventures
which may be of mutual interest to the parties. The parties hereby agree as
follows:
1. DEFINITIONS.
1.1 "ADDITIONAL APPLICATIONS" shall mean those applications which are
developed by Healtheon, but excluding the Developed Applications, which are
designed to run on the Healtheon Platform.
1.2 "BTH DIVISION" shall mean the division of Healtheon which shall
be organized to perform the Services hereunder.
1.3 "B&T SERVICE" shall mean B&T's physician practice management
services, including the practice management services listed on Exhibit A.
1.4 "DEVELOPED APPLICATIONS" shall mean those applications and any
improvements thereto which are developed by Healtheon hereunder and which are
designed to run on the Healtheon Platform.
1.5 "DEVELOPMENT WORK" shall mean the work to be performed hereunder
by Healtheon to develop the Developed Applications.
1.6 "END USER" shall mean any employee, partner, agent or other
representative of a Physician Group who is authorized to access and use the
B&T Service.
1.7 "HEALTHEON PLATFORM" shall mean the Healtheon Platform Software,
as well as certain industry standard software applications, tools, and
processes which provides the operating environment which enables the use of
Healtheon developed applications as part of an on-line service which is
accessible through the Internet by using industry standard web browsers.
1.8 "HEALTHEON PLATFORM SOFTWARE" shall mean the proprietary
operating system and other software which has been developed by Healtheon
which is part of the operating system of the Healtheon Platform.
1.9 "PHYSICIAN GROUPS" shall mean those physician practice groups for
which B&T provides the B&T Service.
1.10 "SERVICES" shall mean those information technology services
described on Exhibit B.
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2. PERFORMANCE OF THE SERVICES AND THE DEVELOPMENT WORK
2.1 PERFORMANCE OF THE SERVICES. Healtheon, through personnel assigned
to its BTH Division, shall perform the Services at certain sites controlled by
B&T and/or Healtheon. The initial scope of the Services is set forth as Exhibit
B. Exhibit B may be amended with the written consent of the parties. Healtheon
shall perform the Services in accordance with the guidelines set forth in
Exhibit B.
2.2 PERFORMANCE OF THE DEVELOPMENT WORK. Healtheon shall design,
develop and complete the Developed Applications. The specifications for each
Developed Application shall be developed jointly and mutually approved by the
parties. In conjunction with the development of each set of specifications, the
parties shall jointly develop a mutually agreeable detailed project plan. Such
project plan shall describe, in a degree of detail reasonably satisfactory to
the parties, all tasks and responsibilities required for the successful and
timely completion of the development and delivery of the applicable Developed
Applications.
3. PROJECT MANAGEMENT
3.1 PERSONNEL RESOURCES. Healtheon shall commit the number of qualified
and experienced personnel which are necessary to perform its obligations under
this Agreement and as further outlined in the project plan(s). Healtheon shall
have the sole right and obligation to hire, supervise, manage, contract, direct,
procure, perform or cause to be performed all work to be performed by Healtheon
and its personnel hereunder. Healtheon may engage third parties to render
services in connection with the performance of the Services and/or Development
Work contemplated hereunder.
3.2 MANAGEMENT BOARD. The parties shall establish a project executive
committee consisting of three (3) senior level employees from each party (the
"Management Board"). The Management Board shall have overall project oversight
responsibility and management, shall establish appropriate project leadership,
and shall be responsible for resolving any matters arising under this Agreement
and the Services and Development Work contemplated hereunder.
3.3 STATUS MEETINGS. The parties shall conduct status meetings on a
monthly basis detailing the performance of the Services and Development Work
during the period and the work planned to be performed during the upcoming four
(4) week period.
3.4 CHANGES TO SERVICES, DEVELOPMENT WORK AND PROJECT PLAN. The scope
of the Services, the Development Work and the project plans shall not be changed
in any material respect without the mutual written agreement of the parties,
which agreement shall not be unreasonably withheld.
4. OWNERSHIP AND LICENSE RIGHTS.
4.1 OWNERSHIP. B&T acknowledges and agrees that all of the work product
produced or developed by Healtheon in connection with Healtheon's performance of
the Services and/or Development Work to be provided hereunder, including, but
not limited to, all technology of any nature whatsoever, all notes, records,
drawings, designs, inventions, improvements, developments, discoveries, trade
secrets and any copyrightable material, including but not limited, to the
Developed Applications, and all patentable inventions, conceived, made or
discovered by Healtheon, solely or in collaboration with others, during the
period of this Agreement and which relate in any manner to the Services and/or
Development Work to be performed hereunder or which Healtheon may be directed to
undertake or investigate, or which Healtheon may become associated with in
performing the Services and/or the
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Development Work, including any derivative works of any of the foregoing
(collectively the "Work Product"), is the sole property of Healtheon. Subject
only to the license rights to be granted by Healtheon to B&T in Section 5.1,
below, B&T acknowledges and agrees that Healtheon shall have all proprietary
rights in and to the Work Product, including, without limitation, all
copyrights, patents and trade secret rights, all moral rights, all contract and
licensing rights, and all claims and causes of action of any kind with respect
to any of the foregoing, whether now known or hereafter to become known, and
that Healtheon shall have the sole and exclusive right to use, modify and
exploit the Work Product in any manner that Healtheon may choose.
4.2 PROPRIETARY NOTICES. B&T shall not remove or alter any trademark,
trade name, copyright, or other proprietary notices, legends, symbols, or labels
appearing on or in materials pertaining to the Work Product. Each portion of
the Healtheon documentation reproduced by B&T shall include the intellectual
property notice or notices appearing in or on the corresponding portion of such
materials as delivered by Healtheon hereunder.
5. LICENSE AND SERVICE RIGHTS.
5.1 LICENSE RIGHTS. Healtheon grants to B&T a nonexclusive and
nontransferable, fully-paid, right and license, exercisable at B&T's operational
site(s), to: (i) use the Developed Applications, in object code form, as part of
B&T's physician practice management services which are offered to the Physician
Groups; and (ii) use the Work Product (excluding the Developed Applications)
delivered to B&T hereunder in conjunction with the operations of B&T's physician
practice management services. B&T shall not use, sublicense or otherwise
distribute the Work Product, including the Developed Applications, in any other
manner except as expressly stated herein. Notwithstanding the foregoing, nothing
herein shall be construed so as to limit or interfere with B&T's ability to use
the Developed Applications as part of the B&T Service to be offered to Physician
Groups, and to enable access and use by End Users in conjunction with the B&T
Service.
5.2 OPTION TO LICENSE HEALTHEON PLATFORM SOFTWARE. Healtheon hereby
agrees to grant to B&T a nonexclusive and nontransferable, right and license,
exercisable at B&T's operational site(s), to use the Healtheon Platform
Software as part of the Healtheon Platform to be deployed at B&T's primary
operational site(s) to run the Developed Applications (and any Additional
Applications which may be licensed from Healtheon), as part of the B&T
Service to be offered to Physician Groups, and to enable access and use by
End Users in conjunction with the B&T Service. The applicable one-time,
up-front fees for such license(s) shall be [*] net of any third-party royalty
obligations. B&T shall not have the right to use, sublicense or otherwise
distribute the Healtheon Platform Software in any other manner except as
expressly stated herein. Notwithstanding the foregoing, nothing herein shall
be construed so as to limit or interfere with B&T's ability to use the
Developed Applications (and any Additional Applications which may be licensed
from Healtheon) as part of the B&T Service to be offered to Physician Groups,
and to enable access and use by End Users in conjunction with the B&T
Service. B&T shall be solely responsible for the costs associated with
acquiring all third-party hardware and software and implementation services
necessary to deploy the Healtheon Platform at B&T's sites.
5.3 OPTION TO LICENSE ADDITIONAL APPLICATIONS. Healtheon hereby agrees
to grant to B&T a nonexclusive and nontransferable, right and license,
exercisable at B&T's primary operational site(s), to use the Additional
Applications as may be licensed at the option of B&T, as part of the B&T Service
to be offered to Physician Groups, and to enable access to End Users in
conjunction with the B&T Service.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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The one-time up-front fee(s) for such license(s) shall be [*] to each such
Additional Application as may be licensed by B&T, net of any third-party
royalty obligations. B&T shall not use, sublicense or otherwise distribute
the Additional Applications in any other manner except as expressly stated
herein. Notwithstanding the foregoing, nothing herein shall be construed so
as to limit or interfere with B&T's ability to use the Additional
Applications which may be licensed from Healtheon as part of the B&T Service
to be offered to Physician Groups, and to enable access and use by End Users
in conjunction with the B&T Service.
5.4 OPTION TO USE HEALTHEON SERVICE. If, following the completion of
the Developed Applications, B&T does not elect to exercise its license rights
under Section 5.1, Healtheon hereby agrees to enter into a Healtheon Service
Agreement with B&T whereby Healtheon shall provide B&T and its Physician Groups
with access to an on-line service which includes the Developed Applications.
Healtheon shall offer such service to B&T and its Physician Groups at [*].
6. THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS
6.1 THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS. In order to perform the
Services and/or Development Work contemplated hereunder, Healtheon may need to
have access to the third-party technology and software listed on Exhibit C (the
"Third-Party Technology and Software") which is licensed and/or deployed by B&T.
B&T hereby agrees to use its best efforts to obtain, at its own expense, all
necessary consents, licenses and/or assignment which may be necessary in order
for Healtheon to perform the Services and/or Development Work, as contemplated
hereunder. In the event that B&T fails to obtain any such necessary consent,
license or assignment, B&T shall promptly notify Healtheon in writing and the
parties will work together to attempt to find a reasonable accommodation to
allow Healtheon to proceed with the work contemplated hereunder without
violating any third party rights. In the event that the parties cannot find a
reasonable accommodation, neither party shall have any obligation to proceed
with any work which would infringe any third-party proprietary rights.
Healtheon shall use reasonable efforts to cooperate with B&T to assist B&T in
obtain any necessary consents, licenses and/or assignments.
6.2 B&T TECHNOLOGY AND LICENSE RIGHTS. B&T hereby grants to Healtheon
a right and license to use, modify and copy all technology and software owned by
B&T which is necessary for Healtheon to perform its obligations hereunder.
7. FEES AND PAYMENT
7.1 FEES AND EXPENSES, PAYMENT. B&T shall pay Healtheon the Fees and
Expenses, as set forth in Exhibit D for the Services and the Development Work to
be performed hereunder (the "Fees"). Healtheon shall submit invoices to B&T on
a monthly basis for the Fees when due. Invoices shall be due and payable within
ten (10) days after receipt. The Fees may be changed with the written consent
of the parties.
7.2 OTHER EXPENSES. Healtheon shall have sole responsibility for
payment of compensation to its personnel and shall pay and report, for all
personnel assigned to perform services hereunder, federal and state income tax
withholding, social security taxes, and unemployment insurance applicable to
such personnel. Healtheon shall bear sole responsibility for any health or
disability insurance, retirement benefits, or other welfare or pension benefits
(if any) to which its own personnel may be entitled.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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7.3 THIRD-PARTY HARDWARE AND SOFTWARE. In the event that it is
reasonably necessary for Healtheon to purchase or license any third-party
hardware and/or software in order to perform the Services and/or the Development
Work, the Management Board shall determine whether such third-party hardware
and/or software should be purchased and/or licensed by B&T or Healtheon and how
the cost shall be allocated between the parties.
7.4 TAXES. All Fees and payments are exclusive of all taxes, duties or
levies, however designated or computed. B&T shall be responsible for and pay
all taxes upon payments due under this Agreement including, but not limited to,
sales, use, or value-added taxes, duties, withholding taxes and other
assessments now or hereafter imposed on or in connection with this Agreement,
exclusive of taxes based upon Healtheon's net income, except as noted in Section
7.2.
8. CONFIDENTIALITY
8.1 CONFIDENTIAL INFORMATION. The parties acknowledge that in the
course of performing under this Agreement, each party may be exposed to or
acquire information which is proprietary to or confidential to the other party,
its suppliers or customers. Any and all such information of one party in any
form obtained by the other party or its employees, agents, or representatives in
the performance of this Agreement shall be deemed to be confidential and
proprietary information of such party. The parties agree to hold such
information in strict confidence, to only permit use of such information by its
employees and agents having a need to know in connection with performance under
this Agreement, and not to copy, reproduce, sell, assign, license, market,
transfer, give or otherwise disclose the confidential information of the other
party to third parties or to use such information for any purposes whatsoever,
without the express written permission of the other party and to advise each of
their employees, agents, and representatives of their obligations to keep such
information confidential. All such confidential and proprietary information
described herein in whatever form, including but not limited to the Work
Product, is hereinafter collectively referred to as "Confidential Information."
Work Product shall be deemed to be the Confidential Information of Healtheon.
B&T hereby agrees that it will not disclose any Confidential Information of
Healtheon to any person or entity who is not an employee of B&T, without
Healtheon's prior written consent and subject to such third party entering into
a confidentiality agreement with Healtheon in a form acceptable to Healtheon.
8.2 EXCEPTIONS TO CONFIDENTIAL INFORMATION. Notwithstanding the
obligations set forth in Section 8.1 above, the confidentiality obligations of
Healtheon and B&T shall not extend to information that (i) was, as of the time
of its disclosure, or thereafter becomes part of the public domain through a
source other than receiving party; (ii) the receiving party can demonstrate was
known to the receiving party as of the time of its disclosure; (iii) the
receiving party can demonstrate was independently developed by the receiving
party without use of the Confidential Information; or (iv) the receiving party
can demonstrate was subsequently learned from a third party not under a
confidentiality obligation to the providing party. In the event that a
receiving party is required to disclose certain Confidential Information of a
disclosing party pursuant to court order or government authority, the receiving
party shall provide reasonable notice to the disclosing party prior to such
disclosure and shall cooperate with the disclosing party to obtain protection
from such disclosure.
9. REPRESENTATIONS AND WARRANTIES
9.1 WARRANTIES FOR SERVICES AND THE DEVELOPMENT WORK. Healtheon hereby
represents and warrants that (i) each person assigned to perform the Services
and/or the Development Work shall have
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the proper skill, training and background so as to be able to perform the such
Services and/or Development Work in a competent and professional manner and
(ii) all Services and/or Development Work and any work product and other
materials or documentation delivered under this Agreement shall have been
completed in a thorough and professional manner. In the event of a breach of
Healtheon's representations and warranties under this Section 9.1, Healtheon's
sole obligation shall be to promptly correct any defects identified by B&T,
provided that B&T provides Healtheon with written notice within thirty (30) days
of becoming aware of the defective work.
9.2 THIRD-PARTY TECHNOLOGY. B&T hereby represents and warrants that it
will use its best effort to obtain all necessary consents, licenses and/or
assignments with respect to the third-party technology software which is
licensed and/or deployed by B&T and which are necessary in order for Healtheon
to perform the Services and Development Work to be performed hereunder. In the
event that B&T has failed to obtain any necessary consent, license or
assignment, B&T shall have notified Healtheon in writing.
9.3 AUTHORITY. Healtheon and B&T each hereby represents and warrants
to the other that it is duly organized and validly existing under the laws of
the jurisdiction in which it is organized, in good standing therein, and has the
power to enter into this Agreement and to perform its obligations hereunder and,
furthermore, that the performance by it of its obligations under this Agreement
has been duly authorized by all necessary corporate or other action and will not
violate any provision of law or regulation or of any corporate charter or
bylaws.
9.4 NO IMPLIED WARRANTIES. THE WARRANTIES STATED ABOVE IN THIS SECTION
9 ARE THE ONLY WARRANTIES MADE BY EITHER PARTY. HEALTHEON DOES NOT MAKE AND
HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
B&T ACKNOWLEDGES THAT COMPLEX COMPUTER SOFTWARE AND SERVICES, SUCH AS THE
DEVELOPED APPLICATIONS AND THE SERVICES, ARE RARELY FREE OF DEFECTS OR ERRORS
AND HEALTHEON DOES NOT WARRANT THE SAME.
10. LIMITATION OF LIABILITY
10.1 EXCLUSION OF CERTAIN DAMAGES. [*] UNDER NO CIRCUMSTANCES AND
UNDER NO LEGAL THEORY SHALL EITHER PARTY HAVE ANY LIABILITY FOR LOSS OF
PROFITS, CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10.2 LIMITATION OF LIABILITY. [*] IN NO EVENT SHALL EITHER PARTY'S
AGGREGATE LIABILITY FOR ANY MATTER ARISING OUT OF THE SUBJECT MATTER OF THIS
AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEED THE AMOUNT OF THE
FEES PAID FOR THE PARTICULAR SERVICES OR DEVELOPMENT WORK WHICH GAVE RISE TO
SUCH CLAIM UNDER THIS AGREEMENT. The remedies provided herein are the
parties' sole and exclusive remedies.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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11. INDEMNIFICATION
11.1 INDEMNIFICATION. Healtheon agrees to hold harmless and defend B&T
from and against any and all claims, actions, or proceedings, arising out of any
actual or alleged infringement by Healtheon of any copyright or any U.S. patent,
trademark, or trade secret right or other proprietary right, with respect to the
Work Product, as delivered by Healtheon hereunder and used by B&T in accordance
with the terms of this Agreement. B&T agrees to hold harmless and defend
Healtheon from and against any and all claims, actions, or proceedings, arising
out of any actual or alleged infringement by Healtheon of any copyright or any
U.S. patent, trademark, or trade secret right or other proprietary right which
arises out of B&T's failure to obtain any necessary consents, licenses, or
assignments with respect to any third-party technology or software which has
been licensed and/or deployed by B&T and which is necessary in order for
Healtheon to perform its obligations hereunder ("B&T Third-Party Technology
Rights").
11.2 LIMITATIONS. Healtheon shall have no indemnity obligation for
claims resulting from or alleged to result from (i) development work performed
by Healtheon in compliance with B&T's specifications where Healtheon's method of
compliance has been compelled by the terms of B&T's specifications; or (ii)
B&T's use of the Work Product in combination with any hardware or software not
furnished by or authorized by Healtheon hereunder, if such combination is the
cause of such claim, or any modifications which have been made by B&T. In
addition, Healtheon shall have no indemnity obligation for claims of
infringement resulting or alleged to result from B&T's failure within a
reasonable time frame to implement any replacement or modification which
conforms to the requirements of Section 11.4 herein. B&T shall have no indemnity
obligations for claims resulting from or alleged to result from Healtheon's
breach of any B&T Third-Party Technology Rights where appropriate consents,
licenses and/or assignments were obtained and Healtheon failed to adhere to the
terms of applicable consents, licenses and/or assignments.
11.3 PAYMENT AND COOPERATION. Subject to the limitations set forth in
Section 11.2 above, the Indemnifying Party shall pay all damages settlements,
expenses, costs and reasonable attorney's fees, incurred by the Indemnified
Party arising out of the matters set forth in Section 11.1 provided that such
payment shall be contingent on: (i) prompt notice to the Indemnifying Party in
writing of such claim to enable it to defend or mitigate the same; (ii)
cooperation by the Indemnified Party with the Indemnifying Party in the defense
and or settlement thereof, at the Indemnifying Party's expense; and (iii)
allowing the Indemnifying Party to control the defense and all related
settlement negotiations.
11.4 REMEDY. If, in the event of an infringement action pertaining to
the Work Product and B&T's use of the Work Product is disrupted, Healtheon
shall, at its option, (i) provide B&T with access to software which is
functionally equivalent to the infringing elements of the Work Product, without
additional charge; (ii) modify the infringing portions of the Work Product to
avoid the infringement; or (iii) obtain a license for B&T to continue use of the
Work Product for the term of this Agreement and pay for any additional fee
required for such license, subject to B&T's approval, which shall not be
unreasonably withheld.
11.5 LIMITATIONS. SECTION 11 SETS FORTH THE PARTIES' SOLE OBLIGATION,
AND THE SOLE RECOURSE AGAINST THE OTHER PARTY IN THE EVENT OF ANY CLAIM OF
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
-7-
<PAGE>
12. TERM AND TERMINATION
12.1. TERM. This Agreement shall continue for a fixed term of three (3)
years from the date hereof unless terminated earlier under the provisions of
this Section 12 or by the mutual written agreement of the parties.
Notwithstanding the foregoing, the licenses granted in Section 5.1 shall
continue for a term of [*] from the Effective Date and shall renew
automatically for successive additional [*] terms unless terminated earlier
pursuant to Section 12.3 or 12.4, or by the mutual written consent of the
parties.
12.2 TERMINATION FOR CONVENIENCE. Either party may terminate this
Agreement upon one hundred twenty days (120) prior written notice to the other
for any reason.
12.3 TERMINATION BY EITHER PARTY FOR DEFAULT. If either party defaults
in the performance of any material provision of this Agreement, then the
non-defaulting party may give written notice to the defaulting party that if the
default is not cured within thirty (30) days of such notice the Agreement will
be terminated. If the non-defaulting party gives such notice and the default is
not cured during the thirty (30) day period, then the Agreement shall
automatically terminate at the end of that period.
12.4 INSOLVENCY. Either party may terminate this Agreement by written
notice to the other, and may regard the defaulting party as in default of this
Agreement, if the defaulting party becomes insolvent, makes a general assignment
for the benefit of creditors, suffers or permits the appointment of a receiver
for its business or assets, becomes subject to any proceeding under any
bankruptcy or insolvency law whether domestic or foreign, or has wound up or
liquidated, voluntarily or otherwise.
12.5 EFFECT OF TERMINATION. The provisions of Sections 7(with respect to
Fees and other payments which were due and payable as of the date of
termination), 4, 8, 10, 11, and 13 (to the extent applicable) shall survive the
termination of this Agreement for any reason. All other rights and obligations
of the parties shall cease upon termination of this Agreement. In the event of
a termination, neither party shall be entitled to any refund of the fees paid or
cost incurred for the development performed hereunder. Provided that this
Agreement is not terminated pursuant to Section 12.4 pursuant to B&T's
insolvency, upon termination, Healtheon shall deliver to B&T a copy of (i) each
Developed Application which has been completed as of the date of termination, in
object code form, and the related user documentation, and (ii) all portions of
Developed Applications which were under development but not yet completed as of
the date of termination, in object code form, and the related user
documentation, if any. Materials delivered pursuant to Section 12.5(ii) shall
be delivered on an "as-is" basis.
12.6 RETURN OF MATERIALS. Within thirty (30) days after the termination
of this Agreement, each party shall return to the other, all Confidential
Information, and other material of any kind which is the property of the other
party.
13. GENERAL
13.1 NO EXCLUSIVITY OR RESTRICTION ON OTHER ACTIVITY. Except as
expressly set forth in this Agreement, nothing herein shall preclude either
party from entering into agreements to obtain similar services or development
work from third parties or from providing similar services or development work
to third parties.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-8-
<PAGE>
13.2 RELATIONSHIP OF PARTIES. The relationship of the parties shall be
that of independent contractors. Neither party will represent that it has any
authority to assume or create any obligation, express or implied, on behalf of
the other party, or to represent the other party as agent, employee, or in any
other capacity, except as specifically provided herein.
13.3 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding on and
inure to the benefit of the respective parties and their permitted successors
and assigns. Neither party shall not transfer, assign, sublicense or subcontract
any right or obligation hereunder, except as expressly provided herein.
13.4 NO WAIVER. Either party's failure to exercise any right under this
Agreement shall not constitute a waiver of any other terms or conditions of this
Agreement with respect to any other or subsequent breach, nor a waiver by such
party of its right at any time thereafter to require exact and strict compliance
with the terms of this Agreement.
13.5 NOTICES. All notices or other communications which are required or
permitted to be given hereunder shall be in writing and shall be sent to the
address of the recipient set forth below or such other address as the recipient
may designate by notice given in accordance with the provisions of this Section
with copies to:
In the case of Healtheon: In the case of B&T:
Healtheon Corporation Brown & Toland
87 Encina Avenue 1388 Sutter Street, Suite 400
Palo Alto, California 94302 San Francisco, CA 94109
Attn: President Attn: President
Copy to: General Counsel Copy to: General Counsel
Any such notice shall be delivered by either (i) first class registered or
certified airmail, postage prepaid, and shall be deemed to have been served
forty-eight (48) hours after posting; or (ii) express courier service, service
fee prepaid, and shall be effective upon delivery.
13.6 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
13.7 SEVERABILITY. The invalidity of one or more phrases, sentences,
clauses or articles contained in this Agreement shall not affect the remaining
portions of this Agreement or any part thereof; and in the event that one or
more phrases, sentences, clauses or articles shall be declared void or
unenforceable this Agreement shall be amended to include only such portions of
such phrases, sentences, clauses or articles that are not invalid, void or
unenforceable.
13.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, along with the
Exhibits attached hereto, sets forth the entire agreement between the parties
and supersedes any other prior proposals, agreements and representations between
them related to its subject matter, whether written or oral. No modifications
or amendments to this Agreement shall be binding upon the parties unless made in
writing and duly executed by authorized officials of both parties.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first written above.
Healtheon Corporation Brown & Toland Physician
Services Organization
By: /s/ By: /s/
--------------------------------- -------------------------------
Title: President and CEO Title: President
------------------------------ ----------------------------
Date: Date:
------------------------------ ----------------------------
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<PAGE>
EXHIBIT A
B&T SERVICE
"B & T Services" shall mean B & T's physician practice, physician group
practice, and IPA management services which include, but not be limited to, the
following services:
- - Claims processing, adjudication, eligibility, and encounter data
- - Risk pool management
- - Utilization management
- - Authorization and referral management
- - Care management including inpatient and outpatient case management
- - Inpatient physician program management
- - Disease management and wellness programs
- - Provider credentialling
- - Health plan member marketing
- - Provider relations
- - Health plan and provider contracting
- - Quality management
- - Practice management including office management, billing and collections
- - Financial services including accounting, audit, budget, financial
reporting, and taxes
- - Medical group and IPA administration
- - Capitation management
- - Health Plan Member services
which are offered to "Physician Groups.
-11-
<PAGE>
EXHIBIT B
SERVICES
- - Operate, maintain and enhance B&T applications
- - Operate and maintain B&T hardware and software infrastructure, network and
desktop environment
- - Provide technical support to internal and external B&T users
- - Provide support for B&T new site implementations
- project planning and management
- solution design
- installation of hardware and software
- user technical support and training
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<PAGE>
EXHIBIT C
Third-Party Technology and Software
-13-
<PAGE>
EXHIBIT D
FEES AND EXPENSES
1. Fee and Expenses for Services
B&T will pay [*] of all "cost" (as defined below) incurred by Healtheon in
performing the Services.
2. Fee and Expenses for Development Work
B&T will pay [*] of all "cost" (as defined below) incurred by Healtheon in
performing the Development Work.
DEFINITION OF COST
Cost will include Healtheon's "fully loaded" cost (which include payroll,
benefit, support services, corporate overhead and other appropriate expenses)
for all full time employees assigned to the BTH Division, and all direct
expenses (consultants, contractors, recruiting expenses and fees, outside
services, travel, etc.). For Healtheon's employees that are not assigned full
time to the Division, they will charged their time performing or supporting the
Services based on a set rate, which is subject to change based on the cost
structure of Healtheon. The initial rates are:-
Level 1 [*] per hour
Level 2 [*] per hour
Level 3 [*] per hour
For Healtheon's employees that are not involved in this project, they will
charge their time providing short term consulting services to this project or
B&T based on [*]. The current rates are :-
Level 1 [*] per hour
Level 2 [*] per hour
Level 3 [*] per hour
Cost for additional capital equipment or computer processing needed to perform
the Services or Development Work will be paid by B&T.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-14-
<PAGE>
HEALTHEON CORPORATION
SECURITIES PURCHASE AGREEMENT
INITIAL CLOSING:
JANUARY 26, 1996
SUBSEQUENT CLOSING:
August 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - Authorization and Sale of Stock. . . . . . . . . . . . 1
1.1 Authorization . . . . . . . . . . . . . . . . . . . . . 1
1.2 Sale of Stock . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 - Closing Date; Delivery . . . . . . . . . . . . . . . . 1
2.1 Closing Date. . . . . . . . . . . . . . . . . . . . . . 1
2.2 Subsequent Closing. . . . . . . . . . . . . . . . . . . 2
2.3 Delivery. . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3 - Representations and Warranties of the Company. . . . . 2
3.1 Organization and Standing; Certificate and Bylaws . . . 2
3.2 Corporate Power . . . . . . . . . . . . . . . . . . . . 2
3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 3
3.4 Capitalization. . . . . . . . . . . . . . . . . . . . . 3
3.5 Authorization . . . . . . . . . . . . . . . . . . . . . 3
3.6 Title to Properties and Assets; Liens, etc. . . . . . . 3
3.7 Financial Statements. . . . . . . . . . . . . . . . . . 4
3.8 Activities Since Balance Sheet Date . . . . . . . . . . 4
3.9 Tax Returns and Payments. . . . . . . . . . . . . . . . 5
3.10 Patents, Trademarks, etc. . . . . . . . . . . . . . . . 5
3.11 Material Contracts and Commitments. . . . . . . . . . . 5
3.12 Compliance with Other Instruments, None
Burdensome, etc. . . . . . . . . . . . . . . . . . . . 6
3.13 Litigation, etc.. . . . . . . . . . . . . . . . . . . . 6
3.14 Employees . . . . . . . . . . . . . . . . . . . . . . . 6
3.15 Registration Rights . . . . . . . . . . . . . . . . . . 6
3.16 Governmental Consent, etc.. . . . . . . . . . . . . . . 6
3.17 Brokers or Finders. . . . . . . . . . . . . . . . . . . 7
3.18 Disclosures . . . . . . . . . . . . . . . . . . . . . . 7
3.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4 - Representations and Warranties of the Investors. . . . 7
4.1 Authorization . . . . . . . . . . . . . . . . . . . . . 7
4.2 Purchase Entirely for Own Account . . . . . . . . . . . 7
4.3 Investment Experience . . . . . . . . . . . . . . . . . 8
4.4 Accredited Investor . . . . . . . . . . . . . . . . . . 8
4.5 No Public Market. . . . . . . . . . . . . . . . . . . . 8
4.6 Receipt of Information. . . . . . . . . . . . . . . . . 8
4.7 Restricted Securities . . . . . . . . . . . . . . . . . 8
4.8 Further Limitations on Disposition. . . . . . . . . . . 9
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.9 Legends . . . . . . . . . . . . . . . . . . . . . . . . 9
4.10 Government Consents . . . . . . . . . . . . . . . . . .10
SECTION 5 - Conditions to Closing of Investors . . . . . . . . . .10
5.1 Representations and Warranties Correct. . . . . . . . .10
5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . .10
5.3 Opinion of Company's Counsel. . . . . . . . . . . . . .10
5.4 Compliance Certificate. . . . . . . . . . . . . . . . .10
5.5 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . .10
5.6 Board of Directors. . . . . . . . . . . . . . . . . . .10
5.7 Restated Certificate. . . . . . . . . . . . . . . . . .11
5.8 No Material Adverse Change. . . . . . . . . . . . . . .11
5.9 Investors' Rights Agreement . . . . . . . . . . . . . .11
SECTION 6 - Conditions to Closing of Company . . . . . . . . . . .11
6.1 Representations . . . . . . . . . . . . . . . . . . . .11
6.2 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . .11
6.3 Restated Certificate. . . . . . . . . . . . . . . . . .11
SECTION 7 - Miscellaneous. . . . . . . . . . . . . . . . . . . . .11
7.1 Governing Law . . . . . . . . . . . . . . . . . . . . .11
7.2 Survival. . . . . . . . . . . . . . . . . . . . . . . .11
7.3 Successors and Assigns. . . . . . . . . . . . . . . . .11
7.4 Entire Agreement; Amendment . . . . . . . . . . . . . .12
7.5 Notices, etc. . . . . . . . . . . . . . . . . . . . . .12
7.6 Delays or Omissions . . . . . . . . . . . . . . . . . .12
7.7 California Corporate Securities Law . . . . . . . . . .12
7.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . .13
7.9 Counterparts. . . . . . . . . . . . . . . . . . . . . .13
7.10 Severability. . . . . . . . . . . . . . . . . . . . . .13
7.11 Gender. . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
-ii-
<PAGE>
EXHIBITS
A. Schedule of Investors
B. Restated Certificate of Incorporation
C. Exceptions to Representations and Warranties of the Company
D. Amended and Restated Investors' Rights Agreement
E. Form of Opinion of Wilson Sonsini Goodrich & Rosati
<PAGE>
HEALTHEON CORPORATION
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
This Amended and Restated Securities Purchase Agreement (the "Agreement")
is made as of August 15, 1996, by and among Healtheon Corporation, a Delaware
corporation (the "Company"), with its principal office at 87 Encina Avenue, Palo
Alto, California 94301, and the persons and entities listed on the Schedule of
Investors attached as Exhibit A hereto (the "Investors").
SECTION 1
AUTHORIZATION AND SALE OF STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up
to 1,000,000 shares of its Common Stock ("Common Stock") and up to 10,285,000
shares of its Series A Preferred Stock ("Series A Preferred"), each having the
rights, restrictions, privileges and preferences as set forth in the Company's
Restated Certificate of Incorporation in the form attached to this Agreement as
Exhibit B (the "Restated Certificate").
1.2 SALE OF STOCK. Subject to the terms and conditions hereof, the
Company will issue and sell to the Investors, and the Investors will buy from
the Company, the number of shares (the "Shares") of Common Stock and Series A
Preferred specified opposite each Investor's name on the Schedule of Investors,
at a cash purchase price of $0.05 per share and $0.50 per share, respectively.
The Company's agreements with each of the Investors are separate agreements, and
the sales of the Shares to each of the Investors are separate sales.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The initial closing of the purchase and sale of the
Shares hereunder (the "Closing") shall be held at 3:00 p.m. on January 26, 1996
or on such later date or dates as the Company and the Investors may agree to
(the date of such Closing being referred to as the "Closing Date"). The place
of the Closing (including the place of delivery to the Investors by the Company
of the certificates evidencing all shares of Common Stock and Series A Preferred
being purchased and the place of payment to the Company by the Investors of the
purchase price therefor) shall be at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California
94304-1050, or such other place as the Investors and the Company may mutually
<PAGE>
agree. The date of any closing of the transactions contemplated by this
Agreement is sometimes also referred to herein as the "Closing Date."
2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion, provide
for deferred closings hereunder (the "Subsequent Closings"), to be held at the
offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California, at such time and dates as the Company may determine (the date of
such Subsequent Closing being referred to as the "Subsequent Closing Date").
The persons entitled to purchase shares of Series A Preferred pursuant to this
Section 2.2 will be limited to those individuals and entities who, based on
their reputations, experience and contacts within the Company's business, the
Board of Directors unanimously believes can contribute to the success of the
Company (the "Friends of the Company"). The Closing(s) for the Friends of the
Company will take place as promptly as possible following the initial Closing
hereunder. The number of shares of Series A Preferred which each such Friend of
the Company shall be entitled to purchase, shall be determined within the sole
discretion of the Company, but in no event shall the total number of shares of
Series A Preferred sold pursuant to this Agreement be more than 10,285,000.
Upon completion of each Subsequent Closing, if any, all additional purchasers of
shares of Series A Preferred shall be considered "Investors" within the meaning
of this Agreement.
2.3 DELIVERY. At the Closing and any Subsequent Closing, the Company will
deliver to each Investor a certificate or certificates representing the number
of Shares designated in column 2 of the Schedule of Investors to be purchased by
each Investor, against payment of the purchase price therefor, by check or wire
transfer payable to the Company, or by cancellation of outstanding indebtedness
from the Company to such Investor, or by a combination thereof, in the amount
specified in column 3 of the Schedule of Investors.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit C attached hereto, the Company hereby
represents and warrants to the Investors as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Company has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted and as proposed to be conducted.
The Company is not qualified to do business as a foreign corporation in any
jurisdiction and such qualification is not presently required.
3.2 CORPORATE POWER. The Company will have at the Closing Date all
requisite corporate power to execute and deliver this Agreement and the Amended
and Restated Investors' Rights Agreement attached hereto as Exhibit D (the
"Investors' Rights Agreement"), to sell and issue the
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<PAGE>
Shares hereunder, to issue the underlying Series A-1 Preferred Stock (the
"Series A-1 Preferred") and Common Stock (together, the "Conversion Stock")
in accordance with the provisions of the Restated Certificate, and to carry
out and perform its obligations under the terms of this Agreement and the
Investors' Rights Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any other
corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company consists
of 23,000,000 shares of Common Stock, 1,000,300 shares of which are issued and
outstanding prior to the Closing, and 11,000,000 shares of Series A Preferred,
10,000,000 shares of which are issued and outstanding prior to the Closing and
11,000,000 shares of Series A-1 Preferred, none of which has been or will be
issued or outstanding prior to the Closing. The Company has reserved
(i) 10,285,000 shares of Series A Preferred for issuance hereunder,
(ii) sufficient shares of Common Stock for issuance upon conversion of the
Series A Preferred and/or Series A-1 Preferred, (iii) 10,285,000 shares of
Series A-1 Preferred for issuance upon conversion of the Series A Preferred,
(iv) 1,000,000 shares of Common Stock for issuance hereunder and (v) 9,000,000
shares of Common Stock for issuance to employees iv) 9,000,000 shares of Common
Stock for issuance to employees and consultants pursuant to the Company's 1996
Stock Plan (of which 3,389,800 shares have been granted prior to the date
hereof). The Series A Preferred and the Series A-1 Preferred shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate. There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of capital stock or other securities of the
Company. Assuming the accuracy of each Investor's representations in Section 4
below, upon issuance, the Shares will have been issued in compliance with all
federal and state securities laws.
3.5 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Investors' Rights
Agreement by the Company, the authorization, sale, issuance and delivery of
the Shares and the Conversion Stock and the performance of the Company's
obligations hereunder has been taken or will be taken prior to the Closing.
This Agreement and the Investors' Rights Agreement, when executed and
delivered by the Company, shall constitute the valid and binding obligations
of the Company enforceable in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, and other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal and
state securities laws. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid
and nonassessable; the Series A-1 Preferred issuable upon conversion of the
Series A Preferred has been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement, will be validly issued and
will be fully paid and nonassessable and the Common Stock issuable upon
conversion of the Series A Preferred and/or the Series A-1 Preferred has been
duly and validly reserved and, when issued in compliance with the provisions
of this Agreement, will be validly issued and will be fully
-3-
<PAGE>
paid and nonassessable, and free of any liens or encumbrances (assuming the
Investors take the Shares with no notice thereof) other than any liens or
encumbrances created by or imposed upon the holders; provided, however, that
the Shares and the Conversion Stock may be subject to restrictions on
transfer under state or federal securities laws and restrictions set forth
herein.
3.6 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and
valid title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business.
3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor its
unaudited financial statements (balance sheet and income statement) at June 30,
1996 and for the period from inception through June 30, 1996 (the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the Financial
Statements may not contain all footnotes required by generally accepted
principles and are subject to normal year end adjustments. The Financial
Statements fairly present the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein. Except as set
forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 1996, which individually or in the
aggregate are not material to the financial condition or operating results of
the Company, and (ii) obligations not required under generally accepted
accounting principles to be reflected in the Financial Statements.
3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance
sheet dated June 30, 1996 there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, or business of the Company;
(b) any waiver by the Company of a valuable right or of a material
debt owed to it;
(c) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject, except for changes or amendments which are expressly provided for or
disclosed in this Agreement;
(d) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances or other advances made in the ordinary
course of business;
-4-
<PAGE>
(e) any declaration, setting aside of payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any such stock by the Company;
(f) any incurrance of indebtedness for money borrowed individually in
excess of $50,000 or in excess of $100,000 in the aggregate;
(g) any material change in any compensation arrangement or agreement
with any employee;
(h) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(i) any resignation or termination of employment of any key officer
of the Company; and
(j) to the Company's knowledge, any other event or condition or any
character which would be reasonably likely to materially and adversely affect
the assets, properties, financial condition, operating results or business of
the Company;
3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports when and as required by law and has never been audited by
any state or federal taxing authority. All tax returns and reports of the
Company, if applicable, are true and correct in all material respects.
3.10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or prior
to the Closing will own or have the right, to use, free and clear of all liens,
charges, claims and restrictions, all patents, trademarks, service marks, trade
names, copyrights, licenses and rights necessary to its business as now
conducted, and is not, to the best of its knowledge, infringing upon or
otherwise acting adversely to the right or claimed right of any person under or
with respect to any of the foregoing. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. The Company has not received any written communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any patent, trademark, service mark, trade name,
copyright or trade secret or other proprietary right of any other person or
entity. The Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument
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under which any of such employees is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company.
3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to the
best knowledge of the Company, any third party is in default under any material
contract, agreement or instrument to which the Company is a party.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company
is not in violation of any term of the Restated Certificate of Incorporation or
Bylaws, or in any material respect of any term or provision of any material
mortgage, indenture, contract, agreement or instrument to which it is a party or
by which it is bound, and to the best of its knowledge, is not in violation of
any order, statute, rule or regulation applicable to the Company, which
violation reasonably would be expected to have a material adverse effect on the
Company's business or financial condition. The execution, delivery and
performance of and compliance with this Agreement, and the issuance of the
Shares and the Conversion Stock, have not resulted and will not result in any
violation of, or conflict with, or constitute a default under, or result in the
creation of, any material mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Company.
3.13 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
written threat thereof), which, either in any case or in the aggregate,
reasonably would be expected to result in any material adverse change in the
business or financial condition of the Company or any of its properties or
assets, or in any material impairment of the right or ability of the Company to
carry on its business as now conducted, and none which questions the validity of
this Agreement or the Investors' Rights Agreement or any action taken or to be
taken in connection herewith. The Company is not a party to, or to the best of
its knowledge named in any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other party because of
the nature of the business conducted or to be conducted by the Company. The
Company does not have any collective bargaining agreements covering any of its
employees.
3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights
Agreement, the Company is not currently under any obligation to register under
the Securities Act of 1933, as amended (the "Act") any of its presently
outstanding securities or any of its securities which may hereafter be issued.
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3.16 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of, or designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement, or the offer, sale or issuance of the Shares and the
Conversion Stock, or the consummation of any other transaction contemplated
hereby, except (a) filing of the Restated Certificate in the office of the
Secretary of State of the State of Delaware, and (b) qualification (or taking
such action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Shares and the Conversion Stock under
the California Corporate Securities Law and other applicable Blue Sky laws,
which filing and qualification, if required, will be accomplished in a timely
manner prior to or promptly upon completion of the Closing.
3.17 BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3.18 DISCLOSURES. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate
furnished to the Investors pursuant to this Agreement, contains any untrue
statement of a material fact or, when taken together, omits to state a
material fact necessary to make the statements made herein, in light of the
circumstances under which they were made, not misleading. However, as to any
projections furnished to the Investors, such projections were prepared in
good faith by the Company, but the Company makes no representation or
warranty that it will be able to achieve such projections. The Company has
fully provided each Investor with all the information that such Investor has
requested for deciding whether to purchase the Shares.
3.19 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company, and believes it
can obtain without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses or other similar authority.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants to the Company with respect
to its purchase of the Shares as follows:
4.1 AUTHORIZATION. Each of this Agreement and the Investors' Right
Agreement, when executed and delivered by the Investor, will constitute the
Investor's valid and legally binding obligation, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement
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of creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which
by the Investor's execution of this Agreement the Investor hereby confirms,
that the Common Stock or Series A Preferred to be received by the Investor
and the Common Stock and Series A-1 Preferred issuable upon conversion of the
Series A Preferred (collectively, the "Securities") will be acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, the
Investor further represents that the Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to
any of the Securities. The Investor represents that it has the full power
and authority to enter into this Agreement.
4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the investment in the Common Stock or
Series A Preferred. If other than an individual, the Investor also represents
it has not been organized solely for the purpose of acquiring the Common
Stock or Series A Preferred, or if the Investor has been organized solely for
the purpose of acquiring the Common Stock or Series A Preferred, that all of
the equity owners of the Investor are "accredited investors" as defined below.
4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
4.5 NO PUBLIC MARKET. Each Investor understands that no public market
now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Shares.
4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed
this Agreement and all Exhibits thereto; it, its attorney and its accountant
have had access to, and an opportunity to review all documents and other
materials requested of, the Company; it and they have been given an
opportunity to ask any and all questions of, and receive answers from, the
Company concerning the terms and conditions of the offering and to obtain all
information it or they believe necessary or appropriate to evaluate the
suitability of an investment in the Common Stock or Series A Preferred; and,
in evaluating the suitability of an investment in the Common Stock or Series
A Preferred, it and they have not relied upon any representations or other
information (whether oral or written) other than as set forth in the
documents and answers referred to above.
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4.7 RESTRICTED SECURITIES. The Investor understands that the
Securities it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In
addition, the Investor represents that it is familiar with Rule 144
promulgated under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Investor further agrees not to make
any disposition of all or any portion of the Securities unless:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement;
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with either (i) an
unqualified written opinion of counsel who shall be reasonably satisfactory
to the Company addressed to the Company and reasonably satisfactory in form
and substance to the Company's counsel to the effect that the proposed
transfer may be effected without registration under the Act or (ii) a "No
Action" letter from the Securities and Exchange Commission to the effect that
the transfer of such securities without registration will not result in a
recommendation by the staff of the Securities and Exchange Commission that
action be taken with respect thereto, whereupon the holder of such Securities
shall be entitled to transfer such Securities in accordance with the terms of
the notice delivered by the Holder to the Company; or
(c) The Investor shall have sold, assigned, transferred, pledged
or otherwise disposed of the Securities in a transaction involving the
distribution without consideration of the Securities by the Investor to any
of its partners or retired partners, or to the estate of any of its partners
or retired partners, or in a transaction involving the transfer or
distribution of the Securities by a corporation to any subsidiary, parent or
affiliated corporation of such corporation; provided in each case that the
Investor shall give written notice to the Company of such Investor's
intention to effect such transfer, sale, assignment, pledge or other
disposition. The Investor will cause any such proposed purchaser, assignee,
transferee or pledgee of any Securities held by the Investor to agree to take
and hold such Securities subject to the provisions and upon the conditions
specified in this Agreement.
4.9 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
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SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT."
(b) Any legend required by the laws of the State of Delaware or
the State of California, including any legend required by the California
Department of Corporations.
4.10 GOVERNMENT CONSENTS. Other than securities law filings required to
be made by the Company, no consent, approval or authorization of or
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of the Investor is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby.
SECTION 5
CONDITIONS TO CLOSING OF INVESTORS
The Investors' obligations to purchase the Shares at the Closing or at
any Subsequent Closing are, at the option of each Investor, subject to the
fulfillment on or prior to the Closing Date or at any Subsequent Closing Date
of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date, or the Subsequent Closing Date, as the
case may be, with the same force and effect as if they had been made on and
as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
or the Subsequent Closing Date, as the case may be, shall have been performed
or complied with in all material respects.
5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to
the Company, an opinion addressed to them, dated the Closing Date or the
Subsequent Closing Date, as the case may be, in substantially the form
attached hereto as Exhibit E.
5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investors a certificate executed by the President of the Company, dated the
Closing Date or the Subsequent Closing Date, as the case may be, and
certifying to the fulfillment of the conditions specified in Sections 5.1,
5.2, and 5.8 of this Agreement, and that he has made, or caused to be made,
such investigations as he deemed necessary in order to permit him to verify
the accuracy of the information set forth in such certificate.
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5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Shares and the Conversion Stock.
5.6 BOARD OF DIRECTORS. On or before the Closing, the Bylaws of the
Company shall provide for a flexible number of directors from three to five
and fixing the current number of directors at four. The Board of Directors
shall at the Closing consist of Jim Clark, Brook Byers, Hugh Reinhoff and
David Schnell.
5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been
filed with the Secretary of State of the State of Delaware.
5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the Company's business or financial condition.
5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall
have entered into the Investors' Rights Agreement in substantially the form
attached hereto as Exhibit D.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing or
at any Subsequent Closing, is at the option of the Company, subject to the
fulfillment of the following conditions:
6.1 REPRESENTATIONS. The representations made by the Investors in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date or the Subsequent Closing Date, as the case may
be.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Shares and the Conversion Stock.
6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been
filed with the Secretary of State of the State of Delaware.
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts
of laws principles thereof.
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7.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Investor
and the closing of the transactions contemplated hereby.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto, provided, however, that the rights of a Investor to purchase Shares
shall not be assignable without the written consent of the Company.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged, or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge, or termination is sought; provided, however, that holders of a
majority of the shares of Common Stock issued or issuable upon conversion of
the Shares and/or the Series A-1 Preferred and (whether or not converted) not
resold to the public may waive or amend, on behalf of all Investors, any
provisions hereof benefiting Investors in respect of the Shares.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Investor, at such
Investor's address set forth in Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any
other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the
Company, one copy should be sent to its address set forth on the cover page
of this Agreement and addressed to the attention of the Corporate Secretary,
or at such other address as the Company shall have furnished to the Investors.
7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right,
power or remedy of such holder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
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7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS
AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING
AVAILABLE.
7.8 EXPENSES. The Company and the Investors shall each bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby except that, assuming a successful completion of the
offering the Company will pay at the initial Closing the reasonable legal fees
and reasonable expenses upon receipt of a bill therefor, incurred by one counsel
to the Investors.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.11 GENDER. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
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The foregoing Amended and Restated Securities Purchase Agreement is hereby
executed as of the date first above written.
COMPANY:
HEALTHEON CORPORATION
By: /s/ David Schnell, M.D.
--------------------------------------------
David Schnell, M.D.,
President
Address: 87 Encina Avenue
Palo Alto, CA 94301
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HEALTHEON CORPORATION
SIGNATURE PAGE
TO
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
The undersigned hereby executes and delivers the Amended and Restated Securities
Purchase Agreement (the "Agreement") to which this Signature Page is attached
effective as of the date of the Agreement, which Agreement and Signature Page,
together with all counterparts of said Agreement and Signature Pages of the
other parties named in said Agreement, shall constitute one and the same
document in accordance with the terms of said Agreement.
--------------------------------------------
Name of Stockholder
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
<PAGE>
HEALTHEON CORPORATION
AMENDED AND RESTATED
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
OCTOBER 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - Authorization and Sale of Stock.................................. 1
1.1 Authorization........................................................... 1
1.2 Sale of Stock........................................................... 1
SECTION 2 - Closing Date; Delivery........................................... 1
2.1 Closing Date............................................................ 1
2.2 Subsequent Closing...................................................... 1
2.3 Delivery................................................................ 2
SECTION 3 - Representations and Warranties of the Company.................... 2
3.1 Organization and Standing; Certificate and Bylaws....................... 2
3.2 Corporate Power......................................................... 2
3.3 Subsidiaries............................................................ 2
3.4 Capitalization.......................................................... 2
3.5 Authorization........................................................... 3
3.6 Title to Properties and Assets; Liens, etc.............................. 3
3.7 Financial Statements.................................................... 4
3.8 Activities Since Balance Sheet Date..................................... 4
3.9 Tax Returns and Payments................................................ 5
3.10 Patents, Trademarks, etc............................................... 5
3.11 Material Contracts and Commitments..................................... 5
3.12 Compliance with Other Instruments, None Burdensome, etc................ 5
3.13 Litigation, etc........................................................ 6
3.14 Employees.............................................................. 6
3.15 Registration Rights.................................................... 6
3.16 Governmental Consent, etc.............................................. 6
3.17 Brokers or Finders..................................................... 7
3.18 Disclosures............................................................ 7
3.19 Permits................................................................ 7
SECTION 4 - Representations and Warranties of the Investors.................. 7
4.1 Authorization........................................................... 7
4.2 Purchase Entirely for Own Account....................................... 7
4.3 Investment Experience................................................... 8
4.4 Accredited Investor..................................................... 8
</TABLE>
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<TABLE>
<S> <C>
4.5 No Public Market........................................................ 8
4.6 Receipt of Information.................................................. 8
4.7 Restricted Securities................................................... 8
4.8 Further Limitations on Disposition...................................... 8
4.9 Legends................................................................. 9
4.10 Government Consents.................................................... 9
4.11 Waiver of Right of First Refusal...................................... 10
SECTION 5 - Conditions to Closing of Investors.............................. 10
5.1 Representations and Warranties Correct................................. 10
5.2 Covenants.............................................................. 10
5.3 Opinion of Company's Counsel........................................... 10
5.4 Compliance Certificate................................................. 10
5.5 Blue Sky............................................................... 10
5.6 Board of Directors..................................................... 10
5.7 Restated Certificate................................................... 10
5.8 No Material Adverse Change............................................. 11
5.9 Investors' Rights Agreement............................................ 11
SECTION 6 - Conditions to Closing of Company................................ 11
6.1 Representations........................................................ 11
6.2 Blue Sky............................................................... 11
6.3 Restated Certificate................................................... 11
SECTION 7 - Miscellaneous................................................... 11
7.1 Governing Law.......................................................... 11
7.2 Survival............................................................... 11
7.3 Successors and Assigns................................................. 11
7.4 Entire Agreement; Amendment............................................ 11
7.5 Notices, etc........................................................... 12
7.6 Delays or Omissions.................................................... 12
7.7 California Corporate Securities Law.................................... 12
7.8 Expenses............................................................... 12
7.9 Counterparts........................................................... 13
7.10 Severability.......................................................... 13
7.11 Gender................................................................ 13
</TABLE>
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EXHIBITS
A. Schedule of Investors
B. Restated Certificate of Incorporation
C. Form of Warrant
D. Exceptions to Representations and Warranties of the Company
E. Second Amended and Restated Investors' Rights Agreement
F. Form of Opinion of Wilson Sonsini Goodrich & Rosati
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<PAGE>
HEALTHEON CORPORATION
AMENDED AND RESTATED
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
This Amended and Restated Series B Preferred Stock Purchase Agreement
(the "Agreement") is made as of October 31, 1996, by and among Healtheon
Corporation, a Delaware corporation (the "Company"), with its principal
office at 87 Encina Avenue, Palo Alto, California 94301, and the persons and
entities listed on the Schedule of Investors attached as Exhibit A hereto
(the "Investors"). This Agreement amends and restates, in its entirety, the
Series B Preferred Stock Purchase Agreement dated as of October 1, 1996.
SECTION I
AUTHORIZATION AND SALE OF STOCK AND ISSUANCE OF THE WARRANTS
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
up to an aggregate of five million (5,000,000) shares of its Series B
Preferred Stock (the "Series B Preferred"), having the rights, restrictions,
privileges and preferences as set forth in the Company's Restated Certificate
of Incorporation in the form attached to this Agreement as Exhibit B (the
"Restated Certificate').
1.2 SALE OF STOCK AND ISSUANCE OF WARRANTS. Subject to the terms and
conditions hereof, the Company will issue and sell to the Investors, and the
Investors will buy from the Company, the number of shares (the "Shares") of
Series B Preferred specified opposite each Investor's name on the Schedule of
Investors, at a cash purchase price of two dollars ($2.00) per share and the
Company will issue warrants, in the form attached hereto as Exhibit C, with
respect to the number of shares of Series B Preferred specified opposite the
applicable Investors' names on the Schedule of Investors (the "Warrants"). The
Company's agreements with each of the Investors are separate agreements, and the
sales of the Shares, and the issuance of the warrant, if applicable, to each of
the Investors are separate sales and issuances.
SECTION 2
CLOSING DATE, DELIVERY
2.1 CLOSING DATE. The initial closing of the purchase and sale of an
aggregate of one million eight hundred seventy five thousand (1,875,000) of
the Shares hereunder was held at 1:00 p.m. on October 1, 1996 (the "First
Closing"). The subsequent closing and the issuance of the Warrants hereunder
shall be held on October 31, 1996 or on such later date or dates as the
Company and the affected Investors may agree to (the "Second Closing"). The
date of each such Closing
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being referred to as a "Closing Date". The place of the Closing (including
the place of delivery to the Investors by the Company of the certificates
evidencing all shares Series B Preferred being purchased and the Warrants
being issued and the place of payment to the Company by the Investors of the
purchase price therefor) shall be at the offices of the Company located at 87
Encina Avenue, Palo Alto, California 94301, or such other place as the
Investors and the Company may mutually agree.
2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion, provide
for deferred closings hereunder (a "Subsequent Closing"), to be held at the
offices of the Company, at such time and dates as the Company may determine
(the date of any such Subsequent Closing being referred to as a "Subsequent
Closing Date"). Any Subsequent Closing(s) will take place as promptly as
possible following the initial Closing hereunder. The number of shares of
Series B Preferred which any Subsequent Investor shall be entitled to
purchase, shall be determined within the sole discretion of the Company, but
in no event shall the total number of shares of Series B Preferred sold
pursuant to this Agreement and/or subject to the Warrants or any other
purchase rights be more than an aggregate of five million (5,000,000) shares.
Upon completion of any Subsequent Closing, if any, all additional purchasers
of shares of Series B Preferred shall be considered "Investors" within the
meaning of this Agreement.
2.3 DELIVERY. At each Closing the Company will deliver to each Investor
a certificate or certificates representing the applicable number of Shares,
as designated in column 2 of the Schedule of Investors to be purchased by
such Investor at such Closing, against payment of the purchase price
therefor, by check or wire transfer payable to the Company, or by
cancellation of outstanding indebtedness from the Company to such Investor,
or by a combination thereof, in the amount specified in column 3 of the
Schedule of Investors and at the Second Closing the Company shall issue the
Warrants as set forth in the Schedule of Investors.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit D attached hereto, the Company hereby
represents and warrants to the Investors as follows:
3.1 ORGANIZATION AND STANDING: CERTIFICATE AND BYLAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. The Company
has requisite corporate power to own and operate its properties and assets,
and to carry on its business as presently conducted and as proposed to be
conducted. The Company is not qualified to do business as a foreign
corporation in any jurisdiction and such qualification is not presently
required.
3.2 CORPORATE POWER. The Company will have at the Closing Date all
requisite corporate power to execute and deliver this Agreement and the
Second Amended and Restated Investors' Rights Agreement attached hereto as
Exhibit E (the "Investors' Rights Agreement"), to sell and issue the Shares
hereunder, to issue the underlying Series B-1 Preferred Stock (the
"Series B-1
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Preferred") and Common Stock (together, the "Conversion Stock") in accordance
with the provisions of the Restated Certificate, and to carry out and
perform its obligations under the terms of this Agreement and the
Investors' Rights Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
other corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company consists
of 28,000,000 shares of Common Stock, 2,230,834 shares of which are issued
and outstanding prior to the Closing, 10,305,000 shares of Series A
Preferred, 10,285,000 shares of which are issued and outstanding prior to the
Closing and 10,305,000 shares of Series A-1 Preferred, none of which has been
or will be issued or outstanding prior to the Closing, and 5,000,000 shares
of Series B Preferred 1,875,000 of which were issued in the First Closing and
are outstanding as of the date hereof, and 5,000,000 shares of Series B-1
Preferred, none of which has been or will be issued or outstanding prior to
the Closing. The Company has reserved (i) an aggregate of 5,000,000 shares of
Series B Preferred for issuance hereunder and/or for issuance pursuant to the
exercise of the Warrants which may be issued hereunder, (ii) sufficient
shares of Common Stock for issuance upon conversion of the Series B Preferred
and/or Series B-1 Preferred, (iii) 5,000,000 shares of Series B-1 Preferred
for issuance upon conversion of the Series B Preferred, (iv) 10,285,000
shares of Series A-1 Preferred for issuance upon conversion of the Series A
Preferred, (v) sufficient shares of Common Stock for issuance upon conversion
of the Series A Preferred and/or Series A-1 Preferred and (vi) 9,000,000
shares of Common Stock for issuance to employees and consultants pursuant to
the Company's 1996 Stock Plan (of which 4,268,934 shares have been issued
and/or option granted with respect thereto, prior to the date hereof). The
Series B Preferred and the Series B-1 Preferred shall have the rights,
preferences, privileges and restrictions set forth in the Restated
Certificate. There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorization but unissued shares of capital stock or other securities of the
Company. Assuming the accuracy of each Investor's representations in Section
4 below, upon issuance, the Shares will have been issued in compliance with
all federal and state securities laws.
3.5 AUTHORIZATION. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Investors' Rights
Agreement by the Company, the authorization, sale, issuance and delivery of
the Shares and the Conversion Stock and the performance of the Company's
obligations hereunder has been taken or will be taken prior to the Closing.
This Agreement and the Investors' Rights Agreement, when executed and
delivered by the Company, shall constitute the valid and binding obligations
of the Company enforceable in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, and other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal and
state securities laws. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid
and nonassessable; the Series B-1 Preferred issuable upon conversion of the
Series B Preferred has been
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duly and validly reserved and, when issued in compliance with the provisions
of this Agreement, will be validly issued and will be fully paid and
nonassessable and the Common Stock issuable upon conversion of the Series B
Preferred and/or the Series B-1 Preferred has been duly and validly reserved
and, when issued in compliance with the provisions of this Agreement, will be
validly issued and will be fully paid and nonassessable, and free of any
liens or encumbrances (assuming the Investors take the Shares with no notice
thereof) other than any liens or encumbrances created by or imposed upon the
holders; provided, however, that the Shares and the Conversion Stock may be
subject to restrictions on transfer under state or federal securities laws
and restrictions set forth herein.
3.6 TITLE TO PROPERTIES AND ASSETS, LIENS, ETC. The Company has good and
valid title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (i) the lien of current taxes not yet
due and payable, and (ii) possible minor liens and encumbrances which do not
in any case materially detract from the value of the property subject thereto
or materially impair the operations of the Company, and which have not arisen
otherwise than in the ordinary course of business.
3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor
its unaudited financial statements (balance sheet and income statement) at
July 31, 1996 and for the period from inception through July 31, 1996 (the
"Financial Statement"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated and with each other, except
that the Financial Statements may not contain all footnotes required by
generally accepted principles and are subject to normal year end adjustments.
The Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated
therein. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to July 31, 1996,
which individually or in the aggregate are not material to the financial
condition or operating results of the Company, and (ii) obligations not
required under generally accepted accounting principles to be reflected in
the Financial Statements.
3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance
sheet dated July 31, 1996 there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, or business of the Company;
(b) any waiver by the Company of a valuable right or of a material
debt owed to it;
(c) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound
or subject, except for changes or amendments which are expressly provided for
or disclosed in this Agreement;
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(d) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances or other advances made in the
ordinary course of business;
(e) any declaration, setting aside or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any such stock by the Company;
(f) any incurrence of indebtedness for money borrowed individually
in excess of $50,000 or in excess of $100,000 in the aggregate;
(g) any material change in any compensation arrangement or agreement
with any employee;
(h) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(i) any resignation or termination of employment of any key officer
of the Company; and
(j) to the Company's knowledge, any other event or condition or any
character which would be reasonably likely to materially and adversely affect
the assets, properties, financial condition, operating results or business of
the Company;
3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports when and as required by law and has never been audited by
any state or federal taxing authority. All tax and reports of the Company, if
applicable, are true and correct in all material respects.
3. 10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or
prior to the Closing will own or have the right, to use, free and clear of
all liens, charges, claims and restrictions, all patents, trademarks, service
marks, trade names, copyrights, licenses and rights necessary to its business
as now conducted, and is not, to the best of its knowledge, infringing upon
or otherwise acting adversely to the right or claimed right of any person
under or with respect to any of the foregoing. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor
is the Company bound by or a party to any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
written communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any patent, trademark,
service mark, trade name, copyright or trade secret or other proprietary
right of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying
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on of the Company's business by the employees of the Company, nor the conduct
of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such employees is now obligated. The Company does not believe it
is or will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to
the best knowledge of the Company, any third party is in default under any
material contract, agreement or instrument to which the Company is a party.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of the Restated Certificate of
Incorporation or Bylaws, or in any material respect of any term or provision
of any material mortgage, indenture, contact, agreement or instrument to
which it is a party or by which it is bound, and to the best of its
knowledge, is not in violation of any order, statute, rule or regulation
applicable to the Company, which violation reasonably would be expected to
have a material adverse effect on the Company's business or financial
condition. The execution, delivery and performance of and compliance with
this Agreement, and the issuance of the Shares and the Conversion Stock, have
not resulted and will not result in any violation of, or conflict with, or
constitute a default under, or result in the creation of, any material
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company.
3.13 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency (nor, to the best of the Company's knowledge, is there
any written threat thereof), which, either in any case or in the aggregate,
reasonably would be expected to result in any material adverse change in the
business or financial condition of the Company or any of its properties or
assets, or in any material impairment of the right or ability of the Company
to carry on its business as now conducted, and none which questions the
validity of this Agreement or the Investors' Rights Agreement or any action
taken or to be taken in connection herewith. The Company is not a party to,
or to the best of its knowledge named in any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
There is no action, suit or proceeding by the Company currently pending or
that the Company currently intends to initiate.
3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other party because
of the nature of the business conducted or to be conducted by the Company.
The Company does not have any collective bargaining agreements covering any
of its employees.
3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights
Agreement, the Company is not currently under any obligation to register
under the Securities Act of 1933, as amended (the "Act) any of its presently
outstanding securities or any of its securities which may hereafter be issued.
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3.16 GOVERNMENTAL CONSENT ETC. No consent, approval or authorization
of, or designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement, or the offer, sale or issuance of the Shares and the
Conversion Stock, or the consummation of any other transaction contemplated
hereby, except (a) filing of the Restated Certificate in the office of the
Secretary of State of the State of Delaware, and (b) qualification (or taking
such action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Shares and the Conversion Stock under
the California Corporate Securities Law and other applicable Blue Sky laws,
which filing and qualification, if required, will be accomplished in a timely
manner prior to or promptly upon completion of the Closing.
3.17 BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3.18 DISCLOSURES. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate
furnished to the Investors pursuant to this Agreement, contains any untrue
statement of a material fact or, when taken together, omits to state a
material fact necessary to make the statements made herein, in light of the
circumstances under which they were made, not misleading. However, as to any
projections furnished to the Investors, such projections were prepared in
good faith by the Company, but the Company makes no representation or
warranty that it will be able to achieve such projections. The Company has
fully provided each Investor with all the information that such Investor has
requested for deciding whether to purchase the Shares.
3.19 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company, and believes it
can obtain without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses or other similar authority.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants to the Company with
respect to its purchase of the Shares as follows:
4.1 AUTHORIZATION. This Agreement and the Investors' Right Agreement,
when executed and delivered by the Investor, will each constitute the
Investor's valid and legally binding obligation, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating
to the availability of specific
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performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which
by the Investor's execution of this Agreement the Investor hereby confirms,
that the Common Stock or Series B Preferred to be received by the Investor
and the Common Stock and Series B-1 Preferred issuable upon conversion of the
Series B Preferred (collectively, the "Securities') will be acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, the Investor
further represents that the Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Securities. The Investor represents that it has the full power and
authority to enter into this Agreement.
4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the investment in the Common Stock or
Series B Preferred. If other than an individual, the Investor also represents
it has not been organized solely for the purpose of acquiring the Common
Stock or Series B Preferred or if the Investor has been organized solely for
the purpose of acquiring the Common Stock or Series B Preferred that all of
the equity owners of the Investor are "accredited investors" as defined below.
4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
4.5 NO PUBLIC MARKET. Each Investor understands that no public market
now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Shares.
4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed
this Agreement and all Exhibits thereto; it, its attorney and its accountant
have had access to, and an opportunity to review all documents and other
materials requested of, the Company; it and they have been given an
opportunity to ask any and all questions of, and receive answers from, the
Company concerning the terms and conditions of the offering and to obtain all
information it or they believe necessary or appropriate to evaluate the
suitability of an investment in the Common Stock or Series B Preferred; and,
in evaluating the suitability of an investment in the Common Stock or Series
B Preferred, it and they have not relied upon any representations or other
information (whether oral or written) other than as set forth in the
documents and answers referred to above.
4.7 RESTRICTED SECURITIES. The Investor understands that the
Securities it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
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such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In
addition, the Investor represents that it is familiar with Rule 144
promulgated under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Investor further agrees not to make
any disposition of all or any portion of the Securities unless:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement;
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with either (i) an
unqualified written opinion of counsel who shall be reasonably satisfactory
to the Company addressed to the Company and reasonably satisfactory in form
and substance to the Company's counsel to the effect that the proposed
transfer may be effected without registration under the Act or (ii) a "No
Action" letter from the Securities and Exchange Commission to the effect that
the transfer of such securities without registration will not result in a
recommendation by the staff of the Securities and Exchange Commission that
action be taken with respect thereto, whereupon the holder of such Securities
shall be entitled to offer such Securities in accordance with the terms of
the notice delivered by the Holder to the Company; or
(c) The Investor shall have sold, assigned, transferred, pledged
or otherwise disposed of the Securities in a transaction involving the
distribution without consideration of the Securities by the Investor to any
of its partners or retired partners, or to the estate of any of its partners
or retired partners, or in a transaction involving the offer or distribution
of the Securities by a corporation to any subsidiary, parent or affiliated
corporation of such corporation; provided in each case that the Investor
shall give written notice to the Company of such Investor's intention to
effect such transfer, sale, assignment, pledge or other disposition. The
Investor will cause any such proposed purchaser, assignee, transferee or
pledgee of any Securities held by the Investor to agree to take and hold such
Securities subject to the provisions and upon the conditions specified in
this Agreement.
4.9 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT."
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(b) Any legend required by the laws of the State of Delaware or
the State of California, including any legend required by the California
Department of Corporations.
4.10 GOVERNMENT CONSENTS. Other than securities law filings required
to be made by the Company, no consent, approval or authorization of or
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of the Investor is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby.
4.11 WAIVER OF RIGHT OF FIRST REFUSAL. Each Investor hereby waives all
rights which it may have had under Section 2.5 of the Amended and Restated
Investors' Rights Agreement, including notice rights, with respect to the
sale of the Series B Preferred Stock and the issuance of the Warrants with
respect thereto, hereunder.
SECTION 5
CONDITIONS TO CLOSING OF INVESTORS
The Investors' obligations to purchase the Shares at the Closing or at
any Subsequent Closing are, at the option of each Investor, subject to the
fulfillment on or prior to the Closing Date or at any Subsequent Closing Date
of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date, or the Subsequent Closing Date, as the
case may be, with the same force and effect as if they had been made on and
as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
or the Subsequent Closing Date, as the case may be, shall have been performed
or compiled with in all material respects.
5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to
the Company, an opinion addressed to them, dated the Closing Date or the
Subsequent Closing Date, as the case may be, in substantially the form
attached hereto as Exhibit F.
5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investors a certificate executed by the President of the Company, dated the
Closing Date or the Subsequent Closing Date, as the case may be, and
certifying to the fulfillment of the conditions specified in Sections 5.1,
5.2, and 5.8 of this Agreement, and that he has made, or caused to be made,
such investigations as he deemed necessary in order to permit him to verify
the accuracy of the information set forth in such certificate.
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5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Conversion Stock.
5.6 BOARD OF DIRECTORS. The Board of Directors shall at the Closing
consist of Jim Clark, Brook Byers, Hugh Reinhoff, Jr., M.D. and David
Schnell, M.D.
5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been
filed with the Secretary of State of the State of Delaware.
5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the Company's business or financial condition.
5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall
have entered into the Investors' Rights Agreement in substantially the form
attached hereto as Exhibit E.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing or
at any Subsequent Closing, is at the option of the Company, subject to the
fulfillment of the following conditions:
6.1 REPRESENTATIONS. The representations made by the Investors in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date or the Subsequent Closing Date, as the case may
be.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Conversion Stock.
6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts
of laws principles thereof.
7.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Investor
and the closing of the transactions contemplated hereby.
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7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto, provided, however, that the rights of a Investor to purchase Shares
shall not be assignable without the written consent of the Company.
7.4 ENTIRE AGREEMENT, AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged, or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge, or termination is sought; provided, however, that holders of a
majority of the shares of Common Stock issued or issuable upon conversion of
the Shares and/or the Series B-1 Preferred and (whether or not converted) not
resold to the public may waive or amend, on behalf of all Investors, any
provisions hereof benefiting Investors in respect of the Shares.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Investor, at such
Investor's address set forth in Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any
other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the
Company, one copy should be sent to its address set forth on the cover page
of this Agreement and addressed to the attention of the Corporate Secretary,
or at such other address as the Company shall have furnished to the Investors.
7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right,
power or remedy of such holder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM
SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS
12
<PAGE>
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE.
7.8 EXPENSES. The Company and the Investors shall each bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby except that, assuming a successful completion of the
offering the Company will pay at the initial Closing the reasonable legal
fees and reasonable expenses upon receipt of a bill therefor, incurred by one
counsel to the Investors.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the
Investors, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
7.11 GENDER. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
The foregoing Amended and Restated Series B Preferred Stock Purchase
Agreement is hereby executed as of the date first above written.
COMPANY:
HEALTHEON CORPORATION
By: /s/ David Schnell, M.D.
------------------------------
David Schnell, M.D.,
President
Address: 87 Encina Avenue
Palo Alto, CA 94301
13
<PAGE>
EXHIBIT 10.22
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A OF SUCH ACT.
HEALTHEON CORPORATION
SERIES B PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received ________ ("Holder"), is entitled to
purchase up to ________ shares of Series B Preferred Stock (the "Shares") of
HEALTHEON CORPORATION, a Delaware corporation (the "Company"), subject to the
terms and conditions of this Warrant set forth herein, at an exercise price
per share of two dollars ($2.00) (the "Warrant Price"), as adjusted from
time-to-time pursuant to Section 3 below.
1. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, only during the period (the "Exercise
Period") commencing on July 1, 1997 and expiring automatically on June 30,
2002.
2. METHOD OF EXERCISE AND PAYMENT.
(a) METHOD OF EXERCISE. Subject to Section I hereof and compliance
with all applicable federal and state securities laws, the purchase right
represented by this Warrant only may be exercised, in whole or in part, by
the Holder by (i) surrender of this Warrant and delivery of the Notice of
Exercise (the form of which is attached hereto as Exhibit A), duly executed,
at the principal office of the Company during the Exercise Period and (ii)
payment to the Company during the Exercise Period of an amount equal to the
product of the then applicable Warrant Price multiplied by the number of
Shares then being purchased pursuant to one of the payment methods permitted
under Section 2(b) (or as set forth below in Section 2(c)).
(b) METHOD OF PAYMENT. Payment shall be made by: (1) check drawn on
a United States bank and for United States funds made payable to the Company,
(2) wire transfer of United States funds to the account of the Company, (3)
cancellation of indebtedness of the Company, or (4) any combination of the
foregoing at the option of the Holder.
(c) NET ISSUE EXERCISE. In lieu of paying the aggregate Warrant
Price for the Shares by one of the payment methods specified in Section 2(b)
above, the Holder may elect to receive Shares equal to the value of this
Wan-ant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company together with notice of such election,
in which event the Company shall issue to the Holder a number of shares of
the Company's Series B Preferred Stock computed using the following formula:
Y (A - B)
X = ----------
A
Where X = the number of shares of Series B Preferred Stock to be issued to
Holder.
Y = the number of shares of Series B Preferred Stock purchasable under
this Warrant.
<PAGE>
A = the fair market value of one share of the Company's Series B Preferred
Stock (at the date of calculation).
B = Warrant Price (as adjusted to the date of such calculations).
For the purposes of the above calculation, the fair market value of
the Series B Preferred Stock shall mean with respect to each share of Series
B Preferred Stock:
(i) the product of (x) the number of shares of Common Stock
into which each share of Series B Preferred Stock is convertible at the time
of exercise and (y) the average of the closing bid and asked prices of the
Company's Common Stock quoted in the Over-The-Counter Market Summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of the WALL
STREET JOURNAL for the ten trading days prior to the date of determination of
fair market value; or
(ii) if the Company's Common Stock is not traded
Over-The-Counter or on an exchange, fair market value of each share of the
Series B Preferred Stock shall be determined in good faith by the Company's
Board of Directors. Receipt and acknowledgment of this Warrant by the Holder
shall be deemed to be an acknowledgment and acceptance of any such fair
market value determination by the Company's Board of Directors as the final
and binding determination of such value for purposes of this Warrant.
(d) DELIVERY OF CERTIFICATE. In the event of any exercise of the
purchase right represented by this Warrant, certificates for the Shares so
purchased shall be delivered to the Holder within thirty (30) days of
delivery of the Notice of Exercise and, unless this Warrant has been fully
exercised or has expired, a new warrant representing the portion of the
Shares with respect to which this Warrant shall not then have been exercised
shall also be issued to the Holder within such thirty (30) day period.
(e) NO FRACTIONAL SHARES. No fractional Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional Shares
the Company shall make a cash payment therefor upon the basis of the fair
market value per Share as of the date of exercise (as determined above).
3. ADJUSTMENTS. The number and kind of securities issuable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(a) REORGANIZATION, CONSOLIDATION OR MERGER. In the case of any
reorganization, consolidation or merger of the Company (including, without
limitation, any change of control transaction whereby immediately following
such transaction or series of transactions 50% or more of the Company's
outstanding capital stock is held by new stockholders) with or into another
corporation, the Company, or such successor entity, as the case may be, shall
execute a new warrant providing that the Holder shall have the right to
exercise such new warrant and, upon such exercise. to receive, in lieu of
each Share issuable upon exercise of this Warrant, the number and kind of
shares of stock, other securities, money or property receivable upon such
reorganization, consolidation or merger by a holder of the number of Shares
then purchasable with this Warrant. Such new warrant shall contain
provisions relating to the rights and obligations of the Holder and the
Company after such reorganization, consolidation or merger that shall have,
as nearly as possible after appropriate adjustment, the same effect as the
provisions of this Warrant, including the provisions of this Warrant relating
to the exercise price and number and type of shares of stock deliverable upon
exercise.
(b) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine its authorized stock that is of the
2
<PAGE>
same class and/or series as the Shares, the Warrant Price shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination. Any adjustment under
this subsection (b) shall become effective at the close of business on the
date the split, subdivision or combination becomes effective.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant
remains outstanding and unexpired shall pay a stock dividend with respect to
the shares of stock of the same class and/or series as the Shares, or make
any other distribution with respect to such shares (except any distribution
specifically provided for in Sections 3(a) or 3(b) above) of similar shares,
the Warrant Price shall be adjusted, from and after the date of determination
of the stockholders entitled to receive such dividend or distribution, to
that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of the shares of stock of the same class and/or
series as the Shares outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
such shares outstanding immediately after such dividend or distribution. Any
adjustment under this subsection (c) shall become effective at the close of
business on the date such stock dividend becomes effective.
(d) RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the Shares
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than a split,
subdivision or combination of the Shares pursuant to Section 3(b)), the
Holder shall, upon exercise of this Warrant, be entitled to purchase, in lieu
of the shares which the Holder would have been entitled to purchase but for
such change, the number and kind of shares of stock receivable upon such
reclassification, exchange or substitution by a holder of shares of the
shares of stock of the same class and/or series as the Shares.
4. NOTICE OF ADJUSTMENTS. Whenever the number or kind of Shares or the
Warrant Price shall be adjusted pursuant to Section 3 hereof, the Company
shall mail to the Holder, at least ten (10) days prior to the event requiring
such adjustment, a notice setting forth, in reasonable detail, the event
requiring the adjustment, and, within thirty (30) days after any such
adjustment, the Company shall issue a certificate signed by its Chief
Financial Officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated and the number or kind of shares or the Warrant
Price or Warrant Prices after giving effect to such adjustment, and shall
cause a copy of such certificate to be delivered to the Holder.
5. COMPANY'S REPRESENTATIONS. All Shares which may be issued upon the
exercise of the purchase right represented by this Warrant shall, upon
issuance in accordance with this Warrant, be duly authorized, validly issued,
fully paid and nonassessable, and free of any liens and encumbrances except
for restrictions on transfer provided for herein or under applicable federal
and state securities laws. During the Exercise Period, the Company shall at
all times have authorized, and reserved for the purpose of issuance upon
exercise right represented by this Warrant, a sufficient number of shares of
Series B Preferred Stock to provide for the exercise of the purchase right
represented by this Warrant.
6. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY AND NEGOTIABILITY
OF WARRANT; DISPOSITION OF SHARES.
(a) COMPLIANCE WITH SECURITIES ACT. The Holder, by acceptance
hereof, agrees that this Warrant and the Shares to be issued upon the
exercise hereof are being acquired solely for its own account and not as a
nominee for any other party and not with a view toward the resale or
distribution thereof and that it will not offer, sell or otherwise dispose of
this Warrant or any Shares to be issued upon the exercise hereof except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the
3
<PAGE>
"Securities Act"). Upon the exercise of this Warrant, the Holder shall
confirm in writing, in a form reasonably satisfactory to the Company, that
the Shares so issued are being acquired solely for its own account and not as
a nominee for any other party and not with a view toward resale or
distribution thereto. This Warrant and the Shares to be issued upon the
exercise hereof (unless registered under the Act) shall be imprinted with a
legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO T14E COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF
SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the
exercise hereof shall bear any legends required by the securities laws of any
applicable states.
(b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may
not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including, if the transfer is being made other than in a
transaction registered under the Securities Act or exempt from registration
under Rule 144 under the Securities Act, the delivery of investment
representation letters and, if the transfer is being made other than in a
transaction registered under the Securities Act, the delivery of legal
opinions satisfactory to the Company, if requested by the Company) and unless
the transfer is to a transferee or assignee who the Company does not
reasonably consider to be an actual or potential competitor of the Company.
Subject to the provisions of this Warrant with respect to compliance with the
Securities Act, title to this Warrant may be transferred by endorsement and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery. The Company shall act promptly to record transfers
of this Warrant on its books, but the Company may treat the registered holder
of this Warrant as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
(c) DISPOSITION OF SHARES. With respect to any offer, sale,
transfer or other disposition of any Shares acquired pursuant to the exercise
of this Warrant prior to registration of such Shares, the Holder and each
subsequent holder of this Warrant agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of legal counsel for such holder, reasonably satisfactory to
the Company and its legal counsel, if requested by the Company, to the effect
that such offer, sale or other disposition may be effected without
registration or qualification (under the Act or any other federal or state
securities laws) of such Shares and indicating whether or not under the Act,
certificates for such Shares to be sold or otherwise disposed of require any
restrictive legend as to the applicable restrictions on transferability in
order to insure compliance with the Securities Act. Promptly upon receiving
such written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify such holder that such
holder may sell or otherwise dispose of such Shares, all in accordance with
the terms of the notice delivered to the Company. Each certificate
representing the Shares thus transferred (except a transfer pursuant to Rule
144(k)) shall bear a restrictive legend as to the applicable restrictions on
transferability in order to insure compliance with the Act, unless in the
aforesaid opinion of legal counsel for the holder, such legend is not
required in order to insure compliance with the Securities Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
7. RIGHTS OF STOCKHOLDERS. The Holder shall not be entitled to
vote or receive dividends or be deemed the holder of Shares or any other
securities of the Company which may at any time be issuable on the exercise
of this Warrant for any purpose, nor shall anything contained herein be
construed to confer upon the
4
<PAGE>
Holder, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the shares issuable upon exercise hereof shall have become deliverable,
as provided herein.
8. NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or five (5) days after mailed by first-class registered or
certified mail, postage prepaid, at such address as may have been furnished
to the Company or the Holder, as the case may be, in writing by the Company
or such holder from time to time.
9. WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
10. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
its principles regarding conflicts of law.
11. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
P.M., Pacific Standard Time, on June 30, 2002, if not terminated earlier
pursuant to any other provision of this Warrant.
Dated: __________, 1997
HEALTHEON CORPORATION
By: /s/ David Schnell, M.D.
-----------------------------------
David Schnell, M.D.
President
5
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: HEALTHEON CORPORATION
1. The undersigned Holder of the attached original, executed Series B
Preferred Stock Purchase Warrant (the "Warrant") hereby elects to exercise
its purchase right under such Warrant with respect to _____________________
shares of Series B Preferred Stock of Healtheon Corporation (the "Company").
2. The undersigned Holder elects to exercise the Warrant for such shares
(the "Exercise Shares") in the following manner:
[ ] by the enclosed check drawn on a United States bank and for
United States funds made payable to the Company in the amount of $___________;
[ ] by wire transfer of United States funds to the account of the
Company in the amount of which $____________, transfer has been made before
or simultaneously with the delivery of this Notice pursuant to the
instructions of the Company;
[ ] by cancellation of indebtedness of the Company in the amount
of $______________;
[ ] by net issue exercise pursuant to Section 2(c) of the Warrant;
[ ] by the combination of the foregoing indicated above or on the
attached sheet.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares in the name of the undersigned or in such other
names as is specified below:
Name:
-----------------------------------------
Address:
-----------------------------------------
Tax Ident. No.:
------------------------------------
HOLDER:
By:
-------------------------------
Date:
-------------------------------
<PAGE>
HEALTHEON CORPORATION
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
JULY 25, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
SECTION I - Authorization and Sale of Stock
<S> <C> <C>
1.1 Authorization.............................................. 1
1.2 Sale of Stock.............................................. 1
<CAPTION>
SECTION 2 - Closing Date; Delivery....................................... 1
<S> <C> <C>
2.1 Closing Date............................................... 1
2.2 Subsequent Closing......................................... 1
2.3 Delivery................................................... 2
<CAPTION>
SECTION 3 - Representations and Warranties of the Company................ 2
<S> <C> <C>
3.1 Organization and Standing; Certificate and Bylaws........... 2
3.2 Corporate Power............................................. 2
3.3 Subsidiaries................................................ 2
3.4 Capitalization.............................................. 2
3.5 Authorization............................................... 3
3.6 Title to Properties and Assets; Liens, etc.................. 3
3.7 Financial Statements........................................ 3
3.8 Activities Since Balance Sheet Date......................... 4
3.9 Tax Returns and Payments.................................... 5
3.10 Patents, Trademarks, etc.................................... 5
3.11 Material Contracts and Commitments.......................... 5
3.12 Compliance with Other Instruments, None Burdensome, etc..... 5
3.13 Litigation, etc............................................. 5
3.14 Employees................................................... 6
3.15 Registration Rights......................................... 6
3.16 Governmental Consent, etc................................... 6
3.17 Brokers or Finders.......................................... 6
3.18 Disclosures................................................. 6
3.19 Permits..................................................... 6
3.20 Real Property Holding Company............................... 6
<CAPTION>
SECTION 4 - Representations and Warranties of the Investors............... 7
<S> <C> <C>
4.1 Authorization............................................... 7
4.2 Purchase Entirely for Own Account........................... 7
4.3 Investment Experience....................................... 7
4.4 Accredited Investor......................................... 7
4.5 No Public Market............................................ 7
4.6 Receipt of Information...................................... 7
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
4.7 Restricted Securities....................................... 8
4.8 Further Limitations on Disposition.......................... 8
4.9 Legends..................................................... 8
4.10 Government Consents......................................... 9
<CAPTION>
SECTION 5 - Conditions to Closing of Investors............................ 9
<S> <C> <C>
5.1 Representations and Warranties Correct...................... 9
5.2 Covenants................................................... 9
5.3 Opinion of Company's Counsel................................ 9
5.4 Compliance Certificate...................................... 9
5.5 Blue Sky.................................................... 9
5.6 Board of Directors.......................................... 9
5.7 Restated Certificate........................................ 9
5.8 No Material Adverse Change.................................. 10
5.9 Investors' Rights Agreement................................. 10
<CAPTION>
SECTION 6 - Conditions to Closing of Company.............................. 10
<S> <C> <C>
6.1 Representations............................................. 10
6.2 Blue Sky.................................................... 10
6.3 Restated Certificate........................................ 10
<CAPTION>
SECTION 7 - Miscellaneous................................................ 10
<S> <C> <C>
7.1 Governing Law............................................... 10
7.2 Survival.................................................... 10
7.3 Successors and Assigns...................................... 10
7.4 Entire Agreement; Amendment................................. 10
7.5 Notices, etc................................................ 11
7.6 Delays or Omissions......................................... 11
7.7 California Corporate Securities Law......................... 11
7.8 Expenses.................................................... 11
7.9 Counterparts................................................ 11
7.10 Severability................................................ 11
7.11 Gender...................................................... 11
7.12 Information Rights.......................................... 12
</TABLE>
-ii-
<PAGE>
EXHIBITS
A. Schedule of Investors
B. Restated Certificate of Incorporation
C. Exceptions to Representations and Warranties of the Company
D. Fourth Amended and Restated Investors' Rights Agreement
-iii-
<PAGE>
HEALTHEON CORPORATION
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement') is
made as of July 25, 1997, by and among Healtheon Corporation, a Delaware
corporation (the "Company"), with its principal office at 87 Encina Avenue,
Palo Alto, California 94301, and the persons and entities listed on the
Schedule of Investors attached as Exhibit A hereto (the "Investors").
SECTION I
AUTHORIZATION AND SALE OF STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
up to two million six hundred thousand (2,600,000) shares of its Series C
Preferred Stock (the "Series C Preferred"), having the rights, restrictions,
privileges and preferences as set forth in the Company's Restated Certificate
of Incorporation in the form attached to this Agreement as Exhibit B (the
"Restated Certificate").
1.2 SALE OF STOCK. Subject to the terms and conditions hereof, the
Company will issue and sell to the Investors, and the Investors will buy from
the Company, the number of shares (the "Shares") of Series C Preferred
specified opposite each Investor's name on the Schedule of Investors, at a
cash purchase price of two dollars and fifty cents ($2.50) per share. The
Company's agreements with each of the Investors are separate agreements, and
the sales of the Shares to each of the Investors are separate sales.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The initial closing of the purchase and sale of two
million four hundred thousand (2,400,000) shares of the Series C Preferred Stock
was held at 11:00 a.m. on July 1, 1997 and the second closing with respect to
two hundred thousand (200,000) shares of Series C Preferred is anticipated to be
held on July 25, 1997 at 11:00 a.m. (the "Closing") or on such later date or
dates as the Company and the applicable Investors may agree to (the date of such
Closing being referred to as the "Closing Date"). The place of the Closing
(including the place of delivery to the Investors by the Company of the
certificates evidencing all shares Series C Preferred being purchased and the
place of payment to the Company by the Investors of the purchase price therefor)
shall be at the offices of the Company located at 87 Encina Avenue, Palo Alto,
California 94301, or such other place as the Investors and the Company may
mutually agree.
2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion,
provide for deferred closings hereunder (a "Subsequent Closing"), to be held
at the offices of the Company, at such time and dates as the Company may
determine (the date of any such Subsequent Closing being referred to as a
"Subsequent Closing Date"). Any Subsequent Closing(s) will take place as
promptly as possible following the initial Closing hereunder. The number of
shares of Series C Preferred which any Subsequent Investor shall be entitled
to purchase, shall be determined within the sole discretion of the Company,
but in no event shall the total number of shares of Series C Preferred sold
pursuant to this Agreement be more than three million
<PAGE>
(3,000,000) shares. Upon completion of any Subsequent Closing, if any, all
additional purchasers of shares of Series C Preferred shall be considered
"Investors" within the meaning of this Agreement.
2.3 DELIVERY. At the Closing and any Subsequent Closing, the Company will
deliver to each Investor a certificate or certificates representing the number
of Shares designated in column 2 of the Schedule of Investors to be purchased by
each Investor, against payment of the purchase price therefor, by check or
wire transfer payable to the Company, or by cancellation of outstanding
indebtedness from the Company to such Investor, or by a combination thereof, in
the amount specified in column 3 of the Schedule of Investors.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit C attached hereto, the Company hereby
represents and warrants to the Investors as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is
a corporation duly organized and existing under, and by virtue of, the laws
of the State of Delaware and is in good standing under such laws. The Company
has requisite corporate power to own and operate its properties and assets,
and to carry on its business as presently conducted and as proposed to be
conducted. The Company is not qualified to do business as a foreign
corporation in any jurisdiction and such qualification is not presently
required.
3.2 CORPORATE POWER. The Company will have at the Closing Date all
requisite corporate power to execute and deliver this Agreement and the Fourth
Amended and Restated Investors' Rights Agreement attached hereto as Exhibit D
(the "Investors' Rights Agreement"), to sell and issue the Shares hereunder, to
issue the underlying Series C-1 Preferred Stock (the "Series C-1 Preferred")
and Common Stock (together, the "Conversion Stock") in accordance with the
provisions of the Restated Certificate, and to carry out and perform its
obligations under the terms of this Agreement and the Investors' Rights
Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any other
corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 34,000,000 shares of Common Stock, 2,353,221 shares of which
are issued and outstanding prior to the Closing; (b) 10,305,000 shares of
Series A Preferred, 10,285,000 shares of which are issued and outstanding
prior to the Closing and 10,305,000 shares of Series A-1 Preferred, none of
which has been or will be issued or outstanding prior to the Closing (c)
8,000,000 shares of Series B Preferred, 3,000,000 of which are issued and are
outstanding as of the date hereof, 2,000,000 of which are subject to
outstanding warrants as of the date hereof and up to 1,015,000 of which are
subject to outstanding purchase and/or warrant rights as of the date hereof
and 8,000,000 shares of Series B-1 Preferred, none of which has been or will
be issued or outstanding prior to the Closing; and (d) 3,000,000 shares of
Series C Preferred, 2,400,000 of which will be issued and outstanding prior
to the Closing and 3,000,000 shares of Series C-1 Preferred, none of which
has been or will be issued or outstanding prior to the Closing. The Company
has reserved (i) 200,000 shares of Series C Preferred for issuance hereunder,
(ii) sufficient shares of Common Stock for issuance upon conversion of the
Series C Preferred and/or Series C-1 Preferred, (iii) an aggregate of
2,600,000 shares of Series C-1 Preferred for issuance upon conversion of the
Series C Preferred, (iv) two million (2,000,000) shares of Series B Preferred
for issuance pursuant to outstanding warrants; (v) 72,000 shares of Series B
Preferred which will be subject to issuance upon the exercise of warrants
issued pursuant to the Company's
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April 1997 Bridge Loan; (vi) one million (1,000,000) shares of Series B
Preferred for issuance pursuant to an outstanding purchase right and/or
warrant right which has been granted to the Company's Chief Executive
Officer candidate; (vii) fifteen thousand (15,000) shares of Series B
Preferred for issuance pursuant to an outstanding purchase right which has
been granted to a member of the Company's Board of Directors; (viii)
sufficient shares of Common Stock for issuance upon conversion of the Series
B Preferred and/or Series B-1 Preferred, (ix) sufficient number of shares
of Series B-1 Preferred for issuance upon conversion of the Series B
Preferred, (x) 10,285,000 shares of Series A-1 Preferred for issuance upon
conversion of the Series A Preferred, (xi) sufficient shares of Common Stock
for issuance upon conversion of the Series A Preferred and/or Series A-1
Preferred, and (xii) 9,000,000 shares of Common Stock for issuance to
employees and consultants pursuant to the Company's 1996 Stock Plan (of
which 4,130,608 shares have been issued and/or option granted with respect
thereto, prior to the date hereof). There are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of capital stock or
other securities of the Company. The Series C Preferred and the Series C-1
Preferred shall have the rights, preferences, privileges and restrictions
set forth in the Restated Certificate. There are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of capital stock or
other securities of the Company. Assuming the accuracy of each Investor's
representations in Section 4 below, upon issuance, the Shares will have been
issued in compliance with all federal and state securities laws.
3.5 AUTHORIZATION. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Investors' Rights
Agreement by the Company, the authorization, sale, issuance and delivery of
the Shares and the Conversion Stock and the performance of the Company's
obligations hereunder has been taken or will be taken prior to the Closing.
This Agreement and the Investors' Rights Agreement, when executed and
delivered by the Company, shall constitute the valid and binding obligations
of the Company enforceable in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, and other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal and
state securities laws. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid
and nonassessable; the Series C-1 Preferred issuable upon conversion of the
Series C Preferred has been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement, will be validly issued and
will be fully paid and nonassessable and the Common Stock issuable upon
conversion of the Series C Preferred and/or the Series C-1 Preferred has been
duly and validly reserved and, when issued in compliance with the provisions
of this Agreement, will be validly issued and will be fully paid and
nonassessable, and free of any liens or encumbrances (assuming the Investors
take the Shares with no notice thereof) other than any liens or encumbrances
created by or imposed upon the holders; provided, however, that the Shares
and the Conversion Stock may be subject to restrictions on transfer under
state or federal securities laws and restrictions set forth herein.
3.6 TITLE TO PROPERTIES AND ASSETS; LIENS ETC. The Company has
good and valid title to its properties and assets, and has good title
to all its leasehold interests, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than (i) the lien of
current taxes not yet due and payable, and (ii) possible minor liens
and encumbrances which do not in any case materially detract from the
value of the property subject thereto or materially impair the
operations of the Company, and which have not arisen otherwise than in
the ordinary course of business.
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3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor its
audited financial statements (balance sheet, income statement and statement of
cashflow) for the period from inception through December 31, 1996 and its
unaudited financial statements (balance sheet and income statement) for the
period ended May 31, 1997 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis, except that the Financial
Statements may not contain all footnotes required by GAAP and the May 31, 1997
Financial Statement are subject to normal year end adjustments. The Financial
Statements fairly present the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein. Except as set
forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to May 31, 1997 which individually or in the
aggregate are not material to the financial condition or operating results of
the Company, and (ii) obligations not required under generally accepted
accounting principles to be reflected in the Financial Statements.
3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance
sheet dated May 3 1, 1997 there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, or business of the Company;
(b) any waiver by the Company of a valuable right or of a material
debt owed to it;
(c) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound
or subject, except for changes or amendments which are expressly provided for
or disclosed in this Agreement;
(d) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances or other advances made in the
ordinary course of business;
(e) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct
or indirect redemption, purchase or other acquisition of any such stock by
the Company;
(f) any incurrance of indebtedness for money borrowed individually
in excess of $50,000 or in excess of $100,000 in the aggregate;
(g) any material change in any compensation arrangement or
agreement with any employee;
(h) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(i) any resignation or termination of employment of any key
officer of the Company; and
(j) to the Company's knowledge, any other event or condition or
any character which would be reasonably likely to materially and adversely
affect the assets, properties, financial condition, operating results or
business of the Company;
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3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports when and as required by law and has never been audited by
any state or federal taxing authority. All tax returns and reports of the
Company, if applicable, are true and correct in all material respects.
3.10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or
prior to the Closing will own or have the right, to use, free and clear of
all liens, charges, claims and restrictions, all patents, trademarks,
service marks, trade names, copyrights, licenses and rights necessary to its
business as now conducted, and is not, to the best of its knowledge,
infringing upon or otherwise acting adversely to the right or claimed right
of any person under or with respect to any of the foregoing. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
has not received any written communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any
patent, trademark, service mark, trade name, copyright or trade secret or
other proprietary right of any other person or entity. The Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business as
proposed, will, to the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees
is now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently
intends to hire) made prior to their employment by the Company.
3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to
the best knowledge of the Company, any third party is in default under any
material contract, agreement or instrument to which the Company is a party.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of the Restated Certificate of
Incorporation or Bylaws, or in any material respect of any term or provision
of any material mortgage, indenture, contract, agreement or instrument to
which it is a party or by which it is bound, and to the best of its
knowledge, is not in violation of any order, statute, rule or regulation
applicable to the Company, which violation reasonably would be expected to
have a material adverse effect on the Company's business or financial
condition. The execution, delivery and performance of and compliance
with this Agreement, and the issuance of the Shares and the Conversion Stock,
have not resulted and will not result in any violation of, or conflict with,
or constitute a default under, or result in the creation of, any material
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company.
3.13 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency (nor, to the best of the Company's knowledge, is there
any written threat thereof), which, either in any case or in the aggregate,
reasonably would be expected to result in any material adverse change in the
business or financial condition of the Company or any of its properties or
assets, or in any material impairment of the right or ability of the Company
to carry on its business as now conducted, and none which questions the
validity of this Agreement or the Investors' Rights Agreement or any action
taken or to be taken in connection herewith. The Company is not a party to,
or to the best of its knowledge named in any order, writ, injunction,
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judgment or decree of any court or government agency or instrumentality.
There is no action, suit or proceeding by the Company currently pending or
that the Company currently intends to initiate.
3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other party because
of the nature of the business conducted or to be conducted by the Company.
The Company does not have any collective bargaining agreements covering any
of its employees.
3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights
Agreement, the Company is not currently under any obligation to register
under the Securities Act of 1933, as amended (the "Act") any of its presently
outstanding securities or any of its securities which may hereafter be issued.
3.16 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of, or designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement, or the offer, sale or issuance of the Shares and the
Conversion Stock, or the consummation of any other transaction contemplated
hereby, except (a) filing of the Restated Certificate in the office of the
Secretary of State of the State of Delaware, and (b) qualification (or
taking such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Shares and the
Conversion Stock under the California Corporate Securities Law and other
applicable Blue Sky laws, which filing and qualification, if required, will
be accomplished in a timely manner prior to or promptly upon completion of
the Closing.
3.17 BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3.18 DISCLOSURES. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate
furnished to the Investors in connection with this Agreement, contains any
untrue statement of a material fact or, when taken together, omits to state a
material fact necessary to make the statements made herein, in light of the
circumstances under which they were made, not misleading. However, as to any
projections furnished to the Investors, such projections were prepared in good
faith by the Company, but the Company makes no representation or warranty
that it will be able to achieve such projections. The Company has fully
provided each Investor with all the information that such Investor has
requested for deciding whether to purchase the Shares.
3.19 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company, and believes it
can obtain without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses or other similar authority.
3.20 REAL PROPERTY HOLDING COMPANY. The Company is not a "real property
holding company" as defined under Section 897 of the Internal Revenue Code.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants to the Company with respect
to its purchase of the Shares as follows:
4.1 AUTHORIZATION. This Agreement and the Investors' Right Agreement,
when executed and delivered by the Investor, will each constitute the
Investor's valid and legally binding obligation, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which
by the Investor's execution of this Agreement the Investor hereby confirms,
that the Common Stock or Series C Preferred to be received by the Investor
and the Common Stock and Series C-1 Preferred issuable upon conversion of the
Series C Preferred (collectively, the "Securities") will be acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, the Investor
further represents that the Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Securities. The Investor represents that it has the full power and
authority to enter into this Agreement.
4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the investment in the Series C
Preferred. If other than an individual, the Investor also represents it has
not been organized solely for the purpose of acquiring the Series C
Preferred, or if the Investor has been organized solely for the purpose of
acquiring the Series C Preferred, that all of the equity owners of the
Investor are "accredited investors" as defined below.
4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" within
the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
4.5 NO PUBLIC MARKET. Each Investor understands that no public market
now exists for any of the securities issued by the Company and that it is
unlikely that a public market will ever exist for the Shares.
4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed this
Agreement and all Exhibits thereto; it, its attorney and its accountant have
had access to, and an opportunity to review all documents and other materials
provided by or requested of, the Company; it and they have been given an
opportunity to ask any and all questions of, and receive answers from, the
Company concerning the terms and conditions of the offering and to obtain all
information it or they believe necessary or appropriate to evaluate the
suitability of an investment in the Common Stock or Series C Preferred;
and, in evaluating the suitability of an investment in the Common Stock or
Series C Preferred, it and they have not relied upon any
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representations or other information (whether oral or written) other than as
set forth in the documents and answers referred to above.
4.7 RESTRICTED SECURITIES. The Investor understands that the Securities
it is purchasing are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration
under the Act only in certain limited circumstances. In addition, the
Investor represents that it is familiar with Rule 144 promulgated under
the Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Securities unless:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement;
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with either (i) an
unqualified written opinion of counsel who shall be reasonably satisfactory
to the Company addressed to the Company and reasonably satisfactory in form
and substance to the Company's counsel to the effect that the proposed
transfer may be effected without registration under the Act or (ii) a "No
Action" letter from the Securities and Exchange Commission to the effect that
the transfer of such securities without registration will not result in a
recommendation by the staff of the Securities and Exchange Commission that
action be taken with respect thereto, whereupon the holder of such Securities
shall be entitled to transfer such Securities in accordance with the terms of
the notice delivered by the Holder to the Company; or
(c) The Investor shall have sold, assigned, transferred, pledged or
otherwise disposed of the Securities in a transaction involving the
distribution without consideration of the Securities by the Investor to any
of its partners or retired partners, or to the estate of any of its partners
or retired partners, or in a transaction involving the transfer or
distribution of the Securities by a corporation to any subsidiary, parent or
affiliated corporation of such corporation; provided in each case that the
Investor shall give written notice to the Company of such Investor's
intention to effect such transfer, sale, assignment, pledge or other
disposition. The Investor will cause any such proposed purchaser assignee,
transferee or pledgee of any Securities held by the Investor to agree to take
and hold such Securities subject to the provisions and upon the conditions
specified in this Agreement.
4.9 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT."
(b) Any legend required by the laws of the State of Delaware or
the State of California, including any legend required by the California
Department of Corporations.
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4.10 GOVERNMENT CONSENTS. Other than securities law filings required to
be made by the Company, no consent, approval or authorization of or
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of the Investor is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby.
SECTION 5
CONDITIONS TO CLOSING OF INVESTORS
The Investors' obligations to purchase the Shares at the Closing or at
any Subsequent Closing are, at the option of each Investor, subject to the
fulfillment on or prior to the Closing Date or at any Subsequent Closing Date
of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date, or the Subsequent Closing Date, as the
case may be, with the same force and effect as if they had been made on and
as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
or the Subsequent Closing Date, as the case may be, shall have been performed
or complied with in all material respects.
5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received from
counsel to the Company, an opinion addressed to them, dated the Closing Date
or the Subsequent Closing Date, as the case may be, in a form reasonably
acceptable to the Investors.
5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investors a certificate executed by the President of the Company, dated the
Closing Date or the Subsequent Closing Date, as the case may be, and
certifying to the fulfillment of the conditions specified in Sections 5.1,
5.2, and 5.8 of this Agreement, and that he has made, or caused to be made,
such investigations as he deemed necessary in order to permit him to verify
the accuracy of the information set forth in such certificate.
5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Conversion Stock.
5.6 BOARD OF DIRECTORS. The Board of Directors shall at the Closing
consist of Jim Clark, Brook Byers, Hugh Rienhoff, Jr., M.D. and John Doerr.
5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been
filed with the Secretary of State of the State of Delaware.
5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the Company's business or financial condition.
5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall
have entered into the Investors' Rights Agreement in substantially the form
attached hereto as Exhibit D.
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SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing or
at any Subsequent Closing, is at the option of the Company, subject to the
fulfillment of the following conditions:
6.1 REPRESENTATIONS. The representations made by the Investors in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date or the Subsequent Closing Date, as the case may
be.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Conversion Stock.
6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts
of laws principles thereof.
7.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Investor and the
closing of the transactions contemplated hereby.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto, provided, however, that the rights of a Investor to purchase Shares
shall not be assignable without the written consent of the Company.
7.4 ENTIRE AGREEEMNT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver, discharge, or
termination is sought; provided, however, that holders of a majority of the
shares of Common Stock issued or issuable upon conversion of the Shares
and/or the Series C-I Preferred and (whether or not converted) not resold
to the public may waive or amend, on behalf of all Investors, any provisions
hereof benefiting Investors in respect of the Shares.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Investor, at such
Investor's address set forth in Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any
other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has
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so furnished an address to the Company, or (c) if to the Company, one copy
should be sent to its address set forth on the cover page of this
Agreement and addressed to the attention of the Corporate Secretary, or at
such other address as the Company shall have furnished to the Investors.
7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair at such right,
power or remedy of such holder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM
SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH
EXEMPTION BEING AVAILABLE.
7.8 EXPENSES. The Company and the Investors shall each bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby except that, assuming a successful completion of the
offering the Company will pay at the initial Closing the reasonable legal
fees and reasonable expenses upon receipt of a bill therefor, incurred by one
counsel to the Investors.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the
Investors, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severablility shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
7.11 GENDER. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
7.12 INFORMATION RIGHTS. The Company hereby agrees to provide the
Investors with the following information rights:
a. The Company shall, as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company,
furnish to Investor a consolidated profit and loss statement for such fiscal
year, a consolidated balance sheet of the Company and a consolidated
statement of stockholders' equity as of the end of such year, and a
consolidated statement of cash flows for such year, such year-end financial
reports to be prepared in accordance with generally accepted accounting
principles
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and audited and certified by independent public accountants of nationally
recognized standing selected by the Company.
b. The Company shall furnish to Investor, as soon as practicable
following the end of each quarter at such time as the Company furnishes to
its other venture capital investors, a consolidated profit and loss statement
for each quarter and year-to-date, a consolidated balance sheet of the
Company and a consolidated statement of cash flows for such quarter and
year-to-date prepared in accordance with generally accepted accounting
principles consistently applied.
c. The Company shall furnish Investor, provided Investor continues
to hold all of the Shares purchased hereunder, upon request, within thirty
(30) days of the end of each month, an unaudited consolidated profit and loss
statement, consolidated statement of cash flows and consolidated balance
sheet for and as of the end of such month, and comparison to year-end results
(if any).
d. The rights to receive financial information set forth herein
above may be assigned by Investor to a subsequent transferee or assignee
which holds in the aggregate at least two hundred fifty thousand (250,000)
shares (as adjusted for stock splits, combinations, dividends and the like)
of such Investor's Shares (or Common Stock issued upon conversion of such
Preferred Stock), provided that the transferee or assignee of such rights is
not deemed by the Board of Directors, in its reasonable judgment, to be a
current or potential competitor of the Company.
The foregoing Series C Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
HEALTHEON CORPORATE
By: /s/ W. Michael Long
----------------------------
President
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HEALTHEON CORPORATION
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (the "Agreement") is
made as of October 13, 1997, by and among Healtheon Corporation, a
Delaware corporation (the "Company"), with its principal office at 87 Encina
Avenue, Palo Alto, California 94301, and the persons and entities listed on
the Schedule of Investors attached as Exhibit A hereto (the "Investors").
SECTION 1
AUTHORIZATION AND SALE OF STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
up to four million eight hundred seven thousand six hundred ninety-three
(4,807,693) shares of its Series D Preferred Stock (the "Series D
Preferred"), having the rights, restrictions, privileges and preferences as
set forth in the Company's Restated Certificate of Incorporation in the form
attached to this Agreement as Exhibit B (the "Restated Certificate").
1.2 SALE OF STOCK. Subject to the terms and conditions hereof, the
Company will issue and sell to the Investors, and the Investors will buy from
the Company, the number of shares (the "Shares") of Series D Preferred
specified opposite each Investor's name on the Schedule of Investors, at a
cash purchase price of five dollars and twenty cents ($5.20) per share. The
Company's agreements with each of the Investors are separate agreements, and
the sales of the Shares to each of the Investors are separate sales.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The initial closing of the purchase and sale of the
Shares hereunder (the "Closing") shall be held at 11:00 a.m. on October 13,
1997 or on such later date or dates as the Company and the Investors may
agree to (the date of such Closing being referred to as the "Closing Date").
The place of the Closing (including the place of delivery to the Investors by
the Company of the certificates evidencing all shares Series D Preferred
being purchased and the place of payment to the Company by the Investors of
the purchase price therefor) shall be at the offices of the Company located
at 87 Encina Avenue, Palo Alto, California 94301, or such other place as the
Investors and the Company may mutually agree.
2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion,
provide for deferred closings hereunder (a "Subsequent Closing"), to be held
at the offices of the Company, at such time and dates as the Company may
determine (the date of any such Subsequent Closing being referred to as a
"Subsequent Closing Date"). Any Subsequent Closing(s) will take place as
promptly as possible following the initial Closing hereunder. The number of
shares of Series D Preferred which any Subsequent Investor shall be entitled
to purchase, shall be determined within the sole discretion of the Company,
but in no event shall the total number of shares of Series D Preferred sold
pursuant to this Agreement be more than three million (3,000,000) shares.
Upon completion of any Subsequent Closing, if any, all additional purchasers
of shares of Series D Preferred shall be considered "Investors" within the
meaning of this Agreement.
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2.3 DELIVERY. At the Closing and any Subsequent Closing, the Company
will deliver to each Investor a certificate or certificates representing the
number of Shares designated in column 2 of the Schedule of Investors to be
purchased by each Investor, against payment of the purchase price therefor,
by check or wire transfer payable to the Company, or by cancellation of
outstanding indebtedness from the Company to such Investor, or by a
combination thereof, in the amount specified in column 3 of the Schedule of
Investors.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on Exhibit C attached hereto, the Company hereby
represents and warrants to the Investors as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Delaware and is in good standing under such laws. The Company
has requisite corporate power to own and operate its properties and assets,
and to carry on its business as presently conducted and as proposed to be
conducted. The Company is not qualified to do business as a foreign
corporation in any jurisdiction and such qualification is not presently
required.
3.2 CORPORATE POWER. The Company will have at the Closing Date all
requisite corporate power to execute and deliver this Agreement and the
Amended and Restated Investors' Rights Agreement dated October 13, 1997
attached hereto as Exhibit D (the "Investors' Rights Agreement"), to sell and
issue the Shares hereunder, to issue the underlying Series D-1 Preferred
Stock (the "Series D-1 Preferred") and Common Stock (together, the
"Conversion Stock") in accordance with the provisions of the Restated
Certificate, and to carry out and perform its obligations under the terms of
this Agreement and the Investors' Rights Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
other corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company consists
of (a) 37,00,000 shares of Common Stock, 2,167,804 shares of which are
issued and outstanding prior to the Closing; (b) 10,305,000 shares of Series
A Preferred, 10,305,000 shares of which are issued and outstanding prior to
the Closing and 10,305,000 shares of Series A-1 Preferred, none of which has
been or will be issued or outstanding prior to the Closing (c) 6,105,000
shares of Series B Preferred, 3,277,500 of which are issued and are
outstanding as of the date hereof, 2,811,947 of which are subject to
outstanding warrants as of the date hereof and 6,105,000 shares of Series B-1
Preferred, none of which has been or will be issued or outstanding prior to
the Closing; (d) 2,600,000 shares of Series C Preferred, 2,600,000 of which
are issued and outstanding prior to the Closing and 2,600,000 shares of
Series C-1 Preferred, none of which has been or will be issued or
outstanding prior to the Closing; (e) 5,000,000 shares of Series D Preferred,
none of which will be issued and outstanding prior to the Closing and
5,000,000 shares of Series D-1 Preferred, none of which has been or will be
issued or outstanding prior to the Closing. The Company has reserved (i)
4,807,693 shares of Series D Preferred for issuance hereunder, (ii)
sufficient shares of Common Stock for issuance upon conversion of the Series
D Preferred and/or Series D-1 Preferred, (iii) 4,807,693 shares of Series D-1
Preferred for issuance upon conversion of the Series D Preferred, (iv)
sufficient shares of Common Stock for issuance upon conversion of the Series
C Preferred and/or Series C-1 Preferred, (v) 2,600,000 shares of Series C-1
Preferred for issuance upon conversion of the Series C Preferred, (vi) two
million eight hundred eleven thousand nine hundred forty seven (2,811,947)
shares of Series B Preferred for issuance pursuant to outstanding warrants;
(vii) sufficient
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shares of Common Stock for issuance upon conversion of the Series B Preferred
and/or Series B-1 Preferred, (viii) sufficient number of shares of Series B-1
Preferred for issuance upon conversion of the Series B Preferred, (ix)
10,305,000 shares of Series A-1 Preferred for issuance upon conversion of the
Series A Preferred, (x) sufficient shares of Common Stock for issuance upon
conversion of the Series A Preferred and/or Series A-1 Preferred, and (xi)
9,000,000 shares of Common Stock for issuance to employees and consultants
pursuant to the Company's 1996 Stock Plan (of which 7,928,191 shares have
been issued and/or options granted,with respect thereto, prior to the date
hereof). There are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire any authorized
but unissued shares of capital stock or other securities of the Company. The
Series D Preferred and the Series D-1 Preferred shall have the rights,
preferences, privileges and restrictions set forth in the Restated
Certificate. There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of capital stock or other securities of the
Company. Assuming the accuracy of each Investor's representations in Section
4 below, upon issuance, the Shares will have been issued in compliance with
all federal and state securities laws.
3.5 AUTHORIZATION. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Investors' Rights
Agreement by the Company, the authorization, sale, issuance and delivery of
the Shares and the Conversion Stock and the performance of the Company's
obligations hereunder has been taken or will be taken prior to the Closing.
This Agreement and the Investors' Rights Agreement, when executed and
delivered by the Company, shall constitute the valid and binding obligations
of the Company enforceable in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, and other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal and
state securities laws. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid
and nonassessable; the Series D-1 Preferred issuable upon conversion of the
Series D Preferred has been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement, will be validly issued and
will be fully paid and nonassessable and the Common Stock issuable upon
conversion of the Series D Preferred and/or the Series D-1 Preferred has been
duly and validly reserved and, when issued in compliance with the provisions
of this Agreement, will be validly issued and will be fully paid and
nonassessable, and free of any liens or encumbrances (assuming the Investors
take the Shares with no notice thereof) other than any liens or encumbrances
created by or imposed upon the holders; provided, however, that the Shares
and the Conversion Stock may be subject to restrictions on transfer under
state or federal securities laws and restrictions set forth herein.
3.6 TITLE TO PROPERTIES AND ASSETS, LIENS, ETC. The Company has good
and valid title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (i) the lien of current taxes not
yet due and payable, and (ii) possible minor liens and encumbrances which do
not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company, and which have
not arisen otherwise than in the ordinary course of business.
3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor
its audited financial statements (balance sheet, income statement and
statement of cashflow) for the period from inception through December 31,
1996 and its unaudited financial statements (balance sheet and income
statement) for the period ended August 31, 1997 (the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis, except
that the August 31, 1997 Financial Statements do not contain all footnotes
required by GAAP and are subject to
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normal year end adjustments. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein. Except as set forth in the Financial
Statements, the Company has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to August 31, 1997 which individually or in the aggregate are not
material to the financial condition or operating results of the Company, and
(ii) obligations not required under generally accepted accounting principles
to be reflected in the Financial Statements.
3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance
sheet dated August 3 1, 1997 there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, or business of the Company;
(b) any waiver by the Company of a valuable right or of a material
debt owed to it;
(c) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound
or subject, except for changes or amendments which are expressly provided for
or disclosed in this Agreement;
(d) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances or other advances made in the
ordinary course of business;
(e) any declaration, setting aside or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any such stock by the Company;
(f) any incurrance of indebtedness for money borrowed individually
in excess of $50,000 or in excess of $100,000 in the aggregate;
(g) any material change in any compensation arrangement or
agreement with any employee;
(h) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(i) any resignation or termination of employment of any key officer
of the Company; and
(j) to the Company's knowledge, any other event or condition or any
character which would be reasonably likely to materially and adversely affect
the assets, properties, financial condition, operating results or business of
the Company;
3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns and reports when and as required by law and has never been audited by
any state or federal taxing authority. All tax returns and reports of the
Company, if applicable, are true and correct in all material respects.
3.10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or
prior to the Closing will own or havee the right, to use, free and clear of
all liens, charges, claims and restrictions, all patents,
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trademarks, service marks, trade names, copyrights, licenses and rights
necessary to its business as now conducted, and is not, to the best of its
knowledge, infringing upon or otherwise acting adversely to the right or
claimed right of any person under or with respect to any of the foregoing.
There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company has not received any written communications alleging that the
Company has violated or, by conducting its business as proposed, would
violate any patent, trademark, service mark, trade name, copyright or trade
secret or other proprietary right of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's
best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to
the best knowledge of the Company, any third party is in default under any
material contract, agreement or instrument to which the Company is a party.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
of any term of the Restated Certificate of Incorporation or Bylaws, or in
any material respect of any term or provision of any material mortgage,
indenture, contract, agreement or instrument to which it is a party or by
which it is bound, and to the best of its knowledge, is not in violation of
any order, statute, rule or regulation applicable to the Company, which
violation reasonably would be expected to have a material adverse effect on
the Company's business or financial condition. The execution, delivery and
performance of and compliance with this Agreement, and the issuance of the
Shares and the Conversion Stock, have not resulted and will not result in any
violation of, or conflict with, or constitute a default under, or result in
the creation of, any material mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company.
3.13 LITIGATION, etc. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency (nor, to the best of the Company's knowledge, is there
any written threat thereof), which, either in any case or in the aggregate,
reasonably would be expected to result in any material adverse change in the
business or financial condition of the Company or any of its properties or
assets, or in any material impairment of the right or ability of the Company
to carry on its business as now conducted, and none which questions the
validity of this Agreement or the Investors' Rights Agreement or any action
taken or to be taken in connection herewith. The Company is not a party to,
or to the best of its knowledge named in any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
There is no action, suit or proceeding by the Company currently pending or
that the Company currently intends to initiate.
3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other party because
of the nature of the business conducted or to be conducted by the Company.
The Company does not have any collective bargaining agreements covering any
of its employees.
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3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights
Agreement, the Company is not currently under any obligation to register
under the Securities Act of 1933, as amended (the "Act") any of its presently
outstanding securities or any of its securities which may hereafter be issued.
3.16 GOVERNMENTAL CONSENT ETC. No consent, approval or authorization of,
or designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Company is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement, or the offer, sale or issuance of the Shares and the
Conversion Stock, or the consummation of any other transaction contemplated
hereby, except (a) filing of the Restated Certificate in the office of the
Secretary of State of the State of Delaware, and (b) qualification (or taking
such action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Shares and the Conversion Stock under
the California Corporate Securities Law and other applicable Blue Sky laws,
which filing and qualification, if required, will be accomplished in a timely
manner prior to or promptly upon completion of the Closing.
3.17 BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3.18 DISCLOSURES. No representation, warranty or statement by the
Company in this Agreement, or in any written statement or certificate
furnished to the Investors in connection with this Agreement, contains any
untrue statement of a material fact or, when taken together, omits to state a
material fact necessary to make the statements made herein, in light of the
circumstances under which they were made, not misleading. However, as to any
projections furnished to the Investors, such projections were prepared in
good faith by the Company, but the Company makes no representation or
warranty that it will be able to achieve such projections. The Company has
fully provided each Investor with all the information that such Investor has
requested for deciding whether to purchase the Shares.
3.19 PERMITS. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company, and believes it
can obtain without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses or other similar authority.
3.20 REAL PROPERTY HOLDING COMPANY. The Company is not a "real property
holding company" as defined under Section 897 of the Internal Revenue Code.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants to the Company with respect
to its purchase of the Shares as follows:
4.1 AUTHORIZATION. This Agreement and the Investors' Right Agreement,
when executed and delivered by the Investor, will each constitute the
Investor's valid and legally binding obligation, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization,
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moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which
by the Investor's execution of this Agreement the Investor hereby confirms,
that the Common Stock or Series D Preferred to be received by the Investor
and the Common Stock and Series D-1 Preferred issuable upon conversion of the
Series D Preferred (collectively, the "Securities") will be acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, the Investor
further represents that the Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Securities. The Investor represents that it has the full power and
authority to enter into this Agreement.
4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the investment in the Series D
Preferred. If other than an individual, the Investor also represents it has
not been organized solely for the purpose of acquiring the Series D
Preferred, or if the Investor has been organized solely for the purpose of
acquiring the Series D Preferred, that all of the equity owners of the
Investor are "accredited investors" as defined below.
4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" within
the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
4.5 NO PUBLIC MARKET. Each Investor understands that no public market now
exists for any of the securities issued by the Company and that it is unlikely
that a public market will ever exist for the Shares.
4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed this
Agreement and all Exhibits thereto; it, its attorney and its accountant have
had access to, and an opportunity to review all documents and other materials
provided by or requested of, the Company; it and they have been given an
opportunity to ask any and all questions of, and receive answers from, the
Company concerning the terms and conditions of the offering and to obtain all
information it or they believe necessary or appropriate to evaluate the
suitability of an investment in the Common Stock or Series D Preferred; and,
in evaluating the suitability of an investment in the Common Stock or Series
D Preferred, it and they have not relied upon any representations or other
information (whether oral or written) other than as set forth in the
documents and answers referred to above.
4.7 RESTRICTED SECURITIES. The Investor understands that the Securities
it is purchasing are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration
under the Act only in certain limited circumstances. In addition, the
Investor represents that it is familiar with Rule 144 promulgated under the
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Securities unless:
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(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement;
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with either (i) an
unqualified written opinion of counsel who shall be reasonably satisfactory
to the Company addressed to the Company and reasonably satisfactory in form
and substance to the Company's counsel to the effect that the proposed
transfer may be effected without registration under the Act or (ii) a "No
Action" letter from the Securities and Exchange Commission to the effect that
the transfer of such securities without registration will not result in a
recommendation by the staff of the Securities and Exchange Commission that
action be taken with respect thereto, whereupon the holder of such Securities
shall be entitled to transfer such Securities in accordance with the terms of
the notice delivered by the Holder to the Company; or
(c) The Investor shall have sold, assigned, transferred, pledged or
otherwise disposed of the Securities in a transaction involving the
distribution without consideration of the Securities by the Investor to any
of its partners or retired partners, or to the estate of any of its partners
or retired partners, or in a transaction involving the transfer or
distribution of the Securities by a corporation to any subsidiary, parent or
affiliated corporation of such corporation; provided in each case that the
Investor shall give written notice to the Company of such Investor's
intention to effect such transfer, sale, assignment, pledge or other
disposition. The Investor will cause any such proposed purchaser, assignee,
transferee or pledgee of any Securities held by the Investor to agree to take
and hold such Securities subject to the provisions and upon the conditions
specified in this Agreement.
4.9 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT."
(b) Any legend required by the laws of the State of Delaware or the
State of California, including any legend required by the California
Department of Corporations.
4.10 GOVERNMENT CONSENTS. Other than securities law filings required to
be made by the Company, no consent, approval or authorization of or
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of the Investor is required in connection
with the valid execution and delivery of this Agreement and the Investors'
Rights Agreement by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby.
4.11 WAIVER OF RIGHT OF FIRST REFUSAL. Each Investor hereby waives all
rights which it may have had under Section 2.5 of the Amended and Restated
Investors' Rights Agreement, including notice rights, with respect to the
sale of the Series D Preferred Stock hereunder.
8
<PAGE>
SECTION 5
CONDITIONS TO CLOSING OF INVESTORS
The Investors' obligations to purchase the Shares at the Closing or at
any Subsequent Closing are, at the option of each Investor, subject to the
fulfillment on or prior to the Closing Date or at any Subsequent Closing Date
of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date, or the Subsequent Closing Date, as the
case may be, with the same force and effect as if they had been made on and
as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
or the Subsequent Closing Date, as the case may be, shall have been performed
or complied with in all material respects.
5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received
from counsel to the Company, an opinion addressed to them, dated the Closing
Date or the Subsequent Closing Date, as the case may be, in a form reasonably
acceptable to the Investors.
5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investors a certificate executed by the President of the Company, dated the
Closing Date or the Subsequent Closing Date, as the case may be, and
certifying to the fulfillment of the conditions specified in Sections 5.1,
5.2, and 5.8 of this Agreement, and that he has made, or caused to be made,
such investigations as he deemed necessary in order to permit him to verify
the accuracy of the information set forth in such certificate.
5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Conversion Stock.
5.6 BOARD OF DIRECTORS. The Board of Directors shall at the Closing
consist of Jim Clark, John Doerr, Richard Kramlich and W. Michael Long.
5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the Company's business or financial condition.
5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall
have entered into the Investors' Rights Agreement in substantially the form
attached hereto as Exhibit D.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing or
at any Subsequent Closing, is at the option of the Company, subject to the
fulfillment of the following conditions:
9
<PAGE>
6.1 REPRESENTATIONS. The representations made by the Investors in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date or the Subsequent Closing Date, as the case may
be.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by
any state for the offer and sale of the Shares and the Conversion Stock.
6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed
with the Secretary of State of the State of Delaware.
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without giving effect to the conflicts
of laws principles thereof.
7.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Investor and the
closing of the transactions contemplated hereby.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto, provided, however, that the rights of a Investor to purchase Shares
shall not be assignable without the written consent of the Company.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver, discharge, or
termination is sought; provided, however, that holders of a majority of the
shares of Common Stock issued or issuable upon conversion of the Shares
and/or the Series D-1 Preferred and (whether or not converted) not resold
to the public may waive or amend, on behalf of all Investors, any provisions
hereof benefiting Investors in respect of the Shares.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to a Investor, at such
Investor's address set forth in Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any
other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the
Company, one copy should be sent to its address set forth on the cover page
of this Agreement and addressed to the attention of the Corporate Secretary,
or at such other address as the Company shall have furnished to the Investors.
7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right,
power or remedy of such holder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any
10
<PAGE>
waiver of any single breach or default be deemed a waiver of any other breach
or default theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any holder of any breach
or default under this Agreement, or any waiver on the part of any holder of
any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM
SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH
EXEMPTION BEING AVAILABLE.
7.8 EXPENSES. The Company and the Investors shall each bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the
Investors, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
7.11 GENDER. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
The foregoing Series D Preferred Stock Purchase Agreement is hereby
executed as of the date first above written.
COMPANY:
HEALTHEON CORPORATION
By: /s/ W. Michael Long
-------------------------------------
W. Michael Long
President and Chief Executive Officer
Address: 87 Encina Avenue
Palo Alto, CA 94301
11
<PAGE>
FULL RECOURSE PROMISSORY NOTE
$499,750 Dated as of July 11, 1997
FOR VALUE RECEIVED, W. Michael Long ("BORROWER"), hereby promises to pay
to the order of Healtheon Corporation, a Delaware corporation (the "LENDER"),
its successors and assigns in lawful money of the United States of America,
the principal sum of Four Hundred Ninety-Nine Thousand Seven Hundred Fifty
($499,750), or such lesser amount as may be outstanding from time to time, no
later than July 16, 1998. (the "MATURITY DATE").
1. PAYMENT. Borrower hereby agrees to repay this Promissory Note in a
series of (i) twenty-five (25) semi-monthly installments commencing upon July
15, 1997 and concluding on July 15, 1998; and (ii) four (4) additional
quarterly payments commencing on October 15, 1997 and concluding on July 15,
1998. The semimonthly payments shall be equal to the amount of net
compensation due to Borrower from Lander after giving effect to all
applicable payroll deductions for taxes, benefits, etc. The quarterly
payments shall each be in an amount which is equal to the difference between
(i) one hundred twenty-four thousand nine hundred thirty seven dollars and
fifty cents ($124,937.50) and (ii) The amount which has been repaid under
this Promissory Note during the preceding quarter. Each payment, when made
hereunder, shall be added to Exhibit A. The unpaid balance under this
Promissory Note shall be due and payable upon the termnination of Borrower's
employment with the Company for any reason. Borrower shall repay the
remaining outstanding balance within five (5) days of the termination of
Borrower's employment. Borrower may pay any portion or all of this
Promissory Note at any time, without penalty. In the event that Borrower
shall fail to pay when due (whether at maturity, by reason of acceleration or
otherwise) any principal of or interest on this Note, such overdue amounts
shall bear interest at a rate equal to eight percent (8%) per annum. If this
Note (or any interest payment hereunder) becomes due and payable on a day
other than a business day, the maturity thereof shall be extended to the next
succeeding business day.
2. WAIVER. The Borrower hereby waives diligence, demand, presentment,
protest and notice of any kind, and all rights of set-off, and assents to
extensions of the time of payment, release, surrender or substitution of
security, or forbearance or other indulgence, without notice.
3. GENERAL. This Note may not be changed, modified or terminated or-
ally, but only by an agreement in writing signed by the party to be charged.
This Note shall be binding upon the heirs, executors, administrators,
successors and assigns of the Borrower and inure to the benefit of the Lender
and its permitted successors, endorsees and assigns. If any term or provision
of this Note shall be held invalid, illegal or unenforceable the validity,
legality and enforceability of all other terms and provisions hereof shall in
no way be affected thereby.
4. LAW. This Note shall be governed by and construed in accordance of
the State of California.
/s/ W. Michael Long
-----------------------------
W. Michael Long
Healtheon Corporation:
/s/ Jim Clark
- -------------------------------
Jim Clark, Chairman of the Board
<PAGE>
EXHIBIT A
SCHEDULE OF PAYMENTS
<TABLE>
<CAPTION>
Payment Outstanding Balance
------- -------------------
<S> <C> <C>
$499,750.00
1. July 15, 1997
2. July 31, 1997
3. August 15, 1997
4. August 31, 1997
5. September 15, 1997
6. September 30, 1997
7 October 15, 1997
OCTOBER 15,1997, QUARTERLY PMT $374,812.50
8 October 31, 1997
9. November 15, 1997
10. November 30, 1997
11. December 15, 1997
12. December 31, 1997
13. January 15, 1998
JANUARY 15,1998 QUARTERLY PMT $249,875.00
14. January 31, 1998
15. February 15, 1998
16. February 28, 1998
17. March 15, 1998
18. March 31, 1998
19. April 15, 1998
APRIL 15,1998, QUARTERLY PMT $124,937.50
20. April 30, 1998
21. May 15,1998
22. May 31, 1998
23. June 15, 1998
24. June 30, 1998
25. July 15, 1998
JULY 15,1998, QUARTERLY PMT $0
</TABLE>
<PAGE>
PROMISSORY NOTE
Dated as of ___________, 1997
For Value Received, Healtheon Corporation, a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of _______________ (the
"Payee"), the principal sum (the "Principal Amount") of ___________ dollars
_______________, together with interest thereon at the rate set forth below,
which shall be due and payable as hereinafter provided. This Promissory Note
is one of a series of seven (7) Promissory Notes totaling two million dollars
($2,000,000.00) (the "Series").
1. PAYMENT. This Promissory Note can be called by Payee at any
time after thirty (30) days from the date of issuance upon ten (10) days
notice to Borrower. Borrower may pay any portion or all of this Promissory
Note at any time, without penalty. All payments will be applied first to
interest due and then to principal.
2. INTEREST. Interest shall accrue on the unpaid Principal Amount
of this Promissory Note from the date hereof until such Principal Amount is
repaid in full, at an interest rate equal to six percent (6%) per annum. All
computations of the interest rate hereunder shall be made on the basis of a
year of three hundred sixty-five (365) days based on the actual number of
days (including the first day but excluding the last day) any such Principal
Amount is outstanding.
3. WARRANT. Simultaneously with the complete payment of this
Promissory Note, if such payment occurs at least thirty (30) days from the
date of issuance of this Promissory Note, Borrower shall issue to Payee a
warrant exercisable for the number of shares of Borrowees Series B Preferred
Stock equal to the number of full and pro rated partial months that any
portion of this Promissory Note is outstanding, multiplied by five percent
(5%) of the Principal Amount, divided by the lesser of: (i) two dollars
($2.00); or (ii) the price per share of the next equity financing following
the issue date of this Promissory Note in which Borrower raises at least two
million dollars ($2,000,000). Such warrant shall have an exercise price
equal to two dollars ($2.00) per share, shall have a "net exercise" right,
and shall be exercisable for five (5) years from the date of the issuance.
4. REPRESENTATIONS. This Promissory Note has been acquired for
investment and not with a view to distribution and may not be resold without
registration or pursuant to an exemption therefrom.
5. COLLECTION EXPENSES. Should the indebtedness evidenced by this
Promissory Note or any part hereof be collected at law or in equity or in
bankruptcy, receivership or other court proceedings, or this Promissory Note
placed in the hands of attorneys for collection, the Borrower agrees to pay,
in addition to principal and interest due and payable hereon, all costs of
collection, including attorney's fees, incurred by the Payee in collecting or
enforcing this Promissory Note.
<PAGE>
6. WAIVER. Payee will not be deemed to waive any of its rights
under this Promissory Note unless its waiver is in writing and signed by
the Payee. No delay or omission by the Payee in exercising any of its
rights will operate as a waiver of its rights. A waiver in writing on one
occasion will not be construed as a consent to or a waiver of any of the
Payee's right or remedy on any ftiture occasion.
7. GENERAL. This Promissory Note will be governed by and
construed and enforced in accordance with the laws of the State of
California. Whenever possible, each provision of this Promissory Note will
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Promissory Note will be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Promissory Note.
Dated as of _________, 1997.
Healtheon Corporation
By: /s/ David Schnell, M.D.
-------------------------------
David Schnell, M.D.
President
-2-
<PAGE>
EXHIBIT 10.27
July 2, 1997
PERSONAL AND CONFIDENTIAL
- -------------------------
Mike Long
3 Stegner Lane
Austin, Texas 78746
Dear Mike:
The Board of Directors of the Company has approved an agreement for your
services upon the terms set forth in this offer. On behalf of the Board of
Directors, I am pleased to submit to you the following offer:
1. TITLE AND POSITION. You will have the position of President and
Chief Executive Officer and you will report to the Board of Directors. We
will elect you to the Board of Directors promptly upon your acceptance of
this offer; and, upon your request, you will be elected as Chairman of the
Board. The position shall be located at the offices of the Company, except
as travel to other locations may be necessary to fulfill your
responsibilities.
2. DUTIES AND OBLIGATIONS. During your employment, you shall devote
your full time, interest and effort to the performance of the duties of the
position.
3. COMMENCEMENT. It is anticipated that you will commence employment
no later than July __, 1997.
4. COMPENSATION AND BENEFITS.
(a) SALARY. The Company shall pay you for all services to be
performed by you at a monthly salary of $ 41,667, adjusted as provided in
Section 4(g) below, payable in periodic semi-monthly installments according
to the Company's practice, subject to any applicable withholding taxes. Your
base salary will be reviewed on an annual basis by the Board of Directors or
its Compensation Committee. The first such review will occur no later than
February, 1999.
(b) STOCK PURCHASE RIGHT. At the Company's Board of Directors
meeting following the start of your employment, the Board will grant you a
stock award to purchase two million five hundred thousand (2,500,000) shares
of the Company Common Stock under the Company's 1996 Stock Plan (the
"Shares"). The purchase and/or exercise price for this right will be the
then-current fair market value of the Company Common Stock at the date of
grant or such other price as is consistent
<PAGE>
with the terms of the Company's 1996 Stock Plan. The vesting of the options
to purchase Shares (and the lapsing of the Company's repurchase right, in the
case of Shares purchased pursuant to a "restricted stock purchase agreement)
will commence on the date of your full time employment with the Company. In
the case of an option(s), twenty-five percent (25%) of the options to
purchase Shares will be fully vested upon the date of grant, Shares issued
pursuant to any options will not be subject to any right of repurchase, other
than the right of first refusal as provided under the terms of the 1996 Stock
Plan and/or the agreements issued thereunder. In the case of Shares purchased
pursuant to a restricted stock agreement, 625,000 Shares will not be subject
to any right of repurchase (other than the right of first refusal, as
provided under the terms of the 1996 Stock Plan and/or the agreements issued
thereunder). The balance of the options to purchase Shares will begin
vesting and/or the repurchase right will lapse, in the case of a restricted
stock purchase agreement, one (1) year after your start date at the rate of
1/36th of the aggregate number of options to purchase Shares (or Shares in
the case of a restricted stock purchase) per month at the close of each month
while you remain employed with the Company, over the remainder of the four
(4) year vesting term. Upon the fourth anniversary of your start date, all
of the options to purchase Shares shall be fully vested and, in the case of a
restricted stock purchase, the Company's repurchase right will have lapsed in
its entirety.
The Board will respect your decision as to what portion of the Shares you
wish to obtain in the form of: (i) an immediate purchase, subject to the
Company's right of repurchase which lapses over time, with the right to make
an election under Section 83 (b) of the Internal Revenue Code; (ii) an
Incentive Stock Option, subject to the applicable rules and limitations under
the Internal Revenue Code; and (iii) a Non-Qualified Option. An attorney from
the Company's outside law firm of Wilson, Sonsini will be available to assist
you in evaluating the tax benefits of these different stock and option
programs. You have indicated that you want the above option in the form of
an Incentive Stock Option to the extent of the annual limitation contained in
section 422(d) of the Code, and to the extent the options exceed such limit
in a calendar year the excess will be a Non-Qualified Option and subject to
all terms of Non-Qualified Options, including price and time of exercise.
The Company will cooperate with you in this allocation. Your stock award
will be evidenced by Stock Option Agreement(s) (and/or a Restricted Stock
Purchase Agreement, in the event that you decide to have a portion of your
stock grant pursuant to a restricted stock purchase arrangement) subject to
the terms of the Company's 1996 Stock Plan and consistent with the forms of
agreements issued under the Company's 1996 Stock Plan. The terms of the Stock
Option agreements shall be amended by the Board at such meeting to provide
that Stock Option Agreements issued under the 1996 Stock Plan shall be
exercisable for a period of ninety (90) days following the date of
termination of employment rather than the Company's current thirty (30) day
period. The terms of these agreements permit you to transfer the Shares
which are not subject to a repurchase right or for which such right has
lapsed, to a trust for the benefit of your immediate family or to a member of
your immediate family. You shall have the right to exercise your options for
any consideration which is permissible under the terms of the 1996 Stock
Plan, including for shares of the Company's stock.
(c) ADDITIONAL STOCK PURCHASE RIGHT. The Company has granted you
the right to purchase up to one million (1,000,000) shares of the Company's
Series B Preferred Stock (the "Series B Shares") and upon such purchase you
shall become a party to the Company's Investors' Rights Agreement which shall
grant you registration rights with respect to your Series B Shares. The
2
<PAGE>
purchase price for such shares will be two dollars ($2.00) per share. The
Company shall allow you to purchase two hundred and fifty thousand (250,000)
of the Series B Shares, on the same terms and conditions as the Company's
Series B investors, in exchange for a non-interest bearing promissory note
payable in twelve (12) equal monthly installments. The Company shall apply
the net amount of your compensation pursuant to Section 4(a) above to the
payment of this Note and you shall pay the balance of any monthly
installments to the Company. The Note shall be in a form and on terms which
are acceptable to the Company and to you. The Company shall allow you to
purchase seven hundred and fifty thousand (750,000) shares of the Series B
Shares (the "Restricted Series B Shares") pursuant to, at your option: (i)
a restricted stock purchase agreement in consideration for a full recourse
note which is adequately secured by the collateral of your choice, which may
include the Series B Shares; or (ii) a warrant with an exercise price of two
dollars ($2.00) per share and a term of three (3) years. At your option,
following the first anniversary of your employment with the Company, the
second note can be repaid or the warrant can be exercised in periodic
installments by applying your net compensation to make periodic payments to
such Note or exercises of the Warrant, in accordance with terms and
conditions which are acceptable to you and the Company. The Restricted
Series B Shares will be subject to the Company's assignable repurchase right
which shall lapse with respect to 1/24th of the Restricted Series B Shares
per month during the period in which you continue to be employed by the
Company, commencing upon the start date of your employment. In the event
that that your employment is terminated for any reason, the note shall become
due and payable. The Company's outside counsel shall be made available to
discuss with you the legal and tax issues with respect to these options in
order to assist you in deciding which option to select.
(d) BENEFITS. Commencing with full time employment, you will be
entitled to all medical, life insurance, disability insurance and other
benefits as are provided to the Company's employees. Medical benefits will
provide coverage with health care providers located in Austin, Texas. In
your position, we would expect you to review and design the Company's
benefits packages.
(e) BUSINESS EXPENSES. The Company will reimburse you for all
reasonable business expenses incurred on behalf of the Company upon
submission of appropriate documentation in accordance with the Company's
general policies, as they may be amended from time to time during the course
of your employment.
(f) MOVING EXPENSES. The Company acknowledges that neither you
nor your family will be able to move to the San Francisco Bay area at any
time prior to June 1998. Notwithstanding the foregoing, the Company will
reimburse you for your reasonable and customary moving expenses incurred with
respect to your move to the San Francisco bay area whether prior to June 1998
or otherwise. You agree that you will repay such reimbursed expenses in the
event that you voluntarily terminate your employment prior to the one (1)
year anniversary date of your family's move to California.
(g) LIVING AND COMMUTING EXPENSES. The Company will pay all of
the reasonable and customary living expenses incurred with respect to your
living accommodations in the San Francisco bay area, including housing, meals
and automobile expenses. The Company will also pay all commuting expenses for
weekend trips to visit your family in Austin, Texas. In the event any of the
3
<PAGE>
expenses advanced under this provision result in additional taxable income to
you, the Company will "gross up" your salary to compensate you for additional
state and Federal taxes and taxes on the increased salary.
(h) 83(b) ELECTION. With respect to any Shares issued pursuant
to this letter, to the extent allowable by law, upon your request, the
Company will assist you in preparing an election under section 83(b) of the
Internal Revenue Code of 1986.
5. CHANGE OF CONTROL. In the event that the Company is acquired by
or merged into another company, if you are not offered a position with
similar responsibility in the surviving company and if you decide to
voluntarily terminate your employment with Healtheon at any time prior to the
effective time of any such merger or acquisition, options to purchase 625,000
Shares shall immediately vest or in the case of Shares subject to repurchase,
the Company will waive the Company's right of repurchase with respect to an
aggregate of 625,000 of the Shares, and 500,000 of the Restricted Series B
Shares. This provision shall not be applicable in the event of your
termination for any reason other than in connection with a change of control
and this waiver and/or vesting shall be in addition to any Shares or options
to purchase Shares which have already vested and/or the Company's repurchase
right has lapsed.
6. EMPLOYMENT RELATIONSHIP. Should you decide to accept our offer,
you will be an at-will employee of the Company, which means the employment
relationship can be terminated by either of us for any reason at any time.
Further, your participation in any stock incentive or benefit program is not
to be regarded as assuring you of continuing employment for any particular
period of time. However, in the event of the Company's termination of your
employment without cause, you would receive six (6) months base salary,
payable in semi-monthly installments and options to purchase 625,000 Shares
would immediately vest and the Company would waive the Company's right of
repurchase with respect to 625,000 of the Shares (if Shares are issued
subject to a repurchase right) and 500,000 of the Restricted Series B Shares.
This vesting and waiver shall be in addition to any options and/or Shares
which have already vested and/or the Company's repurchase right has lapsed.
Any assignment of the Company's Repurchase rights shall be subject to the
waivers of such rights described in Sections 5 and 6 so that all assignees
shall be bound by such waivers. For purposes of this Agreement, the term
"cause" shall mean (i) willful and repeated failure to comply with the
lawful directions of the Board of Directors, (ii) gross negligence or willful
misconduct in the performance of duties to the Company, (iii) commission of
any act of fraud with respect to the Company, or (iv) conviction of a felony
or a crime causing material harm to the standing and reputation of the
Company, in each case as determined in good faith by the Board of Directors.
The number of Shares and Restricted Shares shall be subject to adjustment, in
accordance with the terms of the Company's 1996 Stock Plan and/or Certificate
of Incorporation, as applicable, in the event of certain "dilutive"
issuances of stock and the Share and Restricted Share numbers set forth
herein and in Sections 4 and 5, above shall be adjusted accordingly in the
event of any such "dilutive" stock issuance.
7. PROPRIETARY INFORMATION. As an employee of the Company, you will
have access to Company confidential information and you may during the course
of your employment develop certain information or inventions which will be
the Company's property. As a condition of your employment,
4
<PAGE>
you will be required to enter into the Company's Employee Inventions and
Confidentiality Agreement. This agreement exists to assure the Company and
its investors that the Company's valuable intellectual property is protected.
We wish to impress upon you that we do not want you to bring with you any
confidential or proprietary material of any former employer or third party or
to violate any other obligation which you may have to any of your former
employers or any third parties.
8. ENTIRE AGREEMENT. This Letter Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements,
arrangements, and communications, whether oral or written, between the
parties, including all prior employment agreements. No amendment to this
Letter Agreement may be made except by a writing signed by the Company and
you.
If you find this offer acceptable, please sign the enclosed copy of this
letter in the space indicated and return it to us.
Very truly yours,
__________________________________
John Doerr
On behalf of the Board of Directors
Healtheon Corporation
Accepted and Agreed:
______________________________
Dated: _______________________
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EMPLOYMENT AGREEMENT
THE AGREEMENT, entered into as of this 23rd day of September, 1992, by
and between ACTAMED CORP., a Georgia corporation (the "Company") and
MICHAEL K. HOOVER ("Employee").
W I T N E S S E T H :
WHEREAS, the Company and Employee desire to enter into an employment
agreement on the terms stated herein;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement the following
capitalized terms shall have the definition set forth below.
(a) "CAUSE" means:
(i) conviction of Employee of a felony; or
(ii) Employee's use of alcohol or drugs to an extent that
materially interferes with Employee's performance of his duties or
employment; or
(iii) Employee has engaged in fraud, misappropriation,
embezzlement, or other acts involving moral turpitude; or
(iv) Employee has committed a willful act of dishonesty in
the course of his duties which injures the Company; or
(v) Employee has repeatedly disregarded policy directives
from the Company's Chief Executive Officer, President or Board of
Directors; or
(vi) Employee violates his covenants under paragraph 7(a) or
breaches the nondisclosure agreement executed pursuant to paragraph 6.
(b) "DISABILITY" means incapacity due to physical or mental illness
or injury that is permanent in nature and prevents Employee from performing
the substantial and material duties of his employment hereunder. Any such
disability shall be deemed to be permanent in nature if any physician
designated by the Company certifies in writing to the Company that such
disability can be expected to last for a period of at least six (6)
continuous months.
2. EMPLOYMENT AND DUTIES. Employee shall perform such duties and
responsibilities as are assigned to him from time to time by the Chairman of
the Board of the Company. Employee agrees that during the term of his
employment, he will devote his full
<PAGE>
productive time to the Company, not work for anyone else, or engage in any
activity in competition with or detrimental to the Company; provided,
however, that Employee at the direction of the Chairman of the Board of the
Company shall perform duties and services for Actamed Development Corp.
3. BASE COMPENSATION.
(a) In consideration of the services rendered by Employee, the
Company will pay Employee during the term of this Agreement an annual base
salary of $85,000.00 or such other amount as determined from time to time by
the Board of Directors of the Company ("Base Compensation"). Such Base
Compensation shall be payable in accordance with the regular payroll
practices of the Company.
(b) The Company's Board of Directors may review the then-current
level of Employee's annual base salary for potential adjustment and shall
advise Employee, in writing, of such adjustment, if any, or may state, in
writing, that no adjustment will be made.
4. STOCK OPTIONS. Simultaneously with the execution of this Agreement,
Employee will be granted an option to purchase 10,000 shares of Company
common stock pursuant to that certain Nonstatutory Stock Option Agreement of
even date herewith between the Company and Employee (the "Option Agreement").
5. TERM AND SEVERANCE PAY.
(a) Employee's employment hereunder shall be effective as of the
date of this Agreement and shall continue in force until terminated as set
forth in paragraph 5(b) below.
(b) Employee's employment hereunder may be terminated only:
(i) by mutual agreement of the Company and Employee;
(ii) by the Company immediately for Cause;
(iii) by Employee, upon not less than ninety (90) days prior
written notice to the Company;
(iv) by the Company without Cause or without any reason upon
not less than ninety (90) days prior written notice; provided, however,
that the Company may, at its option, terminate Employee prior to the
expiration of such ninety (90) day period subject to the obligation of
paying Employee for the remainder of such period;
(v) by the Company upon the Disability of Employee; or
(vi) Upon the death of Employee.
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<PAGE>
(c) In the event of Employee's termination of employment with the
Company in accordance with subparagraphs 5(b)(i), 5(b)(ii) or 5(b)(iii)
above, then:
(i) Employee's right to exercise any outstanding options
pursuant to the Option Agreement shall terminate immediately upon such
event; and
(ii) If the common stock of the Company is not publicly traded
(as described in Section 6(a) or 6(b) of the 1992 Stock Option Plan of
the Company) ("Publicly Traded"), then, for a period of ninety (90) days
following the occurrence of any event described in 5(b)(i), 5(b)(ii) or
5(b)(iii), the Company shall have an option to purchase any or all of
the Option Shares acquired by Employee pursuant to the Option Agreement.
The terms and conditions of such option to purchase shall be as provided
in subparagraph 9(a)(i) of the Option Agreement.
(d) If at a time when the common stock of the Company is not
Publicly Traded, Employee's employment with the Company is terminated in
accordance with subparagraphs 5(b)(iv), 5(b)(v) or 5(b)(vi) herein:
(i) then Employee or his personal representative shall elect
(hereinafter referred to as the "Severance Election") to:
(A) Retain all of his Option Shares (as defined in the
Option Agreement) subject to the terms and conditions of the
Option Agreement, and to retain the option to purchase any
remaining vested Option Shares pursuant to the terms of the Option
Agreement (hereinafter the rights under this subparagraph
5(d)(i)(A) may be referred to as the "Option Feature"); or
(B) Receive severance pay equal to the aggregate Base
Compensation which Employee had received from the Company in the
three (3) years (or such lesser period which Employee was employed
by the Company) immediately prior to the event occurring which
entitled Employee to elect such severance pay (hereinafter referred
to as the "Severance Pay Feature"). If Employee or his personal
representative elects to receive such Severance Pay Feature, such
amount shall be paid to Employee or his personal representative in
the same method as Employee was receiving Base Compensation while
employed by the Company. By way of example, if Employee was paid
Base Compensation in the amount of $30,000 in his first year of
employment with the Company (paid in weekly installments), and was
paid $20,000 over the following six (6) month period (in weekly
installments) before being terminated by the Company without Cause;
then, upon Employee or his personal representative electing to
receive the Severance Pay Feature, Employee or his personal
representative would be entitled to receive $30,000 paid over a one
(1) year period in weekly installments, followed by $20,000 to be
paid over the following six (6) month period in weekly installments.
3
<PAGE>
The Severance Election must be exercised in writing by
Employee or his personal representative within ten (10) days of Employee or
his personal representative receiving written notification from the Company
of such right to make such Severance Election. If Employee or his personal
representative does not make such Severance Election in accordance with such
requirements, the Company, and not Employee, shall have the right to make
such Severance Election. In the event Employee or his personal representative
makes the severance Election (or the Company elects, in the event Employee
fails to elect as provided herein) to receive the Severance Pay Feature, all
of Employee's option privileges under the Option Agreement shall expire
as of the date of the event occurring which entitled Employee to make the
Severance Election. Thereafter, neither Employee or his personal
representative shall have the right to purchase any Option Shares and
Employee or his personal representative shall promptly endorse in blank and
deliver to the Company all Option Shares then owned by Employee. All such
Option Shares shall be deemed canceled as of the date of such election.
Neither Employee nor his personal representative shall be entitled to receive
any consideration for the return of such Option Shares or the termination of
the right to purchase any additional Option Shares under the Option Agreement.
(ii) For a period of one hundred eighty (180) days following
the date of exercise of the Severance Election by Employee to retain the
Option Feature, the Company shall have an option to terminate all of
Employee's option privileges under the Option Agreement and to purchase
all of the Option Shares acquired by Employee pursuant to the Option
Agreement. The terms and conditions of such option shall be as provided
in subparagraph 9(a)(ii) of the Option Agreement.
(e) If at a time when the Common Stock of the Company is
Publicly Traded, Employee's employment with the Company is terminated in
accordance with subparagraphs 5(b)(iv), 5(b)(v) or 5(b)(vi), then:
(i) Employee shall not have any right to make the Severance
Election;
(ii) Employee's right to exercise any options for unvested
Option Shares pursuant to the Option Agreement shall terminate
immediately upon such event;
(iii) Employee may retain all of his Option Shares subject to
the terms and conditions of the Option Agreement; and
(iv) Employee's right to exercise any options for Option
Shares which are vested in accordance with paragraph 1(b) of the Option
Agreement at the time of Employee's termination of employment shall
continue to be effective until the termination of the options in
accordance with the terms of the Option Agreement.
4
<PAGE>
(f) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted from time to time, for all
reasonable and necessary expenses incurred by Employee in connection with the
performance of Employee's duties of employment hereunder.
(g) The obligations of the parties under subparagraphs 5(c), 5(d)
and 5(e) shall survive the termination of Employee's employment hereunder and
shall not be extinguished thereby.
6. CONFIDENTIAL RELATIONSHIP AND PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL INFORMATION. At the time of execution hereof, Employee shall
execute a nondisclosure agreement in the form which is executed by other
employees of the Company.
7. COVENANT NOT-TO-COMPETE.
(a) During the term of his employment with the Company, Employee
owes a duty of good faith and loyalty to the Company.
(b) Employee agrees that, in the event of a termination of
Employee's employment. Employee will not, for a period of one (1) year after
such termination, without the prior written consent of the Company, (i)
either directly or indirectly, on his own behalf or on the service of on
behalf of others, solicit, divert or appropriate, or attempt to solicit,
divert or appropriate, to any Competing Business, as hereinafter defined, any
customer or prospective customer of the Company or Actamed Development Corp.
with whom Employee had contact on behalf of the Company or Actamed
Development Corp. within one (1) year prior to such termination of employment
or (ii) perform similar services for a Competing Business as those which he
performed for the Company or Actamed Development Corp. during the one (1)
year period prior to such termination of employment.
(c) Employee agrees that, in the event of a termination of
Employee's employment hereunder, Employee will not, for a period of one year
after such termination, without the prior written consent of the Company,
either directly or indirectly, on his own behalf or on the service of or on
behalf of others, solicit, divert or hire away, or attempt to solicit, divert
or hire away, to any Competing Business, as hereinafter defined, any person
employed by the Company or Actamed Development Corp., whether or not such
person is a full-time employee or a temporary employee of the Company or
Actamed Development Corp. and whether or not such employment is pursuant to a
written agreement and whether or not such employment is for a determined
period or is at will.
(d) As used in this Agreement, "Competing Business" means any
person or entity that is principally engaged in a business substantially the
same as the business of the Company or Actamed Development Corp.
5
<PAGE>
(e) Each of the covenants and agreements of Employee set forth
in this paragraph 7 hereof shall be deemed separate and severable, each from
the other, and should any such separate and severable covenant or agreement,
or any part thereof, be declared invalid or unenforceable by a court of
competent jurisdiction from which no appeal is timely taken, such declaration
of invalidity or enforceability shall not in any way affect or limit the
validity or enforceability of any other covenant or agreement, or part
thereof, not also declared invalid or unenforceable, each of which shall
remain binding on Employee in accordance with its respective terms. Further,
if any such covenant or agreement is so declared to be invalid or
unenforceable, Employee shall, as soon as possible, execute a supplemental
agreement with the Company granting to the Company, to the extent legally
permissible, the protection intended to be afforded to the Company and
Actamed Development Corp. by the covenant or agreement so declared invalid
or unenforceable.
8. SPECIFIC ENFORCEMENT. The Company and Employee agree a violation
of paragraph 7 of this Agreement will cause irreparable injury to the Company
and its affiliates and that, accordingly, the Company will be entitled, in
addition to any other rights and remedies it may have at law or in equity, to
seek an injunction enjoining and restraining Employee from doing or planning
to do any such act and any other violation or threatened violation of
paragraph 7.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Georgia. Any action in law or
equity regarding this Agreement or Employee's rights hereunder may only be
brought in the State of Georgia.
10. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be valid or unenforceable for any reason by
final judgment of a court of competent jurisdiction, the remaining provisions
or portions of this Agreement shall be unaffected thereby and shall remain in
full force and effect to the fullest extent permitted by law. Failure to
insist upon strict compliance with any provision of this Agreement shall not
be deemed a waiver of such provision or any other provision of this Agreement.
11. NO SET-OFF. The existence of any claim, demand, action or cause of
action of Employee against the Company, whether or not based upon this
Agreement, will not constitute a defense to the enforcement by the Company of
any covenant or agreement of Employee contained herein.
12. NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation,
or to execution, attachment, levy or similar process or assignment by
operation of law, and any attempt, voluntary or involuntary, to effect any
such action shall be null, void and of no effect; provided, however, that
this provision shall not prevent Employee from designating one or more
beneficiaries to receive any amount after his death and shall not preclude
his executor or administrator from assigning any right hereunder.
6
<PAGE>
to the person or persons entitled thereto, and in the event of Employee's
death or a judicial determination of Employee's incompetence, Employee's
rights under this Agreement shall survive and shall inure to the benefit of
Employee's heirs, beneficiaries and legal representatives.
13. SOURCE OF PAYMENTS. All payments provided under this Agreement
shall be paid in cash from the general funds of the Company, and no special
or separate fund shall be established and no other segregation of assets
shall be made to assure payment.
14. TAX WITHHOLDING. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
15. NOTICES. Any notice or communication between the Company and
Employee with respect to his Agreement or events covered thereby shall be
performed or confirmed in writing and be deemed given when personally
delivered or mailed by registered or certified mail, return receipt
requested, postage prepaid or dispatched by any overnight delivery service as
follows:
If to the Company:
Actamed Corp.
5 Concourse Parkway
Suite 250
Atlanta, Georgia 30328
If to Employee:
5010 McPherson Drive
Roswell, Georgia 30075
or at such other address as either party may have furnished to the other in
accordance herewith except that notices of change of address shall be
effective only upon receipt.
16. AMENDMENT, TERMINATION, WAIVER. No provision of this Agreement may
be amended, modified or waived unless in writing executed by the Company and
Employee. No waiver by either party hereto of any breach by the other party
hereto of any condition or any provisions of this Agreement to be performed
by such other party shall be deemed a waiver of a subsequent breach of such
condition or provision or waiver of a similar or dissimilar condition or
provision at the same time or any subsequent time.
17. SUCCESSORS.
(a) This Agreement may not be assigned, transferred or conveyed
by the Company except to a person or entity that acquires all or
substantially all of the business of the
7
<PAGE>
Company (whether such acquisition is by way of acquisition or assets,
acquisition of stock, merger, consolidation or otherwise).
(b) Employee may not assign, transfer or convey this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will constitute an original but all of which
together will constitute but a single document.
19. PRIOR AGREEMENTS. Except for the nondisclosure agreement executed
pursuant to paragraph 6, this Agreement supersedes all previous agreements
between the Company and Employee concerning terms and conditions of the
employment of Employer by the Company, and all such previous agreements are
hereby canceled by mutual consent.
20. BINDING EFFECT. This Agreement shall be binding on the parties to
this Agreement and on their respective heirs, administrators, executors,
successors and assigns.
IN WITNESS WHEREOF, Employee has hereunder set his hand and seal, and the
Company has caused this Agreement to be executed by its duly authorized
officer as of the day and year first above written.
EMPLOYEE:
/s/ Michael K. Hoover
------------------------------------
Michael K. Hoover
Witness:
- -------------------------------------
ACTAMED CORP.
By: /s/ P.E. Sadler
-------------------------------
P.E. Sadler, Chairman of Board
8
<PAGE>
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT, entered into as of this 3rd day of December, 1993, by
and between ACTAMED CORP., a Georgia corporation (the "Company") and MICHAEL
K. HOOVER ("Employee") hereby amends that certain Employment Agreement, dated
as of September 23, 1992, by and between the Company and Employee (the
"Employment Agreement").
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into Nonstatutory Stock Option
Agreements, dated September 23, 1992 (as amended March 23, 1993), March 23,
1993 and December 1, 1993, respectively (collectively the "Original Option
Agreements"); and
WHEREAS, the Company and Employee on the date hereof have amended and
restated the Original Option Agreements and have entered into Amended and
Restated Nonstatutory Stock Option Agreements of even date hereof (the
"Restated Agreements"), which Restated Agreements replace and supersede the
Original Option Agreements; and
WHEREAS, the Company and Employee desire to amend the terms of the
Employment Agreement on the terms stated herein, to conform with replacement
of the Original Option Agreements with the Restated Agreements;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Section 4 of the Employment Agreement is deleted in its entirety and
replaced with the following new Section 4:
"4. STOCK OPTIONS. Simultaneously with the execution of that certain
Amendment to this Agreement, dated December 3, 1993, by and between the
Company and Employee (the "Amendment"), the Company and Employee have
terminated the Original Option Agreements (as defined in the Amendment) and
have entered into the Restated Agreements (as defined in the Amendment)."
2. Paragraph (d) of Section 5 is deleted in its entirety and replaced
with the following paragraph (d):
"(d) Intentionally Deleted."
3. Paragraph (e) of Section 5 is deleted in its entirety and replaced
with the following paragraph (e):
"(e) Intentionally Deleted."
<PAGE>
4. Paragraph (g) of Section 5 is deleted in its entirety and replaced
with the following paragraph (g):
"(g) The obligations of the parties under paragraph 5(c) shall survive
the termination of Employee's employment hereunder and shall not be
extinguished thereby."
5. Section 15 is changed by indicating the address of the Company as:
ActaMed Corp.
7000 Central Parkway, Suite 620
Atlanta, Georgia 30328
6. this Amendment shall be governed by and construed in accordance
with the laws of the State of Georgia. Any action in law or equity regarding
this Amendment or Employee's rights hereunder may only be brought in the
State of Georgia.
7. No provision of this Amendment may be amended, modified or waived
unless in writing executed by the Company and Employee.
8. This Amendment may not be assigned, transferred or conveyed by the
Company except to a person or entity that acquires all or substantially all
of the business of the Company (whether such acquisition is by way of
acquisition of assets, acquisition of stock, merger, consolidation or
otherwise). Employee may not assign, transfer or convey this Amendment.
9. This Amendment may be executed in one or more counterparts, each
of which will constitute an original but all of which together will
constitute but a single document.
10. This Amendment shall be binding on the parties to this Amendment
and on their respective heirs, administrators, executors, successors and
assigns.
11. Except as specifically amended hereby, the Employment Agreement
shall remain in full force and effect as in force and effect on the date
hereof.
<PAGE>
IN WITNESS WHEREOF, Employee has hereunder set his hand and seal, and
the Company has caused this Agreement to be executed by its duly authorized
officer as of the day and year first above written.
EMPLOYEE:
/s/ Michael K. Hoover
------------------------------------
Michael K. Hoover
Witness:
/s/ Nancy J. Ham
- ------------------------------------
ACTAMED CORP.
By: /s/ PE Sadler
---------------------------------
P. E. Sadler, Chairman of Board
<PAGE>
HEALTHEON CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Healtheon Corporation.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean Healtheon Corporation and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase
Period.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before April 30,
2000. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "PLAN" shall mean this 1998 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
provided, that the first Purchase Period of any Offering Period shall commence
on the Enrollment Date and end with the next Exercise Date; provided further,
that the first Purchase Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and shall end on the
last Trading Day on or before April 30, 1999.
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<PAGE>
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 of each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced prior
to the scheduled beginning of the first Offering Period to be affected
thereafter.
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<PAGE>
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any,
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<PAGE>
which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the participant's compensation the amount necessary for the Company to
meet applicable withholding obligations, including any withholding required
to make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on
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<PAGE>
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Enrollment Date or Exercise Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and
terminate any or all Offering Periods then in effect pursuant to Section 20
hereof. The Company may make pro rata allocation of the shares available on
the Enrollment Date of any applicable Offering Period pursuant to the
preceding sentence, notwithstanding any authorization of additional shares
for issuance under the Plan by the Company's stockholders subsequent to such
Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
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<PAGE>
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,000,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 1999 equal to the lesser of (i)
500,000 shares, (ii) 0.5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more
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<PAGE>
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
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<PAGE>
liquidation. The Board shall notify each participant in writing, at least
ten (10) business days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's
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<PAGE>
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE>
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
HEALTHEON CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _________________________________ hereby elects to participate in the
Healtheon Corporation 1998 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (not to exceed [__]%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):__________
___________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me
<PAGE>
over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE
COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY
SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE
COMMON STOCK. The Company may, but will not be obligated to, withhold from
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_______________________________ ____________________________________________
Relationship
____________________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature
(If beneficiary other than spouse)
<PAGE>
EXHIBIT B
HEALTHEON CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Healtheon
Corporation 1998 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE>
EXHIBIT 10.30
HEALTHEON CORPORATION
4600 Patrick Henry Drive, Santa Clara, California 95054
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "AGREEMENT") summarizes the terms and
conditions with respect to the purchase of shares of Series A Preferred Stock
(the "PREFERRED STOCK" or the "SHARES") of Healtheon Corporation (the
"COMPANY") by certain investors (the "PURCHASERS") identified below. It is
the intention of the parties hereto that this Agreement shall be binding on
each party hereto.
PURCHASE OF PREFERRED STOCK
The Preferred Stock will be sold on the following terms:
Amount: $46,100,046(1)
Purchase Price: $6.00 per share
Number of Shares: 7,638,341 Shares of Preferred Stock(1)
Anticipated Closing Date: October 29, 1998
Terms of Preferred Stock: The Preferred Stock shall be substantially
identical to the Company's Series D Preferred
Stock in its Certificate of Incorporation
dated October 14, 1997; provided, however,
that the liquidation preference and
initial conversion price shall be $6.00
per share; the dividend rate shall be
0.405 per share, when as and if declared
by the Board of Directors; the minimum
initial public offering price resulting in
an Automatic Conversion shall be $10.00
per share and the terms of the Preferred
Stock shall not contain the mandatory
conversion features contained in Section
3(c) of such certificate of incorporation.
Representations and Warranties The Company represents and warrants as of
the date hereof and as of the Closing Date
that the representations and warranties
contained in Section 1 of Annex I are and
will be true and correct in all material
respects. The Purchasers separately and
severally as to themselves represent and
warrant as of the date hereof and as of the
Closing Date that the representations and
warranties contained in Section 2 of Annex I
are and will be true and correct in all
material respects.
(1) Does not include shares issued in connection with the exercise of rights of
first refusal held by certain of the Company's current stockholders.
<PAGE>
Closing Conditions: 1. The Purchasers shall have received a
certificate dated the Closing Date and
signed by the chief executive officer of the
Company to the effect that the
representations and warranties attached
hereto in Section 1 of Annex I are true and
correct in all material respects as of the
Closing Date and that the Company has
satisfied all of the conditions on its part
to be performed or satisfied hereunder on or
before the Closing Date.
2. The Purchasers shall have received a
certificate signed by the Secretary of the
Company attesting to the Company's (a)
certificate of incorporation, (b) bylaws and
(c) Board of Directors' minutes authorizing
the Agreement and the transactions
contemplated hereby.
3. The Purchasers shall have received from
Wilson Sonsini Goodrich & Rosati, counsel to
the Company, an opinion addressed to them
containing the opinions substantially in the
form specified on Annex II attached hereto.
4. The Company shall have delivered
certificates of good standing for the
Company issued by the Delaware Secretary of
State, California Secretary of State and the
Georgia Secretary of State.
5. The Company shall have taken such
corporate and stockholder actions as are
necessary (a) to approve the Agreement and
the transactions contemplated hereby (b) to
approve and file with the Delaware Secretary
of State the certificate of incorporation,
as amended, and (c) to obtain the waiver of
the rights of first refusal contained in the
Company's Amended and Restated Investors'
Rights Agreement.
Covenants: Each Purchaser that owns an aggregate of
250,000 shares of the Preferred Stock of the
Company shall be entitled to the information
rights contained in Sections 2.1 and 2.2 of
the Amended and Restated Investors' Rights
Agreement.
Expenses: Each party shall bear its own legal and
other expenses with respect to the
financing.
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<PAGE>
The provisions of this Agreement shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, administrators and
transferees of the parties hereto. This Agreement may be signed in two or
more counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
By signing below, each of the Purchasers represents for that it has read
the Representations, Warranties and Covenants contained in Section 2 of Annex
I attached hereto and that such representations and warranties are true and
correct in all material respects. Each such Purchaser agrees to be bound by
the lock up provisions contained in Section 2 of Annex I and to cause each of
its assignees or transferees to be bound by such provisions. This Agreement
shall be governed by the laws of the State of California as applicable to
contracts entered into and performed entirely within the State of California.
This Agreement is made this November __, 1998.
Healtheon Corporation Purchaser
By: By:
-------------------------------- --------------------------------
Title: Title:
----------------------------- -----------------------------
Address:
---------------------------
---------------------------
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<PAGE>
ANNEX I
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Purchasers that:
(a) The registration statement on Form S-1, as amended to the date
hereof, filed by the Company with the Securities and Exchange Commission
(the "REGISTRATION STATEMENT") and the U.S. preliminary prospectus
contained therein (the "PROSPECTUS") on the date filed and on the Closing
Date did not and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
certain information contained in the Registration Statement reflects the
closing of the public offering of the Company's Common Stock which has not
occurred. There can be no assurance that such public offering of the
Company's securities will ever occur.
(b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to enter into the
Agreement, to own its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
Subsidiaries (as defined below), taken as a whole.
(c) Other than Actamed Corporation, a Georgia corporation
("ACTAMED"), UHC Green Acquisition Corp., a Nevada corporation ("UHC"),
Metis Acquisition Corp. ("METIS") and Healtheon Software Development India
Private Limited ("HEALTHEON INDIA") (each of Actamed, UHC, Metis and
Healtheon India are referred to herein as a "SUBSIDIARY" and collectively
as the "SUBSIDIARIES"), the Company has no subsidiaries. Each Subsidiary
of the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole. All of the issued shares of capital stock of each Subsidiary of
the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims. The Company does
not own, directly or indirectly, an interest in any other corporation,
partnership, business, trust or other entity.
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<PAGE>
(d) The Company and each of its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and the Subsidiaries, taken as a
whole, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by
the Company and its Subsidiaries, taken as a whole; and any real
property and buildings held under lease by the Company and each of its
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material to the Company and its
Subsidiaries, taken as a whole, and do not interfere with the use made
and proposed to be made of such property and buildings of the Company
and each of its Subsidiaries, in each case except as described in the
Prospectus, or which intervention is not material to the Company and its
Subsidiaries, taken as a whole.
(e) The Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable. Except as set forth in the Prospectus and in
the Amended and Restated Investors' Rights Agreement, dated May 19,
1998, by and between the Company and the persons and entities listed
therein, neither the Company nor any of its Subsidiaries has outstanding
any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations. All outstanding shares of capital stock and options and
other rights to acquire capital stock have been issued in compliance
with the registration and qualification provisions of all applicable
federal and state securities laws and were not issued in violation of
any preemptive rights, rights of first refusal or other similar rights.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, and
the sale by the Company of the Shares as contemplated hereby, will not
contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any of its Subsidiaries or
any agreement or other instrument binding upon the Company or any of its
Subsidiaries that is material to the Company and its Subsidiaries, taken
as a whole, or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or
AI-2
<PAGE>
any Subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares.
(j) Each agreement or other instrument that is binding upon the
Company or any of its Subsidiaries and that is material to the Company
and its Subsidiaries, taken as a whole, has been filed as an exhibit to
the Registration Statement.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole, from
that set forth in the Prospectus.
(l) Subsequent to the respective dates as of which information is
given in the Prospectus, (i) the Company and its Subsidiaries have not
incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of
business; (ii) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (iii) there has not
been any material change in the capital stock, short-term debt or
long-term debt of the Company and its Subsidiaries, except in each case
as described in the Prospectus.
(m) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its Subsidiaries is a party or
to which any of the properties of the Company or any of its Subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not described or
filed as required.
(n) Each of the Company and each of its Subsidiaries has all
necessary consents, authorizations, approvals, orders, certificates and
permits of and from, and has made all declarations and filings with, all
federal, state, local, foreign and other governmental or regulatory
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, except to
the extent that the failure to obtain or file would not have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
Neither the Company nor any of its Subsidiaries has received any notice of
proceedings related to the revocation or modification of any such consent,
authorization, approval, order, certificate or permit which, singly or in
the aggregate, if the subject of any unfavorable decision, ruling or
finding, would result in a material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole, except as described in the
Prospectus.
AI-3
<PAGE>
(o) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(p) The Company and each of its Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole.
(q) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
(r) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company.
(s) The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which they are engaged; neither the Company nor any of its
Subsidiaries has been refused any insurance coverage sought or applied
for; and neither the Company nor its Subsidiaries has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a
cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole.
(t) The financial statements, including the notes thereto, included
in the Prospectus fairly present, in all material respects, the financial
position of the Company as of the dates indicated and the results of its
operations for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis.
AI-4
<PAGE>
(u) Neither the Company nor, to the Company's knowledge, any other
party is in violation or breach of, or in default with respect to,
complying with any material provision of any contract, agreement,
instrument, lease, license, arrangement or understanding which is material
to the Company and its Subsidiaries taken as a whole, and each such
contract, agreement, instrument, lease, license, arrangement and
understanding is in full force and is the legal, valid and binding
obligation of the Company or its Subsidiary and, to the Company's
knowledge, the other parties thereto and is enforceable against the
Company or its Subsidiary and, to the Company's knowledge, against the
other parties thereto in accordance with its terms.
(v) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(w) Except as disclosed in the Prospectus, (i) the Company and each
of its Subsidiaries owns or possesses all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names, technology and know-how currently employed by them to conduct their
respective businesses in the manner described in the Prospectus,
(ii) neither the Company nor any of its Subsidiaries has received any
notice of infringement of or conflict with (and neither the Company nor
any of its Subsidiaries knows of any infringement or conflict with)
asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect upon the Company
and its Subsidiaries, taken as a whole, and (iii) the discoveries,
inventions, products or processes of the Company and each of its
Subsidiaries referred to in the Prospectus do not, to the knowledge of
the Company or any of its Subsidiaries, infringe or conflict with any
right or patent of any third party, or any discovery, invention, product
or process that would have a material adverse effect on the Company and
ts Subsidiaries, taken as a whole.
(x) The Company and its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(y) No material labor dispute with the employees of the Company or
any of its Subsidiaries exists or, to the knowledge of the Company, is
imminent; and the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
AI-5
<PAGE>
(z) Immediately prior to the closing of the transaction contemplated
hereby, the authorized capital stock of the Company consists of
(a) 150,000,000 shares of Common Stock, $0.0001 par value, 54,522,049
shares of which are issued and outstanding, and (b) 6,675,003 shares of
Preferred Stock, all of which is designated Series A Preferred Stock and
none of which is issued and outstanding. The Company has granted options
and issued warrants to purchase 13,898,427 shares of Common Stock. Other
than such stock options and warrants or as identified in the Registration
Statement, there are no options, warrants or other rights to purchase any
of the Company's authorized and unissued capital stock following the
Closing. All issued and outstanding shares of the Company's capital stock
have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued in compliance with applicable federal and
state securities law. The Company is not a party or subject to any
agreement or understanding, and, to the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which
affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
(aa) Subject to the accuracy of the Purchasers' representations in
Section 2 of this Annex I, the offer, sale and issuance of the Shares
constitute transactions exempt from the registration requirements under
the Securities Act of 1933, as amended.
(bb) The Company intends to use the proceeds from the sale of the
Shares in a manner consistent with the "Use of Proceeds" section in the
Prospectus.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS.
Each Purchaser represents, warrants and covenants to the Company the following:
(a) Purchaser agrees that to the extent specified by the Company and
an underwriter of Common Stock (or other securities) of the Company, it
will at the time of an initial public offering execute a lock-up agreement
to the effect that it will not sell, offer to sell, contract to sell
(including without limitation any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to funds or
affiliates of such Purchasers or to donees who agree to be similarly
bound) any securities of the Company (other than securities already
registered) during a reasonable and customary period of time not to
exceed one hundred and eighty (180) days, as agreed to by the Company
and the underwriters, following the effective date of the Company's firm
commitment initial public offering pursuant to a registration under the
Securities Act of 1933, as amended (the "SECURITIES ACT"); provided,
however, that all officers and directors of the Company enter into
similar agreements. In order to enforce the foregoing covenant, the
Company may impose stop transfer instructions with respect to the
securities of each Purchaser (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such
one hundred and eighty (180) day period. The Company agrees to remove
such stop transfer instructions at the end of such 180-day period.
AI-6
<PAGE>
(b) Purchaser is acquiring the Shares for investment for its own
account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution thereof. Purchaser
understands that the Shares have not been, and will not be when issued,
registered under the Securities Act by reason of a specific exemption
from the registration provisions of the Securities Act, the availability
of which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the representations as expressed
herein.
(c) Purchaser acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Securities Act or unless an
exemption from such registration is available. Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, which may include, among other things,
the existence of a public market for the shares, the availability of
certain current public information about the Company, the resale occurring
not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the
number of shares being sold during any three-month period not exceeding
specified limitations.
(d) Purchaser understands that no public market now exists, and that
a market may never exist, for any of the securities issued by the Company.
AI-7
<PAGE>
ANNEX II
FORM OF LEGAL OPINION
Wilson Sonsini Goodrich & Rosati shall deliver the following opinions in
substantially the form set forth herein. For purposes of delivering opinion
no. 8, such counsel may assume that all agreements and other instruments that
are material to the Company have been filed as exhibits to the Registration
Statement. In addition, such counsel shall be entitled to make such
assumptions, to limit such opinions and to rely on such certificates as to
factual matters as are standard in legal opinions given in connection with
venture capital financings.
1. The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property,
enter into the Agreement and to conduct its business as presently conducted
and proposed to be conducted and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
2. Each Subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as presently conducted and
proposed to be conducted and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company and its Subsidiaries, taken
as a whole.
3. The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Registration Statement, will not be an "investment company"
as such term is defined in the Investment Company Act of 1940, as amended.
4. The shares of Common Stock outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
5. All of the issued shares of capital stock of each Subsidiary of the
Company have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims.
6. The Shares have been duly authorized and, when issued and delivered
in accordance with the terms of the Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject
to any preemptive right or rights of first refusal or similar rights which
have not been waived or otherwise provided for us as set forth in the
Agreement.
7. The Agreement has been duly authorized, executed and delivered by the
Company. The Agreement constitutes a valid and binding obligation of the
Company.
AII-1
<PAGE>
8. The execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Agreement will not contravene
any provision of applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument binding upon the
Company or any of its Subsidiaries that is an exhibit to the Registration
Statement, or to such counsel's knowledge, any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the Company
or any Subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under the Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
9. Immediately prior to the closing of the transaction contemplated
hereby, the authorized capital stock of the Company consists of (a)
150,000,000 shares of Common Stock, $0.0001 par value, 54,522,049 shares of
which are issued and outstanding, and (b) 6,675,003 shares of Preferred
Stock, all of which is designated Series A Preferred Stock and none of which
is issued and outstanding. The Company has granted options and issued
warrants to purchase 13,898,427 shares of Common Stock. Other than such
stock options and warrants, there are no options, warrants or other rights to
purchase any of the Company's authorized and unissued capital stock following
the Closing. All issued and outstanding shares of the Company's capital
stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued in compliance with applicable federal and
state securities law. The Company is not a party or subject to any agreement
or understanding, and, to such counsel's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates
to the voting or giving of written consents with respect to any security or
by a director of the Company.
10. After due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its Subsidiaries is a party or to which any of the properties of the Company
or any of its Subsidiaries is subject that would question the validity of the
Agreement or would be required to be described in the Registration Statement
and are not so described or of any statutes, regulations, contracts or other
documents that would be required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement that are
not described or filed as required.
AII-2
<PAGE>
EXHIBIT 21.1
ActaMed Corporation Georgia
EDI Services, Inc. Nevada
Metis Acquisition Corp. Delaware
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