<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-94635
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MEDIBUY.COM, INC.
(NAME OF ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5961 33-0822977
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
10120 PACIFIC HEIGHTS BOULEVARD
SAN DIEGO, CALIFORNIA 92121
(858) 587-7200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DENNIS J. MURPHY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDIBUY.COM, INC.
10120 PACIFIC HEIGHTS BOULEVARD
SAN DIEGO, CALIFORNIA 92121
(858) 587-7200
(NAME, ADDRESS, TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
JEREMY D. GLASER, ESQ. FRANK H. GOLAY, JR., ESQ.
DENNIS A. CALDERON, ESQ. SULLIVAN & CROMWELL
MEDIBUY.COM, INC. 1888 CENTURY PARK EAST,
10120 PACIFIC HEIGHTS BOULEVARD SUITE 2100
SAN DIEGO, CALIFORNIA 92121 LOS ANGELES, CALIFORNIA 90067
(858) 587-7200 (310) 712-6600
BARBARA L. BORDEN, ESQ.
LARRY W. NISHNICK, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92121
(858) 550-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are being 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 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>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT AGGREGATE OFFERING PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock, $0.001 par value......... 14,950,000 $12.00 $179,400,000 $47,362
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any. Estimated solely for the purpose of
calculating the amount of the registration fee in accordance with Rule
457(o) under the Securities Act of 1933, as amended.
(2) $19,800 was previously paid.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated March 16, 2000.
13,000,000 Shares
MEDIBUY LOGO
Common Stock
----------------------
This is an initial public offering of our common stock. All of the
13,000,000 shares of common stock are being sold by us.
Prior to this offering, there has been no public market for our common
stock. We anticipate that the initial public offering price per share will be
between $10.00 and $12.00. Application has been made for quotation of our common
stock on the Nasdaq National Market under the symbol "MBUY".
See "Risk Factors" on page 9 to read about factors you should consider
before buying shares of our common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price...............................
Underwriting discount.......................................
Proceeds, before expenses, to us............................
</TABLE>
To the extent that the underwriters sell more than 13,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
1,950,000 shares from us at the initial public offering price less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
WIT SOUNDVIEW
----------------------
Prospectus dated , 2000.
<PAGE> 3
INSIDE FRONT COVER
[Picture of a partial map of North America over pictures of two individuals, two
hands clasped in a handshake and shipping boxes.]
[medibuy.com logo]
your healthcare business-to-business e commerce solution
www.medibuy.com
INSIDE TWO-PAGE GATEFOLD SPREAD
InstaCat(TM) technology interface
[Background contains pictures of a partial map of North America, a personal
computer showing the medibuy.com home page, and a stethoscope.]
<TABLE>
<S> <C> <C>
Buyers [MEDIBUY.COM LOGO] Sellers
- ---------------------------------- ---------------------------------- ----------------------------------
Hospital InstaCat(TM) S S Distributor
- ---------------------------------- I Technology Interface E Y ----------------------------------
n S L S
- ---------------------------------- t E L T ----------------------------------
Existing e C E E F - Catalog data
- ---------------------------------- r U - Provides access to customers' R M e I ----------------------------------
Information n R own contract pricing P R - Marketing information
- ---------------------------------- e E D I o E ----------------------------------
Systems t - Allows existing ordering A N r W - Brand showcase
- ---------------------------------- Q systems to conduct T T t A ----------------------------------
U transactions via the Internet A E L - Customer pricing
E B R L ----------------------------------
- ---------------------------------- R - Provides customized Web A F - Order processing
M.D. Clinic I sites and e-commerce S A ----------------------------------
- ---------------------------------- I E services E C - Inventory & avalability
n S E ----------------------------------
- ---------------------------------- t &
Existing e A
- ---------------------------------- r N F
Information n D I ----------------------------------
- ---------------------------------- e N Manufacturer
Systems t O ---------------------------------- A ----------------------------------
- ---------------------------------- R Group | N
D Purchasing | Data C ----------------------------------
E Organization | Warehouse I F - Catalog data
- ---------------------------------- R Price Files | A e I ----------------------------------
Alternate Site S ---------------------------------- L P R - Marketing information
- ---------------------------------- I o E ----------------------------------
- Long-term care n r W - Brand showcase
- ---------------------------------- t t A ----------------------------------
- Home care e L - Customer pricing
- ---------------------------------- r L ----------------------------------
- Lab n - Order processing
- ---------------------------------- e ----------------------------------
- Other t - Inventory & availability
- ---------------------------------- ----------------------------------
</TABLE>
www.medibuy.com
INSIDE BACK COVER
[medibuy.com logo]
Global Choice -- Local Power
www.medibuy.com
<PAGE> 4
PROSPECTUS SUMMARY
Before making an investment decision, you should read the following summary
together with the more detailed information regarding us and our common stock
and our financial statements and the notes to our financial statements appearing
elsewhere in this prospectus. You should also carefully consider the information
discussed in "Risk Factors".
MEDIBUY.COM, INC.
medibuy.com operates a leading business-to-business Internet marketplace
for the purchase and sale of medical and non-medical products and services used
by the healthcare industry worldwide. Through our Web site at www.medibuy.com,
we offer an online marketplace which enables buyers and sellers to reduce many
of the inefficiencies of the traditional healthcare supply chain. We provide
buyers and sellers with a flexible and secure exchange to conduct daily commerce
and access the latest information relating to products, services, pricing and
market trends. We capture valuable transaction information which our customers
can access through a variety of reporting and analytical tools. To accelerate
adoption of our marketplace solution, we have established strategic
relationships with a number of companies, including:
- PREMIER. Premier Purchasing Partners, L.P., an affiliate of Premier,
Inc., is one of the largest group purchasing organizations in the United
States. Group purchasing organizations aggregate the purchasing volume of
their member hospitals in order to negotiate contracts with favorable
pricing and terms with sellers of medical and non-medical products and
services. We will be the exclusive e-commerce marketplace that Premier
will offer to its 1,800 member hospitals.
- HEALTHEON/WEBMD. We will create and cooperatively market a co-branded
online marketplace for Healtheon/WebMD's physician members.
- DRUGSTORE.COM. We will create and cooperatively market a co-branded
online marketplace with drugstore.com for home healthcare providers.
- ALLIANZ CAPITAL PARTNERS. Allianz will assist us with the expansion of
our marketplace in Europe.
We estimate that the market for new medical products, supplies and
equipment used by healthcare providers is $83 billion in the United States and
$150 billion worldwide. These estimates do not include services or non-medical
or used products, supplies and equipment purchased by healthcare providers,
which we believe will contribute significantly to our market opportunity. In the
United States, there are over 22,000 medical supplies manufacturers and
distributors selling products to approximately 6,000 hospitals and hundreds of
thousands of other healthcare providers. In addition, there are non-medical
manufacturers and distributors that sell their products to healthcare providers
and various organizations that market services such as maintenance, nursing
care, home care and medical billing to these providers.
The traditional process of buying and selling products and services used by
the healthcare industry is time consuming and inefficient and does not
adequately address the needs of buyers and sellers. A 1996 study published by a
consortium of healthcare providers and suppliers known as the Efficient
Healthcare Consumer Response found that $11 billion is spent annually in the
United States on avoidable costs associated with healthcare supply chain
inefficiencies. These inefficiencies result from a number of factors, including
the large number of geographically dispersed buyers and sellers, the
multi-facility nature of many healthcare providers, and the heavy reliance on
telephones, faxes, catalogs and electronic data interchange, or EDI.
To address these inefficiencies and to better serve buyers and sellers, we
have created an online marketplace that spans the breadth of purchasing
activities. Our eCatalog service provides buyers with access to the latest
market pricing as well as a customer's own contracted product pricing,
transaction activity reporting and current product availability information, and
provides
3
<PAGE> 5
sellers with cost-effective access to new customers and markets. Our eRFP
service automates the time-consuming, paper-based processes of distributing a
request-for-proposal to appropriate sellers and coordinating responses from the
seller community. Through our eAuction service, we offer auction capabilities
enabling users to buy and sell new and used medical equipment. Our eSpecials
service allows the seller community to actively promote and sell products and
offer discounted prices directly to the buyer. All of our e-commerce services
are powered by our proprietary electronic catalog technologies, which enable
online transactions with multiple parties.
Our online marketplace provides substantial benefits to participating
buyers and sellers by reducing order processing and tracking costs and improving
the utilization of data relating to products, services, transactions, and market
trends. In addition, our online marketplace benefits buyers by providing access
to a global seller community and by streamlining the purchasing process. Our
online marketplace also benefits sellers by providing access to a worldwide
buyer community, reducing sales and marketing costs, and improving inventory and
rebate management.
Our primary ongoing revenue model will be to derive transaction fees from
the sale of products and services through our electronic marketplace. For the
year ended December 31, 1999, our revenue was derived both from e-commerce
transaction fees and fees from e-commerce software development and other
services that enable e-commerce transactions.
It is difficult to evaluate our business and our future prospects because
we have only recently introduced our services, and the market for an online
marketplace for the purchase and sale of medical and non-medical products and
services is new and unproven. We have experienced a history of significant
losses with a net loss of $1.4 million through December 31, 1998 and a net loss
attributable to common stockholders of $45.9 million for the year ended December
31, 1999. As of December 31, 1999, we had an accumulated deficit of $47.3
million. We expect to continue to incur losses for the foreseeable future. As of
December 31, 1999, we had total revenue since inception of $170,000.
Our objective is to become the preferred marketplace for products and
services used by the healthcare industry. To achieve this objective, we intend
to pursue a strategy that involves the following key components:
- - Accelerate the adoption and use of our marketplace by members of group
purchasing organizations and unaffiliated buyers and sellers
- - Maintain our neutrality with respect to group purchasing organizations, buyers
and sellers who participate in our marketplace
- - Maintain our commitment to technological leadership
- - Continue to build brand recognition
- - Expand our service offerings
- - Continue to excel in customer service
- - Expand internationally
ACQUISITION OF PREMIER HEALTH EXCHANGE LLC
In March 2000, we entered into an agreement to acquire Premier Health
Exchange LLC, the e-commerce provider of Premier Purchasing Partners, L.P., one
of the largest group purchasing organizations in the U.S., representing 1,800
member hospitals. Premier Purchasing Partners is an affiliate of Premier, Inc.,
a national strategic business alliance representing hospitals and health
systems. Premier Purchasing Partners negotiates pricing and terms with sellers
of medical and non-medical products and services on behalf of its members. In
1999, Premier reported that membership purchases under its contracted purchasing
agreements with approximately 400 sellers totaled $10.6 billion. Virtually none
of the purchases by Premier members were
4
<PAGE> 6
conducted through an online marketplace in 1999. We cannot assure you that any
significant portion of these purchases will be made through our online
marketplace in the future. As a result of this acquisition, we will be the
exclusive e-commerce marketplace that Premier will offer to its members for a
scheduled six-year term. Under an e-commerce outsourcing agreement, we will
receive payments of $159 million over the six-year exclusivity period. The
agreement also provides for the additional payment of transaction-based fees to
us and to Premier for e-commerce transactions with Premier's members through our
online marketplace. Prior to the acquisition, Premier Health Exchange's primary
activities have been the development of technology for an electronic catalog
which provides data that enhances the operation of group purchasing
organizations and their members.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 13,000,000 shares
Common stock to be outstanding after this
offering................................... 114,404,743 shares
Proposed Nasdaq National Market symbol....... "MBUY"
Use of proceeds.............................. We intend to use the net proceeds from the
offering for increased sales and marketing
efforts, enhancement and continued
development of our Internet services,
accelerating integration with our customers'
systems, potential acquisitions of
complementary products, services,
technologies and businesses and for other
working capital and general corporate
purposes.
</TABLE>
The number of shares of common stock to be outstanding after the offering
is based upon the pro forma number of shares outstanding as of March 1, 2000.
Unless otherwise stated, information on our common stock outstanding is as of
March 1, 2000 and assumes:
- - a 2.5 for 1 split of our common stock that will take effect prior to the
effective date of this offering
- - no exercise of the underwriters' option to purchase additional shares in this
offering
- - the completion of our acquisition of Premier Health Exchange and our issuance
of 50,000,000 shares of common stock in the transaction
- - no exercise of options or warrants to acquire our common stock
As of March 1, 2000, there were 18,696,400 shares authorized for issuance
on exercise of options under our stock option plans, under which 11,111,995
options were outstanding. Additionally, there were 1,235,338 options outstanding
that were issued outside of the plans. The weighted average exercise price of
the total 12,347,333 options outstanding was $3.02 per share. We have issued or
made commitments to issue warrants to purchase an aggregate of 1,174,960 shares
of our common stock at an average exercise price of $0.05 per share. In
addition, upon our acquisition of Premier Health Exchange, we will issue
warrants to acquire 11,162,901 shares of our common stock at an exercise price
of $0.01 per share and options to acquire 3,125,701 shares of our common stock
at an exercise price of $5.35 per share.
-------------------------
CORPORATE INFORMATION
We were incorporated in the State of Delaware on August 18, 1998 under the
name HS.com, Inc. In January 1999, we changed our name to medibuy.com, Inc. Our
executive offices are located at 10120 Pacific Heights Boulevard, San Diego,
California 92121. Our telephone number is (858) 587-7200. Our address on the
World Wide Web is http://www.medibuy.com. Information contained at our Web site
is not part of this prospectus.
TRADEMARKS
medibuy.com(TM), medibuy(TM), eRFP(TM), eAuction(TM), eCatalog(TM),
eCertified(TM), InstaCat(TM), ePort(TM), cowhorn.com(TM), eSource(TM) and
eSpecials(TM) are trademarks of medibuy.com. This prospectus also refers to
trade names and trademarks of other organizations.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following consolidated financial information should be read together
with the "Selected Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 18, 1998
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ -- $ 170
Loss from operations.................................... (1,454) (40,193)
Net loss................................................ (1,452) (39,721)
Net loss attributable to common stockholders............ (1,452) (45,879)
Net loss per share attributable to common stockholders,
basic and diluted..................................... $ (0.16) $ (4.01)
Shares used in per share computations, basic and
diluted............................................... 8,987,269 11,445,535
Pro forma net loss per share attributable to common
stockholders, basic and diluted....................... $ (1.37)
Shares used in pro forma per share computations, basic
and diluted........................................... 28,902,712
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $63,780 $117,832 $249,372
Working capital..................................... 57,855 106,657 238,197
Total assets........................................ 84,682 821,546 953,086
Stockholders' equity................................ 76,238 807,852 939,392
</TABLE>
See our consolidated financial statements and accompanying notes for a
description of the computation of the net loss per share, pro forma net loss per
share and the number of shares used in the per share calculations in
consolidated statement of operations data above. Pro forma net loss per share
reflects the conversion of our outstanding preferred stock into common stock,
retroactive to the date of issuance.
The pro forma balance sheet data listed above reflects:
- - the sale of 1,480,149 shares of Series E preferred stock in January 2000 for
net proceeds totaling $30,402,000
- - the issuance of 50,000,000 shares of common stock, 3,125,701 options to
purchase common stock and 11,162,901 warrants to purchase common stock with an
estimated aggregate fair value of $701,212,000 in connection with our
acquisition of Premier Health Exchange
- - the subsequent conversion of all of our outstanding preferred stock into
common stock immediately prior to this offering
7
<PAGE> 9
The pro forma as adjusted consolidated balance sheet data listed above also
reflects the sale of 13,000,000 shares of our common stock in this offering at
an assumed initial public offering price of $11.00 per share after deducting an
assumed underwriting discount and estimated offering expenses. See "Use of
Proceeds" and "Capitalization" for a discussion about how we intend to use the
proceeds from this offering and about our capitalization.
Immediately prior to this offering, each share of our Series A and Series B
preferred stock will convert into 25 shares of common stock and each share of
our Series C, Series D and Series E preferred stock will convert into two and
one-half shares of common stock.
8
<PAGE> 10
RISK FACTORS
Before purchasing our common stock you should carefully consider the risks
and uncertainties described below. If any of the following risks actually occur,
our business, financial condition or results of operations could be harmed. In
that case, the trading price of our common stock could decline, and you could
lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE EXPECT TO CONTINUE TO INCUR LOSSES AND MAY NEVER ACHIEVE PROFITABILITY, WHICH
MAY CAUSE OUR STOCK PRICE TO FALL.
At December 31, 1999, we had an accumulated deficit of $47.3 million. We
had a net loss of $1.4 million from our inception to December 31, 1998 and a net
loss attributable to common stockholders of $45.9 million for the year ended
December 31, 1999. Since our inception in August 1998, we have never been
profitable, and we expect to continue to incur losses for the foreseeable
future. Our business strategy has only recently been implemented and our
revenues have been minimal. Additionally, we have spent significant amounts on
Web site development and sales and marketing efforts, and we expect these costs
to continue. If we are unable to achieve profitability, our stock price may
fall.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIP WITH PREMIER AND ITS MEMBERS, OUR
BUSINESS COULD BE HARMED AND OUR STOCK PRICE MAY FALL.
Following our acquisition of Premier Health Exchange, we will be the
exclusive e-commerce marketplace that Premier will offer to its 1,800 member
hospitals. If we are unable to maintain our relationship with Premier and its
members or if Premier's members do not adopt our e-commerce marketplace at the
level that we anticipate, our expected revenues will be adversely affected, our
business will be harmed and our stock price may fall.
OUR BUSINESS MODEL IS UNPROVEN AND IF WE DO NOT GENERATE SUFFICIENT REVENUES OUR
BUSINESS MAY BE HARMED.
The operation of an online marketplace for the purchase and sale of medical
and non-medical products and services is a new, unproven and rapidly evolving
business model. As a result, demand and market acceptance for our e-commerce
services are subject to a high degree of uncertainty and risk. We are attempting
to capitalize on this business model which is not currently implemented by
traditional participants in the healthcare supplies industry. We cannot assure
you that users in the healthcare industry will adopt this new business model or
use our online marketplace for obtaining healthcare supplies. If this new market
fails to develop, develops more slowly than expected or becomes saturated with
competitors, or our services do not achieve or sustain market acceptance, our
business could be harmed.
WE ARE A STARTUP COMPANY AND OUR LIMITED OPERATING HISTORY MAKES AN EVALUATION
OF OUR BUSINESS AND PROSPECTS DIFFICULT.
Since our inception in August 1998, our operating activities have consisted
largely of developing the infrastructure necessary to provide our online
marketplace. We have only recently begun to provide our online marketplace
services to our customers. In addition, our long-term success will depend
largely on the success of our strategic relationships. We are still in the early
stages of our current strategic relationships and we are unable to predict
whether the goals of those relationships will be achieved. Our limited operating
history and limited experience with our strategic business partners make it
difficult to evaluate our current business and prospects. Before investing, you
should evaluate the risks, expenses and problems we may encounter as a result of
our early stage of development.
9
<PAGE> 11
RAPID GROWTH IN OUR OPERATIONS AND INFRASTRUCTURE IS PLACING A SIGNIFICANT
STRAIN ON OUR RESOURCES, AND FAILURE TO MANAGE THIS GROWTH EFFECTIVELY COULD
DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS.
We are experiencing a period of rapid expansion in our Web site traffic,
number of employees, facilities and infrastructure. Since our inception through
March 1, 2000, we have registered over 3,300 buyers and over 2,000 sellers on
our Web site. In April 1999, when we began recording transactions, we recorded
485 average daily visitors to our Web site. In December 1999, we recorded 1,228
average daily visitors to our Web site, representing a 153% increase. Our number
of employees increased from 15 on December 31, 1998 to 191 on March 1, 2000. We
expect further significant expansion will be required to address potential
increases in the number of users, the breadth of our service offerings and other
opportunities. This expansion has placed, and we expect it will continue to
place, a significant strain on our management, operational and financial
resources. Our failure to effectively manage our growth could disrupt our
operations and harm our business.
IF WE ARE NOT ABLE TO SUCCESSFULLY INTEGRATE OUR SYSTEMS WITH THE INTERNAL
INFORMATION SYSTEMS OF OUR CUSTOMERS, INCLUDING PREMIER AND ITS MEMBERS, OUR
RELATIONSHIPS WITH THEM WILL BE ADVERSELY AFFECTED.
In order for buyers and sellers to fully benefit from our e-commerce
services, our system must integrate with their systems. There is little
uniformity in the systems currently used by our customers, which complicates the
integration process. If these systems are not successfully integrated, our
relationships with our customers would be adversely affected, and they could
choose to not use or reduce their use of our e-commerce services, which would
harm our business.
Following our acquisition of Premier Health Exchange, we will be required
to integrate our e-commerce services with the information systems of Premier and
its members according to an agreed upon integration plan. We will incur
significant costs in order to integrate our systems with Premier's and its
members' systems. We also may be delayed in integrating our services and may
fail to integrate those systems on a timely basis or in compliance with the
timing requirements under the agreement. If we are delayed in integrating those
systems, our expected revenue growth may be adversely affected or we may be in
breach of the agreement and Premier may terminate the agreement. If we are
unable to timely integrate more than a specified percentage of the facilities
required to be integrated under the agreement, then Premier will be entitled to
terminate our e-commerce outsourcing agreement and will have a license to
operate our systems to provide an e-commerce marketplace to its members for a
period of up to three years following termination of the agreement.
IF WE ARE UNABLE TO ATTRACT AND RETAIN A CRITICAL MASS OF BUYERS AND SELLERS,
OUR BUSINESS WILL BE ADVERSELY AFFECTED.
Our business depends in large part on our ability to build a critical mass
of buyers and sellers. To attract and maintain sellers we must build a critical
mass of buyers. However, buyers must perceive value in our e-commerce
marketplace which, in large part, depends upon the breadth of the product
offerings from our sellers. Creating a network effect, where the value to buyers
and sellers alike increases as the number of participants increases, is a key
component of our strategy. If we are unable to increase the number of buyers and
sellers using our online marketplace, we will not be able to benefit from this
network effect. As a result, the overall value of our e-commerce solution would
be diminished, which would negatively affect our future revenues and business.
Under our e-commerce outsourcing agreement with Premier, if at the end of
the fourth or fifth year of the agreement, we fail to satisfy specified customer
satisfaction standards and customer usage criteria, then Premier may terminate
our exclusivity under the agreement. The
10
<PAGE> 12
loss of our exclusivity under the e-commerce outsourcing agreement could
adversely affect our revenues and our business.
IF WE ARE UNABLE TO INCREASE OUR TRANSACTION VOLUME OR THE DOLLAR VALUE OF OUR
TRANSACTIONS, OUR FUTURE REVENUES MAY SUFFER.
We expect that a substantial portion of our future revenues will be
generated by the products and services offered by sellers through our healthcare
supplies online marketplace. Accordingly, our revenues will depend on the dollar
volume of transactions conducted through our online marketplace. To maintain
revenue growth, we will need to increase the total number of transactions
conducted through our online marketplace and their dollar value. In order to
increase our transactions and dollar volume, we will need to:
- - Generate increasing levels of traffic on our Web site, from both new and
repeat customers
- - Increase the percentage of visitors to our Web site who purchase or sell
healthcare supplies
- - Increase the average dollar value of each transaction
Our failure to do one or more of these could have an adverse effect on our
future revenues.
IF OUR WEB SITE AND TRANSACTION PROCESSING SYSTEMS BECOME UNAVAILABLE FOR
EXTENDED PERIODS OF TIME OR ARE NOT ABLE TO ADEQUATELY SERVICE INCREASING
TRAFFIC LEVELS, OUR REPUTATION AND BUSINESS MAY SUFFER.
Our success depends in large part on the number of customers who use our
online marketplace and services to buy and sell healthcare supplies.
Accordingly, our system must be able to service increasing traffic while
maintaining adequate customer service. Any significant interruptions or delays
in our system would reduce the volume of transactions carried on through our
online marketplace and the attractiveness of our e-commerce services, which
could reduce customer satisfaction and harm our reputation and business.
Substantial increases in the volume of traffic or the number of transactions on
our online marketplace will require expansion of and upgrades to our technology
infrastructure. We cannot be sure that our systems will be able to accommodate
increased traffic in the future. Any failure of our system could result in fewer
transactions and, if sustained or repeated, could impair our reputation and the
attractiveness of our services or prevent us from providing our services
entirely.
In addition, under our agreement with Premier Purchasing Partners, if our
services become unavailable to Premier Purchasing Partners and its members for
periods specified in the agreement, then Premier Purchasing Partners will be
entitled to terminate our e-commerce outsourcing agreement and will have a
license to operate our systems to provide an e-commerce marketplace to its
members for a period of up to three years following termination of the
agreement.
WE MAY EXPERIENCE SIGNIFICANT DELAYS IN GENERATING REVENUES IF POTENTIAL
CUSTOMERS TAKE A LONG TIME TO EVALUATE AND ADOPT OUR SERVICES.
A key element of our strategy is to market our services directly to large
healthcare organizations, manufacturers and distributors. We do not control many
of the factors that will influence the decisions of those organizations
regarding the use of our services. We expect that the evaluation and adoption
process will be lengthy and will involve significant technical evaluation and
commitment of resources by these organizations. The use of our services by
buyers and sellers may be delayed due to their reluctance to modify existing
procedures. Delays in adoption of our services could postpone our realization of
revenues and result in increased or prolonged losses.
11
<PAGE> 13
IF WE DO NOT SUCCESSFULLY MARKET THE MEDIBUY.COM BRAND, OUR BUSINESS MAY SUFFER.
We believe that establishing, maintaining and enhancing the "medibuy.com"
brand is critical in attracting and expanding traffic to our Web site. There are
a number of Web sites that offer competing services. Some of these sites already
have well-established brands in either online services or the healthcare
supplies market. As a result, it is critical that we establish and enhance the
medibuy.com brand. We believe that increased competition may make establishing
our brand significantly more expensive. Promotion of our brand will depend
largely on expanding our sales and marketing capabilities and providing an open
marketplace with a large number of buyers and sellers. We intend to use a
portion of the proceeds of this offering to expand our sales and marketing
activities. We cannot be certain that we will be successful in marketing the
medibuy.com brand. If we are unable to successfully promote our brand, our
revenues and business may be harmed. If we incur greater expenses than expected
in marketing our brand, our financial results may be harmed.
IF WE ARE UNABLE TO ENTER INTO AND MAINTAIN RELATIONSHIPS WITH LARGE HEALTHCARE
GROUP PURCHASING ORGANIZATIONS IN ADDITION TO PREMIER, OUR GROWTH AND REVENUES
COULD SUFFER.
We believe that we must establish relationships with large healthcare group
purchasing organizations in addition to Premier in order for us to increase our
access to a significant portion of the healthcare supplies market. Group
purchasing organizations represent groups of buyers in the negotiation of
purchasing contracts with sellers and consequently have the ability to
significantly influence the purchasing decisions of their members. We do not
negotiate prices on behalf of buyers or perform other services traditionally
offered by group purchasing organizations. Nonetheless, it is possible that
group purchasing organizations may perceive our e-commerce services as
competitive with their businesses or they may perceive our relationship with
Premier as a threat to their business. The inability to enter into and maintain
favorable relationships with other group purchasing organizations and the
hospitals they represent could impact the breadth of our customer base and could
harm our growth and revenues.
WE EXPECT TO RELY ON A LIMITED NUMBER OF LARGE CUSTOMERS FOR A SIGNIFICANT
PORTION OF OUR REVENUES IN THE FUTURE. LOSING ONE OR MORE OF THESE CUSTOMERS MAY
ADVERSELY AFFECT OUR FUTURE REVENUE GROWTH.
While our marketing and development efforts address the entire healthcare
industry, a significant portion of these efforts are directed at larger
organizations that have a concentration of purchasing needs. As a result, we
expect that for the foreseeable future we will generate a significant portion of
our revenues from a limited number of large customers. Further, our customers
are not obligated to use our e-commerce solution for any minimum number of
transactions or dollar amounts. As a result, our customers may effectively
discontinue use of our e-commerce solution at any time without penalty. If we
lose any of our large customers or if we are unable to add new large customers,
we may be unable to increase our revenues. For the year ended December 31, 1999,
one customer of our subsidiary PartNET, Inc., the U.S. Government, accounted for
61% of our consolidated revenues. However, we do not intend to focus on growing
the PartNET portion of our business that provides services to non-healthcare
companies.
SINCE WE RELY ON SELLERS TO FULFILL ORDERS FOR OUR BUYERS, WE HAVE LITTLE OR NO
CONTROL OVER THE TIMING AND ACCURACY OF ORDER FULFILLMENT AND, CONSEQUENTLY, WE
CANNOT CONTROL BUYER SATISFACTION. IF BUYERS ARE NOT SATISFIED WITH THEIR
EXPERIENCE WITH SELLERS ON OUR ONLINE MARKETPLACE, OUR REPUTATION AND BUSINESS
COULD BE HARMED.
We do not carry inventory or directly supply products. As a result, we rely
on our sellers for timely order fulfillment and other customer service functions
relating to delivery of products and services to ensure buyer satisfaction. We
have little or no control over the fulfillment of buyers'
12
<PAGE> 14
orders. The fulfillment process is complicated by the numerous and varied
products and services offered in our online marketplace, and by the regulatory
requirements applicable to healthcare supplies. If our sellers do not provide
accurate order fulfillment and high quality customer service, customer
satisfaction could be harmed, as well as our reputation and business. Customer
dissatisfaction may cause buyers not to pay sellers, which in turn may also
negatively impact our ability to collect our transaction fees from sellers. In
order to be successful, we must maintain relationships with sellers that will
produce, stock and deliver high quality products to buyers through our Web site.
OUR PRIMARY COMPUTER AND TELECOMMUNICATIONS SYSTEMS ARE IN THE SAME GEOGRAPHIC
LOCATION, WHICH MAKES THEM MORE VULNERABLE TO DAMAGE OR INTERRUPTION. THIS
DAMAGE OR INTERRUPTION COULD HARM OUR BUSINESS.
Though we do have back-up systems, substantially all of our primary
computer and telecommunications systems are located in one geographic area.
These systems are vulnerable to damage or interruption from, among other things:
- - fire
- - earthquake
- - water damage
- - sabotage
- - flood
- - power loss
- - technical or telecommunications failure
While we have business interruption insurance, this coverage may not
adequately compensate us for our lost business and will not compensate us for
any liability to our customers due to our inability to provide services to them.
Although we have implemented network security measures, our systems, like all
systems, are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. These disruptions could lead to interruptions, delays,
loss of data or the inability to accept and confirm buyer purchases. Any of
these occurrences would impair our ability to serve our customers and harm our
business.
IF WE ARE NOT ABLE TO OFFER NEW SERVICES, WE MAY NOT BE ABLE TO GROW OUR
REVENUES.
We plan to introduce new and expanded services and to expand our
third-party relationships in order to attract more buyers and sellers to our Web
site and increase transaction volume. We cannot be certain that we will be able
to offer these services in a cost-effective or timely manner. Any new services
that are not favorably received by buyers or sellers could damage our
reputation. Expansion of our services will require us to devote a significant
amount of time and money and may strain our resources and divert the attention
of our management. Our failure to expand our services could delay or prevent our
revenue growth.
WE FACE INTENSE COMPETITION WHICH COULD LIMIT OUR ABILITY TO MAINTAIN OR EXPAND
THE BASE OF BUYERS AND SELLERS OF HEALTHCARE SUPPLIES USING OUR SERVICES.
The market for business-to-business e-commerce is new and rapidly evolving.
Competition is intense and is expected to increase significantly in the future.
Barriers to entry are relatively insubstantial. We believe that the critical
success factors for companies seeking to create business-to-business e-commerce
solutions include the following:
- - brand recognition
- - breadth, depth and quality of product offerings
13
<PAGE> 15
- - ease of use and convenience
- - ability to integrate their services with users' existing systems and software
- - identity and number of strategic partners and other business relationships
- - quality and reliability of their services
- - customer service
- - number of users and transaction volume
- - the amount of the fees charged to sellers
The online market for healthcare supplies is new, rapidly evolving and
intensely competitive. We believe we face competition in three general market
segments:
- - Online healthcare supplies marketplaces
- - Traditional healthcare supply chain participants
- - Other companies providing Internet e-commerce services
Our current and potential competitors' services may achieve greater market
acceptance than our services. Many of our existing and potential competitors
have longer operating histories in the healthcare supplies industry, greater
name recognition, larger customer bases or greater financial, technical and
marketing resources than we do. As a result of these factors, our competitors
and potential competitors may be able to respond more quickly to market forces,
undertake more extensive marketing campaigns for their brands and services and
make more attractive offers to buyers and sellers, potential employees and
strategic partners. In addition, new technologies may increase competitive
pressures. We cannot be certain that we will be able to expand our buyer and
seller base, or retain our current buyer and seller customers. We may not be
able to compete successfully against current and future competitors and
competition could harm our business.
IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY, WE MAY NOT
BE ABLE TO GROW OUR REVENUES.
We plan to make future acquisitions as a part of our growth strategy. The
acquisition of Premier Health Exchange and the acquisition of any other
companies in the future involve risks that could harm our future revenues and
operating results. For example:
- - We may not be able to identify suitable acquisition candidates or to acquire
companies on favorable terms.
- - We compete with others to acquire companies. We believe that this competition
will increase and may result in decreased availability or increased prices for
suitable acquisition candidates.
- - We may not be able to obtain the necessary financing, on favorable terms or at
all, to finance any of our potential acquisitions.
- - We may ultimately fail to close an acquisition even if we announce that we
plan to acquire a company.
- - We may fail to integrate successfully or manage Premier Health Exchange or any
other acquired company due to differences in technology, business systems or
corporate cultures.
- - An acquired company may not perform as we expect.
- - We may choose to acquire a company that is not profitable.
14
<PAGE> 16
- - If we fail to integrate successfully Premier Health Exchange or any other
acquired company, our business and reputation could be damaged, potentially
making it more difficult to market our services or to acquire additional
companies in the future.
- - Our acquisition strategy may divert management's attention away from our
primary service offerings, result in the loss of key customers and/or
personnel and expose us to unanticipated liabilities.
IF WE LOSE KEY MEMBERS OF OUR MANAGEMENT TEAM, OR FAIL TO INTEGRATE THEM, OUR
BUSINESS AND PROSPECTS MAY BE HARMED.
Almost all of our management team joined us in 1999. Many of these
individuals have not previously worked together and are currently being
integrated as a management team. Our future performance will substantially
depend on our ability to effectively integrate our management team as well as
our ability to retain them. Furthermore, because the growth of our business is
dependent upon the individual personal relationships that members of our
management team have with contacts elsewhere in the healthcare industry, if some
or all of them terminate their employment with us, our business and prospects
may be harmed.
We have employment agreements with Dennis Murphy, our Chief Executive
Officer and President, James Hersma, our Executive Vice President, Market
Development, Charles Smith, our Executive Vice President, Customer Advocacy,
Norman Farquhar, our Executive Vice President and Chief Financial Officer,
Robert Witt, our Executive Vice President, Chief Information Officer and Don
Brown, President of our PartNET subsidiary; however, those agreements cannot
guarantee that any of those officers will not terminate employment with us.
Further, we do not maintain any "key person" life insurance policies.
OUR BUSINESS COULD BE HARMED IF WE ARE NOT ABLE TO HIRE AND RETAIN A SUFFICIENT
NUMBER OF QUALIFIED EMPLOYEES.
Our future success will depend on our ability to attract and retain other
highly skilled personnel. In particular, competition for healthcare industry
professionals and technical personnel is intense. Substantially all of our
employees joined us in 1999, and we expect that our hiring will continue. An
inability to hire and retain qualified personnel in sufficient numbers may
reduce the quality of our service offerings and could harm our business.
WE COULD BE LIABLE FOR PRODUCT LIABILITY CLAIMS RELATED TO PRODUCTS AND SERVICES
PURCHASED THROUGH OUR WEB SITE, AND OUR BUSINESS COULD BE HARMED.
Many of the products obtained by buyers through our system will be used to
treat patients. Any defects or other performance problems of these products
could result in injury to these patients. A product liability claim brought
against us could expose us to substantial liability and, even if not successful,
would likely be time consuming and costly, would divert management attention
from the operation of our business, and could seriously harm our business. Any
insurance coverage we have may not be applicable to such a claim. Even if our
insurance is applicable, the amount of coverage may be inadequate.
IF OUR SYSTEMS DAMAGE OUR CUSTOMERS' INFORMATION SYSTEMS OR BUSINESSES, WE COULD
BE LIABLE AND OUR REPUTATION AND BUSINESS COULD BE HARMED.
Our systems are integrated with our customers' information systems. If
malfunctions in our system cause our customers to be unable to make purchases or
sales of supplies, we may be held liable for any losses that they suffer as a
result. In addition, our systems could cause a user's information systems to
fail, in whole or in part, which could subject us to substantial liability for
their loss of business and adversely affect our reputation and our ability to
grow our business.
15
<PAGE> 17
THE CONTENTS OF OUR WEB SITE OR CO-BRANDED WEB SITES MAY EXPOSE US TO VARIOUS
CLAIMS, WHICH COULD RESULT IN SUBSTANTIAL COSTS AND LIABILITIES.
Our Web site contains information concerning the products offered by
sellers, including product descriptions, specifications and pricing. This
information is provided by sellers and we generally do not independently verify
this information. In addition, we have agreed to develop co-branded Web sites in
connection with some of our strategic relationships. To some extent, we will not
be able to control or pre-approve content provided by the parties with whom we
have developed these co-branded Web sites. We could potentially face liability
for slander, libel, fraud, negligence, copyright, patent or trademark
infringement and other claims based on the information contained on our Web site
or on a co-branded site. A successful claim could subject us to significant
liability that would harm our reputation and financial results. Even the
successful defense of a claim could divert the attention of our management and
damage our brand perception and reputation.
WE RELY ON OUR SELLERS AND THEIR CARRIERS TO COMPLY WITH GOVERNMENT REGULATIONS
REGARDING THE SALE AND DISTRIBUTION OF REGULATED PRODUCTS, AND THEIR FAILURE TO
COMPLY COULD RESULT IN SUBSTANTIAL CIVIL AND CRIMINAL LIABILITY.
Many of the products offered through our Web site are subject to direct
regulation by governmental agencies. We rely upon sellers who use our services
to meet all packaging, distribution, labeling, hazard and health information
notice, record keeping and licensing requirements applicable to transactions
conducted on our system. We may be subject to liability for violations of these
regulations regardless of our actual involvement in a violation. In addition, we
rely upon the carriers retained by our sellers to comply with regulations
regarding the shipment of any hazardous materials sold through our system. We
cannot assure you that our sellers or their carriers will comply with all
applicable government regulations. We could be fined or exposed to civil or
criminal liability for any violations which could have a negative impact on our
business or financial results.
WE INTEND TO EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, WHICH WOULD MAKE
OUR BUSINESS SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.
Our international strategy will necessitate expanding our international
operations and hiring additional personnel. A key component of our strategy is
to enter into relationships with companies having a significant presence and
expertise in the foreign markets we target. Our entry into international markets
may require significant management attention and financial resources, which may
harm our ability to effectively manage our existing business. We expect to
commit significant resources to expand our international sales and marketing
activities. Even if we are successful in expanding our operations
internationally or entering into international strategic relationships, we will
be subject to a number of risks associated with international business
activities. These risks include:
- - Currency exchange rate fluctuations
- - Cultural and language barriers
- - Unexpected changes in regulatory requirements
- - Tariffs, export controls and other trade barriers
- - Longer accounts receivable payment cycles and difficulty collecting
receivables
- - Difficulties managing and staffing international operations
- - Potentially adverse tax consequences, including restrictions on the
repatriation of earnings
- - Compliance with a wide variety of foreign laws
16
<PAGE> 18
- - Political instability
- - Competitors with greater local market knowledge may exist or arise in these
markets and impede our growth
IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR COMPETITORS
MAY GAIN ACCESS TO OUR TECHNOLOGY AND WE MAY LOSE CUSTOMERS.
We depend on our ability to develop and maintain the proprietary aspects of
our business strategies and our technology. To protect our proprietary
information and technology, we rely primarily on a combination of contractual
provisions, confidentiality procedures, trade secrets and patent, copyright and
trademark laws.
We seek to avoid disclosure of our trade secrets through a number of means,
including requiring those persons with access to our proprietary information to
execute confidentiality agreements with us. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. We currently have no patents protecting
our technology, although we have filed two patent applications through PartNET,
Inc., our wholly-owned subsidiary. From time to time, we expect to file
additional patent applications directed to aspects of our proprietary
technology. We cannot assure you that any of these applications will be
approved, that any issued patents will protect our intellectual property or that
any issued patents will not be challenged by third parties. We cannot assure you
that any of our proprietary rights with respect to our system will be viable or
of value in the future because the validity, enforceability and type of
protection of proprietary rights in Internet-related industries are uncertain
and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may be able to copy aspects of our services or to obtain and use information
that we regard proprietary. In addition, the laws of some foreign countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our service offerings or design around any patents that may be issued
to us or our other intellectual property.
If we are unable to protect our intellectual property, our competitors may
be able to duplicate our service offerings. We may then lose customers and our
business and financial results could be harmed.
OUR SERVICES AND OTHER PROPRIETARY RIGHTS MAY INFRINGE ON THE PROPRIETARY RIGHTS
OF THIRD PARTIES, WHICH MAY EXPOSE US TO LITIGATION.
There has been a substantial amount of litigation in the Internet industry
regarding intellectual property rights. It is possible that in the future third
parties may claim that our current or future services infringe their
intellectual property. We expect that providers of e-commerce services will
increasingly be subject to infringement claims as the number of services and
competitors in our industry segment grows and the range of services in different
industry segments overlap. Any claims, with or without merit, could be
time-consuming, result in costly litigation, divert management attention, cause
disruptions in our services or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may not be available
on terms acceptable to us or at all. Any of these results could harm our
financial results and our business.
17
<PAGE> 19
WE MAY NEED TO OBTAIN ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE OR, IF IT
IS AVAILABLE, MAY RESULT IN A REDUCTION IN THE PERCENTAGE OWNERSHIP OF OUR
EXISTING STOCKHOLDERS.
Our available funds are expected to be sufficient to meet our cash
requirements for at least the next 12 months. However, in addition to the
proceeds of this offering, we may need to raise additional funds in order to:
- - Finance unanticipated working capital requirements
- - Develop or enhance our technological infrastructure and our existing services
- - Fund strategic relationships
- - Respond to competitive pressures
- - Acquire complementary businesses, technologies, products or services
Additional financing may not be available on terms favorable to us, or at
all. If adequate funds are not available or are not available on acceptable
terms, our ability to fund our expansion, take advantage of unanticipated
opportunities, develop or enhance technology or services or otherwise respond to
competitive pressures would be significantly limited. If we raise additional
funds by issuing equity or convertible debt securities, the percentage ownership
of our then-existing stockholders will be reduced, and these securities may have
rights, preferences or privileges senior to those of our existing stockholders.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT AND MAINTENANCE OF THE
INTERNET WHICH IS BEYOND OUR CONTROL. IF THE INTERNET IS NOT DEVELOPED AND
MAINTAINED OUR BUSINESS WILL BE HARMED.
The success of our business will depend on others for the ongoing
development and maintenance of the Internet infrastructure. This includes
maintenance of a reliable network with the necessary speed, data capacity and
security, as well as timely development of complementary products like high
speed modems, for providing reliable Internet access and services. Because
global commerce on the Internet and the online exchange of information is new
and evolving, we cannot predict whether the Internet will prove to be a viable
commercial marketplace in the long term. The success of our business is
dependent on the continued improvement of the Internet as a convenient means of
interaction and commerce, as well as an efficient medium for the purchase and
sale of healthcare supplies. If the Internet does not develop into an efficient
medium for these transactions, our business and financial condition and results
of operation will be harmed.
RAPIDLY CHANGING TECHNOLOGY MAY IMPAIR OUR ABILITY TO DEVELOP AND MARKET OUR
SERVICES.
All businesses which rely on Internet technology, including the healthcare
supplies e-commerce marketplace business that we are developing, are subject to
risks and uncertainties, including:
- - Rapid technological change
- - Changing customer needs
- - Frequent new service introductions
- - Evolving industry standards
- - Relatively low barriers to entry
Internet technologies are evolving rapidly, and the technology used by our
e-commerce business is subject to rapid change. These market characteristics are
magnified by the emerging
18
<PAGE> 20
nature of the market and the fact that many companies are expected to introduce
new Internet products and services in the near future. In addition, use of the
Internet may decrease if alternatives are developed or if problems associated
with increased Internet use are not resolved. As the communications, computer
and software industries continue to experience rapid technological change, we
will need to modify our services so that they adapt to those changes. We may
experience difficulties that could delay or prevent the successful development
and introduction of our services or hinder our ability to respond to
technological changes in a timely and cost-effective manner. Moreover,
technologically superior service offerings could be developed by competitors.
These factors could harm our business and our ability to develop and market our
services.
ONLINE COMMERCE AND DATABASE SECURITY CONCERNS COULD REDUCE TRAFFIC ON OUR WEB
SITE AND EXPOSE US TO LIABILITY.
The secure transmission of confidential information over public networks is
a fundamental requirement for e-commerce. Concerns over the security of
transactions and commercial online services and other privacy issues may inhibit
the growth of the Internet and the online commerce industry. We license
encryption and authentication technology for the transmission of confidential
information, such as buyer credit card numbers, through our online system. In
addition, we maintain an extensive confidential database of buyer and seller
profiles and transaction information. Technological advances, including new
discoveries in the field of cryptography, could result in a compromise or breach
of our security systems. Security breaches could harm our reputation and impair
our business. An intruder who breaches our security measures could
misappropriate proprietary information or cause interruptions in our system. We
could be required to spend a significant amount of time and money to protect
against security breaches or to alleviate problems caused by breaches. Security
breaches could also expose us to litigation and possible liability. We cannot be
certain that our security measures will prevent security breaches.
THE APPLICATION OF SALES AND OTHER TAXES TO ONLINE COMMERCE COULD REDUCE DEMAND
FOR OUR SERVICES AND MAY BE ADMINISTRATIVELY BURDENSOME FOR US OR OUR CUSTOMERS.
The application of sales and other taxes by state and local governments to
e-commerce is uncertain and may take years to resolve. In particular, a number
of states are currently reviewing the appropriate tax treatment of e-commerce,
and new state tax regulations may subject us, our sellers or our buyers to
additional state sales and income taxes. The imposition of additional sales
taxes on transactions conducted through our Web site could make our service less
valuable to buyers and sellers and reduce transaction volume. This effect would
harm our revenues. In addition, the collection and payment of such taxes may
cause us or our customers to incur significant administrative effort and
expense. Our failure to properly collect and pay such taxes in any jurisdiction
could subject us to penalties.
Federal legislation imposing limitations on the ability of states to tax
Internet access was enacted in 1998. The Internet Tax Freedom Act, as this
legislation is known, exempts specific transactions conducted over the Internet
from multiple or discriminatory state and local taxation through October 21,
2001. It is possible that this legislation will not be renewed when it
terminates in October 2001. Failure to renew this legislation could allow state
and local governments to impose taxes on particular transactions, and these
taxes could decrease the demand for our services or increase our costs of
operations.
GOVERNMENT REGULATION OF THE INTERNET OR HEALTHCARE E-COMMERCE COULD HARM OUR
BUSINESS.
Our services may be subject to extensive and frequently changing regulation
at federal, state and local levels. The Internet and its associated technologies
are also subject to government regulation. Many existing laws and regulations,
when enacted, did not anticipate the
19
<PAGE> 21
Internet or the methods of healthcare supplies e-commerce we are developing. We
believe, however, that some of these laws and regulations may nonetheless be
applied to our business. Our reliance on relationships with group purchasing
organizations such as Premier may affect our business indirectly. For example,
regulatory action against a group purchasing organization may adversely affect
our business with its members. In addition, numerous jurisdictions have laws and
regulations that may affect the services we offer, such as regulations affecting
auctions or regulations affecting escrow arrangements. Our business may be
affected by current regulations as well as future regulations specifically
targeting the healthcare supplies industry, group purchasing organizations or
the nature of our services.
We intend to conduct our business in compliance with the federal, state and
local laws and regulations governing our operations. However, the impact of
regulatory developments in the healthcare supplies industry is complex and
difficult to predict, and we cannot assure you that our business will not be
harmed by existing or new regulatory requirements or interpretations. It is also
possible that those requirements or interpretations could limit the
effectiveness of the use of the Internet for the methods of e-commerce we are
developing. Application of any regulations or requirements to our business could
harm our business. Please refer to "Business -- Government Regulation" for a
more detailed description of the regulations generally applicable to our
business.
THE CHANGING UNITED STATES HEALTHCARE ENVIRONMENT COULD HAVE A NEGATIVE IMPACT
ON OUR BUSINESS.
In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs and to improve access and quality.
Those efforts include potential national healthcare reform, trends toward
managed care, reductions in reimbursement, consolidation of healthcare suppliers
and the further development of large, sophisticated purchasing groups. This
industry is expected to continue to undergo significant changes for the
foreseeable future. Other factors that could have an adverse effect on our
business include:
- - Changes in governmental support or payment for healthcare services
- - Changes in purchasing and reimbursement policies of third-party insurers, not
just government payors
- - Changes in methods by which healthcare services are delivered or the prices
for healthcare services
- - Adoption of other legislation or regulations governing healthcare services or
mandated benefits
RISKS RELATED TO THIS OFFERING
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND OUR INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
The net proceeds of this offering are intended to be used as designated
under the heading "Use of Proceeds" in this prospectus. However, we have broad
discretion in our use of these funds. Our management can spend the proceeds from
this offering in ways with which the stockholders may not agree. We cannot
predict that the proceeds will be invested to yield a favorable return.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL CONTROL 60.7% OF
OUR COMMON STOCK AFTER THIS OFFERING, AND THIS CONCENTRATION OF OWNERSHIP MAY
DETER A CHANGE IN CONTROL OR OTHER TRANSACTION THAT IS FAVORABLE TO OUR
STOCKHOLDERS.
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, beneficially own
approximately 60.7% of our
20
<PAGE> 22
outstanding common stock. In particular, Premier will beneficially own
approximately 43.7% of our common stock after this offering. These stockholders
would be able to effectively control all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
delay, deter or prevent a change in control and may make some transactions more
difficult or impossible to complete without the support of these stockholders,
even if the transaction is favorable to our stockholders. In addition, because
of their ownership of our common stock, these stockholders will be in a position
to affect significantly our corporate actions in a manner that could conflict
with the interests of our public stockholders.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of us
or our management. These provisions could also discourage proxy contests and
make it more difficult for you and other stockholders to elect directors and
take other corporate actions. As a result, these provisions could limit the
price that investors are willing to pay in the future for shares of our common
stock. These provisions:
- - Authorize the issuance of "blank check" preferred stock, which is preferred
stock that can be created and issued by the Board of Directors without prior
stockholder approval, with rights that are superior to those of common stock
- - Provide for a staggered board of directors, so that no more than two directors
could be replaced each year and it would take three successive annual meetings
to replace all directors
- - Prohibit stockholder action by written consent
- - Establish advance notice requirements for submitting nominations for election
to the Board of Directors and for proposing matters that can be acted upon by
stockholders at a meeting
- - Restrict business combinations with any interested stockholder
CHANGES IN OUR BUSINESS MAY CAUSE THE PRICE OF OUR STOCK TO FLUCTUATE
SIGNIFICANTLY.
Due in part to the early stage of our business, the undeveloped market for
the online purchase and sale of healthcare supplies and the nature of Internet
company stocks, the market price for our common stock is likely to be highly
volatile and is likely to experience wide fluctuations in response to factors
including the following:
- - Actual or anticipated variations in our quarterly operating results
- - Announcements of technological innovations or new services by us or our
competitors
- - Changes in financial estimates by securities analysts
- - Conditions or trends in the e-commerce or healthcare supplies industries
- - Changes in the economic performance or market valuations of other e-commerce
or healthcare supplies companies
- - Announcements by us or our competitors of significant acquisitions, strategic
relationships, joint ventures or capital commitments
- - Additions or departures of key personnel
- - Release of lock-up or other transfer restrictions on our outstanding shares of
common stock or sales of additional shares of common stock
- - Potential litigation
- - Changes in overall market conditions
21
<PAGE> 23
The market prices of the securities of Internet related companies have been
especially volatile. Broad market and industry factors may adversely affect the
market price of our common stock, regardless of our actual operating
performance. Moreover, an active public market for our common stock may not
develop or be sustained after this offering. In the past, following periods of
volatility in the market price of their stock, many companies have been the
subject of securities class action litigation. If we were sued in securities
class action, it could result in substantial costs and liabilities and a
diversion of management's attention and resources and would adversely affect our
stock price.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock. As a result,
purchasers of our common stock in this offering will suffer immediate and
substantial dilution. The dilution will be $8.64 per share in the net tangible
book value of the common stock from the initial public offering price (or $8.51
per share if the underwriters' option to purchase additional shares is exercised
in full). This dilution is described in greater detail under "Dilution" in this
prospectus. If outstanding options or warrants to purchase shares of common
stock are exercised, there will be further dilution.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on pro forma shares outstanding as of March 1, 2000, upon
completion of this offering we will have outstanding 114,404,743 shares of
common stock, assuming no exercise of the underwriters' option to purchase
additional shares. Of these shares, the 13,000,000 shares of our common stock
sold in this offering will generally be freely tradeable, without restriction,
in the public market. Our directors, officers and stockholders and optionees
have entered into lock-up agreements in connection with this offering generally
providing that, for 180 days after the date of this prospectus, they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock without the prior written consent of Goldman, Sachs & Co.
According to the lock-up agreements, at any time beginning on the third business
day following the public release of our earnings for the quarter ended March 31,
2000, each stockholder may offer, sell, transfer, assign, pledge or otherwise
dispose of up to 10% of his or her shares owned or issuable upon exercise of an
option to purchase our shares outstanding as of the date of this prospectus; and
at any time beginning on the third business day following the public release of
our earnings for the quarter ended June 30, 2000, each stockholder may offer,
sell, transfer, assign, pledge or otherwise dispose of up to an additional 15%
of his or her shares owned or issuable upon exercise of an option to purchase
our shares outstanding as of the date of this prospectus. The lock-up
restrictions will expire as to the remaining shares on the date that is 180 days
after the date of this prospectus. Any sales of shares released from lockup
restrictions will be subject to the requirements of Rule 144 under the
Securities Act, including the requirement that we have been reporting under the
Exchange Act for at least 90 days prior to the sale. As a result and subject to
the requirements of Rule 144, a substantial number of shares of our common stock
will be eligible for sale in the public market prior to the expiration of the
customary 180-day lock-up period following an initial public offering.
In addition to the scheduled releases of shares under the underwriters'
lock-up agreements with our stockholders, the underwriters will have broad
discretion to waive any stockholder's lock-up restrictions at any time prior to
the scheduled release of those shares. Goldman, Sachs & Co. have indicated that
they do not intend to waive any of the lock-up agreements. In deciding whether
to grant a waiver, they would consider the market prices and trading volumes
22
<PAGE> 24
of our common stock at that time, market conditions generally, the size and
timing of the requested waiver and any special circumstances of the requesting
person. The release of shares from the lock-up restriction at any time may cause
significant drops in our stock price.
In connection with our acquisition of Premier Health Exchange, we will
enter into Lock-up and Registration Rights Agreement with Premier Purchasing
Partners. Under the agreement, Premier Purchasing Partners will agree that
subject to limited exceptions, it will not transfer any of the shares of our
common stock received upon our acquisition of Premier Health Exchange for a
period of one year following this offering. We will have broad discretion to
release any or all of their shares from the transfer restrictions under this
agreement. The release of shares from the lock-up restriction at any time may
cause significant drops in our stock price.
Although we do not currently plan to register any additional shares of our
common stock prior to the release of the lock-up restrictions, other than a
registration with respect to our employee benefit plans, it is possible that if
permitted by our underwriters, we could register additional shares for sale to
the public, including the registration of the resale of shares of common stock
issued upon the exercise of our warrants or shares of common stock held by
Premier. The release of shares from lock-up restrictions and the registration
and sale of additional shares to the public could cause our stock price to fall.
As of March 1, 2000, we have issued or committed to issue warrants to
purchase an aggregate of 1,174,960 shares of our common to other parties in
connection with some of our strategic relationships. We have also reserved an
additional 13,925,000 shares of our common stock for issuance upon exercise of
warrants that may be issued in connection with our strategic relationships in
the future. In addition, our board may authorize the issuance of more warrants
in the future. These warrants are, and with respect to warrants that may be
issued in the future are expected to be, subject to lock-up restrictions
equivalent to those described above. Shares of our common stock purchased upon
exercise of these warrants will be eligible for sale in the public market
subject to performance- or time-based vesting, as applicable, the expiration of
lock-up restrictions and restrictions imposed under Rule 144 under the
Securities Act.
In addition, approximately 12,347,333 shares under outstanding options and
approximately 7,584,405 shares reserved for future issuance under our stock
option plans as of March 1, 2000 will be eligible for sale in the public market
subject to vesting, the expiration of lock-up agreements and restrictions
imposed under Rules 144 and 701 under the Securities Act. See "Shares Eligible
for Future Sale" for a more detailed description of shares of our stock that may
become available for public sale in the future and the applicable lock-up and
other restrictions.
23
<PAGE> 25
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, many of which are beyond our control. All
statements, other than statements of historical facts included in this
prospectus, regarding our strategy, future operations, financial position,
revenues or revenue growth, projected costs, prospects, plans and objectives of
management are forward-looking statements. When used in this prospectus, the
words "may", "intend", "will", "should", "could", "potential", "expect",
"anticipate", "believe", "estimate", "plan", "predict", or "continue" and
similar expressions, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. All
forward-looking statements speak only as of the date of this prospectus. You
should not place undue reliance on these forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements we make in this prospectus are reasonable, we can
give no assurance to you that these plans, intentions or expectations will be
achieved. We disclose important factors which could cause our actual results to
differ materially from our expectations under "Risk Factors" and elsewhere in
this prospectus. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf.
24
<PAGE> 26
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$131.5 million (based upon an assumed initial public offering price of $11.00
per share), after deducting an assumed underwriting discount and estimated
offering expenses. If the underwriters' option to purchase additional shares is
exercised in full, we estimate that net proceeds will be $151.5 million.
We presently intend to use the net proceeds of this offering as follows:
- - approximately $25 million for increased sales and marketing efforts
- - approximately $25 million for enhancement and continuing development of our
Internet services
- - approximately $25 million for accelerating integration with our customers'
systems
- - the balance for working capital and general corporate purposes
In addition, use of proceeds may include potential acquisitions of
complementary products, services, technologies and businesses. Pending these
uses, the net proceeds of this offering will be invested in short-term,
interest-bearing, investment-grade securities. Other than our agreement to
acquire Premier Health Exchange, we are not currently a party to any contracts
or letters of intent with respect to acquisitions of any businesses.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of our board of directors and will be dependent upon our financial condition,
results of operations, capital requirements, general business conditions, any
contractual restrictions and other factors that the board of directors may deem
relevant.
25
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- On an actual basis
- On a pro forma basis after giving effect to:
-- the sale of 1,480,149 shares of Series E preferred stock in January
2000 for net proceeds totaling $30,402,000
-- the issuance of 50,000,000 shares of common stock, 3,125,701 options
to purchase common stock and 11,162,901 warrants to purchase common
stock with an estimated aggregate fair value of $701,212,000 in
connection with our acquisition of Premier Health Exchange
-- the subsequent conversion of all of our outstanding preferred stock
into common stock immediately prior to this offering
- On a pro forma as adjusted basis to further reflect the estimated net
assumed proceeds from the sale of 13,000,000 shares of common stock in
this offering at an assumed initial public offering price of $11.00 per
share after deducting an assumed underwriting discount and estimated
offering expenses.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes to those statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities................................... $ 878 $ 878 $ 878
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.001 par value; 15,000,000 shares
authorized; 9,086,361 shares issued and outstanding
(actual), no shares issued or outstanding (pro
forma and pro forma as adjusted)................... 9 -- --
Common Stock, $0.001 par value; 40,000,000 shares
(300,000,000 shares pro forma and pro forma as
adjusted) authorized; 15,895,185 shares issued and
outstanding (actual), 101,379,118 shares issued and
outstanding (pro forma), 114,379,118 shares issued
and outstanding (pro forma as adjusted)............ 16 101 114
Additional paid-in capital............................ 135,925 867,463 998,990
Unearned stock-based compensation..................... (12,381) (12,381) (12,381)
Accumulated deficit................................... (47,331) (47,331) (47,331)
-------- -------- --------
Total stockholders' equity.................... 76,238 807,852 939,392
-------- -------- --------
Total capitalization.......................... $ 77,116 $808,730 $940,270
======== ======== ========
</TABLE>
26
<PAGE> 28
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $138,055
or $1.36 per share of common stock. Pro forma net tangible book value represents
the amount of total tangible assets less total liabilities divided by the total
number of shares of common stock outstanding and gives effect to:
- - the sale of 1,480,149 shares of Series E preferred stock in January 2000 for
net proceeds totaling $30,402,000
- - the issuance of 50,000,000 shares of common stock, 3,125,701 options to
purchase common stock and 11,162,901 warrants to purchase common stock with an
estimated aggregate fair value of $701,212,000 in connection with our
acquisition of Premier Health Exchange.
- - the subsequent conversion of all of our outstanding preferred stock into
common stock immediately prior to this offering
After giving effect to our sale of common stock offered by this prospectus
at an assumed initial public offering price of $11.00 per share, and our receipt
of the estimated net proceeds from the offering, our pro forma net tangible book
value as of December 31, 1999 would have been approximately $269,595,000
million, or $2.36 per share. This represents an immediate increase in net
tangible book value of $1.00 per share to existing stockholders and an immediate
dilution of $8.64 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share before the
offering............................................... $1.36
Increase per share attributable to new investors.......... 1.00
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.36
------
Dilution per share to new investors......................... $ 8.64
======
</TABLE>
The above table assumes that the underwriters' option to purchase
additional shares is not exercised. If the option is exercised in full, there
would be an immediate increase in pro forma net tangible book value of $1.13 per
share to existing stockholders and an immediate dilution of $8.51 per share to
new investors.
The following table summarizes, on the same pro forma basis as of December
31, 1999, the differences between existing stockholders and the new investors
with respect to the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid before deducting
an assumed underwriting discount and our estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 101,379,118 88.6% $118,559,297 45.3% $ 1.17
New investors(2)............ 13,000,000 11.4% 143,000,000 54.7% 11.00
----------- ----- ------------ -----
Total............. 114,379,118 100.0% $261,559,297 100.0%
=========== ===== ============ =====
</TABLE>
- ---------------
(1) As of December 31, 1999, there were options outstanding to purchase a total
of 10,074,710 shares of common stock, with a weighted average exercise price
of $1.74 per share. To the extent that any of these options are exercised,
there will be further dilution to new investors.
(2) If the underwriters exercise their option to purchase additional shares in
full, we will issue an additional 1,950,000 shares of common stock to new
investors (1.7% of the total of 116,329,118 shares of common stock
outstanding) and the total consideration from new investors will be
$164,450,000 (58.1% of the total of $283,009,297 consideration paid for all
shares of common stock outstanding).
27
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
The consolidated statement of operations data presented below for the
period from August 18, 1998 (inception) through December 31, 1998 and the year
ended December 31, 1999 and the selected balance sheet data at December 31, 1998
and December 31, 1999 are derived from our consolidated financial statements
that have been audited and are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM YEAR
AUGUST 18, 1998 ENDED
(INCEPTION) THROUGH DECEMBER 31,
DECEMBER 31, 1998 1999
------------------- ------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ -- $ 170
---------- -----------
Operating expenses:
Cost of revenues, contract and other services............. -- 57
Sales and marketing....................................... 368 10,846
Systems development and operations........................ 84 8,478
General and administrative................................ 731 15,037
Amortization of stock-based compensation(*)............... 271 5,945
---------- -----------
Total operating expenses.......................... 1,454 40,363
---------- -----------
Loss from operations........................................ (1,454) (40,193)
Interest income............................................. 2 439
---------- -----------
Loss before income taxes.................................... (1,452) (39,754)
Income tax benefit.......................................... -- (33)
---------- -----------
Net loss.................................................... (1,452) (39,721)
Beneficial conversion feature associated with the sale of
preferred stock........................................... -- (6,158)
---------- -----------
Net loss attributable to common stockholders................ $ (1,452) $ (45,879)
========== ===========
Net loss per share attributable to common stockholders,
basic and diluted......................................... $ (0.16) $ (4.01)
========== ===========
Shares used in per share computations, basic and diluted.... 8,987,269 11,445,535
========== ===========
Pro forma net loss per share attributable to common
stockholders, basic and diluted (unaudited)............... $ (1.37)
===========
Shares used in pro forma per share computations, basic and
diluted (unaudited)....................................... 28,902,712
===========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(*)Amortization of stock-based compensation:
Sales and marketing............................... $ -- $ 1,311
Systems development and operations................ -- 539
General and administrative........................ 271 4,095
---------- -----------
$ 271 $ 5,945
========== ===========
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
----- -------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 54 $63,780
Working capital............................................. (471) 57,855
Total assets................................................ 520 84,682
Stockholders' equity (deficit).............................. (26) 76,238
</TABLE>
See our consolidated financial statements and accompanying notes for a
description of the computation of the net loss per share, pro forma net loss per
share and the number of shares used in the per share calculations in statement
of operations data above. Pro forma net loss per share reflects the conversion
of our outstanding preferred stock into common stock, retroactive to the date of
issuance.
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes and the other financial
information included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our 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, particularly under the heading
"Risk Factors."
OVERVIEW
We operate a business-to-business online marketplace for the purchase and
sale of medical and non-medical products and services used by the healthcare
industry worldwide. Through our marketplace, registered buyers and sellers
purchase and sell medical and surgical products and equipment, commodity items,
capital equipment, and other non-medical supplies used in the operation of
healthcare facilities. Our business consists of a single operating segment, and
our operations and customers are located primarily in the United States.
Our marketplace offers a number of different services. Our eCatalog service
provides buyers with access to current market pricing and customer-specific,
pre-negotiated product pricing, transaction activity reporting and current
product availability information, and provides sellers with cost-effective
access to new customers and markets. Our eRFP service automates the
time-consuming, paper-based processes of distributing a request-for-proposal to
appropriate sellers and coordinating responses from the seller community.
Through our eAuction service, we offer auction capabilities enabling users to
buy and sell new and used medical equipment. Our eSpecials service allows the
seller community to actively promote and sell products and offer discounted
prices directly to the buyer. Our e-commerce services are powered by our
proprietary technologies, including InstaCat and ePort technologies, which
enable transactions with multiple parties.
We were incorporated in August 1998, and the remainder of 1998 and the
first quarter of 1999 were spent primarily developing an Internet interface for
our business and developing industry relationships. Accordingly, we did not
record any revenue in 1998 or the first quarter of 1999.
Our revenue is derived from two primary sources: e-commerce transaction
fees paid by sellers and calculated as a percentage of the gross transaction
value of sales through our online marketplace, and fees from e-commerce software
development and other services to enable e-commerce transactions.
We do not take title to the underlying equipment or products sold through
our online marketplace. Through December 31, 1999, we generated transaction fee
revenue from our eAuction and eRFP services.
eAuction transaction fees are recognized when the buyer accepts the related
equipment. All other e-commerce transaction fees are recognized at the time a
buyer's order is confirmed by a seller and collection is reasonably assured.
Contract and other services revenue is recognized as services are
performed. Through December 31, 1999, contract and other services revenues
consisted primarily of software development services performed under a long-term
contract with the United States Government that expires in 2001 and provides for
the reimbursement of costs plus a fixed percentage fee. Revenues earned on this
contract totaled $103,000 which represents approximately 92% and 61% of contract
and other services revenues and total revenues, respectively. Government
contract costs, including indirect costs, are subject to audit by the United
States Government.
30
<PAGE> 32
Contract and other services revenues are stated at amounts that are expected to
be realized upon final settlement.
Provisions for doubtful accounts are provided at the time revenue is
recognized based upon our historical experience and expectations.
We have entered into rebate agreements with some buyers which provide for
rebate payments to buyers calculated as a percentage of the e-commerce
transaction fees earned by us for products and services purchased by the buyers
through our online marketplace. We record rebates payable under these
agreements, which to date have been insignificant, as a reduction of revenue.
We have entered into agreements with companies that require us to make
payments to them as compensation for buyer referrals and other marketing
services. Payments are based on contracted percentages of certain e-commerce
transaction fees generated in our online marketplace. We record fees payable
under these agreements, which to date have been insignificant, as a sales and
marketing expense.
We have recorded minimal revenues to date and our ability to generate
significant revenues in the future is uncertain. We have incurred significant
losses since inception. We currently expect our losses to increase, and we
cannot assure you that we will ever achieve or sustain profitability. Our
expenditures are anticipated to increase substantially, primarily in the areas
of sales and marketing and systems development and operations. Due to our
limited operating history, our business and prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in early stages of development, particularly companies in new and
rapidly evolving markets such as electronic commerce.
On November 22, 1999, we acquired all of the outstanding stock of PartNET,
Inc., an Internet software company, in exchange for 1,462,622 shares of common
stock and the issuance of 724,813 stock options to purchase shares of our common
stock. This acquisition was accounted for under the purchase method of
accounting. Accordingly, we recorded an aggregate of approximately $10.8 million
in purchased technology and goodwill in the fourth quarter of 1999, both of
which are being amortized on a straight-line basis over their respective
estimated useful lives of three years. The results of PartNET have been
incorporated into our financial statements subsequent to the purchase date.
Effective upon the closing of this offering, we will be acquiring Premier
Health Exchange LLC in exchange for 50,000,000 shares of common stock, the
issuance of 3,125,701 stock options and 11,162,901 warrants to purchase shares
of our common stock. Premier Health Exchange is an organization formed by
Premier Purchasing Partners, an affiliate of Premier to exclusively manage
electronic commerce purchasing for Premier's 1,800 member hospitals. This
acquisition will be accounted for under the purchase method of accounting. We
estimate that the fair value of the acquisition is $706.5 million. Goodwill will
be amortized on a straight-line basis over ten years.
RESULTS OF OPERATIONS
For the period since our inception on August 18, 1998 through December 31,
1998, we recorded a net loss totaling $1.4 million. For the year ended December
31, 1999, our net loss attributable to common stockholders was $45.9 million.
Given our short operating history and our limited operations in 1998, we believe
that comparisons between any period in 1999 and the comparable period in 1998
would not be meaningful; therefore, these comparisons are not discussed.
REVENUES. Since our inception through the first quarter of 1999, we were in
a development stage. As a result, in 1998 and the first quarter of 1999 we did
not transact any business through our online marketplace and did not record any
revenues. For the year ended December 31, 1999,
31
<PAGE> 33
we recorded revenues of $170,000, $58,000 of which represents e-commerce
transaction fees, and $112,000 of which represented e-commerce software
development primarily derived from a long-term software development contract
with the United States Government that ends in January 2001 and provides for
reimbursement of costs plus a fixed percentage fee. This customer accounted for
$103,000, or 61% of our consolidated revenues in 1999.
SALES AND MARKETING. For the period from our inception through December 31,
1998, our sales and marketing expenses totaled $368,000. For the year ended
December 31, 1999, these expenses totaled $10.8 million, including non-cash
compensation totaling $487,000. Sales and marketing expenses consisted primarily
of sales and marketing personnel costs and associated travel. We anticipate that
these expenses will increase as our sales force and our product offerings
continue to grow. Additionally, as demand dictates, we have and plan to continue
to use outside consultants to accommodate customer implementation of our online
marketplace. We also expect to incur significant advertising costs in order to
increase brand awareness and to attract additional buyers and sellers.
SYSTEMS DEVELOPMENT AND OPERATIONS. These expenses include amounts expended
for our Web site development, design and improvements, as well as recurring
operating expenses related to maintaining and enhancing our Web site. These
expenses totaled $84,000 for the period from our inception to December 31, 1998
and consisted primarily of personnel costs.
For the year ended December 31, 1999, systems development and operations
expenses totaled $8.5 million. There were three primary sources of expense:
amortization of capitalized Web site development costs, consulting expenses and
personnel expenses. We anticipate our Web site will continue to undergo
improvements in functionality and capability. In connection with these
improvements, and our commitments to develop co-branded Web sites, we anticipate
spending a material amount on systems maintenance and development. These
increased expenses will be the result of increased staffing levels and increased
utilization of consultants. Expenditures related to Web site development and
significant enhancements are capitalized and amortized over the useful lives of
new products developed. Estimated useful lives are based on planned or expected
significant modification or replacement of software applications, in response to
the rapid rate of change in the Internet industry and technology in general.
During the year ended December 31, 1999, we capitalized approximately $6.7
million in Web site development costs of which approximately $4.5 million was
amortized to systems development and operations expense. Of the $6.7 million,
$2.9 million was paid in cash and $3.8 million represented the value of vesting
common stock provided to software design firms which assisted us in enhancing
our Web site.
GENERAL AND ADMINISTRATIVE. General and administrative expenses totaled
$731,000 and $15.0 million, including non-cash compensation expense of $519,000
and $9.8 million for the period from our inception to December 31, 1998 and for
the year ended December 31, 1999, respectively. For 1998, this category
primarily includes personnel costs, office rent and supplies, and various
general expenses.
In 1999, we recorded expenses relating to the hiring and relocation of some
of our management personnel. General and administrative expenses also include
recruiting fees for other personnel hires, consulting fees, travel expenses,
general office expenses and personnel costs. These costs are expected to
continue to increase as our personnel base expands and our business activity
increases.
Non-cash charges totaled $519,000 for the period from August 18, 1998 to
December 31, 1998 and $9.8 million for the year ended December 31, 1999. The
1998 amount and $6.1 million of the 1999 amount represent the value of
stock-based compensation issued to non-employees as measured over their
respective service periods which were completed by December 31, 1999. In
addition, in June 1999, we arranged for two investors of our Series C preferred
stock to purchase a total of 1,353,750 shares of common stock from existing
stockholders, including two
32
<PAGE> 34
of our officers. These investors paid more for the common stock than the deemed
fair value of the stock at the time of sale. This difference of $3.7 million was
attributed to the company and therefore recorded as non-cash compensation
expense included in general and administrative expenses in the second quarter of
1999.
AMORTIZATION OF STOCK-BASED COMPENSATION. Stock-based compensation
represents the aggregate difference between the deemed fair value of common
stock at the time of issuance and the actual purchase price of stock sold to
employees and directors, or the exercise price in the case of stock options.
Stock-based compensation is amortized to expense, as a non-cash charge, over the
related vesting periods of the options and vesting stock using an accelerated
graded method. These non-cash charges totaled $271,000 for the period from
August 18, 1998 to December 31, 1998 and $5.9 million for the year ended
December 31, 1999.
The remaining unearned stock-based compensation of $12.4 million at
December 31, 1999 will be recognized as expense in future years as follow: $6.6
million in 2000, $3.5 million in 2001, $1.8 million in 2002 and $500,000 in
2003. The amount of stock-based compensation expense to be recorded in future
periods could decrease if awards are forfeited for which accrued but unamortized
compensation expense has been recorded.
We anticipate recording additional unearned stock-based compensation of at
least approximately $8.0 million in 2000, as we have continued to issue stock
options to employees below the deemed fair value of our common stock.
INTEREST INCOME. We invest our excess cash in a combination of money market
accounts and investments in Treasury Bills with maturities of less than three
months from the date of purchase. In 1998, we recorded interest income of $2,000
and for the year ended December 31, 1999, we recorded interest income of
$439,000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, our primary source of liquidity consisted of $63.8
million in cash and cash equivalents. At December 31, 1998, we had $54,000 in
cash and cash equivalents. This increase is directly attributable to the sales
of our preferred stock.
Since our inception, we have financed our operations primarily through
private placements of equity securities. During 1998, and for the year ended
December 31, 1999, we received $636,000 and $86.6 million, respectively, in net
proceeds from the sale of our capital stock. Subsequent to December 31, 1999, we
sold additional capital stock for net proceeds of $30.4 million.
From September 1998 through January 1999, we sold common stock for net
proceeds of $681,000. In January 1999, this common stock was exchanged for
Series A preferred stock of an equivalent amount. On an as-converted basis, this
preferred stock is equivalent to 1,702,500 shares of our common stock.
In March 1999, we sold shares of our Series B preferred stock to investors
for net proceeds of $4.9 million. These shares are convertible into 8,372,675
shares of our common stock.
In June 1999, we sold shares of our Series C preferred stock to investors
for net proceeds of $15.4 million. These shares are convertible into 11,145,830
shares of our common stock. In August through December 1999, we sold shares of
our Series D preferred stock for net proceeds of $29.1 million. The Series D
preferred stock is convertible into 6,059,140 shares of our common stock.
In December 1999 we sold shares of our Series E preferred stock for net
proceeds of $37.0 million. These securities are convertible into 4,503,415
shares of our common stock.
33
<PAGE> 35
In January 2000, we sold 1,480,149 additional shares of Series E preferred
stock for net proceeds of $30.4 million. These securities are convertible into
3,700,372 shares of our common stock.
Immediately prior to consummation of this offering, all issued and
outstanding shares of preferred stock will be converted into common stock.
Effective September 1999, we entered into a renewable three-month agreement
with Ernst & Young under which its Healthcare Consulting group is assisting us
to expedite the implementation and use of our e-commerce solution into the
healthcare supply chain. Under the arrangement, we made payments to Ernst &
Young LLP totalling $1.2 million in the fourth quarter of 1999. In 2000, we
extended the agreement through February 29, 2000 at an additional cost of
approximately $720,000.
In November 1999, we entered into a strategic agreement with
Physiciansite.com, Inc. under which Physiciansite.com will refer physicians and
their staffs to our online marketplace. While there are no minimum payment
obligations during the three-year term of the agreement and for up to two years
following the expiration or termination of the agreement, we are required to
make payments to Physiciansite.com based on a contracted percentage of
e-commerce transaction fees generated by joint users of our online marketplace.
In December 1999, we entered into an agreement to license software and to
obtain support services from Vitria Technology, Inc. The agreement provides for
payments from us of up to $5.0 million. In addition, Vitria Technology has
agreed to pay us fees equal to a percentage of net software license revenue
Vitria Technology receives for each qualified customer referral by us. Through
December 31, 1999, we have not earned any such fees.
In January 2000, we entered into one-year agreements with two investors,
including Allianz Capital Partners, Gmbh, to provide us strategic information
and assistance services in connection with the development of our business in
Europe. Allianz is a global leader in insurance and asset management and is
headquartered in Munich, Germany. While there are no minimum payment obligations
by us in connection with these agreements, we issued the investors fully vested
warrants to purchase a total of 474,960 shares of our common stock. These
warrants are valued at $3.8 million, which will be recorded as a sales and
marketing expense in 2000.
In January 2000, we entered into a three-year strategic agreement with
Healtheon/WebMD Corporation, an Internet healthcare company, to develop,
maintain and market a co-branded online marketplace for the procurement of
medical, surgical and general office supplies. The agreement requires us to make
payments of at least $45.5 million over three years compensating Healtheon/WebMD
for its obligations to exclusively promote our online marketplace to their
customers. Additionally, Healtheon/WebMD is required to make payments of
approximately $22.8 million over three years compensating us for software
development and maintenance services associated with building a co-branded Web
site.
In February 2000, we entered into a renewable five-year agreement with
drugstore.com, Inc. an online drug retailer, to develop, maintain and market a
co-branded online marketplace to offer products and services to the home
healthcare industry. The agreement may be terminated earlier by either party
upon the occurrence of specified events. The agreement requires drugstore.com to
pay e-commerce transaction fees on a quarterly basis to us for goods it sells on
the co-branded Web site. drugstore.com will also pay new customer referral fees
on a quarterly basis to us for customers we refer to drugstore.com. We are
required to make quarterly payments to drugstore.com based on the volume of
goods or services sold by sellers other than drugstore.com on the co-branded Web
site. These payments are calculated as a contracted percentage of e-commerce
transaction fees generated on the co-branded Web site from sellers other than
drugstore.com. We are also required to spend at least $10.0 million over the
five-year
34
<PAGE> 36
term of the agreement to promote the co-branded Web site. In connection with the
agreement, we have agreed to issue warrants to purchase 700,000 shares of our
common stock.
We have entered into an agreement to acquire Premier Health Exchange
concurrent with this offering. In March 2000, Premier Health Exchange entered
into a ten-year e-commerce outsourcing agreement with Premier Purchasing
Partners to develop, integrate and maintain an online marketplace on behalf of
Premier Purchasing Partners. Premier Health Exchange will receive aggregate
payments from Premier Purchasing Partners of $159 million over a six-year
exclusivity period of the agreement for integration and maintenance services.
Additionally, Premier Health Exchange will receive e-commerce transaction fees
from Premier Purchasing Partners based on a percentage of the gross transaction
value of certain products and services purchased on the marketplace through
standard group purchasing agreements in excess of contracted minimum purchasing
volumes. Premier Health Exchange is required to pay Premier Purchasing Partners
a sales commission equal to a contracted percentage of the e-commerce
transaction fees it earns on the online marketplace related to goods and
services not purchased through the standard group purchasing agreements
maintained by Premier Purchasing Partners.
In March 2000, Premier Health Exchange also entered into a renewable
ten-year agreement with Premier, Inc., whereby Premier, Inc, will provide
promotion, marketing and management support services for certain e-commerce
offerings of Premier Health Exchange. Premier Health Exchange is required to
make minimum payments totaling $20.0 million over the ten-year term of the
agreement.
Net cash used in operating activities was $109,000 from our inception to
December 31, 1998. For the year ended December 31, 1999, we used $14.7 million
of cash in operating activities. Those amounts consisted of our net losses
offset primarily by equity-based non-cash compensation expense and increases in
accounts payable and accrued expenses. We anticipate that we will continue to
use cash on hand to fund our operations.
Net cash used in investing activities was $473,000 during 1998 and $8.2
million for the year ended December 31, 1999. These expenditures were primarily
for the purchase of computer equipment, acquired and internally developed
software, telephone systems, leasehold improvements and furniture. We anticipate
that we will continue to incur significant capital expenditures as we continue
to develop our online marketplace and acquire fixed assets to support our
expanding employee base.
During 1999, we entered into a non-cancellable lease for office space in
Cincinnati, Ohio. The lease has a five-year term with minimum lease payments of
$347,000 over the term. In July 1999, we signed a five-year non-cancellable
lease agreement for our new corporate office facilities in San Diego,
California. Minimum rental obligations for this lease total $2.3 million over
the five-year term of the lease which commenced November 1, 1999. At December
31, 1999, we also had leased offices in Salt Lake City, Utah, Tulsa, Oklahoma
and Palo Alto, California. In 2000, we expanded our lease in Salt Lake City.
In October, we entered into an operating lease with a manufacturer to lease
computer equipment and related software. The lease is a two-year operating lease
with monthly rentals of $22,000. Additionally, we are leasing portions of our
office equipment and furniture.
We currently anticipate that our available funds, without taking into
account anticipated proceeds of this offering, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next 12 months. Our future long-term capital needs will be highly dependent
on achieving sufficient revenue to achieve profitability. Thus, any projections
of future long-term cash needs and cash flows are subject to substantial
uncertainty.
To the extent our revenues increase in the future, we anticipate
significant increases in our working capital requirements to finance higher
relative levels of associated accounts receivable, prepaid expenses and other
current assets, partially offset by increases in accounts payable and
35
<PAGE> 37
other liabilities. However, we do not expect that the increases in accounts
payable and other liabilities will offset the increases in accounts receivable,
prepaid expenses and other current assets. We intend to meet our anticipated
increases in working capital requirements with our current available funds and
the proceeds from this offering.
If the net proceeds of this offering, together with our available funds and
cash generated from operations are insufficient to satisfy our long-term
liquidity requirements, we may seek to sell additional equity or debt
securities, obtain a line of credit or curtail our expansion plans. The terms of
any credit facility we may obtain could contain restrictions on our ability to
incur debt or issue equity securities. In addition, if we issue additional
securities to raise funds, those securities may have rights, preferences or
privileges senior to those of the rights of our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. We do not expect
that the adoption of SFAS No. 133 will have a material impact on our financial
statements because we do not currently hold any derivative instruments and do
not engage in any hedging activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our excess cash balances in a combination of U.S. Treasury Bills
and money market funds. All of the cash equivalent investments we have purchased
have maturity dates of less than three months from the date of purchase. We do
not currently hold, and we have never held, any derivative financial
instruments. As a result, we do not expect changes in interest rates to have a
material impact on our results of operations or financial position.
To date, all of our revenues have been denominated in United States dollars
and are primarily from customers in the United States. We have not engaged in
foreign currency hedging. In the future, a portion of our revenues we expect to
derive from international operations may be denominated in foreign currencies.
As a result, our operating results could become subject to significant
fluctuations based upon the changes in the exchange rates of those international
revenues as translated into United States dollars. Although currency
fluctuations are currently not a material risk to our operating results, we will
continue to monitor our exposure to currency fluctuations and if appropriate,
use financial hedging techniques in order to minimize the effect of these
fluctuations in the future. We cannot assure you that exchange rate fluctuations
will not harm our business in the future or that any financial hedging
techniques will be successful in reducing the impact of exchange rate
fluctuations.
36
<PAGE> 38
BUSINESS
OVERVIEW
medibuy.com operates a leading business-to-business Internet marketplace
for the purchase and sale of medical and non-medical products and services used
by the healthcare industry worldwide. Through our Web site at www.medibuy.com we
provide buyers and sellers with a secure online marketplace to conduct daily
commerce and access information relating to products, services and market
trends. Buyers who participate in our marketplace may or may not be affiliated
with group purchasing organizations. The medibuy.com online marketplace provides
substantial benefits to participating buyers and sellers by reducing order
processing and tracking costs and improving the utilization of data relating to
products, services, transactions and market trends. In addition, our marketplace
benefits buyers by providing access to a global seller community and by
streamlining the purchasing process, and benefits sellers by providing access to
a worldwide buyer community, reducing sales and marketing costs, and improving
inventory and rebate management.
Our primary ongoing revenue model will be to derive transaction fees from
the sale of products and services through our electronic marketplace. For the
year ended December 31, 1999, our revenue was derived both from e-commerce
transaction fees and fees from e-commerce software development and other
services that enable e-commerce transactions.
INDUSTRY BACKGROUND
GROWTH OF BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The Internet is one of the fastest growing means of communication and is
dramatically changing the competitive landscape of many industries, creating
significant opportunities for companies to expand and grow their businesses.
Companies are increasingly using the Internet to develop business-to-business
e-commerce solutions to streamline complex processes, lower costs and enable
buyers and sellers in fragmented markets to reduce supply chain inefficiencies.
According to Forrester Research, business-to-business e-commerce is expected to
grow from $109 billion in 1999 to $1.3 trillion in 2003, accounting for more
than 90% of the dollar value of e-commerce in the United States by 2003.
The expected growth of business-to-business commerce on the Internet has
given rise to a variety of business-to-business electronic marketplaces where
buyers and sellers can come together to conduct transactions, communicate, share
ideas and manage inventory. Some of these marketplaces are "horizontal" in the
sense that they provide a specific application, such as auctions, across a
variety of industries. Others are "vertical" in the sense that they serve the
needs of a specific industry such as agricultural products, steel or healthcare
supplies. Both horizontal and vertical marketplaces are growing in popularity
because they offer the potential to bring together large numbers of buyers and
sellers, reduce paperwork and transaction costs, and streamline buyers' supply
chains.
The dynamics of business-to-business electronic marketplaces differ from
those of other e-commerce forums, particularly in the business-to-consumer area.
Because business-to-business electronic marketplaces automate or otherwise
impact business processes related to the purchase and sale of products and
services, they must be closely integrated with the existing business information
systems of buyers and sellers. In addition, employees of both buyers and sellers
must be trained in the use of these marketplaces. Consequently, the decision by
a buyer or seller to use a particular electronic marketplace represents a
significant commitment, and the cost of switching to an alternative marketplace
is high.
37
<PAGE> 39
THE HEALTHCARE SUPPLIES MARKET
HEALTHCARE SUPPLIES. We estimate that in 1998 the market for new medical
products, supplies and equipment totaled an estimated $150 billion worldwide,
including approximately $83 billion in the United States. These estimates do not
include services or non-medical or used products, supplies and equipment
purchased by healthcare providers, which we believe will contribute
significantly to our market opportunity. The market for healthcare supplies
includes over 500,000 medical and non-medical products and services. Medical
products include consumables such as syringes, gloves and bandages and capital
equipment such as diagnostic and monitoring devices. Non-medical products and
services include such items as office supplies, computer equipment and
maintenance and janitorial services used in the operation of healthcare
facilities.
BUYERS. The buyers of healthcare supplies are comprised of a large number
of geographically dispersed healthcare providers, including hospitals, clinics,
long-term care facilities, home healthcare organizations and physician offices.
According to the American Hospital Association, there are over 5,740 non-federal
hospitals and 275 federally-owned hospitals in the United States. According to
the American Medical Association, there are over 650,000 practicing physicians
in the United States.
The end users of healthcare supplies can be classified as acute care
providers or non-acute care providers. Acute care providers serve patients
needing immediate medical or surgical care and consequently consume a large
volume of healthcare products and services. Acute care providers are primarily
individual hospitals linked together in hospital systems, such as integrated
delivery networks. Acute care providers account for the substantial majority of
total healthcare supply expenditures made annually in the U.S. Non-acute care
providers include clinics, physician offices, and long-term care facilities such
as nursing homes or rehabilitation clinics.
GROUP PURCHASING ORGANIZATIONS. Acute care providers typically affiliate
with group purchasing organizations for access to contracts for the purchase of
healthcare supplies. Group purchasing organizations aggregate the purchasing
volume of their member hospitals in order to negotiate contracts with favorable
pricing and terms with sellers of medical and non-medical products and services.
According to SMG Marketing Inc., more than half of total purchases of healthcare
supplies by hospitals in the U.S. are made under group purchasing organization
contracts. Measured by number of participating hospitals, the largest group
purchasing organizations in the U.S. are Premier with 1,800 participating
members, Novation, LLC with 2,100 participating members and AmeriNet with 1,500
participating members. Buyers at local hospitals have varying degrees of
discretion to purchase under group purchasing organization contracts or outside
these contracts. Non-acute care providers typically negotiate and purchase
products and services individually.
SELLERS. According to One Source Online Database, there are approximately
21,000 medical products manufacturers in the United States and 800
medical/surgical distributors, 350 dental distributors and 450 x-ray
distributors. In addition, there are non-medical manufacturers and distributors
that sell their products to the healthcare industry, and according to a February
2000 report by Deutsche Banc Alex. Brown, more than 10,000 organizations that
market a diverse array of services such as maintenance, nursing care, home care
and medical billing to these providers. While the collective number of potential
sellers in the healthcare supplies market is quite large and difficult to
determine with accuracy, HIDA reports that fewer than 800 sellers account for
more than 80% of the dollar value of medical products sold in the U.S.
healthcare market.
LIMITATIONS OF TRADITIONAL PURCHASING METHODS FOR HEALTHCARE SUPPLIES
The traditional process of locating and purchasing medical and non-medical
products and services is inefficient and does not adequately address the needs
of buyers or sellers. A
38
<PAGE> 40
1996 study published by a consortium of healthcare providers and suppliers known
as the Efficient Healthcare Consumer Response found that in the United States,
$11 billion is spent annually on avoidable costs associated with healthcare
supply chain inefficiencies.
LIMITATIONS AFFECTING BUYERS. A healthcare system will typically purchase
and manage approximately 100,000 different products and services on a regular
basis. Healthcare purchasers are responsible for coordinating their purchases
with their group purchasing organization contracts, if any, securing these
products and services and delivering them to widely dispersed locations. Their
efforts are limited by a number of factors, including:
- - INEFFICIENT PURCHASING PROCESS. Buyers typically make purchases, place and
track orders and manage their accounts payable using a combination of manual
and automated processes. The manual processes, involving telephone, fax, paper
and e-mail, are labor intensive, expensive and prone to error. Automated
processes, involving electronic data interchange, commonly known as EDI, are
limited to interactions with a few specific sellers and do not facilitate the
process of requesting product or pricing proposals from multiple sellers.
- - LIMITED ACCESS TO SELLERS. Identifying, assessing and purchasing from the
large number of available sellers is time consuming and expensive. Sellers are
geographically dispersed and market their products through a variety of means
including catalogs, trade advertising and sales forces. Many sellers
specialize in a limited number of products and services. Even though many
sellers are developing proprietary Web sites, we believe that many do not have
online ordering capability. Even where sellers offer online ordering, it is
inefficient for healthcare buyers to search, navigate and order from multiple
Web sites.
- - LIMITED PRODUCT INFORMATION. Buyers have limited access to information
regarding product selection, availability and pricing. Historically, there
have been no comprehensive product catalogs available for sourcing and
purchasing healthcare supplies that reflect changes in a seller's information
as they occur. Nor have there been any widely available online cross-
reference tools for locating and comparing alternative products. Buyers also
have difficulty accessing other product information such as product recalls,
clinical information and basic product specifications.
- - LIMITED TRANSACTION DATA. Buyers typically have no comprehensive repository of
their historical transaction data because they tend to place orders from
multiple locations using a variety of purchasing methods with a large number
of sellers. Group purchasing organizations also have limited access to their
members' transactional data. Group purchasing organizations require access to
comprehensive and accurate transaction data to negotiate the most favorable
terms on behalf of their members. Although buyers and group purchasing
organizations often rely on sellers to track and report their purchasing
activities, sellers typically have difficulty providing this information.
- - UNCOORDINATED PURCHASING. The healthcare purchasing function is often
decentralized and uncoordinated. Expediency requires that purchase decisions
be made by multiple parties within the buyer organization, but decentralized
purchasing is difficult to coordinate and frequently results in purchases
being made without the benefit of prices contracted through group purchasing
organizations.
LIMITATIONS AFFECTING SELLERS. In order to grow their businesses, sellers
must devote significant resources to market and sell their products and services
to a large, fragmented group of buyers and to efficiently manage transactions
and inventory. Their challenges include the following:
- - INEFFICIENT SALES PROCESS. The traditional ways of finding and selling to
motivated buyers and processing their orders is inefficient. EDI partially
addresses this inefficiency, but only for a limited number of buyers and
sellers, and applies only to processing orders. Sellers that do not
39
<PAGE> 41
have EDI-enabled systems typically receive orders by telephone, fax, mail and
e-mail. Processing these orders manually is time consuming, labor intensive
and prone to error.
- - LIMITED ACCESS TO BUYERS. Due to the important role existing relationships
play in healthcare commerce and the inherent geographical limitations of a
traditional sales force, sellers are not able to access a broad range of
potential customers for their products.
- - HIGH SALES AND MARKETING COSTS. Establishing a traditional sales and marketing
presence is costly and time consuming. Sellers must hire, train and supervise
local, regional and national sales forces to reach a broad variety of buyers.
In addition, sellers must print catalogs and distribute them to potential
buyers in multiple market segments. These sales and marketing expenditures are
further constrained by market pressures on sellers for cost-savings. Smaller
manufacturers are particularly disadvantaged by high sales and marketing costs
because they have limited financial resources and do not have the economies of
scale to negotiate advantageous terms with distributors and group purchasing
organizations.
- - INEFFICIENT INVENTORY MANAGEMENT. Sellers often have difficulty effectively
managing their inventory because they cannot accurately estimate demand for
their products. Estimating demand is difficult for manufacturers and
distributors because both parties have a limited ability to access and use
industry data to project trends in product demand. Manufacturers have two
additional problems when trying to accurately estimate demand. First,
distributors often provide incomplete coverage of a manufacturer's inventory
in their catalogs due to space constraints. Second, because distributors
frequently perform the marketing function for manufacturers, manufacturers are
not sufficiently close to the preferences of buyers to know when product
demand is changing.
- - INEFFICIENT REBATE AND ADMINISTRATIVE FEE MANAGEMENT. Under traditional
methods, sellers often have difficulty keeping accurate records of rebates
owed to buyers and administrative fees owed to group purchasing organizations.
Managing rebate programs requires dedicated personnel and systems to track
aggregate sales and calculate rebates due.
OPPORTUNITY FOR A BUSINESS-TO-BUSINESS E-COMMERCE SOLUTION
The emergence of the Internet and the potential benefits of
business-to-business e-commerce solutions have highlighted the inefficiencies
inherent in the traditional healthcare supplies market and put increasing
pressure on healthcare buyers and sellers to streamline their business
processes. External pressures such as reductions in healthcare reimbursement by
government and third-party payors compound the need for more cost-effective
processes. A business-to-business e-commerce solution provides healthcare
organizations an opportunity to reduce their costs and streamline their
procurement processes, and allows manufacturers and distributors of healthcare
supplies to grow their revenues and increase market share. In addition to buyers
and sellers, group purchasing organizations and their members can benefit from
an e-commerce solution as it provides increased information for group purchasing
organizations to manage their contracts and identify additional opportunities
for its members. The combination of rising cost pressures and new technologies
creates an opportunity for an efficient, easily adaptable e-commerce marketplace
solution for healthcare supplies.
THE MEDIBUY.COM SOLUTION
medibuy.com operates a leading business-to-business Internet marketplace
for the purchase and sale of medical and non-medical products and services used
by the healthcare industry worldwide. Through our Web site, we provide buyers
and sellers with a secure online marketplace to conduct daily commerce and
access information relating to products, transactions and market trends. We
believe our services address the limitations of the traditional healthcare
supply chain by enabling our users to efficiently and cost-effectively buy and
sell a broad variety of medical and non-medical healthcare products and services
in an open, online marketplace.
40
<PAGE> 42
The following table illustrates how our solution addresses limitations of the
traditional healthcare supply chain:
<TABLE>
-----------------------------------------------------------------------------------------
LIMITATIONS OF
TRADITIONAL HEALTHCARE SUPPLY CHAIN BENEFITS OF MEDIBUY.COM SOLUTION
<S> <C> <C>
-------------------------------------------------------------------------------------------------
- Inefficient purchasing process - Automated, cost-effective purchasing
- Limited access to sellers process
BUYERS - Limited product information - Expanded access to sellers
- Limited transaction data - Extensive product information
- Uncoordinated purchasing - Extensive transaction data
- Coordinated purchasing
- --------------------------------------------------------------------------------------------------
- Inefficient sales process - Automated, cost-effective sales process
- Limited access to buyers - Expanded access to buyers
- High sales and marketing costs - Reduced sales and marketing costs
SELLERS - Inefficient inventory management - Improved inventory management
- Inefficient rebate and administrative fee - More effective rebate and
management administrative fee management
- --------------------------------------------------------------------------------------------------
</TABLE>
BENEFITS TO BUYERS
AUTOMATED, COST-EFFECTIVE PURCHASING PROCESS. Our Web-based solution allows
buyers to streamline the process of finding, comparing, purchasing, tracking and
managing the procurement of medical and non-medical healthcare supplies. Our
solution allows buyers to automate and integrate order processing, consolidate
purchase orders and payments and obtain the latest inventory and pricing
information.
EXPANDED ACCESS TO SELLERS. Using our Web-based solution, buyers have
online access to a broad range of participating sellers.
EXTENSIVE PRODUCT INFORMATION. Our marketplace gives buyers online access
to sellers' product catalogs with the latest market and customer-specific
pricing and product information for a broader range of products than
traditionally available. Buyers can search our sellers' product databases to
compare pricing, product attributes and technical information across multiple
sellers, including sellers not previously used by or available to the buyer.
EXTENSIVE TRANSACTION DATA. By using our Web-based, integrated solution,
buyers and group purchasing organizations are able to access a single repository
of transaction data to better track and report their and their members'
purchasing, product use and pricing. Group purchasing organizations can use this
data to identify products and processes that can result in improved patient
care, negotiate improved contract pricing and identify new contracting
opportunities. Buyers can use this data for improved contract negotiation,
budget forecasting and assessing and comparing operational performance.
COORDINATED PURCHASING. With our solution, buyers can streamline their
purchasing process by combining purchasing information from multiple points of
care into one centralized purchasing source. This solution enables buyers,
including participating group purchasing organization members, to more
efficiently use their resources and ensure that purchases take advantage of
their pre-negotiated contract prices.
BENEFITS TO SELLERS
AUTOMATED, COST-EFFECTIVE SALES PROCESS. Our Web-based solution allows
sellers to streamline the process of finding and selling to motivated buyers.
Our solution enables sellers to
41
<PAGE> 43
compress their payment cycles, automate and standardize order processing and
provide the latest product pricing and availability information to buyers.
EXPANDED ACCESS TO BUYERS. Our solution enables sellers to reach a broad
range of buyers at potentially reduced cost. Sellers can access buyers in
multiple locations and in various markets associated with the delivery of care,
ranging from hospitals, group purchasing organizations and integrated delivery
networks to long-term care facilities and physician offices. Our services give
sellers of all sizes direct online access to decision makers in buyers'
procurement processes.
REDUCED SALES AND MARKETING COSTS. Our solution allows sellers to sell
their products directly to buyers online and to more easily market their brand
to a wider audience without corresponding increases in sales and marketing
costs. Our services also permit sellers to potentially reduce existing sales and
marketing costs and avoid the expenses of developing and maintaining their own
e-commerce or EDI solution.
IMPROVED INVENTORY MANAGEMENT. Using our Web-based system, manufacturers
and distributors are better able to predict demand through enhanced access to
information about historical transactions. In addition, manufacturers are not
dependent on distributor catalogs for the breadth of their offerings and can
gauge buyer preferences more directly. As a result, both manufacturers and
distributors are better able to manage their inventory.
MORE EFFECTIVE REBATE AND ADMINISTRATIVE FEE MANAGEMENT. By consolidating
and tracking transaction information about specific buyers' purchases, sellers
are better able to manage their rebate programs with buyers and their group
purchasing organization administrative fees. This results in improved
relationships with buyers and group purchasing organizations and better-
informed budgeting for negotiating.
THE MEDIBUY.COM STRATEGY
Our objective is to become the preferred marketplace for products and
services used by the healthcare industry. Key elements of our strategy include:
ACCELERATE ADOPTION AND USE OF OUR MARKETPLACE. We intend to accelerate the
adoption and use of our marketplace by group purchasing organizations and
individual buyers and sellers. We intend to attract new customers through
dedicated sales and marketing efforts and by continuing to build brand awareness
and negotiating referral and co-marketing agreements where appropriate. We have
developed an implementation team to assist in the technical integration of our
services with customers' existing systems. This team minimizes the initial
commitment of time and capital for new users of our solution. We also provide
ongoing post-implementation support and education concerning the benefits of our
solution. We believe that integration of our e-commerce marketplace with our
customers' systems allows our customers to receive the full benefit of our
services and enables us to develop long-term relationships that cannot be easily
changed without significant switching costs. We believe our focus on
implementation and ongoing support and education will accelerate adoption and
use of our marketplace services.
MAINTAIN OPEN AND UNBIASED MARKETPLACE. We intend to maintain our
neutrality with respect to group purchasing organizations, buyers and sellers in
order to promote an open marketplace allowing unbiased access to a broad range
of products for a large number of diverse market participants. We offer equal
access and functionality to users regardless of their size, product focus and
affiliation. We believe that our neutrality with respect to group purchasing
organizations, buyers and sellers maximizes the attractiveness of our
marketplace and provides us with a competitive advantage over single- or
limited-source solutions.
MAINTAIN COMMITMENT TO TECHNOLOGICAL LEADERSHIP. We believe our technology
gives us an important competitive advantage. Our technology includes InstaCat,
an expandable distributed catalog technology providing online transactions and
access to product pricing and availability
42
<PAGE> 44
information, and ePort, a technology allowing automated responses to specific
queries from buyers directly from sellers' databases. Through our acquisition of
Premier Health Exchange we acquired technology that allows us to identify and
service our customers' specific pricing, product requirements and contract
terms. We intend to continue to internally develop and acquire technologies to
maintain our technological leadership. We also intend to continue to bolster our
competitive position through alliances with leading technology and software
producers.
CONTINUE TO BUILD BRAND RECOGNITION. To enhance awareness of our healthcare
marketplace solution, we are pursuing an aggressive brand development strategy
through targeted trade advertising, participation in industry events, trade
shows and trade associations, promotional activities and public relations. We
intend to continue to invest heavily in building the medibuy.com brand by
accelerating our marketing, sales, advertising and public relations efforts.
EXPAND SERVICE OFFERINGS. Through internal efforts or by acquisition, we
have developed and intend to continue to develop innovative service offerings to
meet the needs of our customers. Initially we offered our eRFP service and then
expanded our services to include eCatalog, eAuction and eSpecials. We will
continue to develop and acquire new service offerings, technologies and
businesses to provide opportunities for our users to increase revenues and
profitability while reducing their costs. For example, we plan to expand the
range of our services to provide content, data warehousing and data mining
services. In addition, we intend to apply our model to create separate,
specialized marketplaces focused on other segments in healthcare, such as dental
and eye care.
CONTINUE TO EXCEL IN CUSTOMER SERVICE. We believe that attentive customer
support and service is a critical component to the success of
business-to-business e-commerce. We intend to continue to emphasize a high level
of customer support in order to attract and retain users. We believe that our
commitment to excellent service will produce new referrals from satisfied
participants in our marketplace and enhance customer retention.
EXPAND INTERNATIONALLY. We plan to leverage our technology, expertise and
existing seller and strategic relationships to expand our marketplace to
selected international markets. We believe the international reach of the
Internet and the fragmented nature of many international healthcare supplies
markets present opportunities to expand internationally.
THE MEDIBUY.COM MARKETPLACE
We derive our marketplace revenues from transaction fees related to the
sale of products and services through our online marketplace. Our fees vary
depending on the type of transaction and service being used. The percentage used
to calculate our fee will differ depending on whether the transaction is
completed through eCatalog, eRFP, eAuction or eSpecials. Our fees are paid by
sellers and are calculated as a percentage of the gross transaction value of
sales. eAuction transaction fees are earned when the buyer accepts the purchased
equipment. For all other service offerings, we earn our fee at the time a
buyer's order is confirmed by a seller and collection is reasonably assured. We
expect that transaction fees will be our primary source of revenues in the
future. In addition to transaction fees, we plan to generate revenues from a
variety of sources, potentially including software development fees, servicing
fees, seller subscriptions, data warehousing and data access. We do not take
legal title to any products sold through our online marketplace.
43
<PAGE> 45
ECOMMERCE SERVICE OFFERINGS
We have developed a suite of service offerings designed to address a wide
variety of needs of companies engaged in the purchase and sale of healthcare
supplies. Our offerings include the following:
ECATALOG. Our eCatalog service, launched in December 1999, provides our
buyers with the ability to purchase a large variety of products and services
through our electronic catalog. Buyers can use eCatalog to compare products and
services based on product characteristics and price and to purchase and
automatically re-order these products and services.
The information provided through our eCatalog service is electronically
linked with our sellers' databases, ensuring current and accurate seller pricing
and immediate access to available inventory information. Our eCatalog service
provides consistently updated seller information reflecting changes to a
seller's product database. In addition, our eCatalog service coordinates pricing
structures to offer buyers either current market pricing or specific pre-
negotiated contract pricing. eCatalog enables sellers to provide targeted
electronic marketing information to accompany their product listings, allowing
them to compete on product features and not just price. The technology to be
acquired by us through our acquisition of Premier Health Exchange allows us to
recognize a buyer's group purchasing organization affiliation, if any, and
provide the buyer with relevant tiered pricing, associated commitment
requirements and other purchasing terms according to its contract. Should a
buyer ultimately decide that a product's price, availability or other terms are
not attractive, the buyer can immediately use eRFP to solicit proposals from
potential sellers in an attempt to improve these terms.
ERFP. Our eRFP service, launched in April 1999, automates and reduces
inefficiencies in the request-for-proposal process for the procurement of
healthcare supplies. Through eRFP, a buyer can anonymously submit a
request-for-proposal, commonly known as an RFP, to sellers registered within the
product categories selected by the buyer. In this manner, buyers can submit RFPs
for items in our eCatalog as well as other items and services not currently in
our eCatalog. Sellers can then submit proposals in response to the RFP. The
buyer can review aggregated responses and accept the proposal that best meets
its needs. Both the buyer and the seller are notified electronically of the
terms of the accepted proposal. The seller then confirms the buyer's order. eRFP
gives sellers an equal opportunity to submit proposals against RFPs in an
anonymous setting and is designed to lower costs and reduce the time required
for buyers to locate products and services.
EAUCTION. Our eAuction service, launched in June 1999, gives users the
opportunity to buy and sell new and used equipment in an auction style format.
Through eAuction, buyers can access information about and submit bids for items
being auctioned by sellers. Buyers can browse available auctioned products or
conduct specific searches through hundreds of products ranging from pre-owned,
"as-is" products to reconditioned and seller-warranted products.
Through eAuction, sellers can maximize the value of their excess assets by
offering them for sale on a worldwide basis. The auction style format helps
distributors, manufacturers and healthcare providers by automating and reducing
the costs of liquidating excess inventory.
ESPECIALS. Our eSpecials service, launched in December 1999, gives buyers
direct access to sellers' discounted offerings and allows sellers to actively
promote and merchandise specials. For example, registered sellers can offer
unused healthcare supplies through this service to facilitate inventory
closeouts or for special promotions at reduced costs.
FUTURE OFFERINGS
In addition to our existing service offerings, we have recently begun
developing new services aimed at giving our customers valuable information to
further assist them in their
44
<PAGE> 46
purchasing, selling and planning functions. We anticipate that our new services
will become available over the course of the next two years and will include the
following:
ESERVICE OFFERINGS. We plan to expand our existing electronic commerce
offerings to include:
- - ECERTIFIED. Our eCertified service will allow sellers to offer reconditioned,
pre-owned and excess equipment. Products offered through eCertified will have
been inspected by third party inspectors and may have 90 day seller-provided
warranties, optional extended seller warranties and service manuals.
- - ESOURCE. Our eSource service will allow buyers to request our assistance in
locating hard-to-find healthcare products and services. Buyers will be able to
provide us with information about their needs, time frame, planned use and
other purchase requirements, and we will assist them in locating these items.
DATA WAREHOUSING AND MINING. Currently we provide our users archive
transaction history data. We are developing a data warehouse to give our
customers enhanced reporting and analytical capabilities. Our data warehouse
will allow users to access their transactional data to track and respond to
business trends and to facilitate forecasting and planning efforts. Although our
current reporting is offered free of charge, we anticipate charging fees for
customized data services. As we develop this offering, we will provide our
customers with the following:
- - Access to Web-enabled forecasting and statistical analysis tools
- - Secure access to the customers' own transactional information
- - Access to enhanced reporting functions such as price analysis
THE MEDIBUY.COM DESKTOP. We plan on introducing the medibuy.com desktop,
which will integrate our e-commerce solution with buyers' existing desktop
systems. We intend to broaden and deepen the usefulness of the site to include
the following:
- - Product-oriented clinical information
- - E-mail
- - Delivery of seller and product updates
- - User chat rooms and bulletin boards
ASSET MANAGEMENT. We are developing asset management offerings, which may
include the following:
- - Equipment assessment services
- - Life cycle planning services
- - Finance and leasing services
ENABLING TECHNOLOGIES
Our service offerings are enabled by a combination of internally developed
and acquired technologies. Our e-commerce offerings are driven by our
proprietary InstaCat technology, which runs on our system, and our proprietary
ePort technology, which runs on the sellers' systems.
- - ePort is a search mechanism at the seller's database which returns
buyer-specific product information such as pricing and availability.
- - InstaCat enables online transactions and retrieves data from the ePort at the
seller's database, instantly incorporating it into our eCatalog.
45
<PAGE> 47
The following chart illustrates our eCatalog service using our proprietary
InstaCat and ePort technologies:
<TABLE>
<S> <C> <C>
Buyers [MEDIBUY.COM LOGO] Sellers
- ---------------------------------- ---------------------------------- ----------------------------------
Hospital InstaCat S S Distributor
- ---------------------------------- I Technology Interface E Y ----------------------------------
n S L S
- ---------------------------------- t E L T ----------------------------------
Existing e C E E F - Catalog data
- ---------------------------------- r U - Provides access to customers' R M e I ----------------------------------
Information n R own contract pricing P R - Marketing information
- ---------------------------------- e E D I o E ----------------------------------
Systems t - Allows existing ordering A N r W - Brand showcase
- ---------------------------------- Q systems to conduct T T t A ----------------------------------
U transactions via the Internet A E L - Customer pricing
E B R L ----------------------------------
- ---------------------------------- R - Provides customized Web A F - Order processing
M.D. Clinic I sites and e-commerce S A ----------------------------------
- ---------------------------------- I E services E C - Inventory & avalability
n S E ----------------------------------
- ---------------------------------- t &
Existing e A
- ---------------------------------- r N F
Information n D I ----------------------------------
- ---------------------------------- e N Manufacturer
Systems t O ---------------------------------- A ----------------------------------
- ---------------------------------- R Group | N
D Purchasing | Data C ----------------------------------
E Organization | Warehouse I F - Catalog data
- ---------------------------------- R Price Files | A e I ----------------------------------
Alternate Site S ---------------------------------- L P R - Marketing information
- ---------------------------------- I o E ----------------------------------
- Long-term care n r W - Brand showcase
- ---------------------------------- t t A ----------------------------------
- Home care e L - Customer pricing
- ---------------------------------- r L ----------------------------------
- Lab n - Order processing
- ---------------------------------- e ----------------------------------
- Other t - Inventory & availability
- ---------------------------------- ----------------------------------
</TABLE>
Additionally, our technology employs widely used customer identification
standards to verify the identity of buyers and sellers to enhance the usefulness
of our services to users.
To use our services, a customer must register as either a buyer or a
seller. To register as a buyer, a user must provide healthcare services and
purchase goods or services for use and not resale. To register as a seller, a
user must manufacture or acquire goods for sale to healthcare providers. We have
licensed Dun & Bradstreet's Supplier Assessment Management System to help us
identify buyers and sellers in the registration process and to determine that
they are qualified to use our Web site. This system allows us to gather
information that can be used to verify a customer's registration information.
The system also provides a user identification which becomes part of our buyer
and seller information database.
In addition, we require buyers to provide us their Healthcare
Identification Number, or HIN, in the registration process. The buyer's HIN is a
unique identifier commonly used in the healthcare industry. The buyer's HIN
accompanies the buyer's transactions on our system and enables our sellers'
efforts to match the buyer with any seller-customized information for the buyer,
such as special pricing.
46
<PAGE> 48
OUR CUSTOMERS
BUYERS
We have initially targeted our marketing efforts on high-volume healthcare
purchasers, with particular emphasis on multi-facility integrated delivery
networks and hospitals. We also serve nursing homes, assisted-living facilities,
large clinics, outpatient surgery centers and physician and dental practices. We
have designed our services and pricing structures to coordinate with group
purchasing organizations and to permit group purchasing organizations to provide
improved value to their members. As of March 1, 2000, we had over 3,300
registered buyers.
To date, revenues from our customers have been minimal. Our buyers have
included integrated delivery networks such as Fairview Health System and BJC
Health System, independent hospitals such as Wyoming Medical Center, Glendale
Memorial and Mercy Regional Medical Center, hospitals associated with group
purchasing organizations such as Child Health Corporation of America,
free-standing surgery centers such as Central Kentucky Surgical Institute, and
the U.S. military and Veterans Administration hospitals.
GROUP PURCHASING ORGANIZATIONS
We have initially targeted our marketing efforts on the largest group
purchasing organizations in the U.S. as a means of rapidly increasing the number
of buyers using our online marketplace. To date, we have entered into an
agreement with Premier, and we intend to target other large group purchasing
organizations in the future.
Upon our acquisition of Premier Health Exchange, we will be the exclusive
e-commerce marketplace that Premier will offer to its 1,800 members for a
scheduled six year term. In 1999, Premier reported that membership purchases
under its contracted purchasing agreements with approximately 400 sellers
totaled $10.6 billion. In addition, these member hospitals purchase products and
services that are not included in Premier's group purchasing contracts.
Virtually none of the purchases by Premier members were conducted through an
online marketplace in 1999. We cannot assure you that any significant portion of
these purchases will be made through our online marketplace in the future.
SELLERS
We have initially targeted our marketing efforts on large-volume healthcare
manufacturers and distributors. In addition, we plan to recruit smaller medical
and non-medical manufacturers and distributors. As of March 1, 2000, we had over
2,000 registered sellers. The following is a representative list of registered
sellers on our Web site:
<TABLE>
<S> <C>
3M Healthcare Hitachi Medical Corporation
Alcon Laboratories Johnson & Johnson Medical, Inc.
Boise Cascade Office Products Kimberly-Clark
CompUSA Medline
B&K Medical Roche Diagnostics Corporation
BM Healthcare Terumo Medical Corporation
Hewlett-Packard Company
</TABLE>
PARTNET CUSTOMERS
We acquired PartNET in order to obtain access to its proprietary ePort
technology. As a result of this acquisition, we also obtained several new
customers from different industries engaged in Internet commerce. These
customers have already installed the ePort software on their systems to enable
distributed catalog access for their businesses. Although we do not anticipate
expanding the non-healthcare aspects of this business, we will continue to
provide system development services to these customers, which include the U.S.
Government and
47
<PAGE> 49
Newark Electronics. For 1999, the U.S. Government accounted for 61% of our
consolidated revenues.
STRATEGIC RELATIONSHIPS
We have in the past established, and will continue to seek to establish,
strategic relationships with firms whose products, services, or market presence
enhance our ability to execute our core strategies. We enter alliances with the
overall goal of improving the benefits and attractiveness of our services to our
customers. We believe the integration of our services with existing information
systems technology and processes will accelerate the acceptance of our services
and the growth of our transaction volume. We have entered into strategic
relationships with a variety of companies to expedite this integration. Among
the most significant relationships are the following:
- - PREMIER PURCHASING PARTNERS, L.P., an affiliate of Premier, Inc., is one of
the largest group purchasing organizations in the nation, representing over
1,800 member hospitals. Upon our acquisition of Premier Health Exchange, we
will be the exclusive e-commerce marketplace that Premier will offer to its
members for a scheduled six-year term. Under our ten-year agreement, Premier
will pay us fees based on products and services purchased under Premier
contracts using our online marketplace. For providing integration and
maintenance services, Premier has agreed to pay us $159 million over the
six-year exclusivity period. Additionally, we will receive e-commerce
transaction fee revenue based on a percentage of the gross transaction value
of products and services purchased on our marketplace under Premier contracts
in excess of contracted minimum purchasing volumes. We also will earn fees
from the sale of non-contracted products and services to Premier's members.
For non-contracted purchases we are obligated to pay to Premier Purchasing
Partners a sales commission calculated as a contracted percentage of the
transaction fees earned by us. In addition, under a separate ten-year
marketing support agreement, we will be paying Premier an aggregate of $20
million for providing marketing and support services to us.
- - HEALTHEON/WEBMD CORPORATION is an Internet healthcare company that connects
physicians and consumers with the healthcare industry and provides healthcare
information and services for healthcare professionals. In January 2000, we
entered into a three-year joint marketing and promotion agreement with
Healtheon/WebMD to create a co-branded Web site to customize our online
marketplace services for its physician members. We have agreed to
cooperatively market the co-branded Web site. We will pay Healtheon/WebMD at
least $45.5 million over three years for marketing of the co-branded Web site.
We will receive development and maintenance fees of approximately $22.8
million over three years for developing and maintaining the Web site.
- - DRUGSTORE.COM, INC. is an online drugstore site which offers health, beauty,
wellness, personal care and pharmacy products. In February 2000, we entered
into a renewable five-year strategic alliance agreement with drugstore.com to
develop a co-branded Web site to offer our online marketplace services to home
healthcare professionals. drugstore.com will be the exclusive provider of
personal care, wellness, health and beauty products through the co-branded
site. The agreement requires drugstore.com to pay to us e-commerce transaction
fees for products it sells on the co-branded site as well as new customer
referral fees for customers we refer to drugstore.com. We are required to make
payments to drugstore.com based on a contracted percentage of e-commerce
transaction fees generated on the co-branded Web site from sellers other than
drugstore.com. We are also required to spend at least $10.0 million over the
five-year term of the agreement to promote the co-branded Web site. The
agreement may be terminated early by a party upon the occurrence of a
specified termination event.
- - OWEN HEALTHCARE, INC. is a leading provider of hospital pharmacy and materials
management services. In October 1999, we entered into a one-year agreement to
license Owen Healthcare's
48
<PAGE> 50
Supplyline database to enhance our service offerings and made a one-time
payment to Owen Healthcare for the license. The Supplyline database classifies
up to 500,000 consumable healthcare products and enables us to allow buyers on
our system to compare products before placing an order for healthcare
supplies. The Supplyline database is widely used among healthcare providers,
group purchasing organizations, distributors, and the federal government.
- - PHYSICIANSITE.COM, INC. is an Internet-based physician portal site. In
November 1999, we entered into a three-year strategic agreement with
Physiciansite.com to channel physicians and their staffs to our Web site.
Under our agreement, Physiciansite.com will establish a healthcare supplies
service that will link directly to our Web site. Physiciansite.com users may
register on our Web site and will be able to purchase healthcare supplies
using our services. We have agreed to cooperatively market our joint offering
to attract users to our respective Web sites. We are required to make payments
to Physiciansite.com based on a contracted percentage of e-commerce
transaction fees generated by joint users of our online marketplace.
- - ALLIANZ CAPITAL PARTNERS, GMBH is a global leader in insurance and asset
management, headquartered in Munich, Germany. In January 2000, we entered into
a one-year agreement with Allianz Capital Partners to provide us with
information and assistance in connection with the development of our business
in Europe. Allianz Capital Partners will assist us in expanding our
marketplace in Europe by providing information and assistance relating to
European distribution channels and healthcare customs and practices as well as
introducing us to potential strategic partners and customers. In connection
with the agreement, we issued to Allianz Capital Partners a warrant to
purchase shares of our common stock.
CUSTOMER SUPPORT
Our customer support organization's primary purpose is to provide support
services to buyers and sellers. We believe that our commitment to high quality
customer support differentiates us in the marketplace. Services provided by our
customer support staff go beyond simple e-mail or phone contact and include
buyer and seller account management, buyer and seller registration, technical
support and field service. Our customer support programs are divided into three
distinct groups based on our customers' differing needs: buyer support, seller
support and technical support.
BUYER SUPPORT. Our buyer account coordination group is responsible for:
- - monitoring and managing transactions by territory for quality assurance
- - training buyers to use the site
- - recruiting additional sellers to respond to buyers' needs
- - ensuring that buyers are qualified healthcare providers
SELLER SUPPORT. Our seller account coordination group is responsible for:
- - working with current and prospective sellers to help them realize the value of
using our services to sell their healthcare supplies
- - obtaining and registering catalog information for sellers
TECHNICAL SUPPORT. Our technical support staff is responsible for:
- - performing field installations and system configuration
- - addressing technical questions regarding Internet access and the
implementation of our e-commerce applications
- - training customers on ePort implementation
Our customer support operations are located at our corporate headquarters
in San Diego, California and in Cincinnati, Ohio. As of March 1, 2000, we had 19
employees in our customer support organization.
49
<PAGE> 51
SALES AND MARKETING
We market and sell our services through a combination of direct sales and
traditional and Internet marketing initiatives. We are leveraging our management
team's relationships in the healthcare industry to build and promote our
business. To track and target potential customers, we use a corporate management
contact system that contains over 50,000 names and other key contact information
for executives at over 17,000 medical manufacturers, distributors, hospitals,
nursing homes and significant outpatient facilities in the United States.
Our sales force concentrates on selling our services to the leading
healthcare providers in the top 50 U.S. metropolitan statistical areas. Our
sales staff are located in field positions around the United States and
internationally. Our field representatives target senior executives, materials
managers and buyers.
We conduct a variety of marketing activities to build our brand and attract
buyers and sellers to our marketplace. These activities include:
- - targeted direct mail
- - telemarketing
- - print and online advertising
- - customer testimonials
- - trade shows
- - industry forums
- - speaking engagements
We also conduct comprehensive public relations programs that include
establishing and maintaining relationships with key trade press, business press
and industry analysts. As of March 1, 2000, we had 62 employees in our sales and
marketing group.
TECHNOLOGY
Our system is built on an open, multi-tier, distributed architecture using
well-established software applications and hardware from leading technology
companies such as Sun Microsystems, Oracle Corporation, Cisco Systems, and
Veritas Software. Our technology platform integrates eCatalog, eRFP, eAuction,
eSpecials, our enterprise resource planning system, our enterprise application
integrator and a growing number of other services into a single system
architecture. We use industry standard technology and tools in the development
of our architecture and e-commerce applications.
SCALABILITY. Our technology infrastructure is modular and enables us to
continuously expand and enhance our services to meet the evolving needs of our
users. Our distributed architecture enables us to readily add capacity as our
services change and the number of users and transactions increase on our system.
SECURITY. We have implemented a variety of features to ensure the security
and integrity of transaction communications through our system. For example:
- - We use secure sockets layer, or SSL, an Internet security technology, at
appropriate points in the transaction flow to protect user information during
transactions
- - User information is encrypted to provide a high degree of security
- - Our employees do not have access to user information, except as necessary to
perform customer support functions
- - We use standard secure login and password systems to authenticate users
50
<PAGE> 52
In addition, we have off-site stand-by systems for rapid disaster recovery.
Our e-commerce server hardware is co-located with Level (3) Communications,
Inc., our data center service provider, in San Diego, California, which provides
physical security for the premises, redundant battery- and generator-backed
electrical power, redundant climate control, and redundant high-capacity
Internet connections. In addition, our operations can be transferred to an
offsite server in the event of material disruptions in our services.
INTEGRATION WITH CUSTOMERS' INFORMATION SYSTEMS. Our system is designed
with an enterprise applications integrator to enable us to transfer data to and
from our customers' internal systems related to their healthcare supplies
purchasing and sale functions. Our distributed technology provides continuous
communication and access between trading partners regardless of the customers'
existing technology platforms.
COMPETITION
The online market for healthcare supplies is new, rapidly evolving and
intensely competitive. We believe we face competition in three general market
segments:
- - online healthcare marketplaces
- - traditional healthcare supply chain participants
- - other companies providing Internet e-commerce services
We face competition from e-commerce providers that have established online
marketplaces for healthcare supplies. These competitors include companies such
as Neoforma and Promedix. Neoforma provides an auction site for the sale of
used, refurbished and surplus products, and has e-commerce services for new
products. Currently, Neoforma's marketplace solution is directed at individual
physicians' offices, though it is possible that this emphasis may change.
Promedix currently offers a Web site for the sale of new healthcare products.
Promedix was recently acquired by Ventro, Inc. (formerly known as Chemdex), a
provider of e-commerce solutions to the life sciences industry. In addition, new
companies may also be formed to offer healthcare supplies e-commerce
marketplaces to directly compete with us.
We also face competition from the numerous existing traditional healthcare
supplies manufacturers, distributors and group purchasing organizations.
Traditional healthcare supplies manufacturers, distributors and group purchasing
organizations have well-established businesses, customer relationships and
infrastructures. Many of these competitors have long-standing relationships with
buyers of healthcare supplies. In addition, they have well-trained sales forces
and substantial marketing resources. A number of these companies have or may in
the future seek to establish their own e-commerce initiatives for the purchase
and sale of healthcare supplies or contract for those services from other
providers. Moreover, live auction houses focusing on medical products may
establish online auction services that compete with our eAuction service.
We also face competition from a number of other Internet e-commerce
participants. Many companies have created Web sites to serve the information
needs of healthcare professionals, providing medical information, discussion
groups, bulletin boards and directories. Many of these companies are introducing
e-commerce purchasing functions that compete with our services. In addition,
providers of online marketplaces and online auction services that currently
focus on other industries could expand the scope of their services to include
healthcare supplies.
We believe that companies in our market compete based on:
- - brand recognition
- - breadth, depth and quality of product offerings
- - ease of use and convenience
51
<PAGE> 53
- - ability to integrate their services with users' existing systems and software
- - quality and reliability of their services
- - customer service
- - number of users and transaction volume
- - the amount of the fees charged to sellers
Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:
- - enter into strategic or commercial relationships with larger, more established
healthcare supplies and Internet companies
- - secure services and products from sellers on more favorable terms
- - devote greater resources to marketing and promotional campaigns
- - secure exclusive arrangements with buyers that impede our sales
- - devote substantially more resources to Web site and systems development
Our current and potential competitors' services may achieve greater market
acceptance than our services. Many of our existing and potential competitors
have longer operating histories in the healthcare supplies industry, greater
name recognition, larger customer bases or greater financial, technical and
marketing resources than we do. As a result of these factors, our competitors
and potential competitors may be able to respond more quickly to market forces,
undertake more extensive marketing campaigns for their brands and services and
make more attractive offers to purchasers and sellers, potential employees and
strategic partners. In addition, new technologies may increase competitive
pressures. We cannot be certain that we will be able to expand our buyer and
seller base or retain our current buyer and seller customers. We may not be able
to compete successfully against current and future competitors, and competition
could seriously harm our business.
GOVERNMENT REGULATION
Many aspects of the healthcare supplies industry are subject to regulation
by federal, state and local government agencies. Many of the healthcare supplies
offered by sellers who use our system are subject to compliance with laws and
regulations, including operating and security standards for the sellers and
their distribution centers, and regulation by agencies including the Food and
Drug Administration, the Drug Enforcement Agency, the Occupational Safety and
Health Administration, state boards of pharmacy and, in some areas, state boards
of health. We rely upon sellers who use our services to meet all packaging,
distribution, labeling, hazard and health information notices to buyers, record
keeping and licensing requirements applicable to transactions conducted through
our system. We cannot guarantee that the sellers are in compliance with
applicable laws and regulations. If sellers have failed, or fail in the future,
to adequately comply with any of the relevant laws or regulations and we are
found in any way to be legally responsible, we could be subject to governmental
penalties or fines, as well as private lawsuits to enforce these laws and
regulations. Any damage awards, injunctions, penalties or fines resulting from
any of those actions could harm our business.
Regulation of the auction business varies by jurisdiction. Numerous states,
including California, the location of our headquarters, have regulations
regarding the manner in which auctions may be conducted and the liability of
auctioneers in conducting such auctions. In addition, we may be subject to
licensure requirements in various jurisdictions with respect to some of the
properties that may be sold on eAuction. Those regulations and licensure
requirements have not imposed a material impediment to our business to date, but
may affect the
52
<PAGE> 54
market generally for healthcare supplies sold through electronic auctions. In
addition, to the extent we operate eAuction in an international setting, we
could be subject to laws and regulations that are not directed solely to the
auction business, including, but not limited to, import and export regulations
and value added sales taxes. Our failure to comply with current or future laws
and regulations could subject us to civil and/or criminal penalties and fines,
and any penalties or fines or changes in laws and regulations could negatively
impact the operation of our eAuction service and harm our business.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible that new laws and regulations may be adopted or interpreted by the
United States and foreign governments to address the sale and distribution of
healthcare supplies using the Internet. It is possible that governments will
enact legislation that may be applicable to us in areas including content,
product distribution, network security, encryption, the use of measures for data
and privacy protection, electronic authentication or "digital" signatures,
illegal and harmful content, access charges and re-transmission activities.
Moreover, the applicability to the Internet of existing laws governing issues
like property ownership, content, taxation, defamation, personal privacy,
product liability and environmental protection, as well as the necessity for
governmental permits, labeling, certifications and the need to supply
information to relevant parties, is uncertain. Most of these laws were adopted
before the widespread use and commercialization of the Internet and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Any export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase our cost of doing business or increase our
liability exposure. Any of these factors could harm our business.
PROPRIETARY RIGHTS
There are limited technological barriers to entry into the business of
providing an online healthcare supplies e-commerce marketplace system.
Consequently, others can develop, market and sell services substantially
equivalent to our services, or use technologies similar to those used by us.
We rely on a combination of copyright, trademark, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also use proprietary know-how and
trade secrets and employ various methods to protect our trade secrets and
know-how. We currently have no patents protecting our technology, although we
have filed two patent applications through PartNET, Inc., our wholly-owned
subsidiary. From time to time, we expect to file additional patent applications
directed to aspects of our proprietary technology. We cannot assure you that any
of these applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by third
parties. In addition, other parties may independently develop similar or
competing technologies or design around any patents that may be issued to us. We
cannot assure you that our intellectual protection measures will be sufficient
to prevent misappropriation of our technology. In addition, the laws of many
foreign countries do not protect our intellectual property to the same extent as
the laws of the United States.
We believe that our proprietary technology does not infringe on any third
party's patents; however, we cannot be certain that we will not become involved
in litigation involving patents or proprietary rights. Patent and proprietary
rights litigation entails substantial legal and other costs, and we do not know
if we will have the necessary financial resources to defend or prosecute our
rights in connection with any litigation. Responding to, defending or bringing
claims related to our intellectual property rights may require our management to
redirect our human and monetary resources to address these claims.
53
<PAGE> 55
EMPLOYEES
As of March 1, 2000, we had 200 full-time employees. Our employees are not
represented by unions, and we consider our employee relations to be good.
FACILITIES
Our executive offices are located in San Diego, California. We lease
approximately 36,091 square feet with an option to expand by an additional
16,828 square feet in a commercial building under a lease that expires October
2004. We have an option to renew the lease for an additional five years. We also
lease satellite office space under leases that have terms of 14 months to five
years. As of March 1, 2000, these facilities are located in Salt Lake City,
Utah; Cincinnati, Ohio; Tulsa, Oklahoma; and Palo Alto, California. We believe
that these facilities are adequate for our present and anticipated levels of
operations for the foreseeable future.
LEGAL PROCEEDINGS
We are not presently involved in any material legal proceedings.
54
<PAGE> 56
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth our directors and executive officers, their
ages and the positions held by them with us as of March 15, 2000. In addition,
the table below denotes the changes in our board of directors effective upon the
acquisition of Premier Health Exchange, LLC.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard A. Norling(1)................ 54 Chairman of the Board
Dennis J. Murphy(1).................. 41 Chief Executive Officer, President and Director
James L. Hersma(2)................... 51 Executive Vice President, Market Development and
Director
Charles R. Smith..................... 55 Executive Vice President, Customer Advocacy
Norman R. Farquhar................... 53 Executive Vice President, Chief Financial Officer and
Secretary
Robert B. Witt....................... 48 Executive Vice President, Chief Information Officer
Don R. Brown......................... 39 President of PartNET, Inc.
Douglas C. Allred(4)................. 49 Director
Brook H. Byers(2)(3)................. 54 Director
Ann H. Lamont(3)..................... 43 Director
John H. Stevens(3)(4)................ 39 Director
Mark A. Stevens(4)................... 40 Director
(5)...........................
</TABLE>
- ---------------
(1) Mr. Murphy will resign as Chairman and Mr. Norling will be elected as a
director and Chairman of the Board effective upon our acquisition of Premier
Health Exchange.
(2) Will resign as a director effective upon our acquisition of Premier Health
Exchange.
(3) Member of the audit committee.
(4) Member of the compensation committee.
(5) Premier will have the right to appoint up to four additional directors in
connection with our acquisition of Premier Health Exchange. There will also
be one additional director appointed that is mutually acceptable to Premier
and us.
DENNIS J. MURPHY has served as a member of our board of directors and our
Chief Executive Officer since March 1999. In November 1999, Mr. Murphy was also
appointed President and the Chairman of our Board of Directors. From June 1998
to November 1998, Mr. Murphy was President of McKesson Health Systems, Inc., a
healthcare distributor. From August 1993 to June 1998, Mr. Murphy was a director
and Chief Operating Officer for Paper Pak, Inc., a healthcare product
manufacturer. Mr. Murphy has also held various management positions with Baxter
Healthcare Corporation, a healthcare distributor and manufacturer, including
Director of National Accounts, Vice President of Sales for the Hospital
Division, Area Manager and Western Zone Vice President.
JAMES L. HERSMA has served as a member of our board of directors and as our
Executive Vice President, Market Development since June 1999. From January 1998
to February 1999, Mr. Hersma was President and Chief Executive Officer of
Novation, LLC, a healthcare group purchasing organization. Mr. Hersma worked as
an independent consultant to the healthcare industry from June 1996 to December
1997. From November 1993 to May 1996, Mr. Hersma was President and Chief
Operating Officer for CIS Technologies, Inc., a healthcare claims transaction
software company. Mr. Hersma has also held various management positions with
Baxter Healthcare Corporation, including Southern Zone Vice President and
Corporate Sales Vice
55
<PAGE> 57
President. Mr. Hersma is on the board of directors of TriStar Aerospace, Inc., a
distributor of aerospace parts and supplies.
CHARLES R. SMITH served as a member of our board of directors from
September 1998 to January 2000 and served as our President from September 1998
to November 1999. In November 1999, Mr. Smith was appointed Executive Vice
President, Customer Advocacy. From April 1994 to August 1998, Mr. Smith was
Executive Vice President of NCI, Inc., a healthcare sales and marketing
consulting company. Mr. Smith has also been Chief Executive Officer of Southern
California Materials Management Alliance, a healthcare purchasing and
distribution alliance.
NORMAN R. FARQUHAR has served as our Executive Vice President, Chief
Financial Officer and Secretary since November 1999. From December 1998 to
October 1999, Mr. Farquhar was Executive Vice President and Chief Financial
Officer of Platinum Software Corporation, a developer of client/server
enterprise resources planning software which changed its name to Epicor Software
Corporation in May 1999. From February 1996 to December 1998, he was Executive
Vice President and Chief Financial Officer of DataWorks Corporation, a supplier
of information systems, which in December 1998 was merged into Platinum Software
Corporation. From April 1993 to December 1995, Mr. Farquhar served as Senior
Vice President, Chief Financial Officer and Secretary at Wonderware Corporation,
a software manufacturer. Mr. Farquhar serves as a director for Dot Hill
Corporation, a manufacturer of host and network-attached data storage products.
ROBERT B. WITT has served as our Executive Vice President and Chief
Information Officer since May 1999. From September 1998 to May 1999, Mr. Witt
was Chief Information Officer at Oracle Corporation, a software manufacturer.
From November 1994 to September 1998, Mr. Witt was Chief Information Officer at
Sequent Computer Systems, Inc., a computer manufacturer. Mr. Witt serves as a
director for Concentrex Incorporated, a software development company. Mr. Witt
is a Certified Public Accountant.
DON R. BROWN has served as Chief Executive Officer of PartNET, Inc. since
its formation in 1993. Mr. Brown has also served as an Associate Professor of
Mechanical Engineering and an Adjunct Professor of Computer Science with the
University of Utah since 1989.
DOUGLAS C. ALLRED has served as a member of our board of directors since
November 1999. Mr. Allred has been the Senior Vice President/Vice President,
Customer Advocacy at Cisco Systems, Inc., a provider of networking equipment,
since August 1991. Mr. Allred serves as a director of several privately held
software development companies.
BROOK H. BYERS has served as a member of our board of directors since June
1999. Mr. Byers is a partner of Kleiner Perkins Caufield & Byers, a private
venture capital firm that he joined in 1977. Mr. Byers has been the founding
president and chairman of four life sciences companies: Athena Neurosciences,
Inc., Idec Pharmaceuticals Corporation, InSite Vision Opthalmics Inc. and Ligand
Pharmaceuticals, Inc. Mr. Byers also serves as a director of Chemdex.com, Inc.,
Drugstore.com, Inc. and a number of privately held technology companies. Mr.
Byers sits on the Board of Directors of the University of California, San
Francisco Foundation and is a director of the California Healthcare Institute.
ANN H. LAMONT has served as a member of our board of directors since June
1999. Since 1986, Ms. Lamont has served as general partner and managing member
of various limited partnerships affiliated with Oak Investment Partners, a
venture capital organization. Ms. Lamont joined Oak Investment Partners in 1982
as an associate. Prior to joining Oak Investment Partners she was in the
research department at Hambrecht & Quist. Ms. Lamont also serves on the Board of
Directors of Viropharma, Inc., a company she co-founded.
JOHN H. STEVENS, M.D. has served as a member of our board of directors
since June 1999. Since November 1999, Dr. Stevens has served as Chairman and
Chief Executive Officer of
56
<PAGE> 58
Netlens, Inc., an Internet technology company. Dr. Stevens was also the founder
and Chief Executive Officer of hippo.com, Inc., an Internet start-up company
founded in February 1999 that we acquired in June 1999. Dr. Stevens served as
Chief Technology Officer of Heartport, Inc., a medical device company that he
co-founded in 1991, from 1996 to 1997. Dr. Stevens has continued to serve as a
director of Heartport since its inception. Dr. Stevens is on the board of
several privately held companies. Dr. Stevens graduated from the University of
Utah and received his M.D. from the Stanford University School of Medicine.
Effective upon our acquisition of Premier Health Exchange, Dr. Stevens will be
elected Vice Chairman of our board of directors.
MARK A. STEVENS has served as a member of our board of directors since June
1999. Mr. Stevens has been a general partner of Sequoia Capital, a venture
capital investment firm, since March 1993. Prior to that time, beginning in July
1989, he was an associate at Sequoia Capital. Prior to joining Sequoia Capital,
he held technical sales and marketing positions at Intel. Mr. Stevens currently
serves on the board of directors of MP3.com, Inc., Medicalogic, Inc., Terayon
Communication Systems, Inc., Nvidia Corporation, and several privately held
companies.
Upon our acquisition of Premier Health Exchange, the following individual
will be appointed to our board of directors:
RICHARD A. NORLING will serve as Chairman of our board of directors. Since
September 1998, Mr. Norling has served as Chief Executive Officer and a member
of the board of directors of Premier, Inc., an alliance of not-for-profit
hospital and healthcare systems in the United States. Prior to serving as Chief
Executive Officer, he served as Chief Operating Officer of Premier. From 1989
until 1997, Mr. Norling served as President and Chief Executive Officer of
Fairview Hospital and Healthcare System, a statewide integrated health system.
Prior to joining Fairview, Mr. Norling served as Executive Vice President and
Chief Operating Officer of Uni Health America, a not-for-profit system of
hospitals and healthcare organizations. Mr. Norling also serves as a director of
Premier Practice Management, Inc., Express Scripts, Inc., the Institute For
Healthcare Improvement, the Healthcare Leadership Council, the Malcolm Baldrige
Foundation and the Council on Competitiveness.
BOARD COMPOSITION
Upon the closing of this offering, in accordance with the terms of our
restated certificate of incorporation, the terms of office of the board of
directors will be divided into three classes:
- - Class I directors, whose term will expire at the annual meeting of the
stockholders to be held in 2000
- - Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2001
- - Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2002
Our Class I directors will be Mr. Mark Stevens and Mr. Allred, our Class II
directors will be Dr. John Stevens and Ms. Lamont, and our Class III directors
will be Messrs. Murphy and Norling. At each annual meeting of stockholders after
the initial classification, the successors to directors whose terms are then
expiring will be elected to serve from the time of election and qualification
until the third annual meeting following their election. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of our officers and directors, other than non-employee directors
and officers, devotes full time to the
57
<PAGE> 59
affairs of medibuy.com. Our non-employee directors devote their time to the
affairs of medibuy.com as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee of the board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The audit committee currently consists of Ms. Lamont,
Dr. John Stevens and Mr. Byers. Upon our acquisition of Premier Health Exchange,
Mr. Byers will resign from the audit committee.
Our compensation committee of the board of directors reviews and recommends
to the Board the compensation and benefits of all of our executive officers,
administers our stock option plan and establishes and reviews general policies
relating to compensation and benefits of our employees. The compensation
committee currently consists of Mr. Allred, Mr. Mark Stevens and Dr. John
Stevens. Upon our acquisition of Premier Health Exchange, Mr. Mark Stevens will
resign from the compensation committee and Mr. Norling will join the
compensation committee. There are no interlocking relationships between our
board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
DIRECTOR COMPENSATION
Our directors do not currently receive cash compensation for their service
as members of the board of directors, although they are reimbursed for some
expenses in connection with attendance at board and committee meetings. We do
not provide additional compensation for committee participation or special
assignments of the board of directors. From time to time, some of our directors
have received grants of options to purchase shares of our common stock under our
1999 Equity Incentive Plan and our 1999 Omnibus Equity Plan in connection with
their employment agreements. See "-- Executive Compensation -- Employment
Agreements" for a description of employment agreements with employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Messrs. Allred and Mark Stevens and Dr. John Stevens serve on our
compensation committee. Mr. Byers previously served on our compensation
committee. No member of our compensation committee is or was an officer or
employee of medibuy.com. Investment entities affiliated with Messrs. Mark
Stevens and Byers have purchased shares of our preferred stock. In addition, we
have granted Mr. Allred stock options to purchase our common stock and Mr.
Allred has purchased shares of our Series D preferred stock. We issued Dr. John
Stevens shares of our common stock in connection with our acquisition of
hippo.com, Inc. See "Related Party Transactions" for a more detailed description
of these transactions.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In December 1999, the board adopted our 1999 Non-Employee Directors' Stock
Option Plan. The plan has not been approved by our stockholders. 375,000 shares
of our common stock are reserved for issuance under the plan. Additionally,
starting with the 2001 annual stockholders meeting, at each annual stockholders
meeting, the number of shares reserved for issuance under the plan shall be
increased automatically by the lesser of (i) 0.1% of the total number of shares
of our common stock then outstanding, including unexercised stock options and
warrants, (ii) 62,500 shares or (iii) a number determined by the board. Members
of our Board who are
58
<PAGE> 60
not employees are eligible to participate in the non-employee directors' plan.
On the date that each new director first becomes a director he or she will
automatically be granted an option to purchase 18,750 shares. At our annual
meeting each year, each eligible director will automatically be granted an
additional option to purchase 6,250 shares if that director has served
continuously as a member of our Board since the date of that director's initial
grant. The option grants under the non-employee directors' plan are automatic
and nondiscretionary, and the exercise price of the options must be 100% of the
fair market value of the common stock on the date of grant. The term of options
granted under the non-employee directors' plan is ten years, but they will
terminate three months after the date on which the director ceases to be one of
our directors or consultants or 12 months if the termination is due to
disability or 18 months if termination is due to death. All options granted
under the non-employee directors' plan will vest as to 1/36(th) of the shares
each month until they are fully vested on the third anniversary of the date of
grant.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to us in all capacities during the years ended
December 31, 1998 and December 31, 1999, by (1) our chief executive officer and
(2) the other four most highly compensated executive officers other than the
chief executive officer who were serving as executive officers as of December
31, 1998, and December 31, 1999, respectively, collectively, the "Named
Executive Officers."
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
ANNUAL COMPENSATION RESTRICTED # SHARES
-------------------------------------- STOCK UNDER ALL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARD OPTIONS OTHER
--------------------------- ---- -------- -------- ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis Murphy, CEO and President.. 1999 $156,333(1) $2,243(2) 2,100,000 $ 82,080(3)
Norman Farquhar, Executive Vice
President, CFO and Secretary.... 1999 42,188(4) $150,000(5) 750,000
James Hersma, Executive Vice
President, Market Development... 1999 107,917(6) 1,050,000 2,960(7)
Charles Smith, Executive Vice
President, Customer Advocacy.... 1999 194,250(8) 18,000(9) 100,000
President....................... 1998 41,726(10) 900,000(11)
Robert Witt, Executive Vice
President, Chief Information
Officer......................... 1999 118,708(12) 500,000 130,000(13)
</TABLE>
- ---------------
(1) Mr. Murphy's annual salary was initially $195,000 pursuant to his
employment agreement dated March 29, 1999. Mr. Murphy's annual salary was
raised to $250,000 on October 26, 1999. Mr. Murphy began his employment
with us on March 29, 1999. The amount reflected in this table represents
only the actual salary earned by Mr. Murphy for his services from that date
through December 31, 1999.
(2) We agreed to reimburse Mr. Murphy up to $5,000 annually for the cost of
disability insurance premiums.
(3) Includes an $80,000 relocation allowance and $2,080 as reimbursement for
Mr. Murphy's legal fees incurred negotiating his employment agreement.
(4) Mr. Farquhar's annual salary is $225,000. Mr. Farquhar began his employment
with us on November 1, 1999. The amount reflected in this table represents
only the actual salary earned by Mr. Farquhar for his services from that
date through December 31, 1999.
(5) Signing bonus paid to Mr. Farquhar.
59
<PAGE> 61
(6) Mr. Hersma's annual salary is $185,000. Mr. Hersma began his employment
with us on June 14, 1999. The amount reflected in this table represents
only the actual salary earned by Mr. Hersma for his services from that date
through December 31, 1999.
(7) Reimbursement, under Mr. Hersma's employment agreement, for legal fees he
incurred negotiating his employment agreement with us.
(8) Mr. Smith's base annual salary is $198,000 effective as of May 14, 1999.
(9) A one-time cash bonus paid to Mr. Smith pursuant to letter agreement dated
May 14, 1999.
(10) Mr. Smith's employment with us began on September 26, 1998. The amount
reflected in this table represents only the actual salary paid to Mr. Smith
for his services from that date through December 31, 1998. His equivalent
annual salary for 1998 was $150,000.
(11) Mr. Smith purchased 900,000 shares of our common stock for an aggregate
purchase price of $360, subject to our right to re-acquire some of these
shares as described under "Employment Agreements".
(12) Mr. Witt's annual salary is $185,000. Mr. Witt began his employment with us
on May 10, 1999. The amount reflected in this table represents only the
actual salary earned by Mr. Witt for his services from that date through
December 31, 1999.
(13) Represents reimbursement of his relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of stock
options to our Chief Executive Officer and each of our other four most highly
compensated executed officers during the fiscal year ended December 31, 1999.
- All of the stock options are intended to be incentive stock options
except for Mr. Farquhar's stock option, which is a nonstatutory stock
option.
- All of the stock options vest over four to five years, except for the
options granted to Messrs. Murphy and Hersma with an expiration date of
December 28, 2009, which were fully vested on the date of grant.
- The exercise price per share of each option was equal to the fair market
value of the common stock of the date of grant as determined by the board
of directors, except that Mr. Farquhar's stock option was granted with an
exercise price below deemed fair market value.
- The potential realizable value is calculated based on the term of the
option at its time of grant, which is 10 years. It is calculated assuming
that the fair market value of common stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on
the last day
60
<PAGE> 62
of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the SEC and do not reflect our estimate of
future stock price growth.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF FAIR RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL MARKET APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE VALUE ON TERM
OPTIONS TO EMPLOYEES PRICE PER DATE OF -----------------------
NAME GRANTED IN 1999 SHARE GRANT EXP. DATE 5% 10%
---- ---------- ---------------- --------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis Murphy........ 1,462,500 13.8% $ 0.06 $ 0.06 3/31/09 $ 55,224 $ 140,400
262,500 2.5 4.35 4.35 11/17/09 718,410 1,820,700
375,000 3.5 8.22 8.22 12/28/09 1,937,700 4,910,400
Norman Farquhar...... 750,000 7.1 1.44 4.35 10/26/09 4,236,600 7,386,000
James Hersma......... 781,250 7.4 0.06 0.06 5/26/09 29,500 75,000
81,250 0.8 4.35 4.35 11/17/09 222,365 563,550
187,500 1.8 8.22 8.22 12/28/09 968,850 2,455,200
Charles Smith........ 100,000 0.9 4.35 4.35 10/26/09 273,680 693,600
Robert Witt.......... 500,000 4.7 0.06 0.06 3/31/09 18,880 48,000
</TABLE>
The following table provides information concerning exercises of options to
purchase our common stock in the fiscal year ended December 31, 1999, and
unexercised options held as of December 31, 1999, by the Named Executive
Officers. The year end fair value of the unexercised in-the-money options is
based upon an assumed initial public offering price of 11.00 per share, less the
exercise price of such options. The option exercise prices were set by our board
of directors and generally reflect its best estimate of the fair value of our
stock on the date of each grant based on recent sales of our equity securities,
developments in our business and developments in the financial markets. When the
board of directors elects to grant options at a lower price we recognize
stock-based compensation expense for the difference.
AGGREGATE OPTION EXERCISES AND OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END(#) AT YEAR-END
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Murphy.......... 212,500 $540,100 440,625 1,446,875 $1,480,275 $14,983,825
Norman Farquhar........ -- 750,000 -- 7,170,000
James Hersma........... 195,313 590,625 207,813 646,875 657,038 7,481,925
Charles Smith.......... -- 100,000 -- 664,800
Robert Witt............ 65,000 435,000 711,100 4,758,900
</TABLE>
- ---------------
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of our Named Executive
Officers. Each agreement has a term of one year and automatically renews for
successive one-year periods unless it is otherwise terminated by its terms. Each
agreement may be terminated by the executive officer upon prior written notice
to us, though he will receive no severance pay if he does so. Each agreement
will also automatically terminate upon the executive's death or disability. We
may terminate each of these agreements for cause or without cause. If we
terminate an executive officer for cause he will receive no severance pay. If we
terminate an executive officer without cause, he will be entitled to payment of
his then-current base annual salary for an additional year after his
termination. Each executive officer is entitled to participate in any incentive
bonus program we establish, up to a maximum cash bonus equal to one-half of his
then-current base annual salary. The stock options granted to the newest
executive officers under their employment agreements are listed below. All of
the stock options vest over four
61
<PAGE> 63
years, except for Mr. Murphy's stock option, which vests over five years. The
table and bullets below describes other terms that are specific to each
executive officer under his employment agreement.
<TABLE>
<CAPTION>
# SHARES
SUBJECT TO
BASE INITIAL
DATE OF EMPLOYMENT ANNUAL OPTION EXERCISE
NAME OF EXECUTIVE OFFICER AGREEMENT SALARY GRANT PRICE
------------------------- ------------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Dennis Murphy............... March 29, 1999 $250,000 1,462,500 $0.06
Norman Farquhar............. October 26, 1999 225,000 750,000 1.44
James Hersma................ May 26, 1999 185,000 781,250 0.06
Charles Smith............... September 26, 1998 198,000 -- N/A
Robert Witt................. May 10, 1999 185,000 500,000 0.06
</TABLE>
- - Mr. Murphy's employment agreement provides for a relocation allowance of
$80,000, reimbursement of up to $5,000 annually for disability insurance
premiums and reimbursement of attorneys fees related to the negotiation of his
employment agreement. In the event of a change of control of our company, 60%
of the shares covered by his stock options will become immediately vested and
the remaining shares vest monthly over the following year. The entire unvested
portion of Mr. Murphy's stock option will immediately vest if he is terminated
or if his duties significantly change within 12 months of a change in control.
- - Mr. Farquhar received a signing bonus of $150,000 upon entering into his
employment agreement with us. Mr. Farquhar's employment agreement also
provides that the unvested portion of Mr. Farquhar's stock option will
immediately vest if he is terminated or if his duties are significantly
changed within two years following a change of control.
- - Mr. Hersma's employment agreement provides that upon the first renewal, his
base salary will be increased to $300,000. In addition, if we terminate Mr.
Hersma without cause before his first anniversary with us or if we do not
renew his agreement for a second year, he will be entitled to receive
severance payments for 18 months. If we terminate Mr. Hersma without cause
before his second anniversary with us or if we do not renew his agreement for
a third year, he will be entitled to receive severance payments for 12 months.
Mr. Hersma may be required to relocate to San Diego, California. If he
relocates, he will be entitled to relocation expense reimbursement of up to
$130,000. In the event of a change of control, 50% of the shares covered by
his stock options will become immediately vested and the remaining shares vest
monthly over the following year. The entire unvested portion of Mr. Hersma's
stock option will immediately vest if he is terminated or if his duties are
significantly changed within one year following a change of control. We
reimbursed Mr. Hersma for legal expenses related to his negotiation of his
employment agreement.
- - Mr. Smith purchased 900,000 shares of our common stock, however the shares are
subject to a right of repurchase by us at the price paid for the shares. Our
repurchase right lapses over a 48 equal monthly vesting schedule; however, our
repurchase right will immediately and entirely lapse if within the period of
one month before or 12 months following a change of control, Mr. Smith is
terminated by us without cause or if he voluntarily terminates his employment
for good reason, as defined in his employment agreement.
- - Mr. Witt's employment agreement provides for reimbursement of up to $130,000
for his relocation to the San Diego area. In addition, the entire unvested
portion of Mr. Witt's stock option will immediately vest if he is terminated
or if his duties are significantly changed within one year following a change
of control.
62
<PAGE> 64
1999 EQUITY INCENTIVE PLAN
On March 12, 1999, our board adopted and our stockholders subsequently
approved our 1999 Equity Incentive Plan. The equity incentive plan was
subsequently amended to increase the number of authorized shares of common stock
which may be issued under the plan to 7,214,100 shares. The equity incentive
plan was suspended by our board on July 27, 1999. Consequently, we will not
grant any additional stock options under the equity incentive plan. Shares
subject to stock awards granted under the plan that have expired or otherwise
terminated without having been exercised in full will not be made available for
subsequent grants under the plan. In addition, exercised shares repurchased by
us under a right of repurchase will not again become available for grant.
Before it was suspended, the equity incentive plan permitted the grant of
options to our directors, officers, key employees and consultants as well as
consultants to or directors of our corporate parents or subsidiaries. Options
granted under the plan could be either nonstatutory stock options or incentive
stock options within the meaning of Section 422 of the Internal Revenue Code.
Incentive stock options could be granted only to employees under the plan. In
addition, the equity incentive plan permitted the grant of stock bonuses and
rights to purchase restricted stock.
According to its terms, the equity incentive plan could be administered by
the board or a committee appointed by the board. The board delegated the
authority to administer the equity incentive plan to the compensation committee
and, as administrator for non-officer stock awards, to Dennis Murphy. Subject to
the limitations set forth in the equity incentive plan, the compensation
committee and the administrator, Dennis Murphy, had the authority to select the
persons to whom award grants were to be made, to designate the number of shares
to be covered by each award, to determine whether an option was to be an
incentive stock option or a nonstatutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to applicable restrictions,
to specify other terms of awards.
The maximum term of options granted under the equity incentive plan is ten
years. Incentive stock options granted under the equity incentive plan are
non-transferable except by the laws of descent. Options expire three months
after the termination of an optionholder's service unless the participant's
option agreement provides otherwise. However, if an optionholder is permanently
disabled or dies during his or her service, that person's options may be
exercised up to 12 months following his or her disability or 18 months following
his or her death, unless his or her option agreement provides otherwise.
The exercise price of options granted under the equity incentive plan was
determined by the board, committee or administrator. The exercise price of an
incentive stock option could not be set at less than 100% of the fair market
value of the underlying common stock on the date of the grant. The exercise
price of a nonstatutory stock option could not be set at less than 85% of the
fair market value of the underlying common stock on the date of the grant.
The board, committee or administrator has the power to accelerate the
exercise date or vesting schedule of any option or stock granted under the plan.
Options granted under the equity incentive plan vest at the rate determined
by the board, committee or administrator and specified in the participant's
option agreement. The terms of any stock bonuses or restricted stock purchase
awards granted under the equity incentive plan were determined by the board,
committee or administrator. The purchase price of restricted stock under any
restricted stock purchase agreement was not to be less than 85% of the fair
market value of our common stock on the date of the grant. Stock bonuses and
restricted stock purchase agreements awarded under the equity incentive plan are
nontransferable except by will or devise.
63
<PAGE> 65
Stock bonuses granted under the plan are subject to repurchase by us upon
termination of employment or in accordance with a vesting schedule as provided
by the participant's stock award agreement. Repurchase may be effected at the
stock's full market value if the agreement so provides but in no event at less
than the original purchase price.
Upon the occurrence of a transaction resulting in a change of control of
our company, as this is defined under the equity incentive plan, the surviving
entity must either assume or substitute equivalent securities for all
outstanding stock awards. Under the plan transactions which constitute a change
in control include: a dissolution, liquidation or sale of all or substantially
all of our assets, a merger or consolidation in which we are not the surviving
entity or in which our stockholders are left holding only property other than
stock in the surviving entity, an acquisition which results in the concentration
of ownership of at least half of the voting power of our voting securities in a
person or group other than our employee benefit plan, or, after the completion
of this offering, an acquisition resulting in the replacement of at least half
of our board without the consent of at least half of the incumbent board
members. In the event the surviving entity does not assume or substitute the
stock awards, then the vesting and exercisability of outstanding awards will
accelerate fully prior to the change in control and the awards will terminate to
the extent not exercised prior to the change in control. In the event the
outstanding stock awards are assumed, and if any holder of an award is
terminated within 12 months following the transaction by the surviving company
or the holder voluntarily terminates employment under specified conditions, then
the vesting of all outstanding options and stock awards held by the holder will
accelerate and become immediately exercisable.
The Board could amend or terminate the equity incentive plan at any time.
Amendments were submitted for stockholder approval to the extent required by
applicable law.
As of March 1, 2000, we had issued and outstanding, under the equity
incentive plan, options to purchase 4,523,063 shares of our common stock. The
weighted average exercise price of these options is $0.15 per share.
1999 OMNIBUS EQUITY PLAN
On July 27, 1999, our board adopted, and on October 25, 1999 our
stockholders approved, our 1999 Omnibus Equity Plan and the authorization of a
total of 3,325,500 shares of our common stock for issuance under the omnibus
equity plan. The compensation committee of our board of directors approved, on
December 14, 1999 and March 1, 2000, increases in the number of shares of our
common stock reserved for issuance under the plan by 1,500,000 shares and
6,487,500 shares, bringing the total shares reserved to 11,313,000. Our
stockholders have not yet approved these increases. Each year upon the annual
meeting of stockholders starting in 2001, the total number of shares reserved
for issuance under the plan will increase by an amount equal to the lesser of:
(i) 2% of our outstanding capital stock, including unexercised stock options and
warrants, on such date, (ii) 1,500,000 shares or (iii) an amount set by the
board. Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for grant under the
plan, but exercised shares repurchased by us under a right of repurchase will
not again become available for grant under the plan.
The omnibus equity plan permits the grant of options to our directors,
officers, key employees and consultants as well as those of our corporate
parents or subsidiaries. Options granted under the plan may be either
nonstatutory stock options or incentive stock options within the meaning of
Section 422 of the Internal Revenue Code. Incentive stock options may only be
granted to employees. In addition, the omnibus equity plan permits the grant of
stock bonuses and rights to purchase restricted stock. No person may be granted
options to purchase more than 2,500,000 shares of common stock in any calendar
year.
64
<PAGE> 66
The omnibus equity plan is administered by the board or a committee
appointed by the board. The board has delegated the authority to administer the
omnibus equity plan to the compensation committee and for non-officer stock
awards to Dennis Murphy, as administrator. Subject to the limitations set forth
in the omnibus equity plan, the compensation committee and the administrator
have the authority to select the eligible persons to whom award grants are to be
made, to designate the number of shares to be covered by each award, to
determine whether an option is to be an incentive stock option or a nonstatutory
stock option, to establish vesting schedules, to specify the exercise price of
options and the type of consideration to be paid upon exercise and, subject to
applicable restrictions, to specify other terms of awards.
The maximum term of options granted under the omnibus equity plan is ten
years. Incentive stock options granted under the omnibus equity plan generally
are non-transferable. Nonstatutory stock options generally are nontransferable,
although the applicable option agreement may permit some transfers. Options
generally expire three months after the termination of an optionholder's
service. However, if an optionholder is permanently disabled or dies during his
or her service, that person's options generally may be exercised up to 12 months
following his or her disability or 18 months following his or her death.
The exercise price of options granted under the omnibus equity plan is
determined by the board, a committee of the board or the administrator in
accordance with the guidelines set forth in the omnibus equity plan. The
exercise price of an incentive stock option cannot be less than 100% of the fair
market value of the underlying common stock on the date of the grant. The
exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the underlying common stock on the date of grant.
Options granted under the omnibus equity plan vest at rates determined by
the Board, a committee of the Board or the administrator. The vesting schedule
of each option is specified in each option agreement. The terms of any stock
bonuses or restricted stock purchase awards granted under the omnibus equity
plan will be determined by the board, a committee of the board or the
administrator. The purchase price of restricted stock under any restricted stock
purchase agreement cannot be less than 85% of the fair market value of our
common stock on the date of grant. Stock bonuses and restricted stock purchase
agreements awarded under the omnibus equity plan are generally nontransferable
(except by will), although the applicable award agreement may permit some
transfers.
If we are acquired through the sale or lease of all or substantially all of
our assets or in a merger in which we are not the surviving entity or in which
our stockholders are left holding only property other than our stock, the
surviving entity must either assume, or substitute similar securities for all
outstanding options and other stock awards under the plan. In the event the
surviving entity does not assume or substitute for these securities, then the
vesting of outstanding options and stock awards will accelerate fully prior to
the transaction and the options and stock awards will terminate to the extent
not exercised prior to the closing of the transaction. Additionally, if
securities representing at least half of our voting power are acquired by a
person, entity or group other than our employee benefit plan, or if at least
half of our board is replaced by directors who are not approved by a majority of
the current board then the vesting and exercisability of outstanding options and
other stock awards held by currently eligible participants will accelerate
fully.
The board may amend or terminate the omnibus equity plan at any time.
Amendments will be submitted for stockholder approval to the extent required by
applicable law.
As of March 1, 2000, we had issued and outstanding under the omnibus equity
plan options to purchase 6,588,932 shares of our common stock. The weighted
average exercise price of these options is $5.33 per share.
65
<PAGE> 67
EMPLOYEE STOCK PURCHASE PLAN
Effective upon the completion of this offering, we will implement an
employee stock purchase plan. A total of 1,250,000 shares of common stock have
been reserved for issuance under this purchase plan. Each year upon the annual
meeting of stockholders, the number of shares reserved for issuance under the
purchase plan will automatically be increased by 500,000 shares or a lesser
amount determined by the board. The purchase plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. Under the purchase plan, the board of directors or a committee
comprised of one or more members of the board of directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the purchase plan. The initial offering under the
purchase plan will commence on the effective date of this offering and terminate
on January 31, 2002.
Unless otherwise determined by the board of directors, employees are
eligible to participate in the purchase plan only if they are customarily
employed by us or one of our subsidiaries designated by the board of directors
for at least 20 hours per week and at least five months per calendar year.
Employees who participate in an offering may have up to 15% of their eligible
earnings withheld under the purchase plan. The amount withheld is then used to
purchase shares of the common stock on specified dates determined by the board
of directors. The price of common stock purchased under the purchase plan will
be equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in an offering at any time during that
offering, and their participation will end automatically on termination of their
employment with us or one of our affiliates.
In the event of a merger, reorganization, consolidation or liquidation that
involves us, the board of directors has discretion to provide that each right to
purchase common stock will be assumed or an equivalent right substituted by the
successor corporation or the board of directors may provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to a merger or other transaction. The board of directors has the authority
to amend or terminate the purchase plan.
401(k) PLAN
In October 1999, the board of directors adopted the medibuy.com, Inc.
401(k) plan covering our employees who are at least 21 years of age and have at
least one month of service with us. Eligible employees may make pre-tax
contributions to the 401(k) plan of up to 20% of their eligible earnings,
subject to a statutorily determined annual limit. Each participant is fully
vested in his or her deferred salary contributions. Participant contributions
are held and invested by the 401(k) plan's trustee. In addition, eligible
employees may make roll-over contributions to the 401(k) plan from a
tax-qualified retirement plan. The 401(k) plan allows us to make discretionary
matching contributions to a participant's account.
In July 1997, PartNET's board of directors adopted the PartNET, Inc. 401(k)
plan covering employees of PartNET who are at least 21 years of age. This 401(k)
plan was assumed by us in connection with our acquisition of PartNET. Eligible
employees may make pre-tax contributions to the 401(k) plan of up to 15% of
their eligible earnings, subject to a statutorily determined annual limit. Each
participant is fully vested in his or her deferred salary contributions.
Participant contributions are held and invested by the 401(k) plan's trustee. In
addition, eligible employees may make roll-over contributions to the 401(k) plan
from a tax-qualified retirement plan. The 401(k) plan allows us to make
discretionary matching contributions to a participant's account.
The 401(k) plans are intended to qualify under Section 401 of the Internal
Revenue Code so that contributions by us or plan participants to the 401(k) plan
and income earned on the
66
<PAGE> 68
401(k) plan contributions, are not taxable to employees until withdrawn from the
plan, and so that our contributions, if any, will be deductible by us when made.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. In addition, our bylaws require us to
indemnify our directors and officers, and allow us to indemnify our other
employees and agents, to the fullest extent permitted by law. We have also
entered into agreements to indemnify some of our directors and executive
officers. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and executive officers. At present, there
is no pending litigation or proceeding involving any director, officer, employee
or agent where indemnification will be required or permitted. We are not aware
of any threatened litigation or proceeding that might result in a claim for such
indemnification. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
our company under the foregoing provisions, we have been informed that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
67
<PAGE> 69
RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements which are
described in "Management," and the transactions described below, since our
inception in August 1998, there has not been, nor is there currently proposed,
any transaction or series of similar transactions with related parties to which
we were or will be a party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest. (The
table and information below identifies transactions with holders who held
more than 5% of our common stock prior to the acquisition of Premier
Health Exchange LLC and holders who hold more than 5% of our common stock
following the acquisition.)
FINANCING TRANSACTIONS
Purchases of our preferred and common stock include, among others, the
following of our executive officers, directors and holders of more than 5% of
our outstanding stock:
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON ---------------------------------------------------------------- ASSUMED
PURCHASER STOCK SERIES A SERIES B SERIES C SERIES D SERIES E VALUE(3)
--------- ---------- ---------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Dennis Murphy................... 100,000 -- -- -- -- -- $ 1,100,000
Charles Smith................... 900,000 -- -- -- -- -- 9,900,000
John H. Stevens................. 1,000,000 -- -- 62,500 -- -- 12,718,750
Douglas Allred.................. -- -- -- -- 20,000 -- 550,000
Don R. Brown.................... 1,159,968 -- -- -- -- -- 12,759,648
ENTITIES AFFILIATED WITH
DIRECTORS
Entity affiliated with Kleiner,
Perkins, Caulfield & Byers..... -- -- -- 2,722,222 165,429 -- 79,410,403
Entities affiliated with Oak
Investment Partners(1)......... -- -- -- 833,333 413,565 243,248 40,979,015
Entities affiliated with Sequoia
Capital........................ -- -- -- 826,388 827,129 243,248 52,161,038
Premier Purchasing Partners,
L.P. .......................... 50,000,000 -- -- -- -- -- 550,000,000
ENTITIES AFFILIATED WITH 5%
HOLDERS
Acorn Technology Fund, L.P.(1).. -- -- 133,333 -- 82,713 48,686 40,280,048
Entities affiliated with Allianz
Capital Partners, GmbH(1)...... -- -- -- -- 49,442 1,188,035 34,030,618
Entities affiliated with
MeriTech Capital Partners(1)... -- -- -- -- 50,654 1,217,138 34,864,280
Entity affiliated with Ridgewood
Capital........................ 82,413 -- 200,000 -- 248,139 -- 62,730,366
Price per share................. $ --(2) $10.00 $15.00 $3.60 $12.09 $20.54
Dates of acquisition............ 9/98 - 3/00 9/98 - 1/99 3/99 6/99 8/99 - 12/99 12/99 - 1/00
</TABLE>
- ---------------
(1) Following our acquisition of Premier Health Exchange, holds less than 5% of
our common stock on an as-converted basis.
(2) Shares purchased by Mr. Murphy were at $0.12 per share, shares purchased by
Mr. Smith were at $0.004 per share, and shares issued to Dr. Stevens, Mr.
Brown, Ridgewood Capital and Premier Purchasing Partners were in connection
with transactions described below.
(3) Aggregate value of shares for holder based upon an assumed offering price of
$11.00 per share on an as-converted to common stock basis.
The shares held by Mr. Smith are subject to repurchase by us if Mr. Smith's
employment terminates for any reason other than a change in control of our
company. The number of shares subject to repurchase decreases ratably over a
four-year period from the purchase date.
68
<PAGE> 70
On March 5, 1999, we entered into a Consulting Agreement with Ridgewood
Capital Management, LLC. As part of this agreement, Ridgewood Capital was issued
82,413 shares of common stock as part of this agreement in exchange for
providing us with financial management services. These services were extended
and we issued Ridgewood Capital stock options to purchase 34,823 shares of
common stock at a weighted average exercise price of $2.07 per share.
The shares of common stock were issued to Dr. John Stevens in June 1999, in
exchange for all of the outstanding capital stock of hippo.com, Inc., a Delaware
corporation founded by Dr. Stevens. We have the right to repurchase up to
590,000 shares of the common stock issued to Dr. Stevens until June 2002 if Dr.
Stevens' services as a member of our Board of Directors cease for any reason.
The shares subject to repurchase decrease ratably over a three-year period. The
remaining shares have been accounted for as stock-based compensation to Dr.
Stevens because hippo.com was not considered a business and had minimal assets.
Under an Amended and Restated Investors' Rights Agreement dated June 11,
1999 among us and several of our investors, the investors have registration
rights for shares of common stock held by them. The investors who are parties to
the agreement include John H. Stevens, one of our directors, and the funds that
are affiliated with Sequoia Capital, Kleiner Perkins Caulfield & Byers, Oak
Investment Partners, and Ridgewood Capital. See "Description of Capital
Stock -- Registration Rights" for a more complete description of these
registration rights.
In connection with the sale and issuance of our Series C preferred stock in
June 1999, we entered into a call option agreement with some of our
stockholders, including some of the investors who purchased our Series B and
Series C preferred stock. In August 1999, we exercised our right to sell our
Series D preferred stock under that agreement following our achievement of
specified milestones under the agreement. The sale of the Series D stock is
described in the table above.
In connection with our November 1999 acquisition of PartNET, Inc., we
issued Don R. Brown, President of PartNET, 1,159,968 shares of our common stock
in exchange for his shares of PartNET. We also entered into an employment
agreement with Mr. Brown and granted him an incentive stock option to purchase
250,000 shares of our common stock. The stock option vests over four years and
has an exercise price of $4.35 per share.
In addition, Mr. Brown owns a minority interest in Paradigm Resources,
L.C., the owner of the property leased by PartNET. The lease expires in January
2004, and has a base monthly rent of approximately $8,300. In March 2000, this
office space under this lease was expanded, the monthly rent increased to
$17,550 and the expiration date extended to March 31, 2004.
In January 2000, we entered into a Strategic Relationship Agreement with
Allianz Capital Partners in connection with the development of our European
marketplace. In connection with that agreement, we granted Allianz Capital
Partners a warrant to purchase 387,133 shares of our common stock at an exercise
price of $.12 per share. The warrant will become exercisable upon the
effectiveness of this offering.
In connection with our acquisition of Premier Health Exchange, we will be
issuing to Premier Purchasing Partners 50,000,000 shares of our common stock in
exchange for its ownership interest in Premier Health Exchange and we will issue
to Premier Purchasing Partners a warrant to purchase 11,162,901 shares of our
common stock. Premier Health Exchange is a party to a ten-year e-commerce
outsourcing agreement with Premier Purchasing Partners. Under the agreement, we
will be the exclusive e-commerce marketplace that Premier will offer to its
members for a scheduled six-year term and Premier will pay us a total of $159
million over the six-year exclusivity period for providing integration and
maintenance services. See "Business -- Strategic Relationships" for a further
description of the terms of the e-commerce outsourcing agreement.
69
<PAGE> 71
In March 2000, Premier Health Exchange and Premier, Inc. entered into a
Premier Support Agreement. The agreement has a term of ten years and is
renewable for successive five-year periods, but will be terminated if the
e-commerce outsourcing agreement is terminated. Under the agreement, Premier
will provide us with services and support, including opportunity identification,
analysis, business development and management. In consideration for these
services, we have agreed to pay Premier support fees based upon a percent of the
purchases by Premier members related to these services or actual costs related
to the Premier services. We have also agreed to pay Premier an aggregate of
$20.0 million over the ten-year term of the agreement for management services
provided to us under the agreement. The agreement provides for additional
payments based upon milestones related to the introduction and integration of
our e-commerce marketplace to Premier members.
In connection with our acquisition of Premier Health Exchange, Premier
Purchasing Partners will enter into a Lock-Up and Registration Rights Agreement.
Under the agreement, we will grant Premier registration rights pertaining to the
shares of our common stock that it will receive and will be entitled to purchase
in connection with our acquisition of Premier Health Exchange. In addition,
under the agreement, Premier will be restricted from transferring our shares for
a period of at least one year following this offering. However, the restriction
on transfer will not apply to shares registered under Premier's registration
rights. See "Description of Capital Stock -- Registration Rights" for a
description of these registration rights. Under the agreement, Premier
Purchasing Partners will also agree that for two years following the closing of
this offering, it will not, except in limited situations, acquire any additional
shares of our securities or assets or initiate any proxy solicitation or tender
offer for our securities. Further, in March 2000 we entered into a Voting
Agreement with Premier Purchasing Partners under which Premier Purchasing
Partners will be required to vote all of its ownership interests in Premier
Health Exchange in favor of the acquisition and against transactions that would
adversely affect the acquisition.
70
<PAGE> 72
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 1, 2000, adjusted for our acquisition
of Premier Health Exchange LLC and the conversion of our preferred stock, and,
following the sale of shares in this offering, by
- - each person who is known by us to own beneficially more than 5% of our
outstanding common stock
- - each named executive officer
- - each of our directors
- - all of our current directors and executive officers as a group
Except as indicated below, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable.
Unless otherwise indicated, the address for each stockholder is c/o medibuy.com,
Inc., 10120 Pacific Heights Boulevard, San Diego, California 92121. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Percentage of
beneficial ownership is based on 101,404,743 pro forma shares of common stock
outstanding as of March 1, 2000 increased by an additional 13,000,000 shares of
common stock to be outstanding after completion of this offering.
The table assumes no exercise of the underwriters' over-allotment option.
If the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of 14,950,000 shares of our common stock, and up to 116,354,743
shares of common stock will be outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
OUTSTANDING
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Richard Norling and
Premier Purchasing Partners, L.P.(1)....................... 50,000,000 49.3% 43.7%
12225 El Camino Real
San Diego, CA 92130
Brook H. Byers and
Kleiner Perkins Caulfield & Byers(2)....................... 7,219,128 7.1 6.3
2750 Sand Hill Road
Menlo Park, Ca 94025
Mark A. Stevens and Sequoia Capital(3)..................... 5,419,238 5.3 4.7
3000 Sand Hill Road, Bldg. 4, Suite 280
Menlo Park, CA 94025
Ann H. Lamont and Oak Investment Partners(4)............... 4,402,690 4.3 3.8
1 Gorham Island
Westport, CT 06880
Ridgewood Capital Management, LLC(5)....................... 5,737,583 5.7 5.0
947 Linwood Avenue
Ridgewood, NJ 07450
Acorn Technology Fund L.P.(6).............................. 3,661,823 3.6 3.2
5 Vaughn Drive
Princeton, NJ 08540
</TABLE>
71
<PAGE> 73
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
OUTSTANDING
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
MeriTech Capital Partners(7)............................... 3,169,480 3.1 2.8
90 Middlefield Road, Suite 201
Menlo Park, CA 94025
Allianz Capital Partners, Gmbh(8).......................... 3,480,825 3.4 3.0
Theresienstrase 1-5
80333 Munich, Germany
Douglas C. Allred(9)....................................... 87,500 0.1 0.1
Dennis J. Murphy(10)....................................... 749,168 0.7 0.7
James L. Hersma(11)........................................ 403,125 0.4 0.4
Charles R. Smith........................................... 787,500 0.8 0.7
Norman R. Farquhar(12)..................................... 172,500 0.2 0.2
Robert B. Witt(13)......................................... 65,000 0.1 0.1
Don R. Brown............................................... 1,159,968 1.1 1.0
John H. Stevens, M.D.(14).................................. 1,156,250 1.1 1.0
All executive officers and directors as a group
(12 persons)(15)......................................... 71,622,065 69.9 62.0
</TABLE>
- ---------------
(1) Includes 50,000,000 shares of common stock owned by Premier Purchasing
Partners, L.P., a wholly-owned entity of Premier, Inc. Mr. Norling serves on
the board of directors of Premier, Inc.
(2) Includes:
- 7,219,128 shares of common stock issuable upon conversion of our Series C
and Series D preferred stock held by KPCB Holdings, Inc.
- Mr. Byers is a partner of KPCB Holdings, and shares investment and voting
power over these shares with the other managing members or general
partners of the fund, none of whom are affiliated with us. Mr. Byers
disclaims beneficial ownership of those shares except to the extent of
this pecuniary interest in the fund.
(3) Includes:
- 1,872,387 shares of common stock issuable upon conversion of our Series C
preferred stock and 613,453 shares of common stock held by Sequoia
Capital VIII, which represents 2.5% and 2.2%, respectively, of the total
number of shares outstanding before and after this offering.
- 23,760 shares of common stock issuable upon conversion of our Series C
preferred stock and 7,785 shares of common stock held by Sequoia
International Technology Partners VIII, which represents less than 0.1%
of the total number of shares outstanding before and after this offering.
- 123,958 shares of common stock issuable upon conversion of our Series C
preferred stock and 40,613 shares of common stock held by Sequoia
International Technology Partners VIII (Q), which represents 0.2% and
0.1%, respectively, of the total number of shares outstanding before and
after this offering.
- 41,320 shares of common stock issuable upon conversion of our Series C
preferred stock and 13,538 shares of common stock held by CMS Partners
LLC, which represents 0.1% and less than 0.1%, respectively, of the total
number of shares outstanding before and after this offering.
72
<PAGE> 74
- 4,545 shares of common stock issuable upon conversion of our Series C
preferred stock and 1,488 shares of common stock held by Sequoia 1997,
which represents less than 0.1% of the total number of shares outstanding
before and after this offering.
- 279,810 shares of common stock issuable upon conversion of our Series D
and Series E preferred stock held by Sequoia Capital Franchise Partners,
which represents 0.3% and 0.2%, respectively, of the total number of
shares outstanding before and after this offering.
- 2,396,583 shares of common stock issuable upon conversion of our Series D
and Series E preferred stock held by Sequoia Capital Franchise Fund,
which represents 2.4% and 2.1%, respectively, of the total number of
shares outstanding before and after this offering.
- Mark A. Stevens is a managing member of the general partner, or a
partner, of each of the above-listed investment funds, and shares
investment and voting power over these shares with the other managing
members or general partners of these funds, none of whom are affiliated
with us. Mr. Stevens disclaims beneficial ownership of those shares
except to the extent of his pecuniary interest in those funds.
(4) Includes:
- 3,655,025 shares of common stock issuable upon conversion of our Series
C, Series D and Series E preferred stock and 664,015 shares of common
stock held by Oak Investment Partners VIII, L.P., which represents 4.3%
and 3.8%, respectively, of the total number of shares outstanding before
and after this offering.
- 70,790 shares of common stock issuable upon conversion of our Series C,
Series D and Series E preferred stock and 12,860 shares of common stock
held by Oak VIII Affiliates Fund, L.P., which represents 0.1% and 0.1%,
respectively, of the total number of shares outstanding before and after
this offering.
- Ann H. Lamont is a managing member of the general partner of each of the
above-listed investment funds, and shares investment and voting power
over these shares with the other managing members of the general partners
of these funds, none of whom are affiliated with us. Ms. Lamont disclaims
beneficial ownership of those shares except to the extent of her
pecuniary interest in the funds.
(5) Includes 5,620,348 shares of common stock issuable upon conversion of our
Series B preferred stock and Series D preferred stock held by Ridgewood
Medibuy LLC and 117,235 shares of common stock and options exercisable
within 60 days of March 1, 2000 held by Ridgewood Capital Management LLC.
Ridgewood Capital Management LLC is an affiliate of Ridgewood Medibuy LLC.
(6) Includes 3,661,823 shares of common stock issuable upon conversion of our
Series B, Series D and Series E preferred stock.
(7) Includes:
- 3,118,770 shares of common stock issuable upon conversion of our Series D
and Series E preferred stock held by MeriTech Capital Partners, LP, which
represents 3.1% and 2.7%, respectively, of the total number of shares
outstanding before and after this offering.
- 50,710 shares of common stock issuable upon conversion of our Series D
and Series E preferred stock held by Meritech Capital Affiliates, LP,
which represents 0.1% and less than 0.1%, respectively, of the total
number of shares outstanding before and after this offering.
73
<PAGE> 75
(8) 3,093,692 shares of common stock issuable upon conversion of our Series D
and Series E preferred stock and a warrant to purchase 387,133 shares of
common stock which becomes exercisable effective upon this offering.
(9) Includes 75,000 shares of common stock issuable upon conversion of our
Series B preferred stock and Series D preferred stock held by the Allred
Family Trust dated March 23, 1995, Douglas Allred and Loretta Allred
Trustees. Mr. Allred disclaims beneficial ownership of these shares except
to the extent of his pecuniary interest in the trust. Also includes 12,500
shares subject to options exercisable within 60 days of March 1, 2000.
(10) Includes 78,750 shares of common stock held by Dennis Murphy and Veronica
Murphy, Trustees of the Murphy 1999 Trust No. 1 dated October 25, 1999 and
78,750 shares of common stock held by Dennis Murphy and Veronica Murphy,
Trustees of the Murphy 1999 Trust No. 2 dated October 25, 1999. Mr. Murphy
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in the trusts. Also includes 591,668 shares subject to
options exercisable within 60 days of March 1, 2000.
(11) Includes 207,813 shares subject to options exercisable within 60 days of
March 1, 2000.
(12) Includes 172,500 shares subject to options exercisable within 60 days of
March 1, 2000.
(13) Includes 65,000 shares subject to options exercisable within 60 days of
March 1, 2000.
(14) Includes 156,250 shares of common stock issuable upon conversion of our
Series C preferred stock.
(15) Includes shares and options listed in footnotes (1) through (4) and (9)
through (14).
DESCRIPTION OF CAPITAL STOCK
Upon this offering, we will be authorized to issue 300,000,000 shares of
common stock, $0.001 par value, and 15,000,000 shares of preferred stock, $0.001
par value. The following description of our capital stock is qualified in all
respects by reference to our amended and restated certificate of incorporation,
which has been filed as an exhibit to the registration statement incorporating
this prospectus.
COMMON STOCK
At March 1, 2000, there were 15,920,810 shares of common stock outstanding,
which were held of record by 63 stockholders. The holders of outstanding common
stock are entitled to receive dividends out of assets legally available
therefore at times and in amounts as our board of directors may, from time to
time, determine, subject to any preferences which may be granted to the holders
of preferred stock. Holders of common stock are entitled to one vote per share
on all matters on which the holders of common stock are entitled to vote. The
common stock is not entitled to preemptive rights and is not subject to
redemption or conversion. Upon our liquidation, dissolution or winding-up, the
assets (if any) legally available for distribution to stockholders are
distributable ratably among the holders of the common stock after payment of all
our debt and liabilities and the liquidation preference of any outstanding class
or series of preferred stock, and the shares of common stock to be issued under
this offering will be, when issued and delivered, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our preferred
stock will be converted into 35,483,933 shares of common stock. See our
financial statements for a description of our currently outstanding preferred
stock. After this offering, preferred stock may be issued from time to time in
one or more series, and our board of directors, without action by the holders of
the common stock, may fix or alter the voting rights, redemption provisions
(including sinking fund provisions), dividend rights, dividend rates,
liquidation preferences,
74
<PAGE> 76
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of preferred stock. Our board of directors,
without stockholder approval, can issue shares of preferred stock with rights
that could adversely affect the rights of holders of common stock. No shares of
preferred stock will be outstanding upon the closing of this offering and we
have no present plans to issue any preferred stock shares. The issuance of
preferred stock could adversely affect the voting power of holders of common
stock and could have the effect of delaying, deferring or preventing a change in
control or other corporate action.
WARRANTS
In January 2000, we issued to Allianz Capital Partners and an individual in
connection with a strategic relationship agreement, warrants to purchase an
aggregate of 474,960 shares of our common stock at an exercise price of $0.12
per share. These warrants will become exercisable effective upon this offering.
These warrants will expire on the second anniversary of the date of grant, or
earlier in connection with a reorganization transaction or if the average daily
closing price of our stock over a 60 trading day period equals or exceeds $16.43
per share. The exercise price and number of shares issuable upon exercise of the
warrant are automatically adjusted for any stock split, stock combination or
reclassification of our stock.
In March 2000, we issued to drugstore.com a two-year warrant to purchase an
aggregate of 500,000 shares of our common stock at an exercise price of $.004
per share. This warrant was immediately exercisable. The exercise price and
number of shares issuable upon exercise of the warrant are automatically
adjusted in the event of any stock split, stock combination, reclassification of
stock or specified form of reorganization transaction. In addition, we agreed to
issue to drugstore.com an 18-month warrant to purchase 200,000 shares of common
stock upon the effectiveness of this offering. The warrant will be immediately
exercisable and will have an exercise price of $0.01 per share.
In connection with our acquisition of Premier Health Exchange, we will
issue warrants to purchase an aggregate of 11,162,901 shares of our common
stock.
Our board of directors has approved a Strategic Warrant Program in
connection with our strategic relationships. Under the program, we have reserved
an aggregate of 13,925,000 shares for issuance upon the exercise of warrants
issued in connection with our strategic relationships. Warrants issued under the
program will generally include the following terms:
- Exercise price of $.01 per share.
- Time-based or performance-based exercisability, normally over a
three-year period.
- Exercisability terms of up to five years from the date of issuance.
Our board of directors will have discretion to modify the terms of any
warrant granted under the program or issue additional warrants in the future.
REGISTRATION RIGHTS
Under our Second Amended and Restated Investor Rights Agreement dated
January 7, 2000 between us and several of our investors, the investors, holding
an aggregate of 33,781,433 shares of our common stock issued or issuable upon
conversion of our preferred stock, have registration rights pertaining to the
securities they hold. These investors may only exercise these rights after 180
days following this offering, however, if we propose to register any of our
securities under the Securities Act for our own account or the account of any of
our stockholders other than these holders of registrable shares, holders of the
registrable shares are entitled, subject to specified limitations and
conditions, to notice of the registration and are, subject to specified
conditions and limitations, entitled to include registrable shares in the
offering, provided, among other conditions, that the underwriters of the
offering have the right to
75
<PAGE> 77
limit the number of shares included in the registration. In addition, we may be
required to prepare and file a registration statement under the Securities Act
at our expense if requested to do so by the holders of at least 30% in interest
of the registrable shares. We are required to use our best efforts to effect the
registration, subject to specified conditions and limitations. We are not
obligated to effect more than two stockholder-initiated registrations. Further,
holders of registrable securities may require us to file additional registration
statements on Form S-3, subject to conditions and limitations. We are required
to bear substantially all costs incurred in connection with those registrations,
other than underwriting discounts and commissions. The foregoing registration
rights could result in substantial future expenses for us and adversely affect
any future equity or debt offerings.
Other investors holding an aggregate of 1,702,500 shares of our common
stock issued or issuable upon conversion of our Series A preferred stock have
registration rights under their subscription agreements for their purchase of
our stock. These rights are similar to those registration rights granted to the
other investors as described above, however, these investors do not have the
right to require us to prepare and file a registration statement under the
Securities Act unless the registration statement is on Form S-3 and we are
eligible to use that form.
In connection with our acquisition of Premier Health Exchange, we will
enter into a Lock-Up and Registration Rights Agreement with Premier Purchasing
Partners. Under the agreement, Premier will have registration rights pertaining
to the shares of common stock it will receive in the acquisition and the shares
of common stock it may purchase upon exercise of warrants we will issue to
Premier in connection with the acquisition. After 180 days following this
offering and if we propose to register any of our securities under the
Securities Act of our own account or the account of any of our stockholders
other than Premier Purchasing Partners, Premier Purchasing Partners is entitled
to include shares in the offering. However, the underwriters of the offering
will have the right to limit the number of their shares included in the
registration. In addition, Premier may require us to file additional
registration statements on Form S-3 subject to conditions and limitations. We
are required to bear substantially all costs incurred in connection with those
registrations, other than underwriting discounts and commissions. The foregoing
registration rights could result in substantial future expenses for us and
adversely affect any future equity or debt offerings.
POSSIBLE ANTI-TAKEOVER MATTERS
CERTIFICATE OF INCORPORATION AND BYLAWS
Our amended and restated certificate of incorporation authorizes our board
of directors to establish one or more series of undesignated preferred stock,
the terms of which can be determined by the board of directors at the time of
issuance. See "-- preferred stock" for a description of our preferred stock. Our
amended and restated certificate of incorporation also provides that all
stockholder action must be effected at a duly called meeting of stockholders and
not by a consent in writing. Our bylaws provide that our board of directors will
be classified into three classes of directors. Please see "Management -- Board
Composition" for a list of our directors and the class to which they belong. Our
bylaws also require that stockholders give advance notice to our secretary of
any nominations for director or other business to be brought by stockholders at
any stockholders' meeting and require a supermajority vote of members of our
board of directors and/or stockholders to amend some bylaw provisions. These
provisions of our amended and restated certificate of incorporation and our
bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control. These provisions may also have the effect of
preventing changes in our management.
76
<PAGE> 78
DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
which, subject to specified exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder -- defined
as any person or entity that is the beneficial owner of at least 15% of a
corporation's voting stock -- for a period of three years following the time
that the stockholder became an interested stockholder, unless:
- - prior to that time, the corporation's board of directors approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder
- - upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the corporation's voting stock outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned by persons who are directors and also officers
and by 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
- - at or subsequent to that time, the business combination is approved by the
corporation's board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote
of at least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder
Section 203 defines business combination to include:
- - any merger or consolidation involving the corporation and the interested
stockholder
- - any sale, lease, exchange, mortgage, transfer, pledge or other disposition
involving the interested stockholder and 10% or more of the assets of the
corporation
- - subject to specified exceptions, any transaction which results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder
- - any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class of series of the corporation
beneficially owned by the interested stockholder
- - the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation
NASDAQ NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "MBUY".
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
77
<PAGE> 79
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of contractual and legal restrictions on resale described
below, sales of substantial amounts of common stock in the public market after
the restrictions lapse could adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 114,404,743
shares of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, the 13,000,000 shares sold in this offering will
generally be freely tradable without restriction or further registration under
the Securities Act. Of the remaining 101,404,743 shares, subject to the volume
and other restrictions of Rule 144 (including the requirement that we have been
subject to the reporting requirements under the Securities Exchange Act of 1934
for 90 days prior to sale), the shares of common stock may be sold in the public
market upon release under lock-up agreements in the amounts and on the dates set
forth below:
<TABLE>
<CAPTION>
Released
Shares
----------
<S> <C>
Third business day following the date we release
our earnings for the quarter ending March 31,
2000..........................................
Third business day following the date we release
our earnings for the quarter ending June 30,
2000..........................................
The date 180 days after the date of this
prospectus....................................
</TABLE>
Of the remaining 72,865,597 shares: (1) 50,000,000 shares owned by Premier
Purchasing Partners will become eligible for sale one year from the completion
of this offering, (2) 22,865,597 shares will become eligible for sale under Rule
144 upon the expiration of holding periods of one to two years.
An aggregate of 15,099,960 shares of our common stock are reserved for
issuance upon exercise of warrants that are currently outstanding or are
expected to be issued in connection with our strategic relationships in the
future. An aggregate of 12,347,333 shares are exercisable under outstanding
options. In addition, we will be issuing options and warrants to purchase an
aggregate of 14,288,602 shares of common stock in connection with our
acquisition of Premier Health Exchange. Additional shares could become issuable
as outstanding warrants and options vest and new warrants are issued. The public
resale of our shares issued upon exercise of our options and warrants will be
subject to lock-up restrictions generally equivalent to the lock-up agreements
described above and are subject to the volume and other restrictions of Rule
144.
In general, under Rule 144 as currently in effect, our affiliates, or
persons (or persons whose shares are aggregated) who have beneficially owned
restricted shares for at least one year will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of
- - one percent of the then outstanding shares of our common stock or
- - the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the SEC
Sales under Rule 144 are subject to requirements relating to manner of
sale, notice, and the availability of current public information about us. A
person (or persons whose shares are
78
<PAGE> 80
aggregated) who is not deemed to have been an affiliate of ours at any time
during the 90 days immediately preceding the sale and who has beneficially owned
restricted shares for at least two years is entitled to sell those shares under
Rule 144(k) without regard to the limitations described above.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 of the Securities Act, as currently in effect, may be
relied upon with respect to the resales of securities originally purchased from
us by our employees, directors, officers, consultants or advisers prior to the
date we become subject to the reporting requirements of the Securities Exchange
Act, under written compensatory benefit plans or written contracts relating to
the compensation of those persons. In addition, the SEC has indicated that Rule
701 will apply to typical stock options granted by an issuer before it becomes
subject to the reporting requirements of the Exchange Act, along with the shares
acquired upon exercise of the options (including exercises after the date of
this prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than affiliates subject only to the manner of sale provisions of Rule 144
and by affiliates under Rule 144 without compliance with its minimum holding
period requirements.
Shortly after this offering, we may also file a registration statement
under the Securities Act covering shares of common stock reserved for issuance
under our equity incentive plan, our omnibus equity plan, or non-employee
directors' stock option plan and our employee stock purchase plan. The
registration statement will cover approximately 18,696,400 shares. Shares
registered under this registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless the shares are subject to the lock-up agreements described above.
79
<PAGE> 81
UNDERWRITING
medibuy.com and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Thomas Weisel Partners LLC and
SoundView Technology Group, Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
Goldman, Sachs & Co.........................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
SoundView Technology Group, Inc. ...........................
----------
Total.................................................. 13,000,000
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,950,000 shares from medibuy.com to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by medibuy.com. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase 1,950,000 additional shares.
<TABLE>
<CAPTION>
Paid by medibuy.com
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
The following table shows other underwriting compensation deemed to be paid
by medibuy.com and received by certain underwriters. The amount shown is in
addition to the underwriting discounts and commissions shown in the table above.
This additional amount reflects the purchase by these underwriters of Series D
and Series E preferred stock as described in greater detail below. The National
Association of Securities Dealers, or NASD, considers these amounts to be
underwriting compensation for purposes of the NASD's rules of fair practice.
<TABLE>
<CAPTION>
Paid by medibuy.com
-------------------
<S> <C>
Other underwriting compensation............................. $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
medibuy.com and its directors and officers and stockholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180 days
after the date of this prospectus, except as permitted by
80
<PAGE> 82
the lock-up agreements at various dates prior to the end of the 180-day lock-up
period, and except with the prior written consent of the representatives. See
"Shares Eligible for Future Sale" for a discussion of these provisions and other
transfer restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among medibuy.com and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be medibuy.com's historical performance, estimates of the
business potential and earnings prospects of medibuy.com, an assessment of
medibuy.com's management and the consideration of the above factors in relation
to market valuation of companies in related businesses. The underwriting
discounts and commissions will be determined by negotiation between medibuy.com
and the representatives when they negotiate the public offering price.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "MBUY".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
this offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The underwriters have reserved for sale, at the initial public offering
price, approximately 650,000 shares of the common stock offered hereby for
individuals designated by medibuy.com who have expressed an interest in
purchasing such shares of common stock in this offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same basis as other
shares offered hereby.
medibuy.com estimates that its share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1,450,000.
medibuy.com has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
In December 1999, each of Goldman, Sachs & Co., Donaldson Lufkin & Jenrette
Securities Corporation and Thomas Weisel Partners LLC purchased 41,357 shares of
medibuy.com's Series D preferred stock in a private placement. The aggregate
purchase price for the Series D shares purchased by the representatives was
$1,500,018. In addition, in December 1999, these
81
<PAGE> 83
three representatives of the underwriters purchased shares of medibuy.com's
Series E preferred stock in a private placement in the following amounts:
<TABLE>
<S> <C>
Goldman, Sachs & Co......................................... 24,343 shares
Donaldson, Lufkin & Jenrette Securities Corporation......... 48,686 shares
Thomas Weisel Partners LLC.................................. 24,343 shares
</TABLE>
The aggregate purchase price for the Series E shares purchased by the
representatives was $2,000,021. Based on our assumed stock split, each of the
shares of Series D and Series E preferred stock purchased is convertible into
two and one-half shares of medibuy.com common stock immediately prior to the
closing of this offering.
Goldman, Sachs & Co. acted as financial advisor to both medibuy.com and
Premier Health Exchange LLC in connection with medibuy.com's acquisition of
Premier Health Exchange, and will receive customary fees upon the closing of the
acquisition.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 135
filed public offerings of equity securities, of which 101 have been completed,
and has acted as a syndicate member in an additional 73 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or other controlling
persons, except for its contractual relationship with us under the terms of the
underwriting agreement entered into in connection with this offering and the
purchase of Series D and Series E preferred stock of medibuy.com as described
above.
A prospectus in electronic format will be made available on the Web sites
maintained by one or more of the lead managers of this offering and may also be
made available on Web sites maintained by other underwriters. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to underwriters that may make Internet distributions on the
same basis as other allocations.
VALIDITY OF COMMON STOCK
Cooley Godward LLP, San Diego, California and Sullivan & Cromwell, Los
Angeles, California, will pass on the validity of the shares of common stock
offered by this prospectus for us and for the underwriters, respectively.
Attorneys at Cooley Godward LLP are the beneficial owners, through an investment
partnership, of 8,271 shares of our Series D preferred stock which, based on our
assumed stock split, are convertible into 20,678 shares of our common stock.
EXPERTS
The consolidated financial statements of medibuy.com, Inc. as of December
31, 1998 and 1999 and for the period from August 18, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999, and the financial
statements of PartNET, Inc. as of December 31, 1997 and 1998 and for each of the
two years in the period ended December 31, 1998, included in this prospectus
have been so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Premier Health Exchange, LLC (a development
stage company) as of December 31, 1998, December 31, 1999 and February 29, 2000
and for the period from September 16, 1998 (inception) to December 31, 1998, the
year ended December 31, 1999, the
82
<PAGE> 84
two months ended February 29, 2000, and for the period from September 16, 1998
(inception) to February 29, 2000 appearing in this prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form S-1 under the Securities Act of 1933,
with respect to the common stock offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration statement
and the exhibits and schedules to the registration statement. For further
information with respect to us and our common stock, reference is made to the
registration statement and the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus as to the
contents of any contract or document filed as an exhibit to the registration
statement are qualified by reference to the applicable exhibit as filed.
A copy of the registration statement, and the exhibits and schedules to the
registration statement, as well as reports and other information filed by us
with the SEC may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and copies of all or
any part of the registration statement may be obtained from those offices upon
the payment of the fees prescribed by the SEC. You can obtain information about
the operation of the public reference facilities by calling the SEC at
1-800-SEC-0330. In addition, registration statements and other filings we make
with the SEC through its electronic data gathering, analysis and retrieval, or
EDGAR, system, including our registration statement, are publicly available
through the Internet. The SEC maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The SEC's Web site is http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
with the Exchange Act, will file periodic reports, proxy statements and other
information with the SEC. Upon approval of the common stock for listing on
Nasdaq, these reports, proxy and information statements and other information
may also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
83
<PAGE> 85
MEDIBUY.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MEDIBUY.COM, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations........................ F-4
Consolidated Statement of Cash Flows........................ F-5
Consolidated Statement of Stockholders' Equity (Deficit).... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Overview.................................................... F-23
Unaudited Pro Forma Condensed Combined Balance Sheet........ F-25
Unaudited Pro Forma Condensed Combined Statement of
Operations................................................ F-26
Notes to Unaudited Pro Forma Condensed Combined Financial
Information............................................... F-27
PARTNET, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-29
Balance Sheet............................................... F-30
Statement of Operations..................................... F-31
Statement of Cash Flows..................................... F-32
Statement of Stockholders' Equity........................... F-33
Notes to Financial Statements............................... F-34
PREMIER HEALTH EXCHANGE, LLC FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-41
Balance Sheets.............................................. F-42
Statements of Operations.................................... F-43
Statements of Members' Capital.............................. F-44
Statements of Cash Flows.................................... F-45
Notes to Financial Statements............................... F-46
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
medibuy.com, Inc.
The two and one-half-for-one Common Stock split described in Note 1 to the
consolidated financial statements has not been consummated at March 15, 2000.
When it has been consummated, we will be in a position to furnish the following
report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of
stockholders' equity (deficit) present fairly, in all material respects,
the financial position of medibuy.com, Inc. and its subsidiary (the
"Company") at December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from August 18, 1998
(inception) to December 31, 1998 and for the year ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States, which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
PRICEWATERHOUSECOOPERS LLP
San Diego, California
February 3, 2000, except
for the portion of Note 11
discussing drugstore.com
to which the date is
February 14, 2000,
the portion of Note 3
discussing Premier Health
Exchange, LLC to which the date
is March 6, 2000, and
the portion of Note 1
discussing the two and
one-half-for-one Common
Stock split to which the
date is , 2000
F-2
<PAGE> 87
MEDIBUY.COM, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 54 $ 63,780
Accounts receivable....................................... -- 216
Prepaid expenses and other current assets................. 21 1,425
------- --------
Total current assets...................................... 75 65,421
Property and equipment, net................................. 425 7,781
Goodwill, net............................................... -- 7,589
Purchased technology, net................................... -- 2,917
Other assets................................................ 20 974
------- --------
Total assets........................................ $ 520 $ 84,682
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 414 $ 4,126
Accrued expenses.......................................... 132 2,702
Amounts due to customers.................................. -- 114
Deferred revenue.......................................... -- 175
Deferred tax liability.................................... -- 400
Capital lease obligations................................. -- 49
------- --------
Total current liabilities................................. 546 7,566
Deferred tax liability, net of current portion.............. -- 767
Capital lease obligations, net of current portion........... -- 111
Commitments (Note 9)
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 15,000,000 shares
authorized:
Series A, convertible; 68,100 shares authorized; 0,
68,100 and 0 shares issued and outstanding at December
31, 1998, December 31, 1999 and December 31, 1999 pro
forma, respectively. Liquidation preference -- $681... -- -- $ --
Series B, convertible; 334,907 shares authorized; 0,
334,907 and 0 shares issued and outstanding at
December 31, 1998, December 31, 1999 and December 31,
1999 pro forma, respectively. Liquidation
preference -- $5,024.................................. -- -- --
Series C, convertible; 5,000,000 shares authorized; 0,
4,458,332 and 0 shares issued and outstanding at
December 31, 1998, December 31, 1999 and December 31,
1999 pro forma, respectively. Liquidation
preference -- $16,050................................. -- 5 --
Series D, convertible; 2,800,000 shares authorized; 0,
2,423,656 and 0 shares issued and outstanding at
December 31, 1998, December 31, 1999 and December 31,
1999 pro forma, respectively. Liquidation
preference -- $29,302................................. -- 2 --
Series E, convertible; 4,900,000 shares authorized; 0,
1,801,366 and 0 shares issued and outstanding at
December 31, 1998, December 31, 1999 and December 31,
1999 pro forma, respectively. Liquidation
preference -- $37,000................................. -- 2 --
Common Stock; $0.001 par value; 40,000,000 shares
authorized; 14,227,500, 15,895,185 and 47,678,745 shares
issued and outstanding at December 31, 1998, December
31, 1999 and December 31, 1999 pro forma,
respectively............................................ 14 16 48
Additional paid-in capital................................ 2,224 135,925 135,902
Unearned stock-based compensation......................... (808) (12,381) (12,381)
Receivables from stockholders............................. (4) -- --
Accumulated deficit....................................... (1,452) (47,331) (47,331)
------- -------- --------
Total stockholders' equity (deficit).................... (26) 76,238 $ 76,238
------- -------- ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 520 $ 84,682
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 88
MEDIBUY.COM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
AUGUST 18, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Revenues...................................................
e-commerce transaction fees.............................. $ -- $ 58
Contract and other services.............................. -- 112
---------- -----------
Total revenues........................................... -- 170
---------- -----------
Operating expenses:
Cost of revenues, contract and other services............ -- 57
Sales and marketing ..................................... 368 10,846
Systems development and operations....................... 84 8,478
General and administrative............................... 731 15,037
Amortization of stock-based compensation(*).............. 271 5,945
---------- -----------
Total operating expenses................................. 1,454 40,363
---------- -----------
Loss from operations....................................... (1,454) (40,193)
Other income (expense):
Interest income.......................................... 2 439
---------- -----------
Loss before income taxes................................... (1,452) (39,754)
Income tax benefit......................................... -- (33)
---------- -----------
Net loss................................................... (1,452) (39,721)
Beneficial conversion feature associated with the sale of
Preferred Stock (Note 7)................................. -- (6,158)
---------- -----------
Net loss attributable to Common Stockholders............... $ (1,452) $ (45,879)
========== ===========
Net loss per share attributable to Common Stockholders,
basic and diluted........................................ $ (0.16) $ (4.01)
========== ===========
Shares used in per share computations, basic and diluted... 8,987,269 11,445,535
========== ===========
Pro forma net loss per share, basic and diluted
(unaudited).............................................. $ (1.37)
===========
Shares used in pro forma per share computations, basic and
diluted (unaudited)...................................... 28,902,712
===========
- ---------------
(*) Amortization of stock-based compensation
Sales and marketing................................. $ -- $ 1,311
Systems development and operations.................. -- 539
General and administrative.......................... 271 4,095
---------- -----------
$ 271 $ 5,945
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 89
MEDIBUY.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM YEAR
AUGUST 18, 1998 ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
----------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,452) $(39,721)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 48 5,447
Equity-based compensation.............................. 790 12,573
Compensation expense resulting from security
transaction (Note 7)................................. -- 3,661
Income tax benefit (Note 5)............................ -- (33)
Changes in assets and liabilities, net of acquisition
of PartNET, Inc.:
Accounts receivable.................................. -- 118
Prepaid expenses and other current assets............ (41) (1,313)
Other assets......................................... -- (949)
Accounts payable..................................... 414 3,054
Accrued expenses..................................... 132 2,371
Deferred revenue..................................... -- (11)
Amounts due to customers............................. -- 114
------- --------
Net cash used in operating activities..................... (109) (14,689)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition of PartNET, Inc. ............ -- 238
Purchases of property and equipment....................... (473) (8,481)
------- --------
Net cash used in investing activities..................... (473) (8,243)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock.................................. 636 150
Issuance of Preferred Stock............................... -- 86,462
Exercise of stock options................................. -- 48
Collection of receivables from stockholders............... -- 4
Principal payments on capital lease obligations........... -- (6)
------- --------
Net cash provided by financing activities................. 636 86,658
------- --------
Net increase in cash and cash equivalents................... 54 63,726
Cash and cash equivalents, beginning of period.............. -- 54
------- --------
Cash and cash equivalents, end of period.................... $ 54 $ 63,780
======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of Common Stock for acquisition of PartNET,
Inc.................................................... $ -- $ 9,269
Liabilities incurred in conjunction with acquisition of
PartNET, Inc. ......................................... -- 200
Vesting Common Stock issued to consultants for development
of internal-use software............................... -- 3,820
Exchange of Common Stock for Series A Preferred Stock..... -- 681
Issuance of Common Stock options to consultant for
services associated with sales of Preferred Stock...... -- 40
Receivables from stockholders............................. 4 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 90
MEDIBUY.COM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------------------
COMMON STOCK SERIES A SERIES B SERIES C
------------------ -------------- --------------- -----------------
PAR PAR PAR PAR
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
---------- ----- ------ ----- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock...................... 14,227,500 $14 -- $-- -- $-- -- $--
Unearned stock-based compensation............. -- -- -- -- -- -- -- --
Amortization of stock-based compensation...... -- -- -- -- -- -- -- --
Net loss...................................... -- -- -- -- -- -- -- --
---------- --- ------ -- ------- -- --------- --
BALANCE AT DECEMBER 31, 1998.................. 14,227,500 14 -- -- -- -- -- --
Issuance of Common Stock...................... 1,285,650 1 -- -- -- -- -- --
Exchange of Common Stock for Series A
Preferred Stock.............................. (1,702,500) -- 68,100 -- -- -- -- --
Issuance of Series B Preferred Stock.......... -- -- -- -- 334,907 -- -- --
Issuance of Series C Preferred Stock.......... -- -- -- -- -- -- 4,458,332 5
Compensation expense resulting from security
transaction (Note 7)......................... -- -- -- -- -- -- -- --
Issuance of Series D Preferred Stock.......... -- -- -- -- -- -- -- --
Beneficial conversion feature associated with
the sale of Series D Preferred Stock......... -- -- -- -- -- -- -- --
Issuance of Series E Preferred Stock.......... -- -- -- -- -- -- -- --
Issuance of Common stock for acquisition of
PartNET, Inc................................. 1,462,622 1 -- -- -- -- -- --
Valuation of variable stock-based awards
issued to non-employees...................... 189,100 -- -- -- -- -- -- --
Exercise of stock options..................... 520,313 -- -- -- -- -- -- --
Unearned stock-based compensation............. -- -- -- -- -- -- -- --
Amortization of stock-based compensation...... -- -- -- -- -- -- -- --
Repurchase of unvested Common Stock........... (87,500) -- -- -- -- -- -- --
Collection of receivables from stockholders... -- -- -- -- -- -- -- --
Net loss...................................... -- -- -- -- -- -- -- --
---------- --- ------ -- ------- -- --------- --
BALANCE AT DECEMBER 31, 1999.................. 15,895,185 $16 68,100 $-- 334,907 $-- 4,458,332 $5
========== === ====== == ======= == ========= ==
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------
SERIES D SERIES E
----------------- ----------------- ADDITIONAL UNEARNED RECEIVABLES
PAR PAR PAID-IN STOCK-BASED FROM
SHARES VALUE SHARES VALUE CAPITAL COMPENSATION STOCKHOLDERS
--------- ----- --------- ----- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock...................... -- $-- -- $-- $ 1,145 $ -- $(4)
Unearned stock-based compensation............. -- -- -- -- 1,079 (1,079) --
Amortization of stock-based compensation...... -- -- -- -- -- 271 --
Net loss...................................... -- -- -- -- -- -- --
--------- -- --------- -- -------- -------- ---
BALANCE AT DECEMBER 31, 1998.................. -- -- -- -- 2,224 (808) (4)
Issuance of Common Stock...................... -- -- -- -- 149 -- --
Exchange of Common Stock for Series A
Preferred Stock.............................. -- -- -- -- -- -- --
Issuance of Series B Preferred Stock.......... -- -- -- -- 4,918 -- --
Issuance of Series C Preferred Stock.......... -- -- -- -- 15,396 -- --
Compensation expense resulting from security
transaction (Note 7)......................... -- -- -- -- 3,661 -- --
Issuance of Series D Preferred Stock.......... 2,423,656 2 -- -- 29,131 -- --
Beneficial conversion feature associated with
the sale of Series D Preferred Stock......... -- -- -- 6,158 -- --
Issuance of Series E Preferred Stock.......... -- -- 1,801,366 2 36,968 -- --
Issuance of Common stock for acquisition of
PartNET, Inc................................. -- -- -- -- 9,268 -- --
Valuation of variable stock-based awards
issued to non-employees...................... -- -- -- -- 10,983 -- --
Exercise of stock options..................... -- -- -- -- 48 -- --
Unearned stock-based compensation............. -- -- -- -- 17,518 (17,518) --
Amortization of stock-based compensation...... -- -- -- -- 5,945 --
Repurchase of unvested Common Stock........... -- -- -- -- (497) -- --
Collection of receivables from stockholders... -- -- -- -- -- -- 4
Net loss...................................... -- -- -- -- -- -- --
--------- -- --------- -- -------- -------- ---
BALANCE AT DECEMBER 31, 1999.................. 2,423,656 $2 1,801,366 $2 $135,925 $(12,381) $--
========= == ========= == ======== ======== ===
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- --------
<S> <C> <C>
Issuance of Common Stock...................... $ -- $ 1,155
Unearned stock-based compensation............. -- --
Amortization of stock-based compensation...... -- 271
Net loss...................................... (1,452) (1,452)
-------- --------
BALANCE AT DECEMBER 31, 1998.................. (1,452) (26)
Issuance of Common Stock...................... -- 150
Exchange of Common Stock for Series A
Preferred Stock.............................. -- --
Issuance of Series B Preferred Stock.......... -- 4,918
Issuance of Series C Preferred Stock.......... -- 15,401
Compensation expense resulting from security
transaction (Note 7)......................... -- 3,661
Issuance of Series D Preferred Stock.......... -- 29,133
Beneficial conversion feature associated with
the sale of Series D Preferred Stock......... (6,158) --
Issuance of Series E Preferred Stock.......... -- 36,970
Issuance of Common stock for acquisition of
PartNET, Inc................................. -- 9,269
Valuation of variable stock-based awards
issued to non-employees...................... -- 10,983
Exercise of stock options..................... -- 48
Unearned stock-based compensation............. -- --
Amortization of stock-based compensation...... -- 5,945
Repurchase of unvested Common Stock........... -- (497)
Collection of receivables from stockholders... -- 4
Net loss...................................... (39,721) (39,721)
-------- --------
BALANCE AT DECEMBER 31, 1999.................. $(47,331) $ 76,238
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 91
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. THE COMPANY
ORGANIZATION AND BUSINESS
medibuy.com, Inc. (the "Company") was incorporated on August 18, 1998. The
Company operates a business-to-business Internet marketplace for the purchase
and sale of medical and non-medical products and services used by the healthcare
industry worldwide. Through the Company's Web site, registered buyers purchase,
directly from registered sellers, medical and non-medical supplies and services
used in the operation of healthcare facilities. The Company's revenues are from
two primary service lines, e-commerce transaction fees calculated as a
percentage of the gross transaction value of a buyer's purchase of goods and
services from our electronic marketplace and fees from software development and
other contract services.
The Company's business consists of a single operating segment and its
operations and customers are located primarily in the United States. The Company
did not record any revenue during 1998.
STOCK SPLIT
On June 4, 1999, the Company effected a ten-for-one Common Stock split. All
per share and share amounts in the financial statements have been retroactively
restated to reflect the effect of this stock split.
In connection with its proposed initial public offering ("IPO"), the
Company will be effecting a two and one-half-for-one Common Stock split. All per
share and share amounts in the financial statements have been retroactively
restated to reflect the effect of this stock split.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED PRO FORMA CONSOLIDATED STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized the filing of a
Registration Statement with the Securities and Exchange Commission to register
shares of its Common Stock in an IPO. If the IPO is consummated as presently
anticipated, all outstanding shares of Preferred Stock will automatically
convert into shares of Common Stock under the terms of the Preferred Stock
agreements (see Note 6) and the authorized amount of shares of Common Stock will
increase to 300,000,000. Unaudited pro forma Stockholders' Equity as of December
31, 1999 reflects the conversion of all outstanding Preferred Stock into Common
Stock as if such conversion had occurred as of December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany transactions and balances have
been eliminated.
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
financial statement date, as well as the reported and contingent amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-7
<PAGE> 92
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CASH EQUIVALENTS
The Company considers all highly-liquid investments with a maturity date of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents.
Substantially all of the Company's cash and cash equivalents are invested in
U.S. Treasury Bills and short-term money market accounts which bear minimal
risk, and are available on demand.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and amounts due to customers
approximate their fair value due to the short-term nature of these balances. The
carrying amounts of the Company's capital lease obligations approximate fair
value as the rates of interest for these instruments approximate market rates of
interest currently available to the Company for similar instruments.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets ranging from
two to five years. Leasehold improvements and assets recorded under capital
leases are amortized over the shorter of the assets' useful lives or the related
lease terms. Additions to property and equipment together with major renewals
and betterments are capitalized. Expenditures for repairs, maintenance and minor
renewals and betterments are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated amortization and depreciation
are removed from the accounts and any resulting gain or loss is included in
operations.
LONG-LIVED AND INTANGIBLE ASSETS
Intangible assets consist of goodwill and purchased technology which are
being amortized on a straight line basis over their estimated useful lives of
three years.
The Company assesses potential impairments to its long-lived and intangible
assets when there is evidence that events or changes in circumstances indicate
that the carrying amount of an asset may not be recovered. An impairment loss is
recognized when the undiscounted cash flows expected to be generated by an asset
(or group of assets) is less than its carrying amount. Any required impairment
loss would be measured as the amount by which the asset's carrying value exceeds
its fair value, and would be recorded as a reduction in the carrying value of
the related asset and a charge to results of operations. The Company has not
incurred any such losses.
REVENUE RECOGNITION
The Company categorizes its services into two primary service lines:
e-commerce transaction fees and contract and other services. e-commerce
transaction fees are charged to sellers of goods and services on the Company's
Web site. Contract and other services revenues represent software development
services and other services fees charged to customers.
F-8
<PAGE> 93
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
e-commerce transaction fees are calculated as a percentage of the gross
transaction value the seller negotiates with the buyer for goods or services
purchased through the Company's marketplace. The Company does not take title to
the underlying equipment or products. Through December 31, 1999, the Company has
generated transaction fee revenues from its eAuction and eRFP services.
eAuction transaction fees are recognized when the buyer accepts the related
equipment. All other e-commerce transaction fees are recognized at the time a
buyer's order is confirmed by a seller and when collection is reasonably
assured.
Contract and other services revenue is recognized as services are
performed. Through December 31, 1999, contract and other services revenues
consisted primarily of software development services performed under a long-term
contract with the United States Government that expires in 2001 and provides for
the reimbursement of costs plus a fixed percentage fee. Revenues earned on the
contract totaled $103 which represents approximately 92% and 61% of contract and
other services revenues and total revenues, respectively. Government contract
costs, including indirect costs, are subject to audit by the United States
Government. Contract and other services revenue earned under the government
contract are stated at amounts that are expected to be realized upon final
settlement.
Provisions for doubtful accounts are provided at the time revenue is
recognized based upon the Company's historical experience and expectations.
Amounts due to customers represents cash payments received from buyers
involved in eAuction transactions prior to equipment acceptance and are subject
to return if the related transaction is not completed. Deferred revenue
represents other e-commerce transaction fees and service fees billed to
customers in advance of being earned by the Company.
The Company has entered into rebate agreements with certain buyers which
provide for payments to buyers calculated as a percentage of the e-commerce
transaction fees earned by the Company for goods and services purchased by the
buyers through our marketplace. The Company records rebates payable under these
agreements, which to date have been insignificant, as a reduction of revenue.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
periods ended December 31, 1998 and 1999 was $29 and $1,376, respectively.
SYSTEMS DEVELOPMENT AND OPERATIONS COSTS
Systems development and operations costs include expenses incurred by the
Company to enhance, manage, monitor and operate the Company's marketplace and
are generally expensed as incurred.
The Company does not sell or license the rights to future use of its
software; accordingly, software development costs, consisting of internally
developed software and Web site development costs, are accounted for in
accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." In accordance with
SOP 98-1, internal and external costs incurred to develop internal-use computer
software during the application development stage are capitalized. Application
development stage costs generally include software configuration, coding,
installation to hardware and testing. Costs
F-9
<PAGE> 94
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
of significant upgrades and enhancements that result in additional functionality
are also capitalized. Costs incurred for maintenance and minor upgrades and
enhancements are expensed as incurred. Capitalized internal-use software
development costs are included in property and equipment and are amortized on a
straight-line basis over the estimated useful lives of the related software
applications of up to three years. The estimated useful lives are based on
planned or expected significant modification or replacement of software
applications, in response to the rapid rate of change in the internet industry
and technology in general. The Company capitalized $0 and $6,711 of systems
development costs for the periods ended December 31, 1998 and 1999,
respectively. Systems development and operations costs include depreciation and
amortization expense of $0, and $4,545 for the periods ended December 31, 1998
and 1999, respectively.
INCOME TAXES
The Company provides for income taxes utilizing the liability method. Under
the liability method, current income tax expense or benefit represents income
taxes expected to be payable or refundable for the current period. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax and financial reporting bases of assets and
liabilities and for the expected future tax benefit to be derived from tax
credit and loss carryforwards. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts more likely than not to
be realized in future tax returns. Tax rate changes are reflected in income in
the period such changes are enacted.
EMPLOYEE STOCK-BASED COMPENSATION
The Company measures compensation expense for its employee stock-based
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss and net loss per share as if a fair value-based method
had been applied in measuring compensation expense. Accordingly, compensation
cost for stock awards is measured as the excess, if any, of the deemed fair
value for financial reporting purposes of the Company's Common Stock at the date
of grant over the amount an employee must pay to acquire the stock. Compensation
cost is amortized over the related vesting periods using an accelerated graded
method in accordance with Financial Accounting Standards Board Interpretation
No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans." Accrued compensation costs for awards that are forfeited
are reversed against compensation expense in the period of forfeiture.
NON-EMPLOYEE STOCK-BASED COMPENSATION
Stock-based awards issued to non-employees are accounted for using a fair
value method and are remeasured to estimated fair value at each period end until
the earlier of the date that performance by the counterparty is complete or the
awards are fully vested. Estimated fair value is generally based on the deemed
fair value for financial reporting purposes of the Company's Common Stock.
F-10
<PAGE> 95
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for all periods presented consists solely of
net loss.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share attributable to Common Stockholders' is
computed by dividing earnings (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period. Weighted
average shares exclude shares of unvested Common Stock subject to repurchase by
the Company. Diluted earnings (loss) per share attributable to Common
Stockholders' is computed by dividing net earnings (loss) available to common
stockholders by the weighted average number of common shares outstanding during
the period increased to include, if dilutive, the number of additional common
shares that would have been outstanding if potential common shares had been
issued. The dilutive effect of outstanding stock options and unvested Common
Stock subject to repurchase is reflected in diluted earnings (loss) per share
attributable to Common Stockholders' by application of the treasury stock
method.
The Company has excluded all convertible Preferred Stock, unvested Common
Stock subject to repurchase by the Company and outstanding stock options from
the calculation of diluted loss per share attributable to Common Stockholders'
for the periods ended December 31, 1998 and 1999 because all such securities are
antidilutive. The number of potential common shares excluded from the
calculations of diluted loss per share attributable to Common Stockholders' was
2,400,000 and 41,858,270 for the periods ended December 31, 1998 and 1999,
respectively.
Unaudited pro forma net loss per common share, basic and diluted, is
calculated assuming the conversion of all outstanding shares of Preferred Stock
into Common Stock at the date of issuance. The calculation of unaudited pro
forma net loss per share for the year ended December 31, 1999 excludes
10,074,710 potential common shares as their impact would be antidilutive.
A reconciliation of shares used in the calculation of pro forma net loss
per share attributable to common shareholders, basic and diluted, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-------------------
<S> <C>
Weighted average shares outstanding..................... 11,445,535
Adjustments to reflect the assumed conversion of
outstanding preferred stock........................... 17,457,177
----------
Shares used in computing pro forma net loss per common
share, basic and diluted.............................. 28,902,712
==========
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. SFAS No. 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
F-11
<PAGE> 96
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company does not expect that
the adoption of SFAS No. 133 will have a material impact on its financial
statements because it does not currently hold any derivative instruments and
does not engage in any hedging activities.
3. ACQUISITIONS
PARTNET, INC.
In November 1999, the Company acquired all the outstanding shares of common
stock of PartNET, Inc. ("PartNET") in exchange for 1,462,622 shares of Common
Stock and the issuance of 724,813 stock options to purchase Common Stock of the
Company. PartNET is a software developer engaged in the business of developing
electronic commerce catalog software. The acquisition was accounted for using
the purchase method of accounting. The total purchase price for PartNET has been
valued approximately at $9,469. The Company's stock and options issued have an
estimated fair value of approximately $9,269. Other direct expenses of the
acquisition totaled approximately $200. The purchase price was allocated to the
fair value of the net tangible liabilities assumed totaling approximately $137,
deferred tax liabilities totaling approximately $1,200, purchased technology
totaling approximately $3,000 and goodwill totaling approximately $7,806. The
goodwill and purchased technology are being amortized over their estimated
useful lives of three years. Management believes that a three-year useful life
is responsive to the rapid rate of change in the internet industry. Accumulated
amortization of goodwill and purchased technology at December 31, 1999 totaled
$217 and $83, respectively.
PREMIER HEALTH EXCHANGE, LLC
In March 2000, the Company entered into an agreement to acquire all the
member's interests of Premier Health Exchange, LLC ("Premier Health Exchange")
an Internet commerce company. This agreement is scheduled to close at the time
of the Company's IPO. In connection with the acquisition, the Company will issue
50,000,000 shares of Common Stock, warrants to purchase 11,162,901 shares of
Common Stock and options to purchase 3,125,701 shares of Common Stock. The
acquisition will be accounted for using the purchase method of accounting.
In March 2000, Premier Health Exchange entered into a ten-year e-commerce
outsourcing agreement with Premier Purchasing Partners L.P. ("Premier Purchasing
Partners") to develop, integrate and maintain an online marketplace on behalf of
Premier Purchasing Partners. Premier Health Exchange will receive from Premier
Purchasing Partners $159 million over the term of the agreement for integration
and maintenance services. Additionally, Premier Health Exchange will receive
e-commerce transaction fees from Premier Purchasing Partners based on a
percentage of the gross transaction value of certain products and services
purchased on the marketplace through standard group purchasing agreements in
excess of contracted minimum purchasing volumes. Premier Health Exchange is
required to pay Premier Purchasing Partners a sales commission equal to a
contracted percentage of the e-commerce transaction fees it earns on the online
marketplace related to goods and services not purchased through the standard
group purchasing agreements maintained by Premier Purchasing Partners.
In March 2000, Premier Health Exchange also entered into a renewable
ten-year agreement with Premier, Inc., whereby Premier, Inc. will provide
promotion, marketing and management support services for certain e-commerce
offerings of Premier Health Exchange. Premier Health Exchange is required to
make minimum payments totaling $20.0 million over the ten-year term of the
agreement.
F-12
<PAGE> 97
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The unaudited pro forma combined results of the Company, PartNET and
Premier Exchange for the periods ended December 31, 1998 and 1999, assuming the
acquisition of PartNET took place on January 1, 1998 and the acquisition of
Premier Exchange took place on January 1, 1999, are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1998 1999
------- ---------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................ $ 1,811 $ 2,549
Net loss.................................................... (4,497) (115,377)
Net loss per share, basic and diluted (assuming conversion
of all shares of Preferred Stock)......................... (0.54) (1.44)
</TABLE>
4. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
---- -------
<S> <C> <C>
Property and equipment:
Computer equipment and internal-use software.............. $443 $11,838
Furniture and fixtures.................................... 19 667
Leasehold improvements.................................... -- 430
Communications equipment.................................. 11 187
---- -------
473 13,122
Accumulated depreciation and amortization................. (48) (5,341)
---- -------
$425 $ 7,781
==== =======
</TABLE>
Depreciation and amortization expense for the periods ended December 31,
1998 and 1999 was $48 and $5,147, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
---- -------
<S> <C> <C>
Accrued expenses:
Accrued payroll........................................... $ 78 $ 933
Accrued vacation.......................................... -- 239
Accrued professional fees................................. 10 1,266
Other accrued expenses.................................... 44 264
---- -------
$132 $ 2,702
==== =======
</TABLE>
5. INCOME TAXES
No income tax provision was recorded during the period from August 18, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999 due to
cumulative net losses of the Company. Based upon the lack of prior earnings
history of the Company and uncertainty regarding future earnings, a full
valuation allowance has been recorded against the Company's deferred tax assets
as it is more likely than not that such assets will not be realized.
At December 31, 1999, the Company has federal and state net operating loss
carryforwards totaling approximately $19,455 and $19,453, which expire beginning
in 2018 and 2006, respectively. Pursuant to Section 382 of the Internal Revenue
Code, annual use of the
F-13
<PAGE> 98
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Company's net operating loss carryforwards will be limited due to cumulative
changes in ownership of more than 50%.
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to loss before income taxes as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 18, YEAR
1998 TO ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Federal income tax at statutory rate of 34%................. $(494) $(13,517)
State income taxes, net of federal benefit.................. (46) (1,316)
Stock-based compensation.................................... 221 5,741
Amortization of acquired intangibles........................ -- 74
Change in valuation allowance............................... 315 8,986
Other....................................................... 4 (1)
----- --------
$ -- $ (33)
===== ========
</TABLE>
Significant components of the Company's net deferred tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
----- -------
<S> <C> <C>
Capitalized start-up costs.................................. $ 349 $ 1,045
Net operating loss carryforwards............................ 3 7,750
Accrued liabilities and other............................... 16 163
Stock-based compensation.................................... 56 802
Acquired intangibles........................................ -- (1,167)
Depreciation and amortization............................... (109) (459)
----- -------
315 8,134
Valuation allowance......................................... (315) (9,301)
----- -------
-- (1,167)
Less current portion........................................ -- 400
----- -------
Deferred tax liability, net of current portion.............. $ -- $ 767
===== =======
</TABLE>
Future benefits related to stock option transactions will be credited to
paid-in-capital.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK RIGHTS AND PREFERENCES
The Board of Directors of the Company (the "Board") is authorized to issue
Preferred Stock and determine the series and number of preferred shares to be
issued and any related designations, powers, preferences, rights,
qualifications, limitations or restrictions. As of December 31, 1998, no
preferred shares were authorized. As of December 31, 1999, the total number of
preferred shares authorized was 15,000,000. The Board has authorized 68,100
shares as Series A Preferred Stock ("Series A"); 334,907 shares as Series B
Preferred Stock ("Series B"); 5,000,000 as Series C Preferred Stock ("Series
C"); 2,800,000 as Series D Preferred Stock ("Series D"); and 4,900,000 as Series
E Preferred Stock ("Series E"). The remaining 1,896,993 shares are undesignated.
F-14
<PAGE> 99
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
All Series of Preferred Stock are convertible into Common Stock at any time
at the option of the holder, or automatically upon the close of an underwritten
initial public offering. The automatic conversion of Series B, Series C and
Series D stock is contingent on the public offering resulting in gross proceeds
to the Company of at least $15,000 at a price of at least $4.84 per share. For
the Series E stock, gross proceeds must exceed $40,000 at a price of at least
$10.00 per share. Each share of Series A and Series B stock is convertible into
25 shares of Common Stock. Each share of Series C, Series D and Series E stock
is convertible into two and one-half shares of Common Stock. The conversion rate
is subject to adjustment for dilution, including stock splits, stock
combinations, stock dividends and stock distributions. The Company has reserved
sufficient shares of Common Stock for the conversion of its Preferred Stock.
In the event of a liquidation of the Company, holders of Series C, Series D
and Series E stock are entitled to be paid (in preference to the holders of
Series A, Series B and Common Stock) an amount equal to $3.60, $12.09 and $20.54
per share, respectively, plus declared and unpaid dividends. After the Series C,
Series D and Series E stockholders are paid, the holders of Series A and Series
B stock are entitled to be paid (in preference to the holders of Common Stock)
$10.00 and $15.00 per share, respectively, plus declared and unpaid dividends.
In the event that the assets of the Company are insufficient to make full
payment according to this schedule, assets will be distributed among the holders
of Series C, Series D and Series E stock ratably in proportion to the full
amounts they are entitled to under the liquidation preference described above;
if any assets are remaining, they will be distributed among the holders of
Series A and Series B stock ratably in proportion to the full amounts they are
entitled to under the liquidation preference described above. After the
distributions to the holders of Preferred Stock have been made, the remaining
assets of the Company will be distributed ratably to the holders of Common
Stock.
The holders of Preferred Stock are entitled to a number of votes equal to
the number of shares of Common Stock into which such Preferred Stock is
convertible. The holders of Preferred Stock are entitled to receive dividends if
declared by the Board, in preference to the holders of Common Stock. These
rights are not cumulative.
COMMON STOCK
As of December 31, 1999, the total number of authorized shares of Common
Stock was 40,000,000, with a par value of $0.001.
During the period ended December 31, 1998, the Company issued 7,448,325
shares of unrestricted Common Stock at their estimated fair value and issued
1,525,000 shares of unrestricted Common Stock and 5,254,175 shares of vesting
Common Stock at below their deemed fair value. During the year ended December
31, 1999, the Company issued 112,500 shares of unrestricted Common Stock at
their fair value and issued 520,650 shares of unrestricted Common Stock and
841,600 shares of vesting Common Stock at below their deemed fair value. Common
Stock issued at below its deemed fair value is described in Note 7.
All vesting Common Stock issued in 1998 and 577,500 shares of vesting
Common Stock issued in 1999 vest at 25% one year from the date of grant and
monthly thereafter for three years; 87,500 shares of the vesting common stock
issued in 1999 vest monthly over 24 months; and the remaining shares of vesting
Common Stock issued in 1999 vest at 50% immediately and monthly thereafter for
five months. In 1999, the Company accelerated the vesting provisions of 771,838
shares of unvested Common Stock.
F-15
<PAGE> 100
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
At December 31, 1999, shares of authorized Common Stock reserved for future
issuance consist of the following (after giving effect to an increase in the
authorized Common Stock to 300,000,000 in connection with the Company's IPO):
<TABLE>
<S> <C>
Conversion of Preferred Stock............................... 31,783,560
Shares reserved for future stock option exercises........... 11,082,025
Shares reserved for future employee stock purchases......... 1,250,000
----------
44,115,585
==========
</TABLE>
7. STOCK-BASED COMPENSATION
STOCK OPTIONS
In 1999, the Company adopted its 1999 Equity Incentive Plan and its 1999
Omnibus Equity Plan (the "Plans"). The 1999 Equity Incentive Plan provides for
the issuance of up to 7,214,100 shares of the Company's Common Stock (of which
1,838,000 shares were no longer available for issuance when the Equity Incentive
Plan was suspended in July 1999), and the 1999 Omnibus Equity Plan provides for
the issuance of up to 4,825,500 shares of the Company's Common Stock. The Plans
allow for the issuance of incentive stock options, non-qualified stock options,
stock bonuses and vesting stock to employees, directors and consultants. In
addition, in 1999 the Company issued 1,235,338 non-qualified options outside of
the Plans. The provisions for vesting and all other terms and conditions are
determined by the Board of Directors at the time of grant. Generally, no option
is exercisable after ten years from the date of grant. Awards granted contain
various vesting provisions, although generally awards vest over three- to five-
year periods. At December 31, 1999, there were 632,315 shares of Common Stock
available for future issuance under the 1999 Omnibus Equity Plan.
The following table summarizes option activity related to employees and
non-employees for the year ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Outstanding at December 31, 1998............................ -- $ --
Granted................................................... 10,621,023 1.64
Exercised................................................. (520,313) 0.09
Forfeited................................................. (26,000) 0.20
----------
Outstanding at December 31, 1999............................ 10,074,710 1.74
==========
</TABLE>
F-16
<PAGE> 101
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following summarizes information regarding outstanding and exercisable
options as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.06 to 0.07................ 4,274,455 9.08 $0.06 508,575 $0.06
0.65 to 0.72................. 2,178,042 9.02 0.70 170,890 0.65
1.44......................... 750,000 9.82 1.44 -- --
4.35......................... 2,309,713 9.88 4.35 103,993 4.35
8.22......................... 562,500 9.99 8.22 562,500 8.22
---------- ---------
10,074,710 1,345,958
========== =========
</TABLE>
For the year ended December 31, 1999, the weighted average exercise price
and weighted average grant date fair value for options to purchase 9,512,210
shares of Common Stock that were granted at exercise prices less than deemed
fair value were approximately $1.36 per share and $3.44 per share, respectively.
The remaining options to purchase 562,500 shares of Common Stock were granted at
exercise prices equal to the deemed fair value of $8.22 per share.
VESTING STOCK AND OTHER EMPLOYEE STOCK AWARDS
The Company issued 2,325,000 shares of vesting Common Stock to employees
and directors during the period from August 18, 1998 (inception) to December 31,
1998, and 665,000 shares of vesting Common Stock to employees and directors
during the year ended December 31, 1999. In 1999, the Company accelerated the
vesting provisions of 215,625 shares of unvested Common Stock, which resulted in
a new measurement date for purposes of determining the related stock-based
compensation. In addition, from August 18, 1998 to December 31, 1998 and the
year ended December 31, 1999, the Company issued 375,000 shares and 508,150
shares, respectively, of unrestricted Common Stock to employees and directors.
The weighted-average grant-date fair value per share of vesting Common
Stock issued to employees and directors during the period from August 18, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999 was $0.40
and $1.20, respectively. The weighted-average grant-date fair value per share of
unrestricted Common Stock issued to employees and directors during the period
from August 18, 1998 to December 31, 1998 and the year ended December 31, 1999
was $0.40 and $1.04, respectively.
EMPLOYEE STOCK-BASED COMPENSATION
Employee stock-based compensation is recognized using the intrinsic value
method. In connection with the grant of stock options and the issuance of
vesting Common Stock and unrestricted Common Stock to employees and directors,
the Company recorded unearned stock-based compensation within stockholders'
equity of $1,079 and $17,518 during the period from August 18, 1998 (inception)
to December 31, 1998 and the year ended December 31, 1999, respectively. This
represents the difference between the exercise price of these stock-based awards
and the deemed fair value of the underlying Common Stock on the date of grant.
Amortization of unearned stock-based compensation, net of any charges reversed
during the
F-17
<PAGE> 102
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
period for the forfeiture of unvested awards, was $271 and $5,945 for the period
from August 18, 1998 (inception) to December 31, 1998 and the year ended
December 31, 1999, respectively.
The remaining unearned stock-based compensation of $12,381 at December 31,
1999 will be amortized as follows: $6,606 in 2000, $3,485 in 2001, $1,779 in
2002 and $511 in 2003. The amount of stock-based compensation expense to be
recorded in future periods could decrease if awards are forfeited for which
accrued but unamortized compensation expense has been recorded.
NON-EMPLOYEE STOCK-BASED COMPENSATION
In 1998, the Company issued 2,929,175 shares of vesting Common Stock to a
third party in exchange for a software license and development services. The
shares were subject to return to the Company in the event of non-performance. As
of December 31, 1998, the third party had not earned any shares. In February
1999, the number of shares earned was determined, and 625,000 shares were
returned to the Company. The remaining shares were valued during 1999 at $1,142,
which was recorded as capitalized internal-use software, with an associated
credit to additional paid-in capital.
In February 1999, the Company issued 625,000 shares to a third party in
exchange for software development services. These shares vested to the third
party in August 1999 and the Company recorded $2,678 as capitalized internal-use
software, with an associated credit to additional paid-in capital, related to
these services.
The Company issued 1,150,000 shares of unrestricted Common Stock to
non-employees during the period from August 18, 1998 (inception) to December 31,
1998. The Company issued 376,593 stock options, 176,600 shares of vesting Common
Stock and 12,500 shares of unrestricted Common Stock to non-employees for
consulting services during the year ended December 31, 1999. In addition,
several employees and directors entered into consulting agreements with the
Company upon their termination during the year ended December 31, 1999. These
consulting agreements allow the former employees and directors to retain 675,000
shares of vesting Common Stock according to their original vesting periods. In
1999, the Company accelerated the vesting provisions of 556,213 shares of
unvested Common Stock which resulted in a new measurement date for purposes of
determining the related stock-based compensation. Additionally, in 1999, the
Company repurchased 87,500 shares of unvested Common Stock. In connection with
these transactions, the Company recorded $519 and $6,140 of general and
administrative expense during the periods ended December 31, 1998 and 1999,
respectively, and $486 of sales and marketing expense in 1999.
The weighted-average grant-date fair value per share of vesting Common
Stock issued to non-employees during the year ended December 31, 1999 was $0.50.
The weighted-average grant-date fair value per share of unrestricted Common
Stock issued to non-employees during the period from August 18, 1998 to December
31, 1998 and the year ended December 31, 1999 was $0.40 and $1.45, respectively.
The weighted-average grant-date fair value per share of stock options issued to
non-employees during the year ended December 31, 1999 was $3.23. The fair value
of the grants was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions during the
year ended December 31, 1999: expected dividend yield of 0.0%, risk-free
interest rate of 5.75%, expected volatility of 80% and expected life of 5
months.
F-18
<PAGE> 103
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA EMPLOYEE COMPENSATION EXPENSE
Had compensation expense for employee stock options been determined based
on the fair value of the options on the date of grant, the Company's net loss
attributable to common shareholders and net loss per share attributable to
common stockholders would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Net loss attributable to Common Stockholders:
As reported............................................... $(45,879)
Pro forma................................................. (46,877)
Net loss per share attributable to Common Stockholders,
basic and diluted:
As reported............................................... $ (4.01)
Pro forma................................................. (4.10)
</TABLE>
The fair value of the options was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants during the year ended December 31, 1999:
<TABLE>
<S> <C>
Expected life............................................... 3 years
Risk-free interest rate..................................... 5.66%
Expected volatility......................................... 0%
Expected dividend yield..................................... 0%
</TABLE>
The volatility of the Company's Common Stock underlying the options was not
considered because the Company's equity was not publicly traded as of December
31, 1999. For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting periods using an
accelerated graded method.
STOCK SOLD BY SHAREHOLDERS
In June 1999, the Company arranged for existing stockholders of the
Company, including two of its officers, to sell 1,353,750 shares of Common Stock
to certain of the investors in Series C Preferred Stock of the Company. These
investors paid more for the Common Stock than its deemed fair value for
financial reporting purposes at the time of the sale. This difference of $3,661
was attributed to the Company and therefore recorded as non-cash compensation
expense included in general and administrative expenses.
BENEFICIAL CONVERSION FEATURE
In December 1999, the Company sold 728,716 shares of Series D Preferred
Stock, for net proceeds of $8,810, at a price below their deemed fair value for
financial reporting purposes. As a result, the Company recorded a beneficial
conversion feature of $6,158, which is reflected as an increase in net loss
attributable to common stockholders in the consolidated statement of operations.
8. EMPLOYEE COMPENSATION PLANS
In October 1999, the Company adopted the medibuy.com, Inc. 401(k) Profit
Sharing Plan (the "401(k) Plan"). The 401(k) Plan covers substantially all
employees of the Company who are at least 21 years of age and have at least one
month of service. Employees may contribute
F-19
<PAGE> 104
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
up to 20% of their annual pre-tax compensation per year, not to exceed the
maximum limit imposed by federal tax law. Company contributions to the 401(k)
Plan are determined at management's discretion. Participants vest to Company
contributions and related earnings after four years of continuous service with
the Company. The Company has made no contributions to the 401(k) Plan.
In July 1997, PartNET's board of directors adopted the PartNET, Inc. 401(k)
plan covering employees of PartNET who are at least 21 years of age. This 401(k)
plan was assumed by the Company in connection with the acquisition of PartNET.
Eligible employees may make pre-tax contributions to the 401(k) plan of up to
15% of their eligible earnings, not to exceed the maximum limit imposed by
federal tax law. The 401(k) plan allows the Company to make discretionary
matching contributions to a participant's account.
In December 1999, the Company adopted an Employee Stock Purchase Plan
("ESPP") to be effective upon the completion of its proposed IPO. Under the
ESPP, employees of the Company who elect to participate may purchase Common
Stock at 85% of the lower of the fair market value of the Common Stock at the
commencement date of each offering period or the relevant purchase date.
Employees who participate in an offering may have up to 15% of their eligible
earnings withheld under the ESPP. The maximum number of shares that may be
issued under the ESPP is 1,250,000. The ESPP is subject to approval by Company
stockholders.
In December 1999, the Company adopted a non-employee Directors' stock
option plan ("Director Plan") to be effective upon the completion of its
proposed IPO. Under the Director Plan, non-employee Directors are eligible to
receive annual distributions of stock options that will vest over a three-year
period. The Company has reserved 375,000 shares of Common Stock under the
Director Plan subject to approval by Company stockholders.
9. COMMITMENTS
Rent expense under noncancellable operating lease arrangements is accounted
for on a straight-line basis and totaled $10 and $335 for the periods ended
December 31, 1998 and 1999, respectively.
The Company has capital lease agreements for tenant improvements and
furniture that mature on various dates through July 2004 and have interest rates
ranging from 9.25% to 10.00%. As of December 31, 1998 and 1999, equipment held
under capital leases totaled $0 and $194,000, respectively, and related
accumulated amortization totaled $0 and $50,000, respectively.
F-20
<PAGE> 105
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Future minimum payments under the Company's lease agreements at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Year Ending December 31,
2000...................................................... $ 50 $1,238
2001...................................................... 40 996
2002...................................................... 40 781
2003...................................................... 40 754
2004...................................................... 14 612
Thereafter................................................ -- 8
---- ------
184 $4,389
======
Less amount representing interest......................... (24)
----
Present value of minimum lease payments................... 160
Less current portion...................................... (49)
----
Long-term portion of capital lease obligations............ $111
====
</TABLE>
10. RELATED PARTY TRANSACTIONS
In September 1998, the Company purchased software under an exclusive
agreement from a related party for $370 that is included in accounts payable at
December 31, 1998. At the time of purchase, an executive of the related party
was a director of the Company.
The Company entered into an operating lease agreement for office space
under a noncancellable lease that expires in January 2004 and has annual rentals
of $100. An officer of the Company is also a limited partner of the lessor of
this office facility.
From January 1, 1999 to December 31, 1999, the Company utilized the
professional services of certain former directors or their affiliates. These
parties provided general business consulting, financial consulting and
assistance with the sale of Series C Preferred Stock. The Company incurred fees
of $669 in cash and $5,752 in the form of stock options and vesting Common
Stock.
11. SUBSEQUENT EVENTS
In January 2000, the Company sold 1,480,149 shares of Series E Preferred
Stock for net proceeds of $30,402.
In January 2000, in connection with a strategic relationship, the Company
issued warrants to purchase 474,960 shares of Common Stock at an exercise price
of $0.12 per share. These warrants are valued at $3,845, which will be recorded
as a sales and marketing expense in 2000. The fair value of the warrants was
estimated using the Black-Scholes option-pricing model with the following
assumptions: expected dividend yield of 0.0%, risk-free interest rate of 6.38%,
expected volatility of 80% and expected life of two years.
In January 2000, the Company entered into an agreement with Healtheon/WebMD
Corporation, an Internet healthcare company, for the development, maintenance
and marketing of a co-branded electronic marketplace. Under the three-year term
of the agreement, the Company is obligated to make total minimum payments of
$45,500 to Healtheon/WebMD for its obligations to exclusivity promote the
co-branded electronic marketplace to their customers. Healtheon/
F-21
<PAGE> 106
MEDIBUY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
WebMD is obligated to make payments to the Company totaling $22,800 over the
term of the agreement for software development and maintenance services.
In February 2000, the Company entered into a five-year agreement with
drugstore.com, Inc., an online drug retailer, to develop, maintain and market a
co-branded marketplace to offer products and services to the home healthcare
industry. The agreement may be terminated earlier by either party upon the
occurrence of specified events. The agreement requires drugstore.com to pay
e-commerce transaction fees on a quarterly basis to us for goods it sells on the
co-branded Web site. drugstore.com will also pay new customer referral fees on a
quarterly basis to us for customers we refer to drugstore.com. We are required
to make quarterly payments to drugstore.com based on the volume of goods or
services sold by sellers other than drugstore.com on the co-branded Web site.
The payments are calculated as a contracted percentage of e-commerce transaction
fees generated on the co-branded Web site from sellers other than drugstore.com.
We are also required to spend at least $10.0 million over the five-year term of
the agreement to promote the co-branded Web site. In connection with the
agreement, we have agreed to issue warrants to purchase 700,000 shares of our
common stock.
In the first quarter of 2000, the Company increased the shares available
for issuance under its 1999 Omnibus Equity Plan by 6,487,500 shares.
Additionally, in the first quarter of 2000, the Company issued options to
purchase 2,412,438 shares of Common Stock at an weighted average exercise price
of $8.22 per share.
F-22
<PAGE> 107
MEDIBUY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OVERVIEW
Effective November 22, 1999, medibuy.com, Inc. (the "Company") acquired all
the outstanding shares of common stock of PartNET, Inc. ("PartNET"), a software
developer that specializes in electronic commerce systems that combine the
Internet with instant access multiple distributed databases designed for
business-to-business buyers and sellers. On March 6, 2000, the Company entered
into an agreement to acquire all the members' capital of Premier Health
Exchange, LLC ("Premier Exchange"), an Internet commerce company. The
acquisition of Premier Exchange will be effective on the date of this Offering.
Both acquisitions are reflected using the purchase method of accounting which
requires the purchase price to be allocated to the fair values of the tangible
and identifiable intangible assets acquired and liabilities assumed on the
acquisition date. Any excess of the purchase price over the fair values of
tangible and identifiable intangible assets acquired less liabilities assumed is
assigned to goodwill.
The fair value of purchased technology was based on valuations prepared by
management of the Company based on estimated actual costs incurred by PartNET in
developing the purchased technology. The purchased technology and goodwill from
the PartNET acquisition are being amortized over their estimated useful lives of
three years. The goodwill resulting from the Premier Exchange acquisition is to
be amortized over the ten-year term of the agreement with Premier Purchasing
Partners, LP.
The following table summarizes information with respect to the Company's
acquisitions of i) PartNET on November 22, 1999, the close date, and ii) Premier
Exchange at December 31, 1999 on a pro forma basis:
<TABLE>
<CAPTION>
PREMIER
PARTNET EXCHANGE
---------- -----------
<S> <C> <C>
Securities issued:
Shares of common stock................................ 1,462,622 50,000,000
Options to purchase common stock...................... 724,813 3,125,701
Warrants to purchase common stock..................... -- 11,162,901
Purchase price.......................................... $ 9,469 $ 706,462
Fair value of issued securities......................... 9,269 701,212
Acquisition related expenses............................ 200 5,250
Allocation of purchase price:
Fair value of net tangible assets..................... -- 12,707
Fair value of net tangible liabilities................ 137 --
Deferred tax liabilities.............................. 1,200 --
Purchased technology.................................. 3,000 --
Goodwill.............................................. 7,806 693,755
</TABLE>
The PartNET acquisition was structured as tax-free exchange of stock;
therefore, the differences between the fair values of acquired assets, including
tangible assets, and their historical tax bases are not deductible for tax
purposes. The Premier Exchange acquisition will be structured as a taxable
exchange of stock; therefore, the fair values of assets to be acquired will be
assigned as the new tax basis for the related assets.
The unaudited pro forma condensed balance sheet is provided as of December
31, 1999, giving effect to the acquisition of Premier Exchange as though it had
been consummated on that date. The unaudited pro forma condensed combined
statement of operations gives effect to the acquisitions of PartNET and Premier
Exchange as if they had occurred on January 1, 1999, by
F-23
<PAGE> 108
combining the results of operations of PartNET, from January 1, 1999 to November
22, 1999, and Premier Exchange, for the year ended December 31, 1999, with the
consolidated results of operations of medibuy.com, Inc. for the year ended
December 31, 1999.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the operating results or financial position that would
have been achieved had the transactions been in effect as of January 1, 1999 and
should not be construed as being representative of future operating results or
financial position.
The historical financial statements of the Company, PartNET and Premier
Exchange are included elsewhere in this Prospectus and the unaudited pro forma
condensed combined financial information presented herein should be read
conjunction with this financial information and related notes.
F-24
<PAGE> 109
MEDIBUY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PREMIER
MEDIBUY.COM EXCHANGE ADJUSTMENTS NOTES PRO FORMA
----------- -------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 63,780 $ -- $ -- $ 63,780
Accounts receivable............ 216 -- -- 216
Prepaid expenses and other
current assets.............. 1,425 -- -- 1,425
-------- ------- -------- --------
Total current assets........... 65,421 -- -- 65,421
Property and equipment, net...... 7,781 12,707 -- 20,488
Intangibles, net................. 10,506 -- 693,755 (A) 704,261
Other assets..................... 974 -- -- 974
-------- ------- -------- --------
Total assets................... $ 84,682 $12,707 $693,755 $791,144
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............... $ 4,126 $ -- $ -- $ 4,126
Accrued expenses and other
current liabilities......... 2,702 -- 5,250 (A) 7,952
Amounts due to customers....... 114 -- -- 114
Deferred revenue............... 175 -- -- 175
Deferred tax liability......... 400 -- -- 400
Capital lease obligations...... 49 -- -- 49
-------- ------- -------- --------
Total current liabilities...... 7,566 -- 5,250 12,816
Capital lease obligations, net of
current portion................ 111 -- -- 111
Deferred tax liability, net of
current portion................ 767 -- -- 767
Stockholders' equity:
Preferred stock................ 9 -- -- 9
Common stock................... 16 -- 50 (A) 66
Additional paid-in capital and
members' capital............ 135,925 16,438 684,724 (A) 837,087
Unearned stock-based
compensation................ (12,381) -- -- (12,381)
Accumulated deficit............ (47,331) (3,731) 3,731 (A) (47,331)
-------- ------- -------- --------
Total stockholders' equity..... 76,238 12,707 688,505 777,450
-------- ------- -------- --------
Total liabilities and
stockholders' equity........ $ 84,682 $12,707 $693,755 $791,144
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
F-25
<PAGE> 110
MEDIBUY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
PREMIER
MEDIBUY.COM PARTNET EXCHANGE ADJUSTMENTS NOTES PRO FORMA
----------- ------- -------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 170 $2,379 $ -- $ -- $ 2,549
----------- ------ -------- -------- -----------
Operating expenses:
Cost of revenues.............. 57 1,100 -- -- 1,157
Sales and marketing........... 10,846 184 -- 69,378 (B) 80,408
Systems development and
operations.................. 8,478 -- -- 917 (C) 9,395
General and administrative.... 15,037 944 3,390 2,383 (C) 21,754
Amortization of stock-based
compensation................ 5,945 111 -- -- 6,056
----------- ------ -------- -------- -----------
Total operating expenses...... 40,363 2,339 3,390 72,678 118,770
----------- ------ -------- -------- -----------
Income (loss) from operations... (40,193) 40 (3,390) (72,678) (116,221)
Other income (expense), net..... 439 5 -- -- 444
----------- ------ -------- -------- -----------
Income (loss) before income
taxes......................... (39,754) 45 (3,390) (72,678) (115,777)
Provision (benefit) for income
taxes......................... (33) 15 -- (367) (C) (400)
(15) (D)
----------- ------ -------- -------- -----------
Net income (loss)............... (39,721) 30 (3,390) (72,296) (115,377)
Beneficial conversion feature
associated with the sale of
Preferred Stock............... (6,158) -- -- 6,158 (E) --
----------- ------ -------- -------- -----------
Net income (loss) attributable
to common stockholders........ $ (45,879) $ 30 $ (3,390) (66,138) $ (115,377)
=========== ====== ======== ======== ===========
Net loss per share attributable
to common stockholders, basic
and diluted(F)................ $ (4.01) $ (1.44)
=========== ===========
Shares used in per share
computations, basic and
diluted(F).................... 11,445,535 80,243,449
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
F-26
<PAGE> 111
MEDIBUY.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
The following adjustments were applied to the Company's historical
consolidated financial statements and the financial statements of PartNET and
Premier Exchange to arrive at the unaudited pro forma condensed combined
financial information.
(A) To record the issuance of 50,000,000 shares of medibuy.com Common Stock,
warrants to purchase 11,162,901 shares of Common Stock and options to purchase
3,125,701 shares of Common Stock in exchange for all outstanding members'
capital of Premier Exchange, including the elimination of Premier Exchange's
historical equity accounts. The total purchase price was determined as follows:
<TABLE>
<S> <C>
Value of medibuy.com Common Stock, warrants and options..... $701,212
Direct acquisition expenses................................. 5,250
--------
$706,462
========
</TABLE>
The valuation of the medibuy.com Common Stock was based upon an assumed
initial public offering price of $11.00 per share of Common Stock. The valuation
of medibuy.com options and warrants to purchase Common Stock was based on fair
value estimates on March 6, 2000 using the Black-Scholes option pricing model
with the following weighted-average assumptions: expected life of three years,
risk-free interest rate of 6.67%, expected volatility of 125% and expected
dividend yield of 0%.
(B) To record the amortization of the intangible asset related to the Premier
Exchange acquisition over its estimated period of benefit of ten years.
(C) To record the amortization of the intangible assets related to the PartNET
acquisition over their estimated period of benefit of 36 months and the related
tax effect.
(D) To offset PartNET income against medibuy.com operating losses.
(E) As a result of the conversion of Preferred Stock upon issuance, the
beneficial conversion feature is eliminated.
(F) Pro forma basic and diluted net loss per share for the year ended December
31, 1999 are computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of the
Company's Preferred Stock into shares of the Company's Common Stock effective
upon the closing of this Offering as if such conversion occurred on the date of
original issuance. Pro forma basic and diluted net loss per share excludes
vesting common shares and outstanding stock options and warrants as their effect
is antidilutive. Differences between historical weighted average shares
outstanding and pro forma weighted average shares outstanding used to compute
net loss per share result from the inclusion of common shares issued in
conjunction with the acquisition as if such shares were
F-27
<PAGE> 112
outstanding from January 1, 1999 and from the automatic conversion of the
Company's Preferred Stock effective upon the close of this Offering. These
differences are shown as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Historical weighted average shares outstanding............. 11,445,535
Number of common shares issued on conversion of preferred
stock.................................................... 17,457,177
Number of weighted average common shares issued as part of
the PartNET acquisition.................................. 1,340,737
Number of common shares issued as part of the Premier
Exchange acquisition..................................... 50,000,000
----------
Pro forma weighted average shares outstanding.............. 80,243,449
==========
</TABLE>
F-28
<PAGE> 113
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PartNET, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of stockholders' equity present fairly, in all
material respects, the financial position of PartNET, Inc. at December 31, 1997
and 1998, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Diego, California
November 5, 1999
F-29
<PAGE> 114
PARTNET, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1997 1998 1999
----- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 232 $377 $ 649
Accounts receivable (including unbilled amounts of $97,
$104 and $36)........................................ 121 170 170
Prepaid expenses and other current assets............... -- 5 17
----- ---- ------
Total current assets............................... 353 552 836
Property and equipment, net............................... 75 38 200
Deferred tax assets....................................... 12 47 71
----- ---- ------
Total assets....................................... $ 440 $637 $1,107
===== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 26 $ 20 $ 68
Accrued compensation and related expenses............... 59 56 40
Deferred revenue........................................ 30 30 72
Bank line of credit..................................... -- 34 --
Note payable to stockholder............................. 16 16 --
Income taxes payable.................................... 74 129 209
Capital lease obligations............................... 22 23 39
----- ---- ------
Total current liabilities.......................... 227 308 428
Note payable to stockholder, long-term portion............ 16 -- --
Capital lease obligations, long-term portion.............. 19 7 135
----- ---- ------
Total liabilities.................................. 262 315 563
----- ---- ------
Commitments (Note 7)
Stockholders' equity:
Common stock, $0.01 par value; 1,000,000 shares
authorized, 109,569 shares issued and outstanding....... 1 1 1
Additional paid-in capital.............................. 213 227 488
Unearned stock-based compensation....................... (112) (60) (256)
Retained earnings....................................... 76 154 311
----- ---- ------
Total stockholders' equity......................... 178 322 544
----- ---- ------
Total liabilities and stockholder's equity......... $ 440 $637 $1,107
===== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 115
PARTNET, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- -------------------------
1997 1998 1998 1999
------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................................ $1,655 $1,811 $1,257 $1,982
Cost of revenues................................ 801 921 639 987
------ ------ ------ ------
Gross profit.................................... 854 890 618 995
General and administrative expenses............. 668 769 560 813
------ ------ ------ ------
Income from operations.......................... 186 121 58 182
------ ------ ------ ------
Other income (expense):
Other income.................................. -- -- -- 100
Interest income............................... 1 9 7 11
Interest expense.............................. (11) (7) (7) (43)
------ ------ ------ ------
Other income (expense), net..................... (10) 2 -- 68
------ ------ ------ ------
Income before income taxes...................... 176 123 58 250
Provision for income taxes...................... 54 45 20 93
------ ------ ------ ------
Net income...................................... $ 122 $ 78 $ 38 $ 157
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 116
PARTNET, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ --------------------------
1997 1998 1998 1999
---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $122 $ 78 $ 38 $157
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock-based compensation................ 5 66 40 65
Deferred income taxes................... (12) (35) -- (24)
Depreciation and amortization........... 43 50 44 33
Changes in assets and liabilities:
Accounts receivable................... 32 (49) (77) --
Prepaid expenses and other current
assets............................. -- (5) (8) (12)
Accounts payable...................... (22) (6) (2) 48
Income taxes payable.................. 65 55 5 80
Accrued compensation and related
expenses........................... 24 (3) (22) (16)
Deferred revenue...................... (2) -- 15 42
---- ---- ---- ----
Net cash provided by operating
activities....................... 255 151 33 373
---- ---- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ (7) (2) (2) (28)
---- ---- ---- ----
Net cash used in investing
activities....................... (7) (2) (2) (28)
---- ---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease
obligations............................. (17) (22) (17) (23)
Principal payments on note to
stockholder............................. (16) (16) (16) (16)
Principal payments on bank line of
credit.................................. -- -- -- (34)
Proceeds from bank line of credit.......... -- 34 -- --
---- ---- ---- ----
Net cash used in financing
activities....................... (33) (4) (33) (73)
---- ---- ---- ----
Net increase (decrease) in cash and cash
equivalents................................ 215 145 (2) 272
Cash and cash equivalents, beginning of
period..................................... 17 232 232 377
---- ---- ---- ----
Cash and cash equivalents, end of period..... $232 $377 $230 $649
==== ==== ==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for income taxes................. $ 2 $ 26 $ 17 $ 39
Cash paid for interest..................... 11 7 5 43
SUPPLEMENT SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases.... -- 11 11 166
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 117
PARTNET, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED
---------------- PAID-IN STOCK-BASED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
------- ------ ---------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996....................... 109,569 $ 1 $ 96 $ -- $(46) $ 51
Unearned stock-based
compensation............ -- -- 117 (117) -- --
Amortization of stock-based
compensation............ -- -- -- 5 -- 5
Net income................. -- -- -- -- 122 122
------- --- ---- ----- ---- ----
BALANCE AT DECEMBER 31,
1997....................... 109,569 1 213 (112) 76 178
Unearned stock-based
compensation............ -- -- 14 (14) -- --
Amortization of stock-based
compensation............ -- -- -- 66 -- 66
Net income................. -- -- -- -- 78 78
------- --- ---- ----- ---- ----
BALANCE AT DECEMBER 31,
1998....................... 109,569 1 227 (60) 154 322
Unearned stock-based
compensation
(unaudited)............. -- -- 261 (261) -- --
Amortization of stock-based
compensation
(unaudited)............. -- -- -- 65 -- 65
Net income (unaudited)..... -- -- -- -- 157 157
------- --- ---- ----- ---- ----
BALANCE AT SEPTEMBER 30, 1999
(UNAUDITED)................ 109,569 $ 1 $488 $(256) $311 $544
======= === ==== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 118
PARTNET, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND BUSINESS
PartNET, Inc. (the "Company") was incorporated in the State of Utah in May
1993. The Company is a software developer that specializes in electronic
commerce systems that combine the Internet with instant access multiple
distributed databases designed for business-to-business buyers and sellers. The
Company's business consists of a single operating segment, and its operations
and customers are located solely in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED FINANCIAL STATEMENTS
The interim financial statements as of September 30, 1999 and for the
periods ended September 30, 1998 and 1999 are unaudited and have been prepared
on the same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. Operating
results for interim periods are not necessarily indicative of operating results
for an entire year.
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
financial statement date, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company derives a majority of its revenues from software development
and other services performed for the United States government, primarily under a
long-term contract which provides for the reimbursement of costs plus a fixed
percentage fee. Such revenues amounted to $1,552 and $1,628 for the years ended
December 31, 1997 and 1998, respectively. Revenue under long-term contracts is
recognized as services are performed using the percentage of completion method,
measured primarily by costs incurred to date compared with total estimated costs
at completion. The Company provides for anticipated losses on contracts by a
charge to income during the period in which they are first identified.
Contract costs, including indirect costs, are subject to audit and
negotiations with government representatives. These audits have been completed
and agreed upon through December 31, 1997. Contract revenues and accounts
receivable are stated at amounts which are expected to be realized upon final
settlement.
The remainder of the Company's revenues result primarily from consulting
contracts with commercial customers, which are recognized as revenue as the
services are performed.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity date of
three months or less from the date of purchase to be cash equivalents.
F-34
<PAGE> 119
PARTNET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable, accrued compensation and related expenses and
income taxes payable approximate fair value due to the short-term nature of
these balances. The carrying amounts of the Company's bank line of credit,
capital lease obligations and note payable to stockholder approximate fair value
as the rates of interest for these instruments approximate market rates of
interest currently available to the Company for similar instruments.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets ranging from
three to five years. Leasehold improvements and assets recorded under capital
leases are amortized over the shorter of the assets' useful lives or the related
lease terms. Additions to property and equipment together with major renewals
and betterments are capitalized. Expenditures for repairs, maintenance and minor
renewals and betterments are charged to expense as incurred.
LONG-LIVED ASSETS
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. An impairment loss is
recognized when an asset's fair value, determined based on undiscounted cash
flows, is less than its carrying amount. The Company has not identified any such
losses.
INCOME TAXES
The Company provides for income taxes utilizing the liability method. Under
the liability method, current income tax expense or benefit represents income
taxes expected to be payable or refundable for the current period. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax and financial reporting bases of assets and
liabilities. Tax rate changes are reflected in income in the period such changes
are enacted.
EMPLOYEE STOCK-BASED COMPENSATION
The Company measures compensation expense for its employee stock-based
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income as if a fair value-based method had been applied in
measuring compensation expense. Accordingly, compensation cost for stock awards
are measured as the excess, if any, of the deemed fair value for financial
reporting purposes of the Company's Common Stock at the date of grant over the
amount an employee must pay to acquire the stock. Compensation cost is amortized
over the related vesting periods using an accelerated graded method in
accordance with Financial Accounting Standards Board Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans." Accrued compensation costs for awards that are forfeited are
reversed against compensation expense in the period of forfeiture.
F-35
<PAGE> 120
COMPREHENSIVE INCOME
Comprehensive income for all periods presented consists solely of net
income.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. SFAS No. 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company does not expect that
the adoption of SFAS No. 133 will have a material impact on its financial
statements because it does not currently hold any derivative instruments and
does not engage in any hedging activities.
3. PROPERTY AND EQUIPMENT
Property and equipment components are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1998
---- -----
<S> <C> <C>
Computer and other equipment................................ $ 16 $ 19
Furniture and fixtures...................................... 53 63
Leasehold improvements...................................... 56 56
---- -----
125 138
Accumulated depreciation and amortization................... (50) (100)
---- -----
$ 75 $ 38
==== =====
</TABLE>
4. BANK LINE OF CREDIT
Under terms of a revolving bank credit agreement negotiated in 1996, the
Company may borrow up to $200. Borrowings under the credit line bear interest at
a variable rate of 1% above the bank's prime rate (8.75% at December 31, 1998).
The credit line is guaranteed by the Company's controlling stockholder. There
are no restrictive covenants. The credit line matures on December 1, 1999. At
December 31, 1998, $34 was outstanding under this facility. There were no
borrowings outstanding under this facility at December 31, 1997.
F-36
<PAGE> 121
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Current
Federal................................................... $ 57 $ 70
State..................................................... 9 10
---- ----
66 80
---- ----
Deferred
Federal................................................... (11) (31)
State..................................................... (1) (4)
---- ----
(12) (35)
---- ----
$ 54 $ 45
==== ====
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Federal income tax at statutory rate of 34%................. $ 60 $42
State income taxes, net of federal benefit.................. 4 6
Permanent differences and other............................. (10) (3)
---- ---
$ 54 $45
==== ===
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Stock-based compensation.................................... $ 3 $28
Depreciation and amortization............................... 8 17
Other....................................................... 1 2
--- ---
$12 $47
=== ===
</TABLE>
6. STOCK OPTION PLAN
On December 1, 1995, the Company adopted a stock option plan (the "Plan")
which provides for the grant of non-qualified stock options to employees,
officers, directors, consultants and independent contractors. The Company
reserved 46,868 shares of Common Stock for issuance under the Plan. The
provisions for vesting and all other terms and conditions are determined by the
Board of Directors at the time of grant. Generally, no option is exercisable
after ten years from the date of grant. Options generally vest annually over
four-year periods. At December 31, 1998, there were 17,518 shares of Common
Stock available for future issuance under the Plan.
F-37
<PAGE> 122
The following table summarizes employee stock option activity under the
Plan:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1996............................ -- --
Granted................................................... 24,150 $5.16
------
Outstanding at December 31, 1997............................ 24,150 5.16
Granted................................................... 5,200 7.40
------
Outstanding at December 31, 1998............................ 29,350 5.55
======
</TABLE>
No stock options have been issued to non-employees (which include
consultants and independent contractors) during 1997 and 1998.
The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
EXERCISE OPTIONS LIFE OPTIONS
PRICE OUTSTANDING (YEARS) EXERCISABLE
-------- ------------ --------- ------------
<S> <C> <C> <C>
$ 1.00...................... 14,500 8.93 4,843
10.00...................... 14,850 8.74 4,986
------ -----
29,350 9,829
====== =====
</TABLE>
Employee stock-based compensation is recognized using the intrinsic value
method. In connection with the grant of stock options to employees, the Company
recorded unearned stock-based compensation within stockholders' equity of $117
and $14 during 1997 and 1998, respectively. This represents the difference
between the deemed fair value of the Common Stock and the exercise price of
these options on the date of grant. Amortization of unearned stock-based
compensation, net of any charges reversed during the period for the forfeiture
of unvested options, was $5 and $66 for 1997 and 1998, respectively.
At December 31, 1998, the remaining unearned stock-based compensation of
$60 will be amortized as follows: $34 in 1999, $15 in 2000, $8 in 2001 and $3 in
2002. The amount of stock-based compensation expense to be recorded in future
periods could decrease if awards are forfeited for which accrued but unamortized
compensation expense has been recorded.
Had compensation expense for employee stock options been determined based
on the fair value of the options on the date of grant, the Company's net income
would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1998
---- ----
<S> <C> <C>
Net income:
As reported............................................... $122 $78
Pro forma................................................. 117 63
</TABLE>
F-38
<PAGE> 123
The weighted-average grant-date fair value per share of options granted
during 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998
-------- -------
<S> <C> <C>
Weighted-average grant-date fair value of options granted:
Exercise price equal to deemed fair value of Common Stock
on the grant date:
Weighted-average exercise price...................... $ 10.00 $ 10.00
Per share fair value................................. 2.20 2.00
Exercise price less than deemed fair value of Common Stock
on the grant date:
Weighted-average exercise price...................... 1.00 1.00
Per share fair value................................. 9.21 9.20
</TABLE>
The fair value of the options was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants during 1997 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Expected life............................................... 4 years 4 years
Risk-free interest rate..................................... 6.0% 5.6%
Expected volatility......................................... 0% 0%
Expected dividend yield..................................... 0% 0%
</TABLE>
The volatility of the Company's Common Stock underlying the options was not
considered because the Company's equity was not publicly traded as of December
31, 1997 and 1998. For purposes of pro forma disclosures, the estimated fair
value of options is amortized to expense over the options' vesting periods using
an accelerated graded method.
7. COMMITMENTS
The Company leased its office facility under an operating lease that
terminated in March 1999. Rent expense was $40 for each of the years ended
December 31, 1997 and 1998.
The Company also leases certain equipment under capital lease agreements
that mature on various dates through July 2004 and have interest rates ranging
from 9.25% to 10.00%. As of December 31, 1997 and 1998, equipment held under
capital leases totaled $59 and $70, respectively, and related accumulated
amortization totaled $12 and $14, respectively.
F-39
<PAGE> 124
Future minimum payments under the Company's lease agreements at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending December 31,
1999...................................................... $ 23 $ 9
2000...................................................... 8 --
2001...................................................... 2 --
---- ----
33 $ 9
====
Less amount representing
interest............................................... (3)
----
Present value of minimum lease payments................... 30
Less current portion...................................... (23)
----
Long-term portion of capital lease obligations............ $ 7
====
</TABLE>
In April 1999, the Company entered into an operating lease agreement for
its office space under a noncancellable lease that expires in January 2004 and
has annual rentals of $100. The controlling stockholder of the Company is also a
limited partner of the lessor of the Company's office facility.
8. RELATED PARTY TRANSACTIONS
In 1996, the Company financed certain leasehold improvements with a loan
obtained from a significant stockholder in the amount of $53. The loan is due in
equal monthly installments of $2 and incurs interest at an annual rate of 10%.
At December 31, 1997 and 1998, $32 and $16 remained outstanding under this loan,
respectively.
9. 401(k) PLAN
In July 1997, the Company adopted the PartNET, Inc. 401(k) Profit Sharing
Plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company who are at least 21 years of age. Employees may contribute up to 15%
of their annual pre-tax compensation per year, not to exceed the maximum limit
imposed by federal tax law. Company contributions to the 401(k) Plan are
determined at management's discretion. Participants vest to Company
contributions and related earnings after four years of continuous service with
the Company. To date, the Company has made no contributions to the 401(k) Plan.
10. SUBSEQUENT EVENTS (UNAUDITED)
In November 1999, the Company repurchased 15,000 shares of Common Stock
from a significant stockholder for an aggregate purchase price of $600.
In November 1999, the Company was acquired by medibuy.com, Inc., a company
engaged in business-to-business Internet commerce in the healthcare industry.
F-40
<PAGE> 125
REPORT OF INDEPENDENT AUDITORS
The Members
Premier Health Exchange, LLC
We have audited the accompanying balance sheets of Premier Health Exchange,
LLC, "PHx", (a development stage company) as of December 31, 1998, December 31,
1999 and February 29, 2000 and the related statements of operations, members'
capital and cash flows for the period from September 16, 1998 (inception) to
December 31, 1998, the year ended December 31, 1999, the two months ended
February 29, 2000, and for the period from September 16, 1998 (inception)
through February 29, 2000. These financial statements are the responsibility of
PHx's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Premier Health Exchange, LLC
as of December 31, 1998, December 31, 1999 and February 29, 2000, and the
results of its operations and its cash flows for the period from September 16,
1998 (inception) to December 31, 1998, the year ended December 31, 1999, the two
months ended February 29, 2000, and for the period from September 16, 1998
(inception) through February 29, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
San Diego, California
March 6, 2000
F-41
<PAGE> 126
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 29,
1998 1999 2000
--------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ -- $ -- $23,650,000
--------- ----------- -----------
Total current assets............................. -- -- 23,650,000
Software and equipment, net...................... -- 12,707,000 18,271,000
--------- ----------- -----------
Total assets..................................... $ -- $12,707,000 $41,921,000
========= =========== ===========
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable and accrued expenses............ $ -- $ -- $ 750,000
--------- ----------- -----------
Total liabilities................................ -- -- 750,000
Commitments (Notes 3, 4 and 6)
Members' capital:
Members' capital, no common membership units
authorized, issued or outstanding at
December 31, 1998 and 1999; 100,000,000
common membership units authorized at
February 29, 2000; 63,375,000 issued and
outstanding at February 29, 2000............ -- -- 47,711,000
Members' capital subscribed.................... 341,000 16,438,000 --
Deficit accumulated during the development
stage....................................... (341,000) (3,731,000) (6,540,000)
--------- ----------- -----------
Total members' capital........................... -- 12,707,000 41,171,000
--------- ----------- -----------
Total liabilities and members' capital........... $ -- $12,707,000 $41,921,000
========= =========== ===========
</TABLE>
See accompanying Notes.
F-42
<PAGE> 127
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
SEPTEMBER 16, SEPTEMBER 16,
1998 FOR THE TWO 1998
(INCEPTION) FOR THE MONTHS (INCEPTION)
THROUGH YEAR ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, FEBRUARY 29, FEBRUARY 29,
1998 1999 2000 2000
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
General and administrative
expenses (see Notes 1, 3
and 4 regarding related
party transactions with
Premier Purchasing
Partners, L.P.).......... $341,000 $3,390,000 $2,809,000 $6,540,000
-------- ---------- ---------- ----------
Total operating expenses... 341,000 3,390,000 2,809,000 6,540,000
-------- ---------- ---------- ----------
Net loss................... $341,000 $3,390,000 $2,809,000 $6,540,000
======== ========== ========== ==========
</TABLE>
See accompanying Notes.
F-43
<PAGE> 128
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF MEMBERS' CAPITAL
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON MEMBERS' DURING THE
MEMBERSHIP MEMBERS' CAPITAL DEVELOPMENT
UNITS CAPITAL SUBSCRIBED STAGE TOTAL
---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 16, 1998
(inception)...................... -- $ -- $ -- $ -- $ --
Subscription for Members'
capital........................ -- -- 341,000 -- 341,000
Net loss......................... -- -- -- (341,000) (341,000)
---------- ----------- ------------ ----------- ------------
Balance at December 31, 1998....... -- -- 341,000 (341,000) --
Subscription for Members'
capital...................... -- -- 16,097,000 -- 16,097,000
Net loss....................... -- (3,390,000) (3,390,000)
---------- ----------- ------------ ----------- ------------
Balance at December 31, 1999....... -- -- 16,438,000 (3,731,000) 12,707,000
Subscription for Members'
capital........................ -- -- 7,623,000 -- 7,623,000
Issuance of common membership
units in exchange for cash
contribution ($.75 per
membership unit)............... 31,414,532 23,650,000 -- -- 23,650,000
Issuance of common membership
units in exchange for
subscribed members' capital
($.75 per membership unit)..... 31,960,468 24,061,000 (24,061,000) -- --
Net loss......................... -- -- (2,809,000) (2,809,000)
---------- ----------- ------------ ----------- ------------
Balance at February 29, 2000....... 63,375,000 $47,711,000 $ -- $(6,540,000) $ 41,171,000
========== =========== ============ =========== ============
</TABLE>
See accompanying Notes.
F-44
<PAGE> 129
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
SEPTEMBER 16, SEPTEMBER 16,
1998 FOR THE TWO 1998
(INCEPTION) FOR THE YEAR MONTHS (INCEPTION)
THROUGH ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, FEBRUARY 29, FEBRUARY 29,
1998 1999 2000 2000
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................. $(341,000) $(3,390,000) $(2,809,000) $(6,540,000)
Adjustments to reconcile net loss to cash
used in operations:
Depreciation and amortization........ -- 873,000 560,000 1,433,000
Net operations contributed to Premier
Health Exchange, LLC (see Notes 1,
3 and 4 regarding related party
transactions with Premier
Purchasing Partners, L.P.)......... 341,000 2,517,000 1,499,000 4,357,000
Change in accounts payable and accrued
expenses............................. -- -- 750,000 750,000
--------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................. -- -- -- --
--------- ----------- ----------- -----------
FINANCING ACTIVITIES
Member capital contribution.............. -- -- 23,650,000 23,650,000
--------- ----------- ----------- -----------
Net cash provided by financing
activities............................. -- -- 23,650,000 23,650,000
--------- ----------- ----------- -----------
Net increase in cash and cash
equivalents............................ -- -- 23,650,000 23,650,000
Cash and cash equivalents at beginning of
period................................. -- -- -- --
--------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ -- $ -- $23,650,000 $23,650,000
========= =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Software and equipment contributed to
Premier Health Exchange, LLC (see Notes
1, 3 and 4 regarding related party
transactions with Premier Purchasing
Partners, L.P.)........................ $ -- $13,580,000 $ 6,124,000 $19,704,000
========= =========== =========== ===========
</TABLE>
See accompanying Notes.
F-45
<PAGE> 130
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 16, 1998 (INCEPTION) TO FEBRUARY 29, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Premier Health Exchange, LLC ("PHx"), a development stage company, is a
limited liability company whose sole member is Premier Purchasing Partners, L.P.
("PPLP"). PPLP's general partner is Premier Plans, LLC, a limited liability
company whose sole member is Premier, Inc. ("Premier"), a national strategic
healthcare alliance of not for profit hospital and healthcare systems. Premier,
through PPLP, offers the administration of group purchasing contracts through
agreements with suppliers of medical and non-medical products and services. The
nature of these agreements is to provide products and services to Premier's
hospitals and healthcare systems at substantial cost savings. Certain of these
hospitals and healthcare systems are also limited partners in PPLP.
On September 16, 1998, PPLP commenced the development of a supply chain
services and solutions software and equipment division ("Division"). The
Division includes an Internet deployed electronic catalog to provide Premier's
hospitals and healthcare systems with the ability to review contract products,
prices and terms for all product categories of PPLP group purchasing contracts.
In addition, the division has focused on the development of more advanced supply
chain services and solutions including auction functionality and other dynamic
purchasing capabilities.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that PHx
will continue as a going concern. This basis of accounting contemplates the
recovery of PHx's assets and the satisfaction of its liabilities in the normal
course of business. Since inception, PHx has been engaged in organizational
activities and the establishment of the electronic catalog. Through February 29,
2000, PHx has incurred accumulated losses of $6,540,000. Successful completion
of PHx's development program and its transition to attaining profitable
operations is dependent on obtaining financing adequate to complete its product
development and the successful market introduction of its products and services.
Management believes that the existing funds will be adequate to meet PHx's
working capital requirements at least through February 28, 2001.
As further discussed in Notes 4 and 5, on February 28, 2000, the assets,
liabilities and operations of the Division, including all operations related to
this project were contributed by PPLP to PHx in exchange for common membership
units. PHx was formed on February 28, 2000 and shall continue until February 28,
2049 as defined in the operating agreement (see Note 5).
The financial statements of PHx reflect the historical results of
operations and cash flows of the Division during each respective period using
PPLP's historical bases for the assets and liabilities and the historical
results of operations of the Division. Changes in members' capital represent
PPLP's transfer of its net investment in the Division, after giving effect to
the net loss of the Division, plus cash transfers to PHx. The financial
information included herein may not reflect the financial statements, operating
results, changes in members' capital and cash flows of PHx in the future or what
they would have been had PHx been a separate stand-alone entity during the
periods presented.
The financial statements include allocations of certain PPLP expenses,
including centralized legal, accounting, treasury, information technology and
management costs. The expense allocations have been determined on the basis that
PPLP and PHx considered to be reasonable
F-46
<PAGE> 131
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 16, 1998 (INCEPTION) TO FEBRUARY 29, 2000
reflections of the utilization of services provided or the benefit received by
the Division. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include liquid investments with remaining maturities of
three months or less at the time of acquisition. The carrying value of these
investments approximates fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject PHx to concentrations of
credit risk consist primarily of cash and cash equivalents. PHx limits its
exposure to credit loss by placing its cash with high credit quality financial
institutions.
SOFTWARE AND EQUIPMENT
Software and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (generally three to five years) using the
straight-line method.
LONG-LIVED ASSETS
PHx assesses potential impairments to its long-lived assets when there is
evidence that events or changes in circumstances have made recovery of the
asset's carrying value unlikely. An impairment loss would be recognized when the
sum of the expected future undiscounted net cash flows is less than the carrying
amount of the asset. While PHx's current and historical operating and cash flow
losses are indicators of impairment, PHx believes the future cash flows to be
received support the carrying value of its long lived assets, and accordingly,
PHx has not recognized any impairment losses at February 29, 2000.
SOFTWARE DEVELOPMENT COSTS
Software Development costs are accounted for in accordance with Statement
of Position ("SOP") 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. In accordance with SOP 98-1, costs to
develop internal-use computer software during the application development stage
are capitalized. Capitalized software costs are amortized on a straight-line
basis over the estimated useful lives of the related software applications of up
to five years.
INCOME TAXES
PHx is treated as a partnership for income tax purposes. Under provisions
of the Internal Revenue Code, partnerships are not subject to federal income
taxes. For income tax purposes, any income or losses realized are taxable to the
individual members. Taxable income or loss is allocated to each member in
accordance with the operating agreement.
F-47
<PAGE> 132
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 16, 1998 (INCEPTION) TO FEBRUARY 29, 2000
EQUITY-BASED COMPENSATION
PHx accounts for equity-based employee compensation arrangements using the
intrinsic value method described by Accounting Principles Board Opinion No. 25
("APB 25), Accounting for Stock Issued to Employees, and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
Under APB 25, compensation cost is recognized over the vesting period based on
the excess, if any, on the date of grant of the estimated fair value of PHx's
membership unit over the employee's exercise price. When the exercise price of
the employee membership unit option is less than the fair value of the
underlying membership unit on the grant date, deferred compensation is
recognized and amortized to expense in accordance with the aggregation
methodology prescribed by Financial Accounting Standards Board ("FASB")
Interpretation No. 28 over the vesting period of the individual options, which
is four years. Equity-based awards issued to non-employees are measured using
fair value-based methods and are expensed over the period services are provided.
COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, requires that all components
of comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in members' capital during a period from transactions and
other events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. For the period ended
December 31, 1998, the year ended December 31, 1999, and the two months ended
February 29, 2000, PHx had no items of other comprehensive income.
SEGMENT REPORTING
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas, and major customers. PHx has determined that it
operates in only one segment. Accordingly, the adoption of this statement had no
impact on PHx's financial statements.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which will be
effective January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measure at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. PHx believes the
adoption of SFAS No. 133 will not have a material effect on the financial
statements.
F-48
<PAGE> 133
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 16, 1998 (INCEPTION) TO FEBRUARY 29, 2000
2. SOFTWARE AND EQUIPMENT
Software and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- FEBRUARY 29,
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
Software................................... $ -- $13,466,000 $18,614,000
Computer equipment......................... -- 114,000 1,090,000
----------- ----------- -----------
Total...................................... -- 13,580,000 19,704,000
Accumulated depreciation and
amortization............................. -- (873,000) (1,433,000)
----------- ----------- -----------
Software and equipment, net................ $ -- $12,707,000 $18,271,000
=========== =========== ===========
</TABLE>
3. MEMBERS' CAPITAL
CAPITALIZATION
On February 28, 2000, PHx issued 63,375,000 of it's common membership units
and a warrant to purchase 14,930,381 units at an exercise price of $0.01 per
unit to PPLP in exchange for $23,650,000 in cash and contributed operating
expenses, software and equipment (See Note 4). The warrants are immediately
exercisable; no warrants have been exercised to date.
MEMBERSHIP UNIT OPTIONS
On February 28, 2000, PHx adopted the Employee Unit Option Plan (the
"Plan") for the benefit of its eligible employees, consultants and independent
directors. The Plan authorizes 4,180,625 common membership units of PHx for
issuance. Under the terms of the Plan, non-qualified and incentive unit options
may be granted at prices not less than 100% of the fair value on the date of
grant. Options vest over four years and expire ten years from the date of grant.
There were no unit options outstanding during the periods ended December
31, 1998, December 31, 1999, or February 29, 2000.
COMMON MEMBERSHIP UNITS RESERVED FOR ISSUANCE
The following table summarizes common membership units reserved during
issuance at February 29, 2000 on exercise or conversion of:
<TABLE>
<S> <C>
Common membership unit warrants............................. 14,930,381
Common membership unit options.............................. 4,180,625
----------
Total common membership units reserved for issuance......... 19,111,006
==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
Prior to February 28, 2000, PHx was operated as a division of PPLP and the
Division's operations were funded entirely by PPLP. For all periods through
February 29, 2000, PPLP has allocated a portion of its corporate operating
expenses to the Division, in accordance with SEC Staff Accounting Bulletin No.
55, "Allocation of Expenses and Related Disclosure in Financial Statements of
Subsidiaries, Divisions or Less Business Components of Another Entity." These
expenses have included centralized legal, accounting, treasury, information
technology and
F-49
<PAGE> 134
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 16, 1998 (INCEPTION) TO FEBRUARY 29, 2000
management costs. Allocations were based on a percentage allocation for such
services provided based on relative expenditure levels. Management believes that
the basis used for allocating corporate services is reasonable. While the terms
of these transactions may differ from those that would result from transactions
among unrelated parties, management does not believe such differences would be
material. Software and equipment at the Division were transferred to PHx at
their historical carryover basis.
Contributions by PPLP to PHx are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
SEPTEMBER 16, SEPTEMBER 16,
1998 FOR THE TWO 1998
(INCEPTION) FOR THE MONTHS (INCEPTION)
THROUGH YEAR ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, FEBRUARY 29, FEBRUARY 29,
1998 1999 2000 2000
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Operating expenses contributed by
PPLP to PHx...................... $341,000 $ 2,517,000 $ 1,499,000 $ 4,357,000
Software and equipment contributed
by PPLP to PHx................... -- 13,580,000 6,124,000 19,704,000
Cash contribution by PPLP to PHx... -- -- 23,650,000 23,650,000
-------- ----------- ----------- -----------
$341,000 $16,097,000 $31,273,000 $47,711,000
======== =========== =========== ===========
</TABLE>
5. UNIT PURCHASE AGREEMENT
Pursuant to the Unit Purchase Agreement, PPLP transferred to PHx ownership
of all assets reflected on PHx's balance sheet, including specified intellectual
property and technology related to and necessary for PHx to conduct its
business. As of the effective date, PHx also assumed all liabilities from PPLP
primarily resulting from operations of the business or resulting from any asset
that PPLP transferred to PHx. For its contribution, PPLP received 63,375,000
common membership units in PHx and a warrant to purchase up to 14,930,381 common
membership units at an exercise price of $0.01 per unit.
6. SUBSEQUENT EVENTS
On March 1, 2000, PHx granted options to employees to purchase 4,180,625
common membership units at a purchase price of $4.00 per share. In connection
with the issuance of these options, PHx recorded a deferred compensation charge
of $17.6 million that will be amortized over the vesting period of the
individual options.
On March 4, 2000, PHx entered into a ten-year e-commerce outsourcing
agreement with PPLP to develop, integrate and maintain an online marketplace on
behalf of PPLP. PHx will receive minimum aggregate payments from PPLP of $159
million over the term of the agreement for integration and maintenance services.
Additionally, PHx will receive e-commerce transaction fees from PPLP based on a
percentage of the gross transaction value of certain products and services
purchased on the marketplace through standard group purchasing agreements in
excess of contracted minimum purchasing volumes. PHx is required to pay PPLP a
sales commission equal to a contracted percentage of the e-commerce transaction
fees it earns on the
F-50
<PAGE> 135
PREMIER HEALTH EXCHANGE, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM SEPTEMBER 16, 1998 (INCEPTION) TO FEBRUARY 29, 2000
online marketplace related to goods and services not purchased through the
standard group purchasing agreements maintained by PPLP.
On March 4, 2000, PHx also entered into a renewable ten-year agreement with
Premier, Inc., whereby Premier, Inc. will provide promotion, marketing and
management support services for certain e-commerce offerings of PHx. PHx is
required to make payments totaling $20.0 million over the ten-year term of the
agreement.
On March 4, 2000, PHx signed a definitive agreement to merge its operations
with medibuy.com, a healthcare electronic commerce supply chain services
company.
F-51
<PAGE> 136
- ----------------------------------------------------------
- ----------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN
OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES WHERE
IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT
ONLY AS OF ITS DATE.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 9
Special Note Regarding Forward-Looking
Statements............................ 24
Use of Proceeds......................... 25
Dividend Policy......................... 25
Capitalization.......................... 26
Dilution................................ 27
Selected Consolidated Financial
Information........................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 30
Business................................ 37
Management.............................. 55
Related Party Transactions.............. 68
Principal Stockholders.................. 71
Description of Capital Stock............ 74
Shares Eligible for Future Sale......... 78
Underwriting............................ 80
Validity of Common Stock................ 82
Experts................................. 82
Where You Can Find More Information..... 83
Index to Financial Statements........... F-1
</TABLE>
----------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
13,000,000 Shares
MEDIBUY.COM, INC.
Common Stock
----------------------
[MEDIBUY LOGO]
----------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
WIT SOUNDVIEW
REPRESENTATIVES OF THE UNDERWRITERS
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 47,362
NASD filing fee............................................. 18,440
Nasdaq Listing Application fee.............................. 95,000
Printing and engraving expenses............................. 330,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 400,000
Transfer agent and registrar fees........................... 25,000
Miscellaneous............................................... 34,198
----------
Total..................................................... $1,450,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws require that directors and officers be indemnified to
the maximum extent permitted by Delaware law.
The Delaware General Corporation Law (the "Delaware GCL") provides that a
director or officer of a corporation (i) shall be indemnified by the corporation
for all expenses of litigation or other legal proceedings when he is successful
on the merits, (ii) may be indemnified by the corporation for the expenses,
judgments, fines and amounts paid in settlement of such litigation (other than a
derivative suit) even if he is not successful on the merits if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reason to believe his conduct was unlawful), and (iii) may be indemnified by the
corporation for expenses of a derivative suit (a suit by a stockholder alleging
a breach by a director or officer of a duty owed to the corporation), even if he
is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification may be made in accordance
with this clause (iii) if the director or officer is adjudged liable to the
corporation, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. The indemnification described in clauses (ii) and (iii) above shall be
made upon order by a court or a determination by (i) a majority of disinterested
directors, (ii) if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion or (iii) the stockholders that
indemnification is proper because the applicable standard of conduct is met.
Expenses incurred by a director or officer in defending an action may be
advanced by the corporation prior to the final disposition of such action upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that he is not entitled to be indemnified in
connection with the proceeding to which the expenses relate. The Registrant's
Amended and Restated Certificate of Incorporation includes a provision
eliminating, to the fullest extent permitted by Delaware law, director liability
for monetary damages for breaches of fiduciary duty.
The Registrant has entered into indemnity agreements (the "Indemnity
Agreements") with each director or officer designated by the Board of Directors.
The Indemnity Agreements require that the Registrant indemnify directors and
officers who are parties thereto in all cases to the fullest
II-1
<PAGE> 138
extent permitted by Delaware law. Under the Delaware GCL, except in the case of
litigation in which a director or officer is successful on the merits,
indemnification of a director or officer is discretionary rather than mandatory.
Consistent with the Registrant's Bylaw provision on the subject, the Indemnity
Agreements require the Registrant to make prompt payment of litigation expenses
at the request of the director or officer in advance of indemnification provided
that he undertakes to repay the amounts if it is ultimately determined that he
is not entitled to indemnification for such expenses. The advance of litigation
expenses is mandatory; under the Delaware GCL such advance would be
discretionary. Under the Indemnity Agreements, the director or officer is
permitted to bring suit to seek recovery of amounts due under the Indemnity
Agreements and is entitled to recover the expenses of seeking such recovery
unless a court determines that the action was not made in good faith or was
frivolous. Without the Indemnity Agreements, the Registrant would not be
required to pay the director or officer for his expenses in seeking
indemnification recovery against the Registrant. Under the Indemnity Agreements,
directors and officers are not entitled to indemnity or advancing of expenses
(i) if such director or officer has recovered payment under an insurance policy
for the subject claim, or has otherwise been indemnified against the subject
claim, (ii) for actions initiated or brought by the director or officer and not
by way of defense (except for actions seeking indemnity or expenses from the
Registrant), (iii) if the director or officer violated section 16(b) of the
Exchange Act or similar provisions of law or (iv) if a court of competent
jurisdiction determines that the director or officer failed to act in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the Registrant or, with respect to any proceeding which is of a
criminal nature, had reasonable cause to believe his conduct was unlawful.
Absent the Indemnity Agreements, indemnification that might be made available to
directors and officers could be changed by amendments to the Registrant's
Amended and Restated Certificate of Incorporation or Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, August 18, 1998, the Registrant has sold and issued the
following unregistered securities:
(a) Between August 22, 1998 and September 26, 1998, the Registrant
issued and sold 10,110,000 shares of its common stock to 31 founding
employees and consultants in exchange for an aggregate purchase price of
$5,115.
(b) Between September 30, 1998 and January 31, 1999, the Registrant
sold and issued 1,362,000 shares of its common stock to 34 investors,
including certain initial founder employees and consultants, for an
aggregate purchase price of $681,000. The shares of common stock were
subsequently exchanged for 68,100 shares of Series A preferred stock.
(c) The Registrant issued two promissory notes dated January 15, 1999
and January 29, 1999, to two investors convertible into preferred stock of
the Registrant, and a warrant to purchase shares of common stock dated
January 29, 1999 to a single investor. The promissory notes and the warrant
were canceled upon the closing of the sale and issuance of the Series B
preferred stock. On March 17, 1999, the Registrant sold and issued 334,907
shares of its Series B preferred stock to three investors for an aggregate
purchase price of $5,023,605.
(d) On March 5, 1999, the Registrant granted Ridgewood Capital
Management, LLC the right to receive up to 141,280 shares of common stock
in exchange for financial management services.
(e) On June 11, 1999, the Registrant issued and sold 4,458,332 shares
of its Series C preferred stock to 9 investors for an aggregate purchase
price of $16,049,995.
II-2
<PAGE> 139
(f) On June 11, 1999, the Registrant granted to six of its existing
stockholders the right to purchase up to 1,819,865 shares of its Series D
preferred stock. If exercised, the stockholders would have been entitled to
purchase the shares for an aggregate purchase price of approximately $22
million.
(g) From August 31, 1999, to December 21, 1999, the Registrant issued
and sold 2,423,656 shares of its Series D preferred stock to 21 investors
for an aggregate purchase price of $29,302,001.
(h) Since March 1999, the Registrant has granted stock options to
purchase shares of its common stock to various employees, directors and
consultants pursuant to its 1999 Equity Incentive Plan and its 1999 Omnibus
Equity Plan, and pursuant to stock options not under any plan. As of
December 31, 1999, the Registrant had issued and sold, in the aggregate,
416,250 shares of its common stock for per share exercise prices ranging
from $0.08 to $5.44 to employees and consultants pursuant to their exercise
of stock options granted under the Registrant's 1999 Equity Incentive Plan
and its 1999 Omnibus Equity Plan.
(i) On November 30, 1999, the Registrant issued an aggregate of
1,170,098 shares of its common stock to the stockholders of PartNET, Inc.
upon the acquisition of PartNET. In addition, the Registrant granted the
optionholders of PartNET stock options to purchase up to an aggregate of
579,850 shares of the Registrant's common stock in substitution for the
outstanding stock options of PartNET. The exercise prices of the stock
options range from $0.08 to $0.81 per share, after giving effect of the
exchange ratio in the acquisition.
(j) From December 30, 1999 to January 11, 2000, the Registrant issued
and sold 3,281,515 shares of its Series E preferred stock to 13 investors
for an aggregate purchase price of $67,402,318. Investors in this offering
included funds affiliated with each of MeriTech Capital Partners, Allianz
Capital Partners, Goldman, Sachs & Co., Thomas Weisel Partners, Donaldson,
Lufkin & Jenrette, and Acorn Technology Fund, L.P.
(k) On January 11, 1999, the Registrant issued two warrants to
purchase up to an aggregate of 379,968 shares of the Registrant's common
stock to Allianz Capital Partners GmbH and Jochen Noelke.
(l) In March 2000, we issued to drugstore.com, inc. a warrant to
purchase 500,000 shares of our common stock for an exercise price of $0.004
per share. The shares subject to the warrant are immediately exercisable
upon grant. The warrant expires on the second anniversary of the date of
grant.
(m) Concurrent with this offering, the Registrant will issue stock
options and assume warrants upon the acquisition of Premier Health Exchange
LLC. In the acquisition, the Registrant will grant to the optionholders of
Premier Health Exchange LLC stock options to purchase up to an aggregate of
3,125,701 shares of the Registrant's common stock in substitution for the
outstanding common membership unit options of Premier Health Exchange LLC.
The exercise price of the stock options will be $5.35 per share. In
addition, the Registrant will assume warrants to purchase membership units
of Premier Health Exchange LLC. The assumed warrants will be converted into
warrants to purchase an aggregate of 11,162,901 shares of common stock of
the Registrant, with an exercise price of $.01 per share. The shares of
common stock and warrants issued to the members of Premier Health Exchange
LLC will be registered on a registration statement of Form S-4 which will
become effective concurrently with this registration statement.
The common stock amounts and per share exercise prices in the descriptions above
reflect an assumed two and one-half-for-one stock split of the Registrant's
common stock which is assumed to take place prior to effectiveness of this
offering.
II-3
<PAGE> 140
The exchange of securities described under Item 15(b) was exempt under Section
3(a)(9) of the Securities Act. The issuances of equity securities described in
Items 15(a), 15(c) through 15(g), 15(j) through 15(l) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act and Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering. The issuances of securities described in
Item 15(h) and the stock options issued in substitution for the stock options of
PartNET described in Item 15(i) and the stock options issued in substitution for
the stock options of Premier Health Exchange LLC described in Item 15(m) were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act or on Rule 701 promulgated thereunder as
transactions pursuant to compensatory benefit plans approved by the Registrant's
board of directors. The recipients of the above-described securities represented
their intention to acquire the securities for investment only and not with a
view to distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Registrant's Amended and Restated Certification of
Incorporation, as currently in effect.
3.2* Registrant's Bylaws, as amended, as currently in effect.
3.3 Form of Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of this
offering.
3.4 Form of Registrant's Amended and Restated Certificate of
Incorporation, to be filed after the closing of this
offering.
3.5* Form of Registrant's Amended and Restated Bylaws, to be
effective upon the closing of this offering.
4.1 Form of common stock Certificate of Registrant.
5.1** Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement entered into between the
Registrant and its directors and executive officers.
10.2* 1999 Equity Incentive Plan, as amended.
10.3* Form of Stock Option Grant Notice and related Stock Option
Agreement under the 1999 Equity Incentive Plan.
10.4* 1999 Omnibus Equity Plan.
10.5* Form of Stock Option Grant Notice and related Stock Option
Agreements under the 1999 Omnibus Equity Plan.
10.6* 1999 Non-Employee Directors' Stock Option Plan.
10.7* Form of Stock Option Grant Notice and Related Stock Option
Agreement under the 1999 Non-Employee Directors' Stock
Option Plan.
10.8* 1999 Employee Stock Purchase Plan.
10.9* Employee Stock Purchase Plan Offering.
10.10 Employment Agreement by and between the Registrant and
Dennis J. Murphy dated March 29, 1999, as amended effective
October 26, 1999 and January 28, 2000.
10.11 Employment Agreement by and between the Registrant and James
L. Hersma dated May 26, 1999, as amended effective December
28, 1999 and January 28, 2000.
</TABLE>
II-4
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.12 Employment Agreement by and between the Registrant and
Charles R. Smith dated November 12, 1998, as amended
effective October 26, 1999 and January 28, 2000.
10.13 Employment Agreement by and between the Registrant and
Norman R. Farquhar dated October 6, 1999, as amended
effective January 28, 2000.
10.14 Employment Agreement by and between the Registrant and
Robert B. Witt dated May 10, 1999, as amended effective
January 28, 2000.
10.15* Employment Agreement by and between the Registrant and Don
Brown dated November 22, 1999.
10.16* Consulting Agreement dated March 5, 1999, by and between the
Registrant and Ridgewood Capital, Inc.
10.17* Consulting Services Agreement between the Registrant and
Ernst & Young LLP dated October 28, 1999.
10.18* Common Stock Exchange Agreement by and between the
Registrant and John H. Stevens dated June 11, 1999.
10.19* Second Amended and Restated Investors Rights Agreement by
and among the Registrant and the Investors identified
therein dated January 7, 2000.
10.20* Amended and Restated Stockholder Agreement by and among the
Registrant and certain of its Stockholders, as identified
therein dated January 7, 2000.
10.21* Lease Agreement by and between the Registrant and Kilroy
Realty, L.P. dated August 1, 1999.
10.22* Lease Agreement by and between the Registrant and PHL-OPCO,
LP dated April 1, 1999.
10.23* Lease Agreement by and between the Registrant and Twenty
First Properties, Inc. dated July 7, 1999.
10.24* Sublease by and between the Registrant and Southwall
Technologies, Inc. dated October 14, 1999 and Master Lease
by and between C&J Development Co., and Southwall
Technologies, Inc.
10.25 Lease by and between Paradigm Resources, L.C. and PartNET,
Inc. dated January 12, 1999.
10.26* Master Lease Agreement by and between the Registrant and Sun
Microsystems dated October 7, 1999.
10.27* Logistics Research and Development Program, BAA 95-25 by and
between PartNET, Inc., and the Defense Advanced Research
Projects Agency dated September 16, 1996, as amended.
10.28* System/Data License Agreement by and between the Registrant
and Healthdemographics, Inc. dated September 30, 1998, as
amended.
10.29* Supplyline License Agreement by and between the Registrant
and Owen Healthcare, Inc. dated October 13, 1999.
10.30* Web Content Agreement by and between the Registrant and
physiciansite.com, Inc. dated October 28, 1999.
10.31* Agreement and Plan of Merger and Reorganization by and among
the Registrant, Medibuy Acquisition Corporation, PartNET,
Inc. and the shareholders of PartNET, Inc. dated as of
October 29, 1999.
10.32(+) Software License and Services Agreement by and between the
Registrant and Vitria Technology, Inc. dated December 17,
1999.
10.33* Strategic Relationship Agreement by and among the Registrant
and Allianz Capital Partners, Gmbh and Jochen Noelke dated
January 7, 2000.
</TABLE>
II-5
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.34* Form of Warrant to purchase shares of Common Stock of the
Registrant issued to Allianz Capital Partners, Gmbh.
10.35* Form of Warrant to purchase shares of Common Stock of the
Registrant issued to Jochen Noelke.
10.36(+) Joint Marketing and Promotion Agreement by and between the
Registrant and Healtheon/WebMD Corporation, dated January
18, 2000.
10.37 Strategic Alliance Agreement by and between the Registrant
and drugstore.com, Inc., dated February 14, 2000.
10.38(+) E-commerce Outsourcing Agreement by and between Premier
Health Exchange LLC and Premier Purchasing Partners, L.P.,
dated March 4, 2000.
10.39(+) Premier Support Agreement by and between Premier Health
Exchange LLC and Premier, Inc., dated March 4, 2000.
10.40 Agreement and Plan of Merger among the Registrant, Sapphire
Acquisition Corp., Premier Health Exchange LLC, Premier
Purchasing Partners, L.P. and Premier, Inc., as amended on
March 15, 2000.
10.41 Voting Agreement by and between the Registrant and Premier
Purchasing Partners, L.P. dated March 6, 2000.
10.42 Form of Lock-up and Registration Rights Agreement to be
executed by and between the Registrant and Premier
Purchasing Partners, L.P.
21.1* Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers, LLP, Independent
Accountants.
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3** Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1* Power of Attorney. Reference is made to page II-7.
27.1 Financial Data Schedule.
99.1 Affidavit of Norman Farquhar regarding nomination of Richard
A. Norling as a prospective director of the Registrant.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(+) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
II-6
<PAGE> 143
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the 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, 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the 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 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 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-7
<PAGE> 144
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, in the City of San Diego, County of San Diego, State of California,
on the 15th day of March, 2000.
By: /s/ NORMAN R. FARQUHAR
------------------------------------
Norman R. Farquhar
Executive Vice President
Chief Financial Officer and
Secretary
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer, President March 15, 2000
- ------------------------------------------ and Director (Principal Executive
Dennis J. Murphy Officer)
/s/ NORMAN R. FARQUHAR Executive Vice President, Chief March 15, 2000
------------------------------------------ Financial Officer and Secretary
Norman R. Farquhar (Principal Financial and Accounting
Officer)
* Executive Vice President, Market March 15, 2000
- ------------------------------------------ Development and Director
James L. Hersma
* Director March 15, 2000
- ------------------------------------------
Douglas C. Allred
* Director March 15, 2000
- ------------------------------------------
Brook H. Byers
* Director March 15, 2000
- ---------------------------------------------
Ann H. Lamont
* Director March 15, 2000
- ---------------------------------------------
John H. Stevens
* Director March 15, 2000
- ------------------------------------------
Mark A. Stevens
*By: /s/ NORMAN R. FARQUHAR
------------------------------------
(Norman R. Farquhar)
(Attorney-in-fact)
</TABLE>
II-8
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Registrant's Amended and Restated Certification of
Incorporation, as currently in effect.
3.2* Registrant's Bylaws, as amended, as currently in effect.
3.3 Form of Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of this
offering.
3.4 Form of Registrant's Amended and Restated Certificate of
Incorporation, to be filed after the closing of this
offering.
3.5* Form of Registrant's Amended and Restated Bylaws, to be
effective upon the closing of this offering.
4.1 Form of common stock Certificate of Registrant.
5.1** Opinion of Cooley Godward LLP.
10.1* Form of Indemnity Agreement entered into between the
Registrant and its directors and executive officers.
10.2* 1999 Equity Incentive Plan, as amended.
10.3* Form of Stock Option Grant Notice and related Stock Option
Agreement under the 1999 Equity Incentive Plan.
10.4* 1999 Omnibus Equity Plan.
10.5* Form of Stock Option Grant Notice and related Stock Option
Agreements under the 1999 Omnibus Equity Plan.
10.6* 1999 Non-Employee Directors' Stock Option Plan.
10.7* Form of Stock Option Grant Notice and Related Stock Option
Agreement under the 1999 Non-Employee Directors' Stock
Option Plan.
10.8* 1999 Employee Stock Purchase Plan.
10.9* Employee Stock Purchase Plan Offering.
10.10 Employment Agreement by and between the Registrant and
Dennis J. Murphy dated March 29, 1999, as amended effective
October 26, 1999 and January 28, 2000.
10.11 Employment Agreement by and between the Registrant and James
L. Hersma dated May 26, 1999, as amended effective December
28, 1999 and January 28, 2000.
10.12 Employment Agreement by and between the Registrant and
Charles R. Smith dated November 12, 1998, as amended
effective October 26, 1999 and January 28, 2000.
10.13 Employment Agreement by and between the Registrant and
Norman R. Farquhar dated October 6, 1999, as amended
effective January 28, 2000.
10.14 Employment Agreement by and between the Registrant and
Robert B. Witt dated May 10, 1999, as amended effective
January 28, 2000.
10.15* Employment Agreement by and between the Registrant and Don
Brown dated November 22, 1999.
10.16* Consulting Agreement dated March 5, 1999, by and between the
Registrant and Ridgewood Capital, Inc.
10.17* Consulting Services Agreement between the Registrant and
Ernst & Young LLP dated October 28, 1999.
10.18* Common Stock Exchange Agreement by and between the
Registrant and John H. Stevens dated June 11, 1999.
10.19* Second Amended and Restated Investors Rights Agreement by
and among the Registrant and the Investors identified
therein dated January 7, 2000.
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.20* Amended and Restated Stockholder Agreement by and among the
Registrant and certain of its Stockholders, as identified
therein dated January 7, 2000.
10.21* Lease Agreement by and between the Registrant and Kilroy
Realty, L.P. dated August 1, 1999.
10.22* Lease Agreement by and between the Registrant and PHL-OPCO,
LP dated April 1, 1999.
10.23* Lease Agreement by and between the Registrant and Twenty
First Properties, Inc. dated July 7, 1999.
10.24* Sublease by and between the Registrant and Southwall
Technologies, Inc. dated October 14, 1999 and Master Lease
by and between C&J Development Co., and Southwall
Technologies, Inc.
10.25 Lease by and between Paradigm Resources, L.C. and PartNET,
Inc. dated January 12, 1999.
10.26* Master Lease Agreement by and between the Registrant and Sun
Microsystems dated October 7, 1999.
10.27* Logistics Research and Development Program, BAA 95-25 by and
between PartNET, Inc., and the Defense Advanced Research
Projects Agency dated September 16, 1996, as amended.
10.28* System/Data License Agreement by and between the Registrant
and Healthdemographics, Inc. dated September 30, 1998, as
amended.
10.29* Supplyline License Agreement by and between the Registrant
and Owen Healthcare, Inc. dated October 13, 1999.
10.30* Web Content Agreement by and between the Registrant and
physiciansite.com, Inc. dated October 28, 1999.
10.31* Agreement and Plan of Merger and Reorganization by and among
the Registrant, Medibuy Acquisition Corporation, PartNET,
Inc. and the shareholders of PartNET, Inc. dated as of
October 29, 1999.
10.32(+) Software License and Services Agreement by and between the
Registrant and Vitria Technology, Inc. dated December 17,
1999.
10.33* Strategic Relationship Agreement by and among the Registrant
and Allianz Capital Partners, Gmbh and Jochen Noelke dated
January 7, 2000.
10.34* Form of Warrant to purchase shares of Common Stock of the
Registrant issued to Allianz Capital Partners, Gmbh.
10.35* Form of Warrant to purchase shares of Common Stock of the
Registrant issued to Jochen Noelke.
10.36(+) Joint Marketing and Promotion Agreement by and between the
Registrant and Healtheon/WebMD Corporation, dated January
18, 2000.
10.37 Strategic Alliance Agreement by and between the Registrant
and drugstore.com, Inc., dated February 14, 2000.
10.38(+) E-commerce Outsourcing Agreement by and between Premier
Health Exchange LLC and Premier Purchasing Partners, L.P.,
dated March 4, 2000.
10.39(+) Premier Support Agreement by and between Premier Health
Exchange LLC and Premier, Inc., dated March 4, 2000.
10.40 Agreement and Plan of Merger among the Registrant, Sapphire
Acquisition Corp., Premier Health Exchange LLC, Premier
Purchasing Partners, L.P. and Premier, Inc., as amended on
March 15, 2000.
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.41 Voting Agreement by and between the Registrant and Premier
Purchasing Partners, L.P. dated March 6, 2000.
10.42 Form of Lock-up and Registration Rights Agreement by and
between the Registrant and Premier Purchasing Partners, L.P.
to be executed.
21.1* Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers, LLP, Independent
Accountants.
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3** Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1* Power of Attorney. Reference is made to page II-7.
27.1 Financial Data Schedule.
99.1 Affidavit of Norman Farquhar regarding nomination of Richard
A. Norling as a prospective director of the Registrant.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(+) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 1.1
S&C Draft of March 11, 2000
MEDIBUY.COM, INC.
COMMON STOCK
----------
UNDERWRITING AGREEMENT
....................., 2000
Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette
Securities Corporation,
Thomas Weisel Partners LLC,
SoundView Technology Group, Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Mediby.com, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
13,000,000 shares and, at the election of the Underwriters, up to 1,950,000
additional shares of common stock, par value $0.01 per share ("Stock") of the
Company. The aggregate of 13,000,000 shares to be sold by the Company is herein
called the "Firm Shares" and the aggregate of 13,000,000 additional shares to be
sold by the Company is herein called the "Optional Shares". The Firm Shares and
the Optional Shares that the Underwriters elect to purchase pursuant to Section
2 hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-94635) (the
"Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto to you for each of the other Underwriters, have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
or will become effective upon filing, no other document with respect to
the Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the
Initial Registration Statement, any post-effective amendment thereto or
the Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or, to the knowledge of
the Company, threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and
the
<PAGE> 2
Rule 462(b) Registration Statement, if any, including all exhibits
thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the
Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at
the time it was declared effective, each as amended at the time such
part of the Initial Registration Statement became effective or such part
of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain 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, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain 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; provided, however, that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the business, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries (a
"Material Adverse Effect"), otherwise than as set forth or contemplated
in the Prospectus;
(v) The Company and 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 it, 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 interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries; and any real property and buildings
held
2
<PAGE> 3
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained
in the Prospectus; and 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 (except for directors'
qualifying shares are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
(viii)The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and non-assessable and
will conform to the description of the Stock contained in the
Prospectus;
(ix) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries is bound or to which any
of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act of
the Shares and such consents, approvals, authorizations, registrations
or qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture,
3
<PAGE> 4
mortgage, deed of trust, loan agreement, lease or other material
agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(xiii)The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company", as such
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xiv) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries, and Ernst &
Young LLP, who have certified certain financial statements of Premier
Healthcare Exchange LLC, are each independent public accountants as
required by the Act and the rules and regulations of the Commission
thereunder; and
(xv) To the knowledge of the Company, the Company and its
subsidiaries own or possess or can acquire on reasonable terms adequate
licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights, know-how, trade secrets and other intellectual
property necessary to conduct the business of the Company and its
subsidiaries in the manner in which it has been and is being conducted,
and except as set forth in the Prospectus the Company and its
subsidiaries have not received any notice of infringement or of conflict
with (and the Company knows of no such infringement or conflict with)
asserted rights of others with respect to any patents, trademarks,
service marks, trade names, copyrights, know-how, trade secrets or other
intellectual property which, if determined adversely to the Company or
its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect; and the inventions, products or processes referred to in
the Prospectus do not, to the knowledge of the Company, infringe or
conflict with any right or patent, or any invention, product or process
which is the subject of a patent application known to the Company, which
if determined adversely would have a Material Adverse Effect.
2. On the basis of the representations, warranties and agreements
contained herein but subject to the terms and conditions herein set forth, (a)
the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........., the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in
4
<PAGE> 5
Schedule I hereto and the denominator of which is the maximum number of Optional
Shares that all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,950,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. No Optional Shares shall be sold
or delivered unless all Firm Shares previously or simultaneously have been or
are sold and delivered. Any such election to purchase Optional Shares may be
exercised only by written notice from you to the Company, given within a period
of 30 calendar days after the date of this Agreement and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two (2) or
later than ten (10) business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on ............., 2000 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California,
92121 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location at 5:00 p.m., New York City time, on the New York Business Day
next preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
5
<PAGE> 6
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with a number of copies thereof as you may reasonably request; to
advise you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the use of
any Preliminary Prospectus or prospectus, of the suspension of the qualification
of the Shares for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
6
<PAGE> 7
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus (the
"Lock-up Period"), not to offer, sell, contract to sell or otherwise dispose of,
except as provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than pursuant
to employee stock option plans existing on, or upon the conversion or exchange
of convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent except issuances of securities
pursuant to the exercise of warrants or options, in each case outstanding on the
date hereof, grants of stock options or issuances of shares to employees,
directors or consultants pursuant to a plan in effect on the date hereof,
issuances of securities pursuant to the exercise of such options or issuances of
securities pursuant to an employee stock purchase plan which is in effect on the
date hereof. Notwithstanding the foregoing, the Company may issue a total of up
to [__________] shares of its securities during the Lock-up Period in connection
with acquisitions, strategic alliances, technology licensing transactions, or
joint ventures ("Excepted Transactions"); provided, however, that (i) the
Company shall give the Underwriters five (5) days prior written notice of any
such issuance describing the Excepted Transaction in reasonable detail and
stating the number of shares of securities proposed to be issued in the Excepted
Transaction, (ii) securities issued in connection with the Excepted Transaction
shall remain subject to the lock-up restrictions of this paragraph for the
remainder of the Lock-up Period, (iii) prior to any such issuance of securities,
each person that is to acquire any such securities shall sign a lock-up
agreement in form and substance reasonably acceptable to the Underwriters
covering all such securities for the remainder of the Lock-up Period;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market ("Nasdaq National Market");
(j) To file with the Commission such information on Form 10-Q or
Form 10-K as may be required by Rule 463 under the Act; and
7
<PAGE> 8
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey, not to exceed $10,000 (not including applicable filing fees);
(iv) all fees and expenses in connection with listing the Shares on the Nasdaq
National Market; and the filing fees incident to, and the reasonable fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares, not to exceed $10,000 (not including applicable
filing fees); (v) the cost of preparing stock certificates; (vi) the cost and
charges of any transfer agent or registrar; and (vii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company are, at and as of such Time of Delivery, true and correct, the
condition that the Company shall have performed in all material respects all of
its obligations hereunder theretofore to be performed, and the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part
of the Commission shall have been complied with to your reasonable
satisfaction;
(b)Sullivan & Cromwell, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions (a draft of each
such opinion is attached as Annex II(a) hereto), dated such Time of
Delivery, with respect to the Company, the Shares, the Registration
Statement, the Prospectus and such other related matters as you may
8
<PAGE> 9
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon
such matters;
(c) Cooley Godward LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus,
and, to such counsel's knowledge, the Company is duly qualified to
do business as a foreign corporation in good standing in all
jurisdictions in which the ownership or lease of property or conduct
of its business requires such qualification (except where the
failure to so qualify would not have a Material Adverse Effect)
(such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of matters
of fact upon certificates of officers of the Company, provided that
such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(ii) All outstanding shares of the Common Stock of the Company
have been duly authorized and validly issued, are fully paid and
non-assessable; the Shares have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid
for pursuant to this Agreement; the capital stock of the Company,
including the Shares, conform as to legal matters in all material
respects to the description thereof contained in the Prospectus;
(iii) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and
all of the issued shares of capital stock of each such subsidiary
have been duly and validly authorized and are fully paid and
non-assessable, and (except for directors' qualifying shares) are
owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims (such counsel being entitled
to rely in respect of the opinion in this clause upon opinions of
local counsel and in respect of matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such
counsel shall state that both you and they are justified in relying
upon such opinions and certificates);
(iv) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(v) This Agreement has been duly authorized, executed and
delivered by the Company;
(vi) The issuance and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the consummation
of the transactions herein contemplated will not result in a breach
or violation of any of the terms or
9
<PAGE> 10
provisions of, or constitute a default under, any agreement or
instrument filed as an exhibit to the Registration Statement to
which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of
the property of the Company is subject, or the Certificate of
Incorporation or By-laws of the Company or any of its subsidiaries
or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
(vii) No consent, approval, authorization, order, registration
or qualification of or with any governmental agency or body or any
court is required for the sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement in
connection with the sale and issuance of the Shares by the Company
other than as may be required by the National Association of
Securities Dealers, Inc. or as may be required under the securities
and Blue Sky laws of the various states and other jurisdictions (as
to which such counsel need not express any opinion), except as have
been obtained and/or made in connection with the purchase and
distribution of the Shares by the Underwriters;
(viii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
summarize legal matters, documents or proceedings referred to
therein, are accurate and fairly summarize in all material respects
the information required to be set forth therein with respect to
such matters under the Act and the rules and regulations of the
Commission thereunder;
(ix) The Company is not an "investment company", as such term
is defined in the Investment Company Act; and
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives
of the Company, representatives of the Representatives and their
counsel and representatives of the independent certified public
accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were
discussed and, although such counsel has not verified and is not
passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Registration Statement and the Prospectus (except as specified
in the foregoing opinion), on the basis of the foregoing, no facts
have come to the attention of such counsel which lead such counsel
to believe that the Registration Statement at the time it became
effective (except with respect to the financial statements and notes
and schedules thereto and financial and other data derived
therefrom, as to which such counsel need express no belief)
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus
as amended or supplemented (except with respect to the financial
statements, notes and schedules thereto and financial and other data
derived therefrom, as to which such counsel need make no statement)
on the date thereof or on the date of such opinion contained any
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
such counsel does not know of any amendment to the Registration
Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
10
<PAGE> 11
Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described as required;
(d) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, the independent accountants who have certified the financial
statements included in the Registration Statement shall have furnished
to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of each the letter delivered
prior to the execution of this Agreement is attached as Annex I(a)
hereto and a draft of each the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(e)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information
is given in the Prospectus there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is in the judgment of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on Nasdaq
National Market; (ii) a suspension or material limitation in trading in
the Company's securities on or on Nasdaq National Market; (iii) a
general moratorium on commercial banking activities declared by either
Federal or New York or California State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered
at such Time of Delivery on the terms and in the manner contemplated in
the Prospectus;
(g) The Shares at such Time of Delivery shall have been duly listed
for quotation on Nasdaq National Market;
(h) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of its directors and officers
and from each of the stockholders listed on Schedule II, substantially
to the effect set forth in Schedule II in form and substance
satisfactory to you;
(i) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
11
<PAGE> 12
(j) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder to
be performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have
furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (e) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon 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, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon 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,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying
12
<PAGE> 13
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bears to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection
13
<PAGE> 14
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone a Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all of the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
14
<PAGE> 15
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall then not be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are
not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company by you on request.
Any such statements, requests, notices or agreements shall take effect upon
receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters and the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
15
<PAGE> 16
If the foregoing is in accordance with your understanding, please sign
and return to us eight counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination, upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
medibuy.com, Inc.
By: ....................................
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Donaldson Lufkin & Jenrette
Securities Corporation
Thomas Weisel Partners LLC
SoundView Technology Group, Inc.
On behalf of each of the Underwriters
16
<PAGE> 17
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------------
<S> <C> <C>
Goldman, Sachs & Co.....................................
Donaldson Lufkin & Jenrette
Securities Corporation................................
Thomas Weisel Partners LLC
SoundView Technology Group, Inc.........................
---------- ---------
Total............................................ 13,000,000 1,950,000
========== =========
</TABLE>
17
<PAGE> 18
SCHEDULE II
LOCK-UP AGREEMENTS
The lock-up agreements will be required from each of the Company's
directors and officers and from each of the following stockholders:
[list of stockholders]
The form of lock-up agreement is attached as part of this Schedule II.
18
<PAGE> 19
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii)In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii)They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the
unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have
been separately furnished to the Representatives and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations, nothing came to their
attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv)The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in
the audited consolidated financial statements for such five fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
19
<PAGE> 20
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in clause (B) were not determined on
a basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest financial statements included in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each
case for changes, increases or
20
<PAGE> 21
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in consolidated
net revenues or operating profit or the total or per share amounts
of consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in
each case for decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(vi) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified
procedures, not constituting an examination in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company and
its subsidiaries, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
21
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MEDIBUY.COM, INC.
Dennis J. Murphy hereby certifies that:
ONE: The original name of this corporation was HS.com, Inc. and the date
of filing the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware was August 18, 1998. This
corporation changed its name to medibuy.com, inc. and filed an Amended and
Restated Certificate of Incorporation on January 29, 1999. This corporation also
filed an Amended and Restated Certificate of Incorporation on March 16, 1999,
filed an Amended and Restated Certificate of Incorporation on June 8, 1999,
filed a Certificate of Amendment to its Amended and Restated Certificate of
Incorporation on November 1, 1999, filed a Certificate of Amendment to its
Amended and Restated Certificate of Incorporation on December 6, 1999 and filed
an Amended and Restated Certificate of Incorporation on December 21, 1999.
TWO: He is the duly elected and acting Chief Executive Officer and
President of medibuy.com, inc., a Delaware corporation.
THREE: The Amended and Restated Certificate of Incorporation, as
amended, of this corporation is hereby amended and restated in its entirety to
read as follows:
I.
The name of the corporation is MEDIBUY.COM, INC. (hereinafter referred
to as the "Company" or the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
National Corporation Research, Ltd.
9 East Loockerman Street
Dover, DE 19901
County of Kent
The name of the Corporation's registered agent at said address is
National Corporation Research, Ltd.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
1.
<PAGE> 2
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is three hundred fifteen
million (315,000,000). Three hundred million (300,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($0.001) (the
"Common Stock"). Fifteen million (15,000,000) shares shall be Preferred Stock,
each having a par value of one-tenth of one cent ($0.001) (the "Preferred
Stock").
Effective at the time of filing with the Secretary of State of the State
of Delaware of this Amended and Restated Certificate of Incorporation, each
issued and outstanding share of the Corporation's Common Stock shall,
automatically and without any action on the part of the respective holders
thereof, be converted into two and one half (2 1/2) shares of the Corporation's
Common Stock. The number of authorized shares of Common Stock may be increased
or decreased (but not below the number of shares of Common Stock then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock and Preferred Stock of the Corporation
(voting together on an as-if-converted basis, irrespective of the provisions of
Section 242(b)(2) of the Delaware General Corporation Law ("DGCL")).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the DGCL, to fix or alter from time
to time the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series or any of them; and to increase or
decrease the number of shares of any series subsequent to the issuance of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
C. Sixty-eight thousand one hundred (68,100) of the authorized shares of
Preferred Stock are hereby designated "Series A Preferred Stock" (the "Series A
Preferred"). Three hundred thirty-four thousand nine hundred seven (334,907) of
the authorized shares of Preferred Stock are hereby designated "Series B
Preferred Stock" (the "Series B Preferred"). Five million (5,000,000) of the
authorized shares of Preferred Stock are hereby designated "Series C Preferred
Stock" (the "Series C Preferred"). Two million eight hundred thousand
(2,800,000) of the authorized shares of Preferred Stock are hereby designated
"Series D Preferred Stock" (the "Series D Preferred"). Four million nine hundred
thousand (4,900,000) of the authorized shares of Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred").
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred are as follows:
2.
<PAGE> 3
1. DIVIDEND RIGHTS.
The holders of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred, in preference to
the holders of any Common Stock or other class or series of capital stock of the
Corporation ("Junior Stock"), shall be entitled to receive dividends when, as
and if declared by the Board of Directors, but only out of funds legally
available therefor. So long as any shares of Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Stock, nor
shall any shares of any Junior Stock of the Corporation be purchased, redeemed,
or otherwise acquired for value by the Corporation (except for acquisitions of
Common Stock by the Corporation pursuant to agreements previously approved by
the Corporation's Board of Directors which permit the Corporation to repurchase
such shares upon termination of services to the Corporation or in exercise of
the Corporation's right of first refusal pursuant to agreements previously
approved by the Corporation's Board of Directors upon a proposed transfer)
unless a dividend is paid with respect to all outstanding shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred in an amount for each share of such Preferred Stock equal to or
greater than the aggregate amount of such dividends payable with respect to the
number of shares of Common Stock into which each such share of Preferred Stock
could then be converted. The rights to dividends on shares of Preferred Stock
shall not be cumulative. The provisions of this Section 1 shall not, however,
apply to (i) a dividend payable solely in Junior Stock, (ii) the acquisition of
shares of any Junior Stock in exchange for other shares of Junior Stock, (iii)
any redemption of shares pursuant to Section 5; or (iv) any repurchase of any
outstanding securities of the Corporation that is unanimously approved by the
Corporation's Board of Directors. The holders of Preferred Stock expressly waive
their rights, if any, as described in the California General Corporation Law
sections 502, 503 and 506 as they relate to repurchases of shares upon
termination of employment or service as a consultant or director.
2. VOTING RIGHTS.
(a) GENERAL RIGHTS. Except as otherwise provided herein or
as required by law, the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred and the Series E Preferred shall be voted with
the Common Stock and not as a separate class, at any annual or special meeting
of stockholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each holder
of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred and Series E Preferred, respectively, shall be entitled to such
number of votes as shall be equal to the number of shares of Common Stock into
which such holder's aggregate number of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred are
convertible (pursuant to Section 4 hereof) immediately after the close of
business on the record date fixed for such meeting (or if no such record date is
established, at the date such vote is taken) or the effective date of such
written consent. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of each series of Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward). Each holder of Common Stock shall be entitled to one (1)
vote for each share of Common Stock held.
3.
<PAGE> 4
(b) SEPARATE VOTE OF PREFERRED STOCK. In addition to the
rights of any series of Preferred Stock which may from time to time come into
existence, and in addition to any other vote or consent required herein or by
law, the prior affirmative vote or written consent of the holders of at least a
majority of the outstanding Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred, voting together as a
single class on an as-if-converted basis, shall be necessary for effecting or
validating the following actions:
(i) Any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation of the Corporation (including any
filing of a Certificate of Designation) that alters or changes the voting
powers, preferences, rights, privileges or restrictions of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred, or that otherwise materially and adversely affects the voting
powers, preferences, rights, privileges or restrictions of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred;
(ii) Any issuance, authorization or any designation,
whether by reclassification or otherwise, of any new class or series of stock or
any other securities convertible into or exchangeable for equity securities of
the Corporation with a ranking senior to or on a parity with the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred in right of redemption, liquidation preference, voting or dividends,
or any increase in the authorized or designated number of any such new class or
series;
(iii) Any Asset Transfer or Acquisition (each as
defined in Section 3(c));
(iv) Any voluntary dissolution or liquidation of the
Corporation;
(v) Any sale of any subsidiary or equity securities
of any subsidiary;
(vi) Engaging in any business that is substantially
different from the Corporation's business as of the Original Issue Date of the
Series C Preferred (as defined below).
(vii) Any redemption or repurchase of Common Stock or
other equity securities of the Corporation except for (A) redemptions pursuant
to Section 5, (B) repurchases pursuant to agreements approved by the Board of
Directors which permit the Corporation to repurchase such shares upon
termination of an employee's or consultant's services to the Corporation or (C)
acquisition upon exercise of the Corporation's right of first refusal pursuant
to agreements approved by the Board of Directors upon a proposed transfer).
(c) BOARD OF DIRECTORS. The Corporation shall not, without
the written consent or affirmative vote of (i) the holders of at least a
majority of the then outstanding Common Stock consenting or voting (as the case
may be) as a single class and (ii) the holders of at least a majority of the
then outstanding Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred, each consenting or voting (as the
case may
4.
<PAGE> 5
be) together as a single class, increase or decrease the maximum number of
directors constituting the Board of Directors from eleven (11). The holders of a
majority of Common Stock and Series A Preferred, voting together as a single
class, shall be entitled to elect four (4) members of the Corporation's Board of
Directors (the "Common and Series A Directors") at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors. For so long as the outstanding
shares of Series B Preferred represent 900,000 (subject to adjustments for stock
dividends, stock distributions, stock splits, reverse stock splits or
combinations of shares) or more shares of the voting stock of the Corporation on
an as converted and fully diluted basis, the holders of the Series B Preferred,
voting as a single class, shall be entitled to elect one (1) member of the
Corporation's Board of Directors (the "Series B Director") at each meeting or
pursuant to each consent of the Corporation's stockholders for the election of
directors, and to remove from office such director and to fill any vacancy
caused by the resignation, death or removal of such director. For so long as the
outstanding shares of Series C Preferred and Series D Preferred represent
900,000 (subject to adjustments for stock dividends, stock distributions, stock
splits, reverse stock splits or combinations of shares) or more shares of the
voting stock of the Corporation on an as converted and fully diluted basis, the
holders of Series C Preferred and Series D Preferred, voting together as a
single class, shall be entitled to elect three (3) members of the Corporation's
Board of Directors (the "Series C and D Directors") at each meeting or pursuant
to each consent of the Corporation's stockholders for the election of directors,
and to remove from such office such director and to fill any vacancy caused by
the resignation, death or removal of such director. All of the holders of Common
Stock and Preferred Stock of the Corporation, voting as a single class, shall
elect the remaining members of the Corporation's Board of Directors (the
"Combined Class Directors") at each meeting or pursuant to each consent of the
Corporation's Stockholders for the election of directors, and to remove from
such office such director and to fill any vacancy caused by the resignation,
death or removal of such director. No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the Corporation is subject to Section 2115 of the
California General Corporation Law ("CGCL").
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of Series A Preferred, Series B Preferred
or Common Stock, subject to the rights of any series of Preferred Stock that may
from time to time come into existence, the holders of Series C Preferred, Series
D Preferred and Series E Preferred shall be entitled to be first paid out of the
assets of the Corporation an amount per share of Series C Preferred, Series D
Preferred and Series E Preferred, respectively, equal to their respective
Original Issue Price (as defined below) plus all declared and unpaid dividends
on the Series C Preferred, Series D Preferred and Series E Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of Series C Preferred,
Series D Preferred and Series E Preferred held by them. After the holders of
Series C Preferred, Series D Preferred and Series E Preferred receive an amount
equal to their Original Issue Prices plus all declared and unpaid dividends (if
any), subject to the rights of any series of Preferred Stock that may from time
to time come into existence, the holders of the Series A Preferred and the
Series B Preferred
5.
<PAGE> 6
shall be entitled to be paid out of the assets of the Corporation an amount per
share of Series A Preferred and Series B Preferred, respectively, equal to their
respective Original Issue Price plus all declared and unpaid dividends on the
Series A Preferred and Series B Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) for each share of Series A Preferred and Series B Preferred held by
them. If, upon any such liquidation, distribution, or winding up, the assets of
the Corporation shall be insufficient to make payment in full to all holders of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred of the liquidation preference set forth in this Section
3(a), subject to the rights of any series of Preferred Stock that may from time
to time come into existence, then such assets shall be first distributed among
the holders of Series C Preferred, Series D Preferred and Series E Preferred
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled based on their respective liquidation preferences and
thereafter, if any assets are remaining, be distributed among the holders of
Series A and Series B Preferred at the time outstanding, ratably in proportion
to the full amounts to which they would otherwise be respectively entitled based
on their respective liquidation preferences.
(b) After the payment of the full liquidation preference
of the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred as set forth in Section 3(a) above, and any
other distribution that may be required with respect to any series of Preferred
Stock that may from time to time come into existence, the remaining assets of
the Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock.
(c) The following events shall be considered a liquidation
under this Section:
(i) any consolidation or merger of the Corporation
with or into any other corporation or other entity or person, or any other
transaction (including without limitation, a sale of stock or a
recapitalization) in which the stockholders of the Corporation immediately prior
to such consolidation, merger or other transaction own less than 50% of the
surviving entity's voting power immediately after such consolidation, merger or
other transaction excluding any consolidation or merger effected exclusively to
change the domicile of the Corporation (an "Acquisition"); or
(ii) a sale of all or substantially all of the assets
of the Corporation in a single transaction or series of related transactions (an
"Asset Transfer").
(d) In either of such events described in clause 3(c)(i)
or 3(c)(ii) above, if the consideration received by this Corporation is other
than cash, its value will be deemed its fair market value as determined in good
faith by the Board of Directors. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (ii) below:
6.
<PAGE> 7
(a) If traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation system over the thirty
(30) day period ending three (3) days prior to the closing;
(b) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(c) If there is no active public market, the
value shall be the fair market value thereof, as determined by the Board of
Directors.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (A), (B) or (C) to reflect the approximate fair
market value thereof, as determined by the Board of Directors.
(e) ORIGINAL ISSUE PRICE. The "Original Issue Price" of
(i) the Series A Preferred shall be ten dollars ($10.00) per share, (ii) the
Series B Preferred shall be fifteen dollars ($15.00) per share, (iii) the Series
C Preferred shall be three dollars and sixty cents ($3.60) per share, (iv) the
Series D Preferred shall be twelve dollars and nine cents ($12.09) per share and
(v) the Series E Preferred shall be twenty dollars and fifty-four cents ($20.54)
per share.
4. CONVERSION RIGHTS.
The holders of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred shall have the
following rights with respect to the conversion of such shares into shares of
Common Stock (the "Conversion Rights"):
(a) OPTIONAL CONVERSION. Subject to and in compliance with
the provisions of this Section 4, any shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred may, at
the option of the holder, be converted at any time and from time to time into
the number of fully-paid and nonassessable shares of Common Stock as is
determined by multiplying the "Series A Preferred Conversion Rate," the "Series
B Preferred Conversion Rate," "Series C Preferred Conversion Rate", the "Series
D Preferred Conversion Rate" or the "Series E Preferred Conversion Rate" as
applicable, then in effect (determined as provided in Section 4(b)) by the
respective number of shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred, respectively, being
converted.
(b) CONVERSION RATES. The conversion rate in effect at any
time for conversion of the Series A Preferred (the "Series A Preferred
Conversion Rate"), the Series B Preferred (the "Series B Preferred Conversion
Rate"), the Series C Preferred (the "Series C Preferred Conversion Rate"), the
Series D Preferred (the "Series D Preferred Conversion Rate") and the Series E
Preferred (the "Series E Preferred Conversion Rate"), respectively, shall be the
quotient obtained by dividing the Original Issue Price of the Series A
Preferred, the Series B
7.
<PAGE> 8
Preferred, the Series C Preferred, the Series D Preferred and the Series E
Preferred, respectively, by the "Series A Preferred Conversion Price," the
"Series B Preferred Conversion Price," the "Series C Conversion Price," the
"Series D Preferred Conversion Price", and the "Series E Preferred Conversion
Price" respectively, calculated as provided in Section 4(c).
(c) CONVERSION PRICES. The conversion price for the Series
A Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred, respectively, shall initially be the
respective Original Issue Price of the Series A Preferred (the "Series A
Preferred Conversion Price"), the Series B Preferred (the "Series B Preferred
Conversion Price"), the Series C Preferred (the "Series C Preferred Conversion
Price"), the Series D Preferred (the "Series D Conversion Price") and the Series
E Preferred (the "Series E Conversion Price"). Such initial Series A Preferred
Conversion Price, Series B Preferred Conversion Price, Series C Preferred
Conversion Price, Series D Preferred Conversion Price and Series E Preferred
Conversion Price shall be adjusted from time to time in accordance with this
Section 4. Further, after giving effect to the two-for-one (2-for-1) stock split
being effected by the filing of this Amended and Restated Certificate of
Incorporation, the Series A Preferred Conversion Price is $.50 per share, the
Series B Preferred Conversion Price is $.75 per share, the Series C Preferred
Conversion Price is $1.80 per share, the Series D Preferred Conversion Price is
$6.045 per share and the Series E Preferred Conversion Price is $10.27 per
share. All references herein to the Series A Preferred Conversion Price, Series
B Preferred Conversion Price, Series C Preferred Conversion Price, Series D
Preferred Conversion Price and Series E Preferred Conversion Price shall mean
the Series A Preferred Conversion Price, Series B Preferred Conversion Price,
Series C Preferred Conversion Price, Series D Preferred Conversion Price and
Series E Preferred Conversion Price, respectively, as so adjusted and then in
effect.
(d) MECHANICS OF CONVERSION. Each holder of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred who desires to convert the same into shares of Common Stock pursuant
to this Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and
Series E Preferred, and shall give written notice to the Corporation at such
office that such holder elects to convert the same. Such notice shall state the
number of shares of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled and shall promptly pay (i) in cash or, to the extent
sufficient funds are not then legally available therefor, in Common Stock (at
the Common Stock's fair market value determined by the Board of Directors as of
the date of such conversion), any declared and unpaid dividends on the shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred being converted and (ii) in cash (at the Common Stock's
fair market value determined by the Board of Directors as of the date of
conversion) the value of any fractional share of Common Stock otherwise issuable
to any holder of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred, as applicable. In the event less than
all shares represented by a surrendered certificate are converted, a new
certificate shall be issued to the holder representing the unconverted shares.
Such conversion shall be deemed to have been made at the close of business on
the date of such surrender of the certificates representing the shares of Series
A Preferred, Series B Preferred, Series C Preferred,
8.
<PAGE> 9
Series D Preferred and Series E Preferred to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date. If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933, the
conversion may, at the option of any holder tendering Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred or Series E Preferred for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive Common Stock upon conversion of such Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred shall
not be deemed to have converted such Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred until immediately
prior to the closing of such sale of securities.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. The term
"Original Issue Date" shall mean (i) with respect to the Series A Preferred,
January 29, 1999, (ii) with respect to the Series B Preferred, March 17, 1999,
(iii) with respect to the Series C Preferred, the date the first share of Series
C Preferred is issued, (iv) with respect to the Series D Preferred, August 30,
1999, and (v) with respect to the Series E Preferred, December 30, 1999. If the
Corporation shall at any time or from time to time after the applicable Original
Issue Date effect a subdivision of the outstanding Common Stock without a
corresponding subdivision of the Preferred Stock, the Series A Preferred
Conversion Price, the Series B Preferred Conversion Price, the Series C
Preferred Conversion Price, the Series D Preferred Conversion Price and the
Series E Preferred Conversion Price, as applicable, in effect immediately before
that subdivision shall be proportionately decreased. Conversely, if the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares
without a corresponding combination of the Preferred Stock, the Series A
Preferred Conversion Price, the Series B Preferred Conversion Price, the Series
C Preferred Conversion Price, the Series D Preferred Conversion Price and the
Series E Preferred Conversion Price, as applicable, in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
Section 4(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND
DISTRIBUTIONS.
(i) If the Corporation at any time or from time to
time after the applicable Original Issue Date makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, in each such
event the Series A Preferred Conversion Price, the Series B Preferred Conversion
Price, the Series C Preferred Conversion Price, the Series D Preferred
Conversion Price or the Series E Preferred Conversion Price, as applicable, that
are then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Series A Preferred Conversion Price, the Series B
Preferred Conversion Price, the Series C Preferred Conversion Price, the Series
D Preferred Conversion Price or the Series E Preferred Conversion Price, as
applicable, then in effect by a fraction (i) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and (ii) the
denominator of which is the total number of shares of
9.
<PAGE> 10
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the Series
A Preferred Conversion Price, the Series B Preferred Conversion Price, the
Series C Preferred Conversion Price, the Series D Preferred Conversion Price and
the Series E Preferred Conversion Price, as applicable, shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series A Preferred Conversion Price, the Series B Preferred Conversion Price,
the Series C Preferred Conversion Price, the Series D Preferred Conversion Price
and the Series E Preferred Conversion Price, as applicable, shall be adjusted
pursuant to this Section 4(f) to reflect the actual payment of such dividend or
distribution.
(ii) If the Corporation at any time or from time to
time after the applicable Original Issue Date makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, any
distribution payable in securities or other property of the Corporation other
than Common Stock and other than as otherwise adjusted in this Section 4, then
and in each such event provision shall be made so that the holders of the Series
A Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities and other property which they would have received had their
shares of the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred and the Series E Preferred been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities and other property receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock, the Series B Preferred, the Series C Preferred, the
Series D Preferred and the Series E Preferred.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the applicable Original
Issue Date, the Common Stock issuable upon the conversion of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than an Acquisition or Asset Transfer as defined in Section
3(c) as to which Section 3 applies or a subdivision or combination of shares or
stock dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), in any such event each holder of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred, as applicable, shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which such
shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred could have been converted immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
(h) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the applicable Original Issue
Date, there is a capital
10.
<PAGE> 11
reorganization of the Common Stock (other than an Acquisition or Asset Transfer
as defined in Section 3(c) as to which Section 3 applies or a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 4), as a part of such capital
reorganization, provision shall be made so that the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, as applicable, shall thereafter be entitled to receive upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred, as applicable, the number of shares
of stock or other securities or property of the Corporation to which a holder of
the number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred, as
applicable, after the capital reorganization such that the provisions of this
Section 4 (including adjustment of the Series A Preferred Conversion Price,
Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series
D Preferred Conversion Price and Series E Preferred Conversion Price then in
effect and the number of shares issuable upon conversion of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
(i) SALE OF SHARES BELOW APPLICABLE CONVERSION PRICE.
(i) If at any time or from time to time after the
applicable Original Issue Date, the Corporation issues or sells, or is deemed by
the express provisions of this Section 4(i) to have issued or sold, Additional
Shares of Common Stock (as defined in Section 4(i)(iv) below), other than as a
dividend or other distribution on any class of stock as provided in Section 4(f)
above, and other than a subdivision or combination of shares of Common Stock as
provided in Section 4(e) above, for an Effective Price (as defined in Section
4(i)(iv) below) less than the then effective Series A Preferred Conversion
Price, Series B Preferred Conversion Price, Series C Preferred Conversion Price,
Series D Preferred Conversion Price or Series E Preferred Conversion Price, as
applicable, then and in each such case the then existing Series A Preferred
Conversion Price, Series B Preferred Conversion Price, Series C Preferred
Conversion Price, Series D Preferred Conversion Price or Series E Preferred
Conversion Price, as applicable, shall be reduced, as of the opening of business
on the date of such issue or sale, to a price (calculated to the nearest tenth
of a cent) determined by multiplying the Series A Preferred Conversion Price,
Series B Preferred Conversion Price, Series C Preferred Conversion Price, Series
D Preferred Conversion Price or Series E Preferred Conversion Price, as
applicable, by a fraction (i) the numerator of which shall be (A) the number of
shares of Common Stock deemed outstanding (as defined below) immediately prior
to such issue or sale, plus (B) the number of shares of Common Stock which the
aggregate consideration received (as defined in Section 4(i)(ii)) by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Series A Preferred Conversion Price, Series B Preferred
Conversion Price, Series C Preferred Conversion Price, Series D Preferred
Conversion Price or Series E Preferred Conversion Price, as applicable, and (ii)
the denominator of which shall be the number of shares of Common Stock deemed
outstanding (as defined below) immediately prior to such issue or sale plus the
total number of Additional Shares of Common Stock so issued. For the purposes of
the preceding sentence, the number of shares of Common
11.
<PAGE> 12
Stock deemed to be outstanding as of a given date shall be the sum of (A) the
number of shares of Common Stock issued and outstanding, (B) the number of
shares of Common Stock into which the then outstanding shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, and
Series E Preferred could be converted if fully converted on the day immediately
preceding the given date, and (C) the number of shares of Common Stock which
could be obtained through the exercise or conversion of all other rights,
options and convertible securities outstanding (including rights to acquire
convertible securities and the conversion of such securities into Common Stock)
on the day immediately preceding the given date.
(ii) For the purpose of making any adjustment
required under this Section 4(i), the consideration received by the Corporation
for any issue or sale of securities shall (A) to the extent it consists of cash,
be computed at the net amount of cash received by the Corporation after
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Corporation in connection with such issue or
sale but without deduction of any expenses payable by the Corporation, (B) to
the extent it consists of property other than cash, be computed at the fair
value of that property as determined in good faith by the Board of Directors,
and (C) if Additional Shares of Common Stock, Convertible Securities (as defined
in Section 4(i)(iii)) or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together with other
stock or securities or other assets of the Corporation for a consideration which
covers both, be computed as the portion of the consideration so received that
may be reasonably determined in good faith by the Board of Directors to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
rights or options.
(iii) For the purpose of the adjustment required
under this Section 4(i), if the Corporation issues or sells (i) stock or other
securities convertible into, or exchangeable for, Additional Shares of Common
Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") or (ii) rights or options (including warrants) for the
purchase of Additional Shares of Common Stock or Convertible Securities and if
the Effective Price of such Additional Shares of Common Stock is less than the
Series A Preferred Conversion Price, Series B Preferred Conversion Price, Series
C Preferred Conversion Price, Series D Preferred Conversion Price or Series E
Preferred Conversion Price, as applicable, in each case the Corporation shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares (for the purpose of computing the
"Effective Price") an amount equal to the total amount of the consideration, if
any, received by the Corporation for the issuance of such rights or options or
Convertible Securities, plus, in the case of such rights or options, the minimum
amounts of consideration, if any, payable to the Corporation upon the exercise
of such rights or options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Corporation (other than
by cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; provided that if in the case of
Convertible Securities the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
the Corporation shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Corporation upon the exercise or
conversion of rights, options or Convertible Securities is
12.
<PAGE> 13
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall be
recalculated using the figure to which such minimum amount of consideration is
reduced; provided further that if the minimum amount of consideration payable to
the Corporation upon the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the Effective Price shall be
again recalculated using the increased minimum amount of consideration payable
to the Corporation upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the Series A Preferred
Conversion Price, the Series B Preferred Conversion Price, the Series C
Preferred Conversion Price, the Series D Preferred Conversion Price and the
Series E Preferred Conversion Price, as applicable, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Series A Preferred Conversion Price, the Series B Preferred
Conversion Price, the Series C Preferred Conversion Price, the Series D
Preferred Conversion Price, or the Series E Preferred Conversion Price, as
applicable, as adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Series A Preferred Conversion Price, the
Series B Preferred Conversion Price, the Series C Preferred Conversion Price,
the Series D Preferred Conversion Price and the Series E Preferred Conversion
Price, as applicable, which would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued were
the Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for (w) the consideration actually received by the Corporation upon such
exercise, plus (x) the consideration, if any, actually received by the
Corporation for the granting of all such rights or options, whether or not
exercised, plus (y) the consideration received for issuing or selling the
Convertible Securities, whether or not converted, plus (z) the consideration, if
any, actually received by the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion of such Convertible Securities, provided that such readjustment shall
not apply to prior conversions of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred or Series E Preferred.
(iv) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Corporation or deemed to be issued
pursuant to this Section 4(i), other than (A) shares of Common Stock issued upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred or Series E Preferred, (B) shares of Common Stock and/or
options, warrants or other Common Stock purchase rights, and the Common Stock
issued pursuant to such options, warrants or other rights after the Original
Issue Date to employees, officers or directors of, or consultants or advisors to
the Corporation or any subsidiary pursuant to stock purchase or stock option
plans or other arrangements that are approved by the Board of Directors, (C)
shares of Common Stock issued pursuant to the exercise of options, warrants or
convertible securities outstanding as of the Original Issue Date, (D) shares of
Common Stock and/or options, warrants or other Common Stock purchase rights, and
the Common Stock issued pursuant to such options, warrants or other rights,
issued for consideration other than cash pursuant to a merger, consolidation,
acquisition or similar business combination approved by the Board of Directors,
(E) shares of Common Stock
13.
<PAGE> 14
issued pursuant to any equipment leasing or loan arrangement, or debt financing
from a bank or similar financial or lending institution approved by the Board of
Directors, and (F) shares of Common Stock issued in connection with strategic
transactions involving the Corporation and other entities, including joint
ventures, manufacturing, marketing or distribution arrangements or technology
transfer or development arrangements approved by the Board of Directors.
References to Common Stock in the subsections of this clause (iv) above shall
mean all shares of Common Stock issued by the Corporation or deemed to be issued
pursuant to this Section 4(i). The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Corporation under this Section 4(i), into the aggregate
consideration received, or deemed to have been received by the Corporation for
such issue under this Section 4(i), for such Additional Shares of Common Stock.
(j) CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Series A Preferred Conversion Price, the
Series B Preferred Conversion Price, the Series C Preferred Conversion Price,
the Series D Preferred Conversion Price or the Series E Conversion Price for the
number of shares of Common Stock or other securities issuable upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, if such series of Preferred Stock is then
convertible pursuant to this Section 4, the Corporation, at its expense, shall
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjusted Conversion Price, and shall mail
such certificate, by first class mail, postage prepaid, to each registered
holder of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, as applicable, at the holder's address as
shown in the Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (i) the
consideration received or deemed to be received by the Corporation for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (ii) the respective Conversion Price at the time in effect, (iii) the
number of Additional Shares of Common Stock and (iv) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, as applicable.
(k) NOTICES OF RECORD DATE. Upon (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition (as defined in Section
3(c)) or other capital reorganization of the Corporation, any reclassification
or recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or any
Asset Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred at least ten (10) days
prior to the record date specified therein (or such shorter period approved by a
majority of the outstanding Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred, voting together as a
single class) a notice specifying (A) the date on which any such record is to be
taken for the purpose of such dividend or distribution and a description of such
dividend or distribution, (B) the date on which any such Acquisition,
reorganization,
14.
<PAGE> 15
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up.
(l) AUTOMATIC CONVERSION.
(i) Each share of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series A Preferred Conversion Rate, Series B Preferred Conversion
Rate, Series C Preferred Conversion Rate, Series D Preferred Conversion Rate and
Series E Preferred Conversion Rate, respectively, (A) at any time upon the
affirmative election of the holders of at least a majority of the then
outstanding shares of such respective series of Preferred Stock, or (B)
immediately upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account of
the Corporation; provided that (i) with respect to the Series B Preferred, the
Series C Preferred, the Series D Preferred and the Series E Preferred, the
automatic conversion shall be further conditioned upon the following minimum
proceeds requirements: (1) the per share price is at least $12.09 (as adjusted
for stock splits, dividends, recapitalizations and the like) and (2) the gross
cash proceeds to the Corporation (before underwriting discounts, commissions and
fees) are at least $15,000,000; and (ii) with respect to the Series E Preferred,
the automatic conversion shall be further conditioned upon the following minimum
proceeds requirements: (1) the per share price is at least $25.00 (as adjusted
for stock splits, dividends, recapitalizations and the like) and (2) the gross
cash proceeds to the Corporation (before underwriting discounts, commissions and
fees) are at least $40,000,000. Upon such automatic conversion, any declared and
unpaid dividends shall be paid in accordance with the provisions of Section
4(d). A public offering which satisfies the proceeds requirement described in
clauses (i) (with respect to each of the Series C Preferred, Series D Preferred
and Series E Preferred) and (ii) (with respect to the Series E Preferred) are
hereinafter referred to as a "Designated Public Offering" with respect to such
series of Preferred Stock.
(ii) Upon the occurrence of either of the events
specified in Section 4(l)(i) above, the outstanding shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and/or
Series E Preferred Stock, as applicable, 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; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and/or Series E
Preferred Stock, as applicable, are either delivered to the Corporation or its
transfer agent as provided below, 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.
Upon the occurrence of such automatic conversion of the Series A Preferred,
Series
15.
<PAGE> 16
B Preferred, Series C Preferred, Series D Preferred and/or Series E Preferred
Stock, the holders of shares of such respective series of Preferred Stock shall
surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the shares of such series of Preferred
Stock. Thereupon, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and/or Series E Preferred Stock, as applicable,
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
(m) FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred or Series E Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board of Directors) on the date of conversion.
(n) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
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 Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred, 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 Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred. 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
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred, the 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 purpose.
(o) NOTICES. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Corporation.
(p) PAYMENT OF TAXES. The Corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series A
16.
<PAGE> 17
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, excluding any tax or other charge imposed in connection with any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which such shares of converted Preferred Stock were
registered.
(q) NO DILUTION OR IMPAIRMENT. Without the consent of the
holders of then outstanding Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred as required under Section
2(b), the Corporation shall not amend its Restated Certificate of Incorporation
or participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or take any other voluntary action, for
the purpose of avoiding or seeking to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but shall
at all times in good faith assist in carrying out all such action as may be
reasonably necessary or appropriate in order to protect the conversion rights of
the holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred against dilution or other impairment.
5. REDEMPTION.
(a) The Corporation shall be obligated to redeem the
Series C Preferred, Series D Preferred and Series E Preferred as follows:
(i) If a Designated Public Offering with respect to
the Series C Preferred (or other transaction providing the holders of Series C
Preferred with the opportunity for liquidity of their investment in the Series C
Preferred based on a valuation of the Corporation comparable to the valuation
required for a Series C Designated Public Offering) does not occur by the fifth
anniversary of the Original Issue Date of the Series C Preferred, the holders of
at least a majority of the then outstanding shares of Series C Preferred may
require the Corporation, to the extent funds are legally available therefor, to
redeem the Series C Preferred prior to any redemption of the Series A Preferred
or Series B Preferred in three (3) equal annual installments, with the first
installment for one-third (1/3) of the then outstanding shares of the Series C
Preferred being due and payable on the date not less than 90 days after the date
the holders of Series C Preferred notify the Corporation in writing of their
election to redeem the shares, the second installment for one-half (1/2) of the
then outstanding shares of the Series C Preferred being due and payable on the
first anniversary of the first redemption date and the third and final
installment for all remaining outstanding shares of Series C Preferred being due
and payable on the second anniversary of the first redemption date (the date for
each of such installments a "Redemption Date"). The Corporation shall effect
such redemptions on the applicable Redemption Date by paying in cash in exchange
for the shares of Series C Preferred to be redeemed a sum equal to the Fair
Market Value per share (as defined below) of Series C Preferred. The total
amount to be paid for the Series C Preferred is hereinafter referred to as the
"Series C Preferred Redemption Price." Shares subject to redemption pursuant to
this Section 5(a) shall be redeemed from each holder of Series C Preferred on a
pro rata basis.
(ii) If a Designated Public Offering with respect to
the Series D Preferred (or other transaction providing the holders of Series D
Preferred with the opportunity for liquidity of their investment in the Series D
Preferred based on a valuation of the Corporation
17.
<PAGE> 18
comparable to the valuation required for a Series D Designated Public Offering)
does not occur by the fifth anniversary of the Original Issue Date of the Series
C Preferred, the holders of at least a majority of the then outstanding shares
of Series D Preferred may require the Corporation, to the extent funds are
legally available therefor, to redeem the Series D Preferred prior to any
redemption of the Series A Preferred or Series B Preferred in three (3) equal
annual installments with the first installment for one-third (1/3) of the then
outstanding shares of the Series D Preferred being due and payable on the date
not less than 90 days after the date the holders of Series D Preferred notify
the Corporation in writing of their election to redeem the shares, the second
installment for one-half (1/2) of the then outstanding shares of the Series D
Preferred being due and payable on the first anniversary of the first redemption
date and the third and final installment for all remaining outstanding shares of
Series D Preferred being due and payable on the second anniversary of the first
redemption date (the date for each of such installments a "Redemption Date").
The Corporation shall effect such redemptions on the applicable Redemption Date
by paying in cash in exchange for the shares of Series D Preferred to be
redeemed a sum equal to the Fair Market Value per share of Series D Preferred.
The total amount to be paid for the Series D Preferred is hereinafter referred
to as the "Series D Preferred Redemption Price." Shares subject to redemption
pursuant to this Section 5(a) shall be redeemed from each holder of Series D
Preferred on a pro rata basis.
(iii) If a Designated Public Offering with respect to
the Series E Preferred (or other transaction providing the holders of Series E
Preferred with the opportunity for liquidity of their investment in the Series E
Preferred based on a valuation of the Corporation comparable to the valuation
required for a Series E Designated Public Offering) does not occur by the fifth
anniversary of the Original Issue Date of the Series C Preferred, the holders of
at least a majority of the then outstanding shares of Series E Preferred may
require the Corporation, to the extent funds are legally available therefor, to
redeem the Series E Preferred prior to any redemption of the Series A Preferred
or Series B Preferred in three (3) equal annual installments with the first
installment for one-third (1/3) of the then outstanding shares of the Series E
Preferred being due and payable on the date not less than 90 days after the date
the holders of Series E Preferred notify the Corporation in writing of their
election to redeem the shares, the second installment for one-half (1/2) of the
then outstanding shares of the Series E Preferred being due and payable on the
first anniversary of the first redemption date and the third and final
installment for all remaining outstanding shares of Series E Preferred being due
and payable on the second anniversary of the first redemption date (the date for
each of such installments a "Redemption Date"). The Corporation shall effect
such redemptions on the applicable Redemption Date by paying in cash in exchange
for the shares of Series E Preferred to be redeemed a sum equal to the Fair
Market Value per share of Series E Preferred. The total amount to be paid for
the Series E Preferred is hereinafter referred to as the "Series E Preferred
Redemption Price." Shares subject to redemption pursuant to this Section 5(a)
shall be redeemed from each holder of Series E Preferred on a pro rata basis.
(iv) The "Fair Market Value" for purposes of
determining the applicable Redemption Price for the Series C Preferred, Series D
Preferred or Series E Preferred under this Section 5 shall be the greater of the
following amounts as of the date of the fifth anniversary of the Original Issue
Date of the Series C Preferred, (A) the fair market value of the shares of
Common Stock into which such series of Preferred Stock is then convertible
(exclusive of any discounts regarding liquidity and minority positions),
determined by agreement of the
18.
<PAGE> 19
Board of Directors and the holders of a majority of the then outstanding shares
of such series of Preferred Stock or, if such parties cannot agree upon the fair
market value, as determined by an independent investment banker selected by the
Board of Directors and the holders of a majority of the then outstanding shares
of such series of Preferred Stock, or (B) the value of the assets the holders of
such series of Preferred Stock would receive pursuant to a liquidation of the
Corporation pursuant to Section 3 based upon the fair market value of the
Corporation as determined according to clause (A).
(v) At least thirty (30) days prior to the first
Redemption Date of any shares of Series C Preferred, Series D Preferred and/or
Series E Preferred, the Corporation shall send a notice (a "Redemption Notice")
to all holders of Series C Preferred, Series D Preferred and/or Series E
Preferred to be redeemed setting forth (A) the Redemption Price for the shares
to be redeemed; and (B) the place at which such holders may obtain payment of
the Redemption Price upon surrender of their share certificates. If the
Corporation does not have sufficient funds legally available to redeem all
shares to be redeemed at the Redemption Date, then it shall redeem such shares
pro rata (based on the relative portion of the Series C Redemption Price, Series
D Redemption Price and Series E Redemption Price payable to them) to the extent
possible and shall redeem the remaining shares to be redeemed as soon as
sufficient funds are legally available.
(b) On or prior to each Redemption Date, the Corporation
shall deposit the Redemption Price of all shares to be redeemed with a bank or
trust Corporation, as a trust fund, with irrevocable instructions and authority
to the bank or trust Corporation to pay, on and after such Redemption Date, the
Redemption Price of the shares to their respective holders upon the surrender of
their share certificates. Any moneys deposited by the Corporation pursuant to
this Section 5(b) for the redemption of shares thereafter converted into shares
of Common Stock pursuant to Section 4 hereof prior to the Redemption Date shall
be returned to the Corporation forthwith upon such conversion. The balance of
any funds deposited by the Corporation pursuant to this Section 5(b) remaining
unclaimed at the expiration of one (1) year following such Redemption Date shall
be returned to the Corporation promptly upon its written request.
(c) On or after such Redemption Date, each holder of
shares of Series C Preferred, Series D Preferred and/or Series E Preferred to be
redeemed shall surrender such holder's certificates representing such shares to
the Corporation in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price of such shares shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be canceled. In the
event less than all the shares represented by such certificates are redeemed, a
new certificate shall be issued representing the unredeemed shares. From and
after such Redemption Date, unless there shall have been a default in payment of
the Redemption Price or the Corporation is unable to pay the Redemption Price
due to not having sufficient legally available funds, all rights of the holder
of those shares which are subject to redemption on the Redemption Date as holder
of Series C Preferred, Series D Preferred and Series E Preferred (except the
right to receive the Redemption Price without interest upon surrender of their
certificates), shall cease and terminate with respect to such shares; provided
that in the event that shares of Series C Preferred, Series D Preferred or
Series E Preferred are not redeemed due to a default in payment by the
Corporation or because the Corporation does not have sufficient legally
available funds, such shares of Series C
19.
<PAGE> 20
Preferred, Series D Preferred or Series E Preferred shall remain outstanding and
shall be entitled to all of the rights and preferences provided herein.
In the event of a call for redemption of any shares of Series C
Preferred, Series D Preferred and/or Series E Preferred, the Conversion Rights
(as described in Section 4) for such Series C Preferred, Series D Preferred
and/or Series E Preferred shall terminate as to the shares designated for
redemption at the close of business on the third (3rd) business day preceding
the Redemption Date, unless default is made in payment of the Redemption Price.
(d) In the event that the Corporation fails to effect a
redemption as required under this Section 5 for the holders of Series C
Preferred, Series D Preferred or Series E Preferred upon the proper election of
such holders, then the holders of a majority of the then outstanding shares of
the Series C Preferred, Series D Preferred and Series E Preferred, voting
together as a single class, may cause the Corporation to enter into an
Acquisition or Asset Transfer transaction (as those terms are defined in Section
3(c)).
6. NO REISSUANCE OF PREFERRED STOCK.
No share or shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred acquired
by the Corporation by reason of redemption, purchase, conversion or otherwise
shall be reissued.
V.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. BOARD OF DIRECTORS.
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. Subject to the
rights of the holders of any series of Preferred Stock, the number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the 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 closing
of the Initial Public Offering, 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 Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three
20.
<PAGE> 21
years. At the third annual meeting of stockholders following the Initial Public
Offering, 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. During such time or times that the corporation is subject
to Section 2115(b) of the California General Corporation Law ("CGCL"), this
Section A.2 of this Article V shall become effective and be applicable only when
the corporation is a "listed" corporation within the meaning of Section 301.5 of
the CGCL.
(a) In the event that the corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section A. 2
of this Article V shall not apply and all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
(b) No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless, at
the time of such election, the corporation (i) is subject to Section 2115(b) of
the CGCL AND (ii) is not or ceases to be a "listed" corporation under Section
301.5 of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
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. REMOVAL OF DIRECTORS.
a. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election which the
same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of such director's most recent election were
then being elected.
21.
<PAGE> 22
b. At any time or times that the corporation is not
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section A. 3. a. above shall no longer apply and removal shall be as
provided in Section 141(k) of the DGCL.
4. VACANCIES.
(a) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
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 director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
(b) If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) 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 offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
(c) At any time or times that the corporation is subject
to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B. BYLAWS.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the voting stock of the Corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
22.
<PAGE> 23
2. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws prior to the closing of the Initial Public Offering and
following the closing of the Initial Public Offering no action shall be taken by
the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, except as
provided in paragraph B. of this Article VII, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of this Amended and Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Amended and
Restated Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
voting stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI, and VII.
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this Corporation.
23.
<PAGE> 24
FIVE: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware by the Board of Directors
and the stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was six million three hundred ninety
three thousand seventy-four (6,393,074) shares of Common Stock, sixty eight
thousand one hundred (68,100) shares of Series A Preferred Stock and three
hundred thirty-four thousand nine hundred seven (334,907) shares of Series B
Preferred Stock, four million four hundred fifty-eight thousand three hundred
thirty-two (4,458,332) shares of Series C Preferred Stock, two million three
hundred sixty four thousand nine hundred seventeen (2,364,917) shares of Series
D Preferred Stock and three million two hundred eighty-one thousand five hundred
fifteen (3,281,515) shares of Series E Preferred Stock. The holders of (i) a
majority of the outstanding shares of Common Stock voting as a single class,
(ii) a majority of the outstanding shares of Common Stock and Preferred Stock
(on an as-converted basis), voting together as a single class, and (iii) a
majority of the outstanding shares of Preferred Stock (on an as-converted basis)
voting as a single class, approved this Amended and Restated Certificate of
Incorporation by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware and written notice of such was given by
the Corporation in accordance with said Section 228.
IN WITNESS WHEREOF, MEDIBUY.COM, INC. has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer and President in San Diego, California this ____ day of _____________,
2000.
MEDIBUY.COM, INC.
---------------------------------------
DENNIS J. MURPHY,
Chief Executive Officer and President
24.
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MEDIBUY.COM, INC.
Dennis J. Murphy hereby certifies that:
ONE: The original name of this corporation was HS.com, Inc. and the date
of filing the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware was August 18, 1998. This
corporation changed its name to medibuy.com, inc. and filed an Amended and
Restated Certificate of Incorporation on January 29, 1999. This corporation also
filed an Amended and Restated Certificate of Incorporation on March 16, 1999,
filed an Amended and Restated Certificate of Incorporation on June 8, 1999,
filed a Certificate of Amendment to its Amended and Restated Certificate of
Incorporation on November 1, 1999, filed a Certificate of Amendment to its
Amended and Restated Certificate of Incorporation on December 6, 1999, filed an
Amended and Restated Certificate of Incorporation on December 21, 1999 and filed
an Amended and Restated Certificate of Incorporation on ________.
TWO: He is the duly elected and acting Chief Executive Officer and
President of medibuy.com, inc., a Delaware corporation.
THREE: The Amended and Restated Certificate of Incorporation, as
amended, of this corporation is hereby amended and restated in its entirety to
read as follows:
I.
The name of the corporation is MEDIBUY.COM, INC. (hereinafter referred
to as the "Corporation" or the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
National Corporation Research, Ltd.
9 East Loockerman Street
Dover, DE 19901
County of Kent
The name of the Corporation's registered agent at said address is
National Corporation Research, Ltd.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
1.
<PAGE> 2
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is three hundred fifteen
million (315,000,000). Three hundred million (300,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($0.001) (the
"Common Stock"). Fifteen million (15,000,000) shares shall be Preferred Stock,
each having a par value of one-tenth of one cent ($0.001) (the "Preferred
Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the DGCL, to fix or alter from time
to time the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series or any of them; and to increase or
decrease the number of shares of any series subsequent to the issuance of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. BOARD OF DIRECTORS.
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. Subject to the
rights of the holders of any series of Preferred Stock, the number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the 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 closing
of the Initial Public Offering, 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 Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three
2.
<PAGE> 3
years. At the third annual meeting of stockholders following the Initial Public
Offering, 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. During such time or times that the corporation is subject
to Section 2115(b) of the California General Corporation Law ("CGCL"), this
Section A.2.a of this Article V shall become effective and be applicable only
when the corporation is a "listed" corporation within the meaning of Section
301.5 of the CGCL.
(a) In the event that the corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section A. 2.
a. of this Article V shall not apply and all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
(b) No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless, at
the time of such election, the corporation (i) is subject to Section 2115(b) of
the CGCL AND (ii) is not or ceases to be a "listed" corporation under Section
301.5 of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
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. REMOVAL OF DIRECTORS.
a. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election which the
same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of such director's most recent election were
then being elected.
3.
<PAGE> 4
b. At any time or times that the corporation is not
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section A. 3. a. above shall no longer apply and removal shall be as
provided in Section 141(k) of the DGCL.
4. VACANCIES.
(a) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
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 director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
(b) If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) 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 offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
(c) At any time or times that the corporation is subject
to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B. BYLAWS.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the voting stock of the Corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
4.
<PAGE> 5
2. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws prior to the closing of the Initial Public Offering and
following the closing of the Initial Public Offering no action shall be taken by
the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, except as
provided in paragraph B. of this Article VII, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of this Amended and Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Amended and
Restated Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
voting stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI, and VII.
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this Corporation.
5.
<PAGE> 6
FIVE: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware by the Board of Directors
and the stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was six million three hundred ninety
three thousand seventy-four [(6,393,074) shares of Common Stock], sixty eight
thousand one hundred (68,100) shares of Series A Preferred Stock and three
hundred thirty-four thousand nine hundred seven (334,907) shares of Series B
Preferred Stock, four million four hundred fifty-eight thousand three hundred
thirty-two (4,458,332) shares of Series C Preferred Stock and two million three
hundred sixty four thousand nine hundred seventeen (2,364,917) shares of Series
D Preferred Stock. The holders of a majority of the outstanding shares of Common
Stock, a majority of the outstanding shares of Series A Preferred Stock and a
majority of the outstanding shares of Series B Preferred Stock approved this
Amended and Restated Certificate of Incorporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware and written notice of such was given by the Corporation in accordance
with said Section 228.
IN WITNESS WHEREOF, MEDIBUY.COM, INC. has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer and President in San Diego, California this ____ day of _____________,
2000.
MEDIBUY.COM, INC.
DENNIS J. MURPHY,
Chief Executive Officer and President
6.
<PAGE> 1
[LOGO] NUMBER SHARES [LOGO]
[MEDIBUY.COM LOGO]
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 58447T 1D 5
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $0.001 PER SHARE, OF
medibuy.com, Inc.
(the "Corporation"), a Delaware Corporation
The shares represented by this certificate are transferable on the stock
transfer books of the Corporation by the holder of record hereof, or by duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to bear
the facsimile signatures of its duly authorized officers and to be sealed with
the facsimile of its corporate seal.
Dated:
[SEAL]
/s/ Norman Farquhar /s/ Dennis Murphy
- ------------------------------- ------------------------------
EXECUTIVE VICE PRESIDENT CHIEF CHAIRMAN, PRESIDENT AND
FINANCIAL OFFICER AND SECRETARY CHIEF EXECUTIVE OFFICER
NOTE: LOGO IS FOR POSITION ONLY
AMERICAN BANK NOTE COMPANY
55TH & SANSOM STREET
PHILADELPHIA, PA 19139
(218) 764-8000
SALES: M. SANDHU: 414-843-8685
HOME 15/LIVE JOBS/M/MEDIBUY/H65047
PRODUCTION COORDINATOR: STEVE KOWALSKI: (218) 764-5620
PROOF OF FEBRUARY 15, 2000
MEDIBUY.COM, INC.
H 65047 Fa
OPERATOR: MT/1F
REV 1
COUNTERSIGN AND REGISTERED,
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND SECURITIES
BY
AUTHORIZED SIGNATURE
<PAGE> 2
medibuy.com, Inc. will furnish without charge to each stockholder who so
requests 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. Any such request should be addressed to the Secretary of the
Corporation.
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 TRANS MIN ACT- _________ Custodian ____________
(Cust) (Minor)
under Uniform Transfers to Minors
Act _____________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell(s),
assign(s) and transtor(s) 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 capital 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 ______________________________
----------------------------------------------------------
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
NOTICE: FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT TO ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED
By _________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, (Santa, stockbrokers, Savings and Loan
Associations and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
AMERICAN BANK NOTE COMPANY
35TH & SANSOM STREET
PHILADEPHIA, PA 19139
(216) 764-5655
SALES: M. SANDHU: 414-543-8585
HOME 15/LIVE JOSS/M/MEDIBUY/H85Q47
PRODUCTION COORDINATOR: STEVE KOWALSKI: 216-764-6820
PROOF OF FEBRUARY 18, 2000
MEDIBUY.COM, INC.
H 65047 BK
OPERATOR: MTAR
ROV 1
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into as of March 29, 1999 between
medibuy.com, a Delaware Corporation with a principal place of business at 7777
Alvarado Road, Suite 401, La Mesa, California, 91941 ("COMPANY") and Dennis J.
Murphy of 4385 Canyon Crest West Road, San Ramon, California, 94583
("EXECUTIVE").
1. Employment.
COMPANY hereby employs EXECUTIVE, and EXECUTIVE hereby agrees to accept
employment from COMPANY, as Chief Executive Officer ("CEO") of COMPANY.
EXECUTIVE agrees during the term of his employment under this Agreement and in
his capacity as Chief Executive Officer to perform the duties and
responsibilities of the office of CEO as set forth in COMPANY's bylaws and as
required under Delaware corporation law. EXECUTIVE agrees to perform such
services as shall be determined from time to time by the Board of Directors.
EXECUTIVE further agrees to use his best efforts to promote the interests of
COMPANY and to devote his full business time and energies to the business and
affairs of COMPANY, unless otherwise authorized by a vote of the Board of
Directors. EXECUTIVE may, however, engage in civic and not-for-profit activities
so long as such activities do not materially interfere with the performance of
his duties to COMPANY hereunder.
2. Term of Employment.
The employment under this Agreement shall commence on March 29, 1999,
and shall end on March 29, 2000, provided that the term of the Agreement shall
be extended automatically for successive periods of one year unless otherwise
terminated under Paragraph 5 of this Agreement.
3. Compensation.
<PAGE> 2
(a) Base Salary. As compensation for services provided to COMPANY,
EXECUTIVE shall receive a salary at the annual rate of $195,000, less such
payroll and withholding taxes as required by law to be deducted and such other
amounts as EXECUTIVE shall authorize in writing. The salary shall be payable in
semi-monthly installments. Such salary may be increased, but not decreased, from
time to time as decided in the discretion of the Board of Directors of COMPANY.
(b) Bonus. As additional compensation for services rendered by
EXECUTIVE, EXECUTIVE shall be entitled to participate in any incentive bonus
program that COMPANY's Board of Directors may establish for its executive
employees. Such bonus program shall provide a maximum bonus of fifty percent
(50%) of the salary paid during the year in which the bonus is earned, based
upon factors established by the Board of Directors,
(c) Equity Compensation. As further compensation for the services
rendered by EXECUTIVE, upon his commencement of employment with COMPANY pursuant
to this Agreement, EXECUTIVE will be granted an incentive stock option to
purchase Fifty-Eight Thousand Five Hundred (58,500) shares of Common Stock of
COMPANY at an exercise price per share of $1.50 per share, the fair market
value of the Common Stock as determined by the Board of Directors as of the date
of this Agreement. Such options shall be issued pursuant to, and their exercise
and the issuance of shares upon exercise shall be subject to, the conditions of
the COMPANY's 1999 Equity Incentive Plan. In addition, the 4,000 shares of
COMPANY'S Common Stock previously purchased by EXECUTIVE (1,000 shares at $0.01
per share and 3000 shares at $1.50 per share) shall be free of any right of
repurchase in favor of the COMPANY, but shall be subject to the same
restrictions and obligations (including restrictions upon transfer under
applicable securities laws) as will apply to Common Stock issued to
<PAGE> 3
EXECUTIVE upon his exercise of the stock options described above.
(i) Vesting of Options. EXECUTIVE'S incentive stock options
shall vest according to the following schedule:
8,500 option shares shall vest and be subject to exercise immediately
upon EXECUTIVE'S commencing employment under this Agreement;
50,000 option shares shall vest and be subject to exercise at the rate
of 1041.67 shares for each full month that EXECUTIVE'S
employment continues under this Agreement after the first
anniversary hereunder.
(ii) Change in Control of Company. Anything in Subparagraph
3(c)(i) to the contrary notwithstanding, any agreement, including, but not
limited to, a letter of intent, entered into by COMPANY which ultimately results
in a "change in control" of COMPANY, as defined below, shall cause to vest that
number of option shares (the "Accelerated Options") equal to sixty percent (60%)
of that portion of the options shares granted by this Agreement that have not
otherwise vested as of the date of the change in control.* Subject to provisions
regarding termination of EXECUTIVE'S employment for cause hereunder, the
remaining 40% of such unvested share options shall vest at the rate of 1/12 upon
the completion of each full month of employment thereafter, unless such share
options would vest sooner pursuant to some other provision of this Agreement, in
which event the schedule which results in the earlier vesting shall apply. In
the event that, within the first twelve (12) months from the effective date of a
change in control, EXECUTIVE's employment is terminated without cause or
EXECUTIVE's duties as Chief Executive Officer are significantly changed, the
balance of the option
- -----------
For example, if as of the date of a change in control 21,000 of the 58,500
option shares have already vested, then upon the change in control an additional
60% of the remaining 37,500, or another 22,500 shares, will vest.
-3-
<PAGE> 4
shares granted to EXECUTIVE under this Agreement that have not vested as of the
date of such termination or significant change in duties shall vest immediately.
"Change in control" shall mean the first to occur of; 1) a merger of COMPANY
into, or a consolidation or other reorganization of COMPANY with, another person
or business entity with the result that less than fifty percent (50%) of the
directors of the resulting business entity immediately following the merger,
consolidation or other reorganization were directors of COMPANY immediately
prior to the merger, consolidation or other reorganization; or 2) a sale by
COMPANY of more than fifty percent (50%) of its assets (as measured at the time
of the agreement to sell); or 3) any event or events following the
reconstitution of the Board of Directors of COMPANY in connection with the sale
of Series C and/or Series D Preferred Stock of COMPANY (the "Preferred Stock
Placement") as a result of which the persons constituting the Board of Directors
as a result of such Preferred Stock Placement reconstitution cease to be at
least 50% of the directors of COMPANY, provided, however, that any member of the
Board of Directors of COMPANY whose election or nomination for election by the
shareholders of COMPANY was approved by the vote of at least a majority of the
individuals then constituting the Board of Directors shall be considered to have
been a member of the Board of Directors immediately after the reconstitution of
the Board following the Preferred Stock Placement; or 4) a transaction or series
of transactions by which more than 50% of the voting equity securities of
COMPANY come to be under the control of a single entity or a group of entities
acting in concert to acquire control of COMPANY, but specifically excluding any
change in ownership that results from an initial public offering
-4-
<PAGE> 5
of COMPANY'S voting equity securities that is authorized or approved by COMPANYs
Board of Directors.
(iii) Protection against Dilution. The number of options granted
to EXECUTIVE under this Agreement shall be adjusted, if necessary, so that the
number is equal to 3.4% of the Company's outstanding common stock on a fully
diluted, as converted basis (the "Minimum Percentage"). The Minimum Percentage
shall be determined prior to, and without regard to, the Company's issuance of
any shares in connection with an initial public offering of its stock or a
change in control as described in the preceding paragraph, including any shares
that are issued as compensation to brokers, underwriters or other persons
involved, directly or indirectly, in arranging such public offering or change in
control. Any additional options granted to EXECUTIVE pursuant to this provision
shall have an exercise price equal to the fair market value of the Common Stock
of Company at the date of the grant, taking into consideration the effect of the
stock issuance(s), if any, that trigger application of this provision.
4. Participation in Benefit Plans, Reimbursement of Business Expenses
and Moving Expenses
(a) Benefit Plans. During the term of this Agreement, EXECUTIVE shall be
provided with medical insurance, vacation benefits, sick leave benefits, and
holidays which are not less than, and on terms no less favorable than, COMPANY
provides to its other executive employees.
(b) Reimbursement of Business Expenses. During the term of this
Agreement, COMPANY shall reimburse EXECUTIVE promptly for all expenditures,
including travel, entertainment, parking, business meetings, and the monthly
costs (including dues) of
-5-
<PAGE> 6
maintaining memberships at appropriate clubs which are incurred and submitted
for reimbursement in accordance with the policies established from time to time
by the Board of Directors.
(c) Moving Expenses. COMPANY shall reimburse EXECUTIVE for all actual
relocation expenses, up to a maximum of fifty thousand and 00/100 dollars
($50,000.00), for EXECUTIVE's relocation from San Ramon to the San Diego area in
accordance with the terms of the Relocation Benefits Agreement, which Agreement
is attached hereto as Appendix A.
5. Termination of Employment.
(a) Automatic Termination. This Agreement will automatically terminate
in the event of EXECUTIVE's death, or EXECUTIVE's disability which prevents
EXECUTIVE from performing substantially all of his duties and responsibilities
for a continuous period of ninety (90) days. COMPANY shall have no further
obligations to EXECUTIVE or his estate upon such automatic termination, except
to honor the exercise of any stock options that have vested prior to the date of
such termination, subject to the applicable conditions of the 1999 Equity
Incentive Plan.
(b) Termination Not for Cause. In the event that COMPANY terminates this
Agreement without cause, COMPANY shall, subject to the conditions set forth in
Section 6(b), below, continue to pay EXECUTIVE his salary at the level in effect
at the time of termination for a period of one (1) year, plus any accrued, but
unused vacation, and less any applicable payroll and withholding taxes or other
legally required deductions. The one-year salary continuation for EXECUTIVE
shall be paid in the same manner and at the same
-6-
<PAGE> 7
intervals as if EXECUTIVE continued his employment during that one year period.
COMPANY reserves the right to pay the one-year salary continuation amount in a
lump sum. No other compensation or benefits shall be due to EXECUTIVE.
(c) Termination for Cause. Notwithstanding the provisions of
Sub-paragraph 5(b), COMPANY may terminate EXECUTIVE's employment for cause. For
purposes of this Agreement, COMPANY shall have "cause" to terminate EXECUTIVE's
employment in the event of the following:
1) EXECUTIVE commits a criminal act of dishonesty;
2) EXECUTIVE commits a repeated violation of a written COMPANY Policy
after being provided with written notice by COMPANY which specifies the initial
Policy violation;
3) Continued failure by EXECUTIVE to perform the material aspects of
EXECUTIVE's duties and responsibilities after written warning from the Board of
Directors specifying the duties or responsibilities which EXECUTIVE has failed
to perform;
4) A material breach by EXECUTIVE of any provision of this Agreement.
EXECUTIVE shall not be deemed to have been terminated for cause unless
and until there has been delivered to him, in writing, a certification that the
majority of the non-officer members of the Board have found in good faith that
EXECUTIVE has engaged in conduct constituting cause within the meaning of this
Paragraph, which certification shall specify the particulars upon which the
decision is based. The Board of Directors shall notify EXECUTIVE if it intends
to consider termination of this Agreement for cause, and upon his request the
EXECUTIVE shall have the right to present to the Board such information as he
believes is relevant to the Board's decision. However, as in the case of any
matter which
-7-
<PAGE> 8
involves a conflict of interest for EXECUTIVE, the EXECUTIVE shall not have, and
he hereby expressly waives, any right to be present at or participate in the
deliberations of the Board of Directors with respect to a vote to terminate this
Agreement for cause. The vote set forth in this provision shall be adequate for
the purpose described herein, notwithstanding that the bylaws of the COMPANY or
the Corporation Law of the State of Delaware specifies other procedures for
votes of the Board of Directors, and EXECUTIVE waives any rights that he may
have to challenge the procedural validity of any vote to terminate his
employment taken in accordance with this provision. Such waiver shall not extend
to the right of EXECUTIVE to challenge the legality or validity of his
termination for any other reason.
In the event EXECUTIVE's employment is terminated for cause, he will not
be entitled to receive any severance pay or any other severance compensation.
(d) Resignation. EXECUTIVE retains the right to resign or otherwise
voluntarily terminate his employment with COMPANY upon ninety (90) days' written
notice to the Board of Directors. In the event EXECUTIVE resigns or otherwise
voluntarily terminates his employment with COMPANY, EXECUTIVE shall not be
entitled to any compensation, including benefits, beyond the effective date of
his resignation.
(e) Board Membership. In the event of EXECUTIVE's resignation from or
the termination of his employment for any reason, he shall submit a letter of
resignation from his seat on the Board of Directors.
(f) Stock Options. Subject to the Change in Control provisions of
Section 3(c)(ii), above, only the shares subject to the stock options granted to
EXECUTIVE above
<PAGE> 9
that have vested up to the date of the termination of or his resignation
from his employment under this Agreement may be exercised by EXECUTIVE,
such exercise to be subject to the conditions set forth in the COMPANY's
1999 Equity Incentive Plan, as it may be amended from time to time. Any
stock options that are unvested as of the date of EXECUTIVES's
termination shall be null and void.
6. Noncompetition, Confidentiality and Conflicts of Interest.
(a) EXECUTIVE agrees and understands that, as the CEO of COMPANY, he
will gain possession of confidential information about COMPANY and the way it
conducts its business. In conjunction with the execution of, and as part of the
consideration given for, this Agreement, EXECUTIVE will execute the Proprietary
Information and Inventions Agreement that is attached to this Agreement as
Appendix B. EXECUTIVE's duties and obligations under Appendix B shall survive
termination of his employment with COMPANY. EXECUTIVE acknowledges that a remedy
at law for any breach or threatened breach by him of the provisions of Appendix
B would be inadequate to protect COMPANY against the consequences of such
breach, and he therefore agrees that the COMPANY shall be entitled to injunctive
relief in case of any such breach or threatened breach.
(b) Restrictive Covenant. During any period that EXECUTIVE is receiving
severance compensation from COMPANY following the termination date of
EXECUTIVE's employment under this Agreement, EXECUTIVE shall not, without first
obtaining the prior written approval of COMPANY, directly or indirectly engage
in any activities in competition with COMPANY, or accept employment or establish
a business relationship with a business engaged in competition with COMPANY
(specifically, promoting and receiving revenue for the marketing, sale and
distribution
<PAGE> 10
of goods, equipment and services in the "Healthcare Field" via the Internet, as
that term is defined in the license agreement between COMPANY and among others,
iBO$, Inc. dated March 25, 1999, and such other businesses as COMPANY comes to
be actively engaged in during the term of this Agreement), in any geographical
area in which COMPANY, as of the termination date, either conducts or plans to
conduct business. In the event that EXECUTIVE undertakes any such activities
without written permission from COMPANY, COMPANY'S obligation to pay EXECUTIVE
severance compensation under this provision shall cease.
(c) Conflicts of Interest. EXECUTIVE agrees not to acquire, assume or
participate in, directly or indirectly, any position, investment or interest
known by him to be adverse or antagonistic to COMPANY, its business or
prospects, financial or otherwise. However, EXECUTIVE may own, as a passive
investor, securities of any publicly traded companies, provided his beneficial
ownership of the stock of any one such corporation does not exceed 1% of such
corporation's voting stock.
(d) Non-interference. While employed by COMPANY, and for a period of one
(1) year immediately following the termination of his employment, EXECUTIVE will
not interfere with the business of COMPANY by:
(i) soliciting, attempting to solicit, inducing or otherwise causing any
employee of COMPANY to terminate his or her employment in order to become an
employee, consultant or contractor to or for any competitor of COMPANY;
(ii) directly or indirectly soliciting the business of any customer of
COMPANY which at the time of termination or one year prior thereto was listed on
COMPANY's customer list, which solicitation, if successful, would result in the
loss of business or potential business for COMPANY.
<PAGE> 11
7. Notices.
For purposes of this Agreement, notices and other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States Registered or
Certified Mail, return receipt requested, postage prepaid, addressed as follows:
If to EXECUTIVE: Dennis J. Murphy
4385 Canyon Crest West Road
San Ramon, California, 94583
If to COMPANY: medibuy.com
7777 Alvarado Road, Suite 401
LaMesa, California 91941
Attn: The President
or at such other address as any party may have furnished to the other in writing
subsequent to the execution of this Agreement or, in the case of EXECUTIVE, to
the address listed for him in COMPANY's records and in the case of COMPANY, to
the address known by him to be where the office of the President of COMPANY is
located.
8. Modification, Waiver.
No provision in this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing, signed by
EXECUTIVE and a person duly authorized by the Board of Directors of COMPANY so
to act.
9. Severability.
If any provision of this Agreement is determined to be invalid or is in
any way modified by any governmental agency, tribunal, or court of competent
jurisdiction, such determination shall be
<PAGE> 12
considered as a separate, distinct, and independent part of this Agreement and
shall not affect the validity or enforceability of any of the remaining
provisions of this Agreement.
10. Successor Rights and Assignment.
This Agreement shall bind, inure to the benefit of and be enforceable by
EXECUTIVE's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and legatees. The rights and obligations of
COMPANY under this Agreement may be assigned by COMPANY, in which event it shall
be binding upon, and inure to the benefit of, the person(s) or entity(ies) to
whom it is assigned. EXECUTIVE may not assign his duties hereunder and he may
not assign any of his rights hereunder without the written consent of COMPANY.
IN WITNESS WHEREOF, EXECUTIVE and COMPANY have entered into this
Agreement as of the date first above written.
EXECUTIVE:
/s/ DENNIS J. MURPHY
-----------------------------
Dennis J. Murphy
MEDIBUY.COM, INC.
By: /s/ MICHAEL CHERMAK
--------------------------
Its:
-------------------------
<PAGE> 13
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
entered into as of October 26, 1999 (the "Effective Date"), by and between
MEDIBUY.COM, INC., a Delaware corporation (the "Company") and DENNIS J. MURPHY
("Executive").
WHEREAS, the Company and Executive previously entered into an Employment
Agreement, dated March 29, 1999 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement as set
forth in this Amendment.
NOW THEREFORE, in consideration of the mutual benefits contained herein,
the parties, intending to be legally bound, hereby agree as follows:
1. Except as otherwise defined herein, capitalized terms used but
not defined herein shall have the meanings given to them in the Employment
Agreement.
2. The Employment Agreement is hereby amended as follows:
(a) In addition to serving as the Chief Executive Officer of
the Company, Executive has been appointed by the Company's Board of Directors to
serve as President of the Company. The Employment Agreement is hereby amended to
include Executive's employment with the Company as Chief Executive Officer and
President.
(b) Executive's annual salary under Section 3(a) of the
Employment Agreement is hereby agreed to be $250,000, less applicable payroll
and withholding taxes and other authorized deductions.
(c) Section 3(c)(iii) ("Protection Against Dilution") is
deleted in its entirety. In addition, in consideration of such deletion the
Company shall grant to Executive a fully vested, immediately exercisable
incentive stock option to purchase 150,000 shares of Common Stock under the
Company's 1999 Omnibus Equity Plan.
(d) The following provision is hereby added as Section
3(c)(iv) of the Employment Agreement:
"Section 3(c)(iv) Securities Registration. COMPANY shall
cause all of EXECUTIVE's share options, and the issuance of
shares upon exercise thereof, to be included in an effective
registration statement on Form S-8 (or any successor form) under
the Securities Act of 1933, as amended, within 180 days after
the initial registered public offering of COMPANY's Common Stock
or other equity securities convertible into Common Stock."
(e) The following provision is hereby added at the end of
Section 4(a):
"COMPANY agrees that it shall reimburse EXECUTIVE for insurance
premiums for disability insurance not to exceed an amount of
$5,000 in any 1 year."
1.
<PAGE> 14
(f) The following provision is hereby added at the end of
Section 4(c) of the Employment Agreement:
"To the extent relocation expenses reimbursed under this
Section 4(c) will are subject to state or federal taxation,
COMPANY will pay an additional amount (the "Gross-Up Payment")
such that after payment of all state and federal taxes on the
reimbursement and the Gross-Up payment, EXECUTIVE will retain an
amount equal to the reimbursement. COMPANY will expect EXECUTIVE
to fully and completely cooperate with COMPANY with respect to
all matters associated with the taxation or potential taxation
of such reimbursement. EXECUTIVE has consulted with EXECUTIVE's
own tax advisor with respect to tax implications related to the
reimbursement of relocation expenses."
(g) The following provision is hereby added as Section 4(d)
of the Employment Agreement:
"Section 4(d) Legal Expenses. COMPANY will reimburse EXECUTIVE
for actual fees and expenses incurred by him in connection with
the review and negotiation of this Agreement, up to a maximum of
$3,000."
3. For purposes of clarification, the parties agree that the
vesting schedule of the stock option granted to Executive by the Company on
November 17, 1999 is as follows:
25% of the shares (or 26,250 shares) subject to the
option are fully vested and immediately exercisable upon grant,
and the remaining shares subject to the option are fully vested
and immediately exercisable upon grant, and the remaining shares
subject to the option will vest in equal monthly portions over
36 months beginning on April 29, 2000.
4. This Amendment shall be governed by and construed in accordance
with the laws of the State of California as such laws are applied to contracts
entered into and performed entirely within California by California residents.
5. This Amendment may be signed in any number of counterparts, each
of which will be deemed an original, and all of which taken together shall
constitute one and the same instrument.
6. Except as specifically amended hereby, the Employment Agreement
shall remain in full force and effect. This Amendment together with the
Employment Agreement constitutes the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersedes all prior agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect to the
subject matter hereof or thereof.
2.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MEDIBUY.COM, INC.
By: /s/ NORMAN FARQUHAR
/s/ DENNIS J. MURPHY -------------------------------------
- --------------------------------
DENNIS J. MURPHY Name: Norman Farquhar
-----------------------------------
Title: Executive Vice President and
Chief Financial Officer
----------------------------------
3.
<PAGE> 16
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of January 28, 2000 by and between MEDIBUY.COM, INC.,
a Delaware corporation (the "Company") and DENNIS J. MURPHY ("Executive").
A. Executive is the PRESIDENT AND CHIEF EXECUTIVE OFFICER of the Company
pursuant to an employment agreement dated as of MARCH 29, 1999, as amended (the
"Employment Agreement"); and
B. Because of Executive's intimate knowledge of the business of the
Company, the Company and Executive desire to amend the Employment Agreement to
provide for a consulting agreement between the Company and Executive upon
Executive's termination of employment.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT.
1.1 The parties agree to replace the provisions relating to severance
payments with the Consulting Agreement and terms as contemplated in this
Amendment.
1.2 Section 5(b) of the Employment Agreement is hereby amended and
replaced in its entirety by the following:
"Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, then upon EXECUTIVE furnishing
COMPANY with an executed Waiver and Release (in the form attached
hereto as Appendix B), COMPANY and EXECUTIVE shall then each
execute and deliver a Consulting Agreement in the form attached
hereto as EXHIBIT A. Notwithstanding the foregoing, if any party
fails to deliver an executed copy of the Consulting Agreement,
such agreement shall be deemed to be entered into by both parties
and shall continue in full force and effect. The parties
acknowledge that EXECUTIVE shall not be entitled to any payment
or benefit under the Consulting Agreement unless EXECUTIVE shall
first execute the Waiver and Release."
1.3 The heading for Section 6 of the Employment Agreement is hereby
modified and replaced in its entirety by the following:
"Confidentiality, Conflicts of Interest and Non-Interference."
1.4 Section 6(b) ("Restrictive Covenant") of the Employment Agreement is
hereby deleted from the Employment Agreement and replaced with the following:
"[Deleted]"
1.5 Except as expressly modified hereby, all of the terms of the
Employment Agreement shall continue in full force and effect.
1.
<PAGE> 17
2. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
3. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
4. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Executive. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
5. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
6. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
Dennis J. Murphy
--------------------
--------------------
7. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
8. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
9. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
2.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By: /s/ Norman R. Farquhar
-----------------------------------
Name: Norman R. Farquhar
----------------------------------
Title: EVP & CFO
---------------------------------
Executive:
/s/ Dennis J. Murphy
----------------------------------------
3.
<PAGE> 19
EXHIBIT A
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
effective as of ________________, 200__ by and between MEDIBUY.COM, INC., a
Delaware corporation (the "Company") and DENNIS J. MURPHY ("Consultant").
A. Consultant and the Company previously entered into an employment
agreement dated as of _____________, as amended (the "Employment Agreement");
and
B. Consultant and the Company desire to enter into a consultancy
arrangement upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. CONSULTING.
1.1 In consideration for the promises and covenants set forth herein,
for the period (the "Engagement Period") beginning on the effective date of
Consultant's termination of employment under the Employment Agreement (the
"Consulting Date") and ending on the date one year after the Consulting Date,
the Company and Consultant agree that Consultant shall perform the services and
undertake the duties and responsibilities set forth in Schedule A attached
hereto and incorporated herein (collectively, the "Services"). Consultant shall
render the Services under the terms and conditions set forth in this Agreement.
1.2 During the Engagement Period, Consultant will not be considered an
agent or an employee of the Company; Consultant will not have authority to make
any representation, contract, or commitment on behalf of the Company and
Consultant agrees not to do so; and Consultant will not be entitled to any of
the benefits which the Company may make available to its employees, such as
group insurance, profit sharing, or retirement benefits.
1.3 During the Engagement Period, Consultant will be solely responsible
for all tax returns and payments to any federal, state, or local tax authority
with respect to Consultant's performance of services and the receipt of fees or
other compensation and benefits under this Agreement. The Company will report
amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue
Service as required by law. The Company will not: make withholdings or
deductions from Consultant's payment checks; make contributions for Social
Security, employment insurance or disability insurance; or obtain workers'
compensation insurance on Consultant's behalf. During the Engagement Period,
Consultant shall comply with all applicable state and federal laws governing
self-employed individuals, including obligations such as payment of taxes,
Social Security, disability and other contributions based on compensation and
benefits paid to Consultant under this Agreement. Consultant hereby indemnifies
the Company against any and all such taxes or contributions, including penalties
and interest.
1.
<PAGE> 20
1.4 During the Engagement Period, subject to the terms and restrictions
of this Agreement, Consultant may engage in employment, consulting or other work
relationships in addition to Consultant's work for the Company. The Company
agrees to make reasonable arrangements to enable Consultant to perform
Consultant's consulting services for the Company at such times and in such a
manner so that it does not unreasonably interfere with other work activities in
which Consultant may engage.
2. TERM. The term of this Agreement (the "Term") shall commence upon the
Consulting Date. This Agreement shall remain in full force and effect until
completion of the Engagement Period.
3. CONSULTING FEES. As payment for the Services, Consultant shall receive cash
fees as set forth in Schedule B attached hereto and incorporated herein, which
shall constitute complete payment for the Services.
4. NO OTHER BENEFITS. During the Term, Consultant shall not be entitled to any
other compensation or benefits, including benefits provided generally to
employees of the Company, and Consultant's compensation shall not be subject to
withholding, unless, in the Company's view, withholding is required by
applicable law.
5. CONFIDENTIAL INFORMATION. In connection with the performance of Services
under the Employment Agreement and this Agreement, Consultant may become
familiar with trade secrets and confidential information of the Company (which
shall include all trade secrets and work product resulting from Consultant's
provision of the Services to the Company), which derive independent economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use
("Confidential Information"). Except as may be reasonably necessary while
providing the Services, Consultant agrees that, during the Term of this
Agreement and thereafter, Consultant and any agents and employees of Consultant
will not disclose or utilize any of the Confidential Information (including
without limitation techniques, designs, buying plans, drawings, leases, store
designs, rollout plans, developments, equipment, prototypes, sales, supplier and
customer information and relationships, and business and financial information
relating to the business, products, practices and techniques of the Company) to
which Consultant has been privy, unless Consultant becomes legally required to
disclose any such Confidential Information, in which event Consultant shall
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy. Upon the termination of this
Agreement, Consultant shall deliver to the Company all equipment, notes,
documents, memoranda, reports, files, books, correspondence, lists or other
written or graphic records and the like belonging to the company which are or
have been in Consultant's possession or control.
6. PRESERVATION OF CONFIDENTIAL INFORMATION; NONCOMPETITION.
6.1 Consultant agrees that, in order to protect the Confidential
Information of the Company and in consideration of the fees received hereunder,
during the Term of this Agreement, Consultant shall not, without first obtaining
the prior written approval of the Company, directly or indirectly engage in any
activities in competition with the Company, or become an officer, director or
employee of, or consultant to, or investor in, a business engaged in
2.
<PAGE> 21
competition with the Company's current business (specifically, any person or
entity whose principal business is promoting and facilitating via the Internet
transactions between third parties for the wholesale sale and distribution of
goods, equipment and services in the healthcare field) and such other business
or businesses in which the Company comes to be actively engaged during the term
of Consultant's employment with the Company under the Employment Agreement. For
purposes of this agreement, "healthcare field" means the provision of goods
and/or services to any person, firm, corporation, business, partnership, limited
liability company, association or other entity involved directly in the
healthcare industry and/or to any person with respect to their medical or
healthcare needs, including, without limitation, hospitals, surgical centers,
medical clinics, outpatient facilities, medical groups, managed care
organizations, health maintenance organizations, medical or health related
associations, nursing homes, extended care facilities, doctors, physicians,
dentists, chiropractors, veterinarians and other healthcare providers,
practitioners, suppliers, patients or any other person providing or receiving
healthcare service of any nature whatsoever.
6.2 Ownership by Consultant, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this Section 6.
7. SEVERABILITY. To the extent any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected, such deletion to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only the duration, extent
or activities which may validly and enforceably be covered.
8. REMEDIES. In any event of a breach of Consultant's obligations under this
Agreement, Consultant agrees that (a) any and all proceeds, funds, payments and
proprietary interests, of every kind and description, arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and (b) the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
9. INJUNCTIVE RELIEF. Consultant understands and agrees that the Company could
not be reasonably or adequately compensated in damages in an action at law for
Consultant's breach of his obligations under this Agreement. Accordingly,
Consultant specifically agrees that the Company shall be entitled to an
injunction enjoining Consultant or any person or persons acting for or with
Consultant in any capacity whatsoever from violating any of the terms herein.
This provision with respect to injunctive relief shall not diminish the right of
the Company to claim and recover damages pursuant to Section 9 in addition to
injunctive relief.
10. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants that (a)
Consultant is not restricted or prohibited, contractually or otherwise, from
entering into and performing each of the terms and covenants contained in this
Agreement, and (b) Consultant's
3.
<PAGE> 22
execution and performance of this Agreement is not a violation or breach of any
other agreement to which Consultant is a party.
11. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
12. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
13. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Consultant. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
14. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
15. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
--------------------
--------------------
--------------------
16. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
17. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
4.
<PAGE> 23
18. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Consultant:
/s/ Dennis J. Murphy
----------------------------------------
----------------
5.
<PAGE> 24
SCHEDULE A
SERVICES, DUTIES AND RESPONSIBILITIES
During the Term, Consultant shall, upon request, consult with the
Company by telephone, by mail and in person from time to time on a part-time
basis during regular business hours. The consultation shall concern the
management, operation, marketing, sales, purchasing, technology, financing and
other aspects of the business of the Company, and may include Consultant's
direct contacting of third parties at the reasonable request of the Company.
1.
<PAGE> 25
SCHEDULE B
CONSULTING FEE AND BENEFITS
The Company shall pay to Consultant for the Services an annual amount
equal to the sum of:
(i) an amount equal to the annual salary of Consultant in effect
at the time of termination under the Employment Agreement (the
"Consulting Fee") plus
(ii) to the extent the payment of the amount described in (i)
above is subject to state or federal taxation beyond that to
which it would have been subject as severance pay under the
Employment Agreement, the Company will pay an additional amount
(the "Gross-Up Payment") such that after payment of all state and
federal taxes on the Consulting Fee and the Gross-Up Payment,
Consultant will retain an amount equal to the amount Consultant
would have received as severance pay under the Employment
Agreement.
The total amount described in (i) and (ii) above shall be paid monthly during
the Term as provided herein.
To the extent provided by the federal COBRA law or, if applicable, state
insurance laws, and by the Company's group health insurance policies, Consultant
will be eligible to continue Consultant's health insurance benefits. In the
event Consultant elects continued coverage under COBRA, the Company, as part of
this Agreement and in consideration thereof, will reimburse Consultant for the
same portion of Consultant's COBRA health insurance premium that the Company
previously paid for Consultant's coverage under the Employment Agreement.
Consultant will be responsible for the same portion of the COBRA health
insurance that Consultant previously paid for coverage under the Employment
Agreement.
The Company shall pay on Consultant's behalf, or reimburse Consultant
for, any expenses reasonably incurred in connection with his rendering of the
Services and which are not incurred in violation of any policy or policies
regarding expenses which may be adopted by the Board of Directors from time to
time. Consultant agrees to submit receipts and other documentation to support
the above expenses as a condition of reimbursement therefor.
Consultant will fully and completely cooperate with the Company with
respect to all matters associated with the taxation or potential taxation of any
payments and reimbursements hereunder. Consultant acknowledges that Consultant
is responsible for consulting his or her own tax advisor with respect to any
taxation matters.
1.
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into between medibuy.com, Inc. a
Delaware Corporation with a principal place of business at 7777 Alvarado Road,
Suite 401, La Mesa, California, 91941 ("COMPANY"), and James L. Hersma, whose
principal residence is at 4100 West 86th St., Tulsa, OK, 74132 ("EXECUTIVE").
1. Employment.
a) Executive Responsibilities. COMPANY hereby employs EXECUTIVE, and
EXECUTIVE hereby agrees to accept employment from COMPANY, as Executive Vice-
President of Market Development of COMPANY. EXECUTIVE shall report directly to
COMPANY's Chief Executive Officer. EXECUTIVE agrees during the term of his
employment under this Agreement to perform the duties and responsibilities
customarily required of such position, as reasonably directed by COMPANY's Chief
Executive Officer, and in accordance with COMPANY's bylaws and Delaware
corporation law. EXECUTIVE further agrees to use his best efforts to promote the
interests of COMPANY and to devote his full business time and energies to the
business and affairs of COMPANY, unless otherwise authorized by the Chief
Executive Officer of COMPANY. EXECUTIVE may, however, engage in civic and
not-for-profit activities so long as such activities do not materially interfere
with the performance of his duties to COMPANY hereunder.
b) Director Responsibilities. Subject to the approval of this Agreement
by a majority of the current directors of COMPANY, EXECUTIVE shall be elected a
member of the Board of Directors, to serve in such position until the next
regular meeting of COMPANY's shareholders. EXECUTIVE's continued service on
COMPANY's Board of Directors thereafter shall be subject to his election by vote
of the shareholders, but COMPANY will include
<PAGE> 2
EXECUTIVE in its recommended slate of __ candidates for membership on the Board.
In the event that EXECUTIVE's employment with COMPANY under this Agreement is
terminated for any reason, EXECUTIVE shall submit to the Chairman of the Board
his resignation as a Director.
2. Term of Employment.
The employment under this Agreement shall commence on May 26, 1999 and
shall end at the end of the day on May 25, 2000, provided that the term of
EXECUTIVE's employment under this Agreement shall thereupon and thereafter be
extended automatically for successive periods of one year unless otherwise
terminated under Paragraph 5 of this Agreement.
3. Compensation.
(a) Base Salary. As compensation for services provided to COMPANY,
EXECUTIVE shall receive a salary at the annual rate of $185,000.00, less such
payroll and withholding taxes as required by law to be deducted and such other
amounts as EXECUTIVE shall authorize in writing. Salary shall begin to accrue
under this Agreement as of June 14, 1999. Provided EXECUTIVE remains employed
under this Agreement beyond the first anniversary date of his employment
hereunder, his salary shall be increased to an annual rate of $300,000 effective
as of that first anniversary date. The salary shall be payable in semi-monthly
installments. Such salary may be increased, but not decreased, from time to time
as decided in the discretion of the Board of Directors of COMPANY.
(b) Bonus. As additional compensation for services rendered by
EXECUTIVE, EXECUTIVE shall be entitled to participate in each incentive bonus
program (if any) that COMPANY's Board of Directors may establish for its
executive employees. Such bonus program shall provide a maximum bonus of fifty
percent (50%) of the salary paid during the year in which the bonus is earned,
based upon factors established by the Chief Executive Officer and approved by
the Board of Directors.
<PAGE> 3
(c) Equity Compensation. As further compensation for the services
rendered by EXECUTIVE, upon his commencement of employment with COMPANY pursuant
to this Agreement and approval by COMPANY's Board of Directors, EXECUTIVE will
be granted an incentive stock option to purchase 31,500 shares of Common Stock
of COMPANY, subject to increase as provided below, at an exercise price per
share of $1.50 per share. Such options shall be issued pursuant to, and their
exercise and the issuance of shares upon exercise shall be subject to, the
conditions of the COMPANY's 1999 Equity Incentive Plan (the "Plan") and the
corresponding Stock Option Agreement contemplated by the Plan (the "Option
Agreement"), as well as paragraphs 3 (d) and 5 (f), below.
(i) Vesting of Options. EXECUTIVE'S incentive stock options described
above shall vest according to the following schedule:
25% (7,812.5) of the option shares shall vest and be subject to exercise
immediately upon EXECUTIVE's commencement of employment under this
Agreement, provided, however, that if EXECUTIVE voluntarily resigns or
is terminated for cause under this Agreement prior to his completion of
one year of service pursuant to this Agreement, COMPANY shall have the
right, for ninety (90) days immediately following the effective date of
such resignation or termination, to repurchase any shares acquired by
EXECUTIVE through the exercise of such options at the price EXECUTIVE
paid for such shares, and any such options that EXECUTIVE has not yet
exercised shall be null and void. EXECUTIVE agrees to execute such
documents as are necessary to effect COMPANY's repurchase of those
shares.
The remaining 23,437.5 option shares shall vest and be subject to
exercise at the rate of 651 shares for each full month that EXECUTIVE'S
employment continues under this Agreement after the first anniversary
hereunder. The number of shares
<PAGE> 4
to vest each month and the maximum number of shares that may vest
hereunder is subject to adjustment pursuant to subparagraph (iv) of this
paragraph 3 (d).
(ii) Change in control. Upon a "change in control" (as defined
below), 50% of the total share options granted to EXECUTIVE under paragraph 3
(c), above, that have not yet vested as of the effective date of such change in
control shall vest on the effective date of the change in control. Subject to
provisions regarding termination of EXECUTIVE'S employment for cause hereunder,
the remaining 50% of such unvested share options shall vest at the rate of 1/12
upon the completion of each full month of employment thereafter, unless such
share options would vest sooner pursuant to some other provision of this
Agreement, in which event the schedule which results in the earlier vesting
shall apply. In the event that, within the first twelve (12) months from the
effective date of a change in control, EXECUTIVE's employment is terminated
without cause or EXECUTIVE's duties as Executive Vice President are
significantly changed, the balance of the option shares granted to EXECUTIVE
under this Agreement that have not vested as of the date of such termination or
significant change in duties shall vest immediately. "Change in control" shall
mean the first to occur of: 1) a merger of COMPANY into, or a consolidation or
other reorganization of COMPANY with, another person or business entity with the
result that less than fifty percent (50%) of the directors of the resulting
business entity immediately following the merger, consolidation or other
reorganization were directors of COMPANY immediately prior to the merger,
consolidation or other reorganization; or 2) a sale by COMPANY of more than
fifty
<PAGE> 5
percent (50%) of its assets (as measured at the time of the agreement to sell);
or 3) any event or events following the reconstitution of the Board of Directors
of COMPANY in connection with the sale of Series C and/or Series D Preferred
Stock of COMPANY (the "Preferred Stock Placement") as a result of which the
persons constituting the Board of Directors as a result of such Preferred Stock
Placement reconstitution cease to be at least 50% of the directors of COMPANY,
provided, however, that any member of the Board of Directors of COMPANY whose
election or nomination for election by the shareholders of COMPANY was approved
by the vote of at least a majority of the individuals then constituting the
Board of Directors shall be considered to have been a member of the Board of
Directors immediately after the reconstitution of the Board following the
Preferred Stock Placement; or 4) a transaction or series of transactions by
which more than 50% of the voting equity securities of COMPANY come to be under
the control of a single entity or a group of entities acting in concert to
acquire control of COMPANY, but specifically excluding any change in ownership
that results from an initial public offering of COMPANY'S voting equity
securities that is authorized or approved by COMPANY's Board of Directors.
(iii) Other Acceleration of Vesting; Other Terms. The
acceleration of vesting provided for in the preceding paragraph is in addition
to, and not in lieu of, the acceleration of vesting of stock options provided
for under the Plan or the Option Agreement under the circumstances described in
the Plan or the Option
<PAGE> 6
Agreement. In addition, the Option Agreement shall 1) provide for incentive
stock options to the extent consistent with the terms of the options, 2) provide
for a ten-year term, 3) afford the option holder the maximum period permitted by
the Plan after termination of EXECUTIVE's employment to exercise options, 4)
afford the option holder the greatest latitude in manner of exercise permitted
by the Plan, 5) not grant COMPANY repurchase rights other than as set forth in
this Agreement, and 6) otherwise be in substantially the form of the standard
form of stock option agreement under the Plan, subject to the terms set forth in
this Agreement.
(iv) Protection against Dilution. The number of options granted to
EXECUTIVE under this Agreement shall be adjusted, if necessary, so that the
number is equal to 1.7% of COMPANY's outstanding Common Stock on a fully
diluted, as exercised and as converted basis, taking into account all rights and
options to acquire (by exercise, conversion or otherwise) shares of Common Stock
(the "Minimum Percentage"). The number of shares of Common Stock equaling the
Minimum Percentage shall be determined prior to, and without regard to,
COMPANY's issuance of any shares, options, warrants or other rights convertible
into shares of Common Stock in, or in connection with, either a) an initial
public offering of its Common Stock or other equity securities of COMPANY
convertible into Common Stock or b) a change in control as described in
subparagraph 3(d)(ii), above, including as to both of the foregoing events any
shares, options, warrants or other rights convertible into shares of Common
Stock that are issued as compensation to brokers, underwriters or other persons
involved, directly or indirectly, in arranging such public offering or change in
control. COMPANY represents to EXECUTIVE that the share options granted to the
Chief Executive Officer of COMPANY equal 3.4% of COMPANY's outstanding Common
Stock on a fully diluted, as exercised and as converted basis, taking into
account all rights and options to acquire (by exercise, conversion or otherwise)
shares of Common Stock. Any options granted to EXECUTIVE pursuant to this
subparagraph 3(c)(iv) shall be subject to the same provisions as those
originally granted under paragraph 3(c), above, except that the
<PAGE> 7
exercise price of any additional options granted to EXECUTIVE pursuant to this
provision shall be equal to the fair market value of the Common Stock of Company
at the date of the grant, taking into consideration the effect of the stock
issuance(s), if any, that trigger application of this provision.
(v) Additional Options. In the event that, prior to the initial public
offering of COMPANY's Common Stock, COMPANY's Board of Directors authorizes an
increase in the options granted to the executive officers of COMPANY generally,
EXECUTIVE shall receive additional options at least equal to 50% of such
additional options granted, if any, to the Chief Executive Officer of COMPANY,
such options to be subject to the vesting requirements and other terms and
conditions as the Board of Directors may apply. This subparagraph 3(d)(v) shall
not apply to any grant of additional options to EXECUTIVE under subparagraph
3(d)(iv), above; in that circumstance, those additional options shall have the
same terms as the share options originally granted under paragraph 3(c), above,
as though granted with those original options.
(vi) Securities Registration. COMPANY shall cause all of EXECUTIVE's
share options, and the issuance of shares upon exercise thereof, to be included
in an effective registration statement on Form S-8 (or any successor form) under
the Securities Act of 1933, as amended, within 180 days after the initial
registered public offering of COMPANY's. Common Stock or other equity securities
convertible into Common Stock.
4. Participation in Benefit Plans, Reimbursement of Business Expenses and
Moving Expenses.
(a) Benefit Plans. During the term of this Agreement, EXECUTIVE shall be
provided with medical insurance, vacation benefits, sick leave benefits, and
holidays
<PAGE> 8
which are not less than, and on terms no less favorable than, COMPANY provides
to its other executive employees.
(b) Reimbursement of Business Expenses. COMPANY shall reimburse
EXECUTIVE promptly for all expenditures made by him during the term of this
Agreement, which expenses are incurred to further the business and interests of
COMPANY, including, but not limited to, travel, entertainment, parking and
expenses incurred in connection with business meetings (including, but not
limited to, the dues and business related expenses of memberships at appropriate
business clubs, provided such memberships are approved in writing by the Chief
Executive Officer of COMPANY), provided such expenses are incurred and submitted
for reimbursement in accordance with the policies established by the Board of
Directors in effect as of the date the expenses are incurred.
(c) Moving Expenses. If EXECUTIVE relocates, COMPANY shall reimburse
EXECUTIVE for all actual relocation expenses, up to a maximum of $130,000.00
for EXECUTIVE's relocation to the San Diego area in accordance with the terms of
the Relocation Benefits Agreement, which Agreement is attached hereto as
Appendix A. Any amounts paid to EXECUTIVE to compensate him for taxes on amounts
received by him hereunder which are not tax deductible shall be subject to, not
in addition to, the limit of $130,000 set forth in the preceding sentence.
(d) Legal Expenses. COMPANY will reimburse EXECUTIVE for actual legal
fees and expenses incurred by him in connection with the review and negotiation
of this Agreement, up to a maximum of $2,000.
(e) Indemnification. EXECUTIVE shall be entitled to indemnification and
advancement of expenses to the fullest extent provided, in COMPANY's bylaws or
-8-
<PAGE> 9
otherwise, to any other director or executive officer of COMPANY, unless
prohibited by law. EXECUTIVE shall also be entitled to coverage under each
directors' and officers' liability insurance policy, if any, maintained by or on
behalf COMPANY's directors and officers.
5. Termination of Employment.
(a) Automatic Termination. This Agreement will automatically terminate
in the event of EXECUTIVE's death, or EXECUTIVE's disability which has prevented
EXECUTIVE from performing substantially all of his duties and responsibilities
for a continuous period of ninety (90) days. COMPANY shall have no further
obligations to EXECUTIVE or his estate upon such automatic termination, except
(i) to honor the exercise of any stock options that have vested prior to or as
of the date of such termination, subject to the applicable conditions of the
Plan and (ii) as provided by law or under the terms of any applicable benefit
plan in which EXECUTIVE participated immediately prior to the termination of his
employment.
(b) Termination other than for Cause. COMPANY may terminate or elect not
to renew this Agreement other than for cause at any time, provided it gives at
least ten (10) days' prior written notice to EXECUTIVE of such termination or
non-renewal. In the event that COMPANY terminates EXECUTIVE's employment under
this Agreement other than for cause during the first year of this Agreement or
COMPANY elects not to renew this Agreement for a second year, COMPANY shall,
subject to the conditions set forth in paragraph 6(b), below, continue to pay
EXECUTIVE his base salary and continue to provide EXECUTIVE (and his covered
dependents, if any), at COMPANY's
<PAGE> 10
expense, medical insurance or benefits, in each case, at the level in effect at
the time COMPANY gives EXECUTIVE notice of termination or non-renewal, for a
period of 18 months following the effective date of the termination or
non-renewal. If COMPANY terminates this Agreement without cause after EXECUTIVE
has reached his second anniversary date of employment or fails to renew this
Agreement for a third or subsequent year, COMPANY shall, subject to the
conditions set forth in paragraph 6(b), below, continue to pay EXECUTIVE his
base salary, and continue to provide EXECUTIVE (and his covered dependents, if
any), at COMPANY's expense, medical insurance or benefits, in each case, at the
level in effect at the time COMPANY gives EXECUTIVE notice of termination or
non-renewal, for a period of twelve (12) months following the effective date of
termination or non-renewal. In addition to the foregoing salary and benefits
continuation, EXECUTIVE shall also receive any unpaid salary and accrued (but
unused) vacation through the effective date of termination of employment or
non-renewal, reimbursement for any expenses incurred by him prior to the
effective date of his termination that are otherwise subject to reimbursement
under paragraph 3(b), above, and any accrued but unpaid benefits to which
EXECUTIVE is then entitled under the terms of COMPANY's benefit plans and
policies in which EXECUTIVE is enrolled, to be payable in accordance with the
terms of such plans and policies. All salary continuation and other termination
benefits paid hereunder shall be less any applicable payroll and withholding
taxes or other legally required deductions. As a condition to his receipt of any
salary continuation provided for in this paragraph, EXECUTIVE must first execute
the Waiver and Release that is attached to this Agreement as Appendix B. The
salary continuation for EXECUTIVE shall be paid in the same manner and at the
same intervals as if EXECUTIVE continued his employment during the applicable
period.
<PAGE> 11
COMPANY reserves the right to pay the applicable salary continuation amount in a
lump sum, discounted to present value using a discount factor of 6%. In the
event of any termination or non-renewal under this paragraph, EXECUTIVE shall
have no obligation to mitigate his damages or to seek other employment as a
condition to receiving his salary continuation and other termination benefits,
and (except as provided for in paragraphs 6(b), below), there shall be no
deduction or offset against amounts due to EXECUTIVE hereunder on account of any
remuneration from any subsequent employment (or self-employment) that he may
obtain.
(c) Termination for Cause. Notwithstanding the provisions of
sub-paragraph 5(b), COMPANY may terminate EXECUTIVE's employment for cause. For
purposes of this Agreement, COMPANY shall have "cause" to terminate EXECUTIVE's
employment in the event of any of the following:
(i) conviction of EXECUTIVE for any felony or any crime, or entry of
a plea of nolo contendere, involving moral turpitude or
dishonesty;
(ii) EXECUTIVE's participation in a fraud or act of dishonesty
against COMPANY;
(iii) EXECUTIVE's willful misfeasance or nonfeasance of duty that
materially injures the reputation, business or business
relationships of COMPANY or any of its officers, directors or
affiliates;
(iv) a material breach by EXECUTIVE of any term of this Agreement or
the Proprietary Information and Inventions Agreement that
EXECUTIVE has entered into with the Company, or any of the
Company's written policies and procedures; or
(v) conduct by EXECUTIVE that in the good faith and reasonable
determination of the COMPANY's Board of Directors demonstrates
gross unfitness to
<PAGE> 12
serve. Physical of mental disability or conduct resulting from
physical or mental disability of EXECUTIVE shall not constitute
"cause."
In the event EXECUTIVE's employment is terminated for cause, he will not be
entitled to receive any severance pay or any other severance compensation,
except that EXECUTIVE shall be entitled to receive unpaid salary and accrued
(but unused) vacation through the effective date of termination, reimbursement
for any expenses incurred by him prior to the effective date of his termination
that are otherwise subject to reimbursement under paragraph 3(b), above, and any
accrued but unpaid benefits to which EXECUTIVE is then entitled under the terms
of COMPANY's benefit plans and policies in which EXECUTIVE is enrolled, to be
payable in accordance with the terms of such plans and policies.
(d) Resignation. EXECUTIVE retains the right to resign or otherwise
voluntarily terminate his employment with COMPANY upon ninety (90) days' written
notice to the Chief Executive Officer. In the event EXECUTIVE resigns or
otherwise voluntarily terminates his employment with COMPANY, EXECUTIVE shall
not be entitled to any compensation, including benefits, beyond the effective
date of his resignation, except that EXECUTIVE shall be entitled to receive
salary and accrued vacation through the effective date of termination of
employment, reimbursement for any expenses incurred by him prior to the
effective date of his termination that are otherwise subject to reimbursement
under paragraph 3(b), above, and any accrued but unpaid benefits to which
EXECUTIVE is then entitled under the terms of COMPANY's benefit plans and
policies in which EXECUTIVE is enrolled, to be payable in accordance with the
terms of such plans and policies.
<PAGE> 13
(e) Stock Options. Subject to the previsions of paragraph 3(c), above,
only the shares subject to the stock options granted to EXECUTIVE under this
Agreement that have vested up to the date of the termination of or his
resignation from his employment under this Agreement may be exercised by
EXECUTIVE, such exercise to be subject to the conditions set forth in the Plan,
provided, however, that in the event of termination by COMPANY other than for
cause or any annual non-renewal by COMPANY, those options that would have vested
over the twelve (12) months subsequent to the termination had EXECUTIVE's
employment continued will be deemed to have vested as of the date of the
termination. Any stock options that are unvested (and not deemed vested under
some provision of this Agreement, the Plan or the Option Agreement as of the
date of EXECUTIVE's termination) shall be null and void.
(f) No Restriction on COBRA Rights. Nothing in this paragraph 5 shall be
deemed to impair or limit any of EXECUTIVE's rights under the Consolidated
Omnibus Benefits Reconciliation Act.
(g) Deemed Termination. EXECUTIVE may elect to deem (i) any material
decrease in his authority or responsibility; (ii) elimination of his reporting
directly to the Chief Executive Officer of COMPANY; or (iii) any obligation that
EXECUTIVE relocate his residence away from Tulsa, Oklahoma as a condition of his
continuing his employment with COMPANY (in any case, whether or not Executive's
position is changed) to be a termination of EXECUTIVE's employment by COMPANY
other than for cause for all purposes under this Agreement, provided EXECUTIVE
so notifies the Chief Executive Officer of COMPANY of his election to do so
within ninety
<PAGE> 14
(90) days of EXECUTIVE's receipt of notice from COMPANY or other
knowledge of EXECUTIVE of such change or event.
6. Noncompetition, Confidentiality, Freedom to Enter into and Perform and
Conflicts of Interest.
(a) Confidential Information. EXECUTIVE agrees and understands that, due
to the nature of his position with COMPANY, he will gain possession of
confidential information about COMPANY and the way it conducts its business. In
conjunction with the execution of, and as part of the consideration given for,
this Agreement, EXECUTIVE will execute the Proprietary Information and
Inventions Agreement that is attached to this Agreement as Appendix C.
EXECUTIVE's duties and obligations under Appendix C shall survive termination of
his employment with COMPANY. EXECUTIVE acknowledges that a remedy at law for any
breach or overtly threatened breach by him of the provisions of Appendix C would
be inadequate to protect COMPANY against the consequences of such breach, and he
therefore agrees that the COMPANY shall be entitled to injunctive relief in case
of any such breach or overtly threatened breach.
(b) Restrictive Covenant. During any period that EXECUTIVE is receiving
severance compensation from COMPANY following the termination date of
EXECUTIVE's employment under this Agreement, EXECUTIVE shall not, without first
obtaining the prior written approval of COMPANY, directly or indirectly engage
in any activities in competition with COMPANY, or become an officer, director or
employee of, or consultant to, a business engaged in competition with COMPANY's
current business (specifically, any person or entity whose principal business is
promoting and facilitating via the Internet transactions between third parties
for the wholesale sale and distribution of goods, equipment and services in the
healthcare field)
<PAGE> 15
and such other business or businesses in which COMPANY comes to be actively
engaged during the term of EXECUTIVE'S employment under this Agreement. In the
event that EXECUTIVE undertakes any such activities without written permission
from COMPANY, COMPANY'S obligation to pay EXECUTIVE severance compensation shall
cease. For purposes of this Agreement, "healthcare field" means the provision of
goods and/or services to any person, firm, corporation, business, partnership,
limited liability company, association or other entity involved directly in the
healthcare industry and/or to any person with respect to their medical or
healthcare needs, including, without limitation, hospital, surgical centers,
medical clinics, outpatient facilities, medical groups, managed care
organizations, health maintenance organizations, medical or health related
associations, nursing homes, extended care facilities, doctors, physicians,
dentists, chiropractors, veterinarians and other healthcare providers,
practitioners, suppliers, patients or any other person providing or receiving
healthcare service of any nature whatsoever.
(c) Freedom to Enter into and Perform this Agreement. EXECUTIVE
represents and warrants to Company that he is subject to no restrictions, either
by virtue of any agreement made by him or for his benefit, or by operation of
law, that would prohibit, prevent or interfere with in any way his entering
into, or his performing fully and without restriction, his obligations under
this Agreement, or which would render COMPANY liable to a third party as a
result of EXECUTIVE's entering into or performing his obligations under this
Agreement.
(d) Conflicts of Interest. During EXECUTIVE's employment under this
Agreement EXECUTIVE agrees not to acquire, assume or participate in, directly or
indirectly, any position, investment or interest known by him to be adverse or
antagonistic to COMPANY, its business or prospects, financial or otherwise.
However, EXECUTIVE may own, as a passive investor only,
<PAGE> 16
securities of any publicly traded companies, provided his beneficial ownership
of the stock of any one such corporation does not exceed 12.5% of such
corporation's voting stock.
(e) Non-interference. While employed by COMPANY, and for a period of one
(1) year immediately following the termination of his employment, EXECUTIVE will
not interfere with the business of COMPANY by soliciting, attempting to solicit,
inducing or otherwise deliberately causing any employee of COMPANY to terminate
his or her employment in order to become an employee, consultant or contractor
to or for any competitor of COMPANY.
7. Notices.
For purposes of this Agreement, all notices and other communications
required or permitted by this Agreement shall be in writing and shall be deemed
to have been duly given when delivered in person or by courier or on the earlier
of delivery or the fourth business day after mailing by United States Registered
or Certified Mail, return receipt requested, postage prepaid, addressed as
follows:
If to EXECUTIVE: Mr. James L. Hersma
4100 West 86th Street
Tulsa, Oklahoma 74132
If to COMPANY: medibuy.com, Inc.
7777 Alvarado Road, Suite 401
LaMesa, California 91941
Attn: The Chief Executive Officer
or at such other address as the addressee may have furnished to the other party
in writing subsequent to the execution of this Agreement or, in the case of
EXECUTIVE, to any other permanent address listed for him in COMPANY's records,
or, in the case of COMPANY, to the
<PAGE> 17
address known by EXECUTIVE to be where the office of the Chief Executive Officer
of COMPANY is located.
8. Modifications; Waivers; Applicable Law.
No provision in this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in a writing, signed
by EXECUTIVE and by the Chief Executive Officer of COMPANY. This Agreement and
the employment relationship hereunder shall be governed by, construed in
accordance with and enforced under the laws of the State of California and
applicable federal law.
9. Severability.
If any provision of this Agreement is determined to be invalid or is in
any way modified by any governmental agency, tribunal, or court of competent
jurisdiction, such determination shall be considered as a separate, distinct,
and independent part of this Agreement and shall not affect the validity or
enforceability of any of the remaining provisions of this Agreement.
10. Successor Rights and Assignment.
This Agreement shall bind, inure to the benefit of and be enforceable by
EXECUTIVE's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and legatees. The rights and obligations of
COMPANY under this Agreement may be assigned by COMPANY as part of the
assignment or transfer (including, without limitation, by merger or other event
resulting in such assignment by operation of law) of all or substantially all of
COMPANY'S assets and business, provided that at the time of such assignment the
assignee has the ability to meet the obligations to EXECUTIVE set forth in this
Agreement, in which event this Agreement shall be binding upon, and inure to the
benefit of, the person(s) or entity(ies) to
<PAGE> 18
whom it is assigned. EXECUTIVE may not assign his duties hereunder and he may
not assign any of his rights hereunder without the written consent of COMPANY.
IN WITNESS WHEREOF, EXECUTIVE and COMPANY have signed this Agreement to
be dated and effective on May 26, 1999.
EXECUTIVE:
Dated: /s/ JAMES L. HERSMA
MEDIBUY.COM, INC.
Dated: By: /s/ DENNIS J. MURPHY
Its: CEO
<PAGE> 19
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
entered into as of December 28, 1999 (the "Effective Date"), by and between
MEDIBUY.COM, INC., a Delaware corporation (the "Company") and JAMES L. HERSMA
("Executive").
WHEREAS, the Company and Executive previously entered into an
Employment Agreement, dated May 26, 1999 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement as set
forth in this Amendment.
NOW THEREFORE, in consideration of the mutual benefits contained
herein, the parties, intending to be legally bound, hereby agree as follows:
1. Except as otherwise defined herein, capitalized terms used but not
defined herein shall have the meanings given to them in the Employment
Agreement.
2. The Employment Agreement is hereby amended as follows:
(a) Section 3(c)(iv) ("Protection Against Dilution") is
deleted in its entirety. In addition, in consideration of such deletion the
Company shall grant to Executive a fully vested, immediately exercisable
incentive stock option to purchase 75,000 shares of Common Stock under the
Company's 1999 Omnibus Equity Plan.
3. For purposes of clarification, the parties agree that the vesting
schedule of the stock option granted to Executive by the Company on November 17,
1999 is as follows:
25% of the shares (or 8,125 shares) are fully vested and
immediately exercisable upon grant (provided that the Company
will have the right to repurchase from Mr. Hersma if his
employment is terminated for cause or if he voluntarily
terminates his employment, within his first year of
employment, as more fully described in Section 3(c)(i) of the
Agreement, and the remaining shares subject to the option will
vest in equal monthly portions over 36 months beginning on
June 26, 2000.
4. This Amendment shall be governed by and construed in accordance with
the laws of the State of California as such laws are applied to contracts
entered into and performed entirely within California by California residents.
5. This Amendment may be signed in any number of counterparts, each of
which will be deemed an original, and all of which taken together shall
constitute one and the same instrument.
6. Except as specifically amended hereby, the Employment Agreement
shall remain in full force and effect. This Amendment together with the
Employment Agreement constitutes the entire understanding and agreement of the
parties hereto with respect to the subject matter
1.
<PAGE> 20
hereof and thereof and supersedes all prior agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect to the subject matter hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MEDIBUY.COM, INC.
/s/ JAMES L. HERSMA
- ---------------------- By: /s/ DENNIS J. MURPHY
JAMES L. HERSMA --------------------------------
Name: Dennis J. Murphy
-------------------------------
Title: President & Chief Executive
Officer
-------------------------------
2.
<PAGE> 21
\
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of January 28, 2000 by and between MEDIBUY.COM, INC.,
a Delaware corporation (the "Company") and JAMES L. HERSMA ("Executive").
A. Executive is the EXECUTIVE VICE PRESIDENT OF MARKET DEVELOPMENT of
the Company pursuant to an employment agreement dated as of MAY 26, 1999, as
amended (the "Employment Agreement"); and
B. Because of Executive's intimate knowledge of the business of the
Company, the Company and Executive desire to amend the Employment Agreement to
provide for a consulting agreement between the Company and Executive upon
Executive's termination of employment.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT.
1.1 The parties agree to replace the provisions relating to severance
payments with the Consulting Agreement and terms as contemplated in this
Amendment.
1.2 Section 5(b) of the Employment Agreement is hereby amended and
replaced in its entirety by the following:
"Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, then upon EXECUTIVE furnishing
COMPANY with an executed Waiver and Release (in the form attached
hereto as Appendix B), COMPANY and EXECUTIVE shall then each
execute and deliver a Consulting Agreement in the form attached
hereto as EXHIBIT A. Notwithstanding the foregoing, if any party
fails to deliver an executed copy of the Consulting Agreement,
such agreement shall be deemed to be entered into by both parties
and shall continue in full force and effect. The parties
acknowledge that EXECUTIVE shall not be entitled to any payment
or benefit under the Consulting Agreement unless EXECUTIVE shall
first execute the Waiver and Release."
1.3 The heading for Section 6 of the Employment Agreement is hereby
modified and replaced in its entirety by the following:
"Confidentiality, Conflicts of Interest and Non-Interference."
1.4 Section 6(b) ("Restrictive Covenant") of the Employment Agreement is
hereby deleted from the Employment Agreement and replaced with the following:
"[Deleted]"
1.5 Except as expressly modified hereby, all of the terms of the
Employment Agreement shall continue in full force and effect.
1.
<PAGE> 22
2. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
3. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
4. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Executive. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
5. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
6. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
James L. Hersma
4100 West 86th Street
Tulsa, OK 74132
7. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
8. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
9. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
2.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By: /s/ Dennis J. Murphy
------------------------------------
Name: Dennis J. Murphy
----------------------------------
Title: CEO
---------------------------------
Executive:
/s/ James L. Hersma
----------------------------------------
2/18/00
-------------------
3.
<PAGE> 24
EXHIBIT A
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
effective as of ________________, 200__ by and between MEDIBUY.COM, INC., a
Delaware corporation (the "Company") and JAMES L. HERSMA ("Consultant").
A. Consultant and the Company previously entered into an employment
agreement dated as of _____________, as amended (the "Employment Agreement");
and
B. Consultant and the Company desire to enter into a consultancy
arrangement upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. CONSULTING.
1.1 In consideration for the promises and covenants set forth herein,
for the period (the "Engagement Period") beginning on the effective date of
Consultant's termination of employment under the Employment Agreement (the
"Consulting Date") and ending on the date one year after the Consulting Date,
the Company and Consultant agree that Consultant shall perform the services and
undertake the duties and responsibilities set forth in Schedule A attached
hereto and incorporated herein (collectively, the "Services"). Consultant shall
render the Services under the terms and conditions set forth in this Agreement.
1.2 During the Engagement Period, Consultant will not be considered an
agent or an employee of the Company; Consultant will not have authority to make
any representation, contract, or commitment on behalf of the Company and
Consultant agrees not to do so; and Consultant will not be entitled to any of
the benefits which the Company may make available to its employees, such as
group insurance, profit sharing, or retirement benefits.
1.3 During the Engagement Period, Consultant will be solely responsible
for all tax returns and payments to any federal, state, or local tax authority
with respect to Consultant's performance of services and the receipt of fees or
other compensation and benefits under this Agreement. The Company will report
amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue
Service as required by law. The Company will not: make withholdings or
deductions from Consultant's payment checks; make contributions for Social
Security, employment insurance or disability insurance; or obtain workers'
compensation insurance on Consultant's behalf. During the Engagement Period,
Consultant shall comply with all applicable state and federal laws governing
self-employed individuals, including obligations such as payment of taxes,
Social Security, disability and other contributions based on compensation and
benefits paid to Consultant under this Agreement. Consultant hereby indemnifies
the Company against any and all such taxes or contributions, including penalties
and interest.
1.
<PAGE> 25
1.4 During the Engagement Period, subject to the terms and restrictions
of this Agreement, Consultant may engage in employment, consulting or other work
relationships in addition to Consultant's work for the Company. The Company
agrees to make reasonable arrangements to enable Consultant to perform
Consultant's consulting services for the Company at such times and in such a
manner so that it does not unreasonably interfere with other work activities in
which Consultant may engage.
2. TERM. The term of this Agreement (the "Term") shall commence upon the
Consulting Date. This Agreement shall remain in full force and effect until
completion of the Engagement Period.
3. CONSULTING FEES. As payment for the Services, Consultant shall receive cash
fees as set forth in Schedule B attached hereto and incorporated herein, which
shall constitute complete payment for the Services.
4. NO OTHER BENEFITS. During the Term, Consultant shall not be entitled to any
other compensation or benefits, including benefits provided generally to
employees of the Company, and Consultant's compensation shall not be subject to
withholding, unless, in the Company's view, withholding is required by
applicable law.
5. CONFIDENTIAL INFORMATION. In connection with the performance of Services
under the Employment Agreement and this Agreement, Consultant may become
familiar with trade secrets and confidential information of the Company (which
shall include all trade secrets and work product resulting from Consultant's
provision of the Services to the Company), which derive independent economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use
("Confidential Information"). Except as may be reasonably necessary while
providing the Services, Consultant agrees that, during the Term of this
Agreement and thereafter, Consultant and any agents and employees of Consultant
will not disclose or utilize any of the Confidential Information (including
without limitation techniques, designs, buying plans, drawings, leases, store
designs, rollout plans, developments, equipment, prototypes, sales, supplier and
customer information and relationships, and business and financial information
relating to the business, products, practices and techniques of the Company) to
which Consultant has been privy, unless Consultant becomes legally required to
disclose any such Confidential Information, in which event Consultant shall
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy. Upon the termination of this
Agreement, Consultant shall deliver to the Company all equipment, notes,
documents, memoranda, reports, files, books, correspondence, lists or other
written or graphic records and the like belonging to the company which are or
have been in Consultant's possession or control.
6. PRESERVATION OF CONFIDENTIAL INFORMATION; NONCOMPETITION.
6.1 Consultant agrees that, in order to protect the Confidential
Information of the Company and in consideration of the fees received hereunder,
during the Term of this Agreement, Consultant shall not, without first obtaining
the prior written approval of the Company, directly or indirectly engage in any
activities in competition with the Company, or become an officer, director or
employee of, or consultant to, or investor in, a business engaged in
2.
<PAGE> 26
competition with the Company's current business (specifically, any person or
entity whose principal business is promoting and facilitating via the Internet
transactions between third parties for the wholesale sale and distribution of
goods, equipment and services in the healthcare field) and such other business
or businesses in which the Company comes to be actively engaged during the term
of Consultant's employment with the Company under the Employment Agreement. For
purposes of this agreement, "healthcare field" means the provision of goods
and/or services to any person, firm, corporation, business, partnership, limited
liability company, association or other entity involved directly in the
healthcare industry and/or to any person with respect to their medical or
healthcare needs, including, without limitation, hospitals, surgical centers,
medical clinics, outpatient facilities, medical groups, managed care
organizations, health maintenance organizations, medical or health related
associations, nursing homes, extended care facilities, doctors, physicians,
dentists, chiropractors, veterinarians and other healthcare providers,
practitioners, suppliers, patients or any other person providing or receiving
healthcare service of any nature whatsoever.
6.2 Ownership by Consultant, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this Section 6.
7. SEVERABILITY. To the extent any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected, such deletion to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only the duration, extent
or activities which may validly and enforceably be covered.
8. REMEDIES. In any event of a breach of Consultant's obligations under this
Agreement, Consultant agrees that (a) any and all proceeds, funds, payments and
proprietary interests, of every kind and description, arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and (b) the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
9. INJUNCTIVE RELIEF. Consultant understands and agrees that the Company could
not be reasonably or adequately compensated in damages in an action at law for
Consultant's breach of his obligations under this Agreement. Accordingly,
Consultant specifically agrees that the Company shall be entitled to an
injunction enjoining Consultant or any person or persons acting for or with
Consultant in any capacity whatsoever from violating any of the terms herein.
This provision with respect to injunctive relief shall not diminish the right of
the Company to claim and recover damages pursuant to Section 9 in addition to
injunctive relief.
10. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants that (a)
Consultant is not restricted or prohibited, contractually or otherwise, from
entering into and performing each of the terms and covenants contained in this
Agreement, and (b) Consultant's
3.
<PAGE> 27
execution and performance of this Agreement is not a violation or breach of any
other agreement to which Consultant is a party.
11. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
12. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
13. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Consultant. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
14. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
15. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
--------------------
--------------------
--------------------
16. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
17. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
4.
<PAGE> 28
18. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Consultant:
/s/ James L. Hersma
----------------------------------------
2/18/00
-------------------
5.
<PAGE> 29
SCHEDULE A
SERVICES, DUTIES AND RESPONSIBILITIES
During the Term, Consultant shall, upon request, consult with the
Company by telephone, by mail and in person from time to time on a part-time
basis during regular business hours. The consultation shall concern the
management, operation, marketing, sales, purchasing, technology, financing and
other aspects of the business of the Company, and may include Consultant's
direct contacting of third parties at the reasonable request of the Company.
1.
<PAGE> 30
SCHEDULE B
CONSULTING FEE AND BENEFITS
The Company shall pay to Consultant for the Services an annual amount
equal to the sum of:
(i) an amount equal to the annual salary of Consultant in effect
at the time of termination under the Employment Agreement (the
"Consulting Fee") plus
(ii) to the extent the payment of the amount described in (i)
above is subject to state or federal taxation beyond that to
which it would have been subject as severance pay under the
Employment Agreement, the Company will pay an additional amount
(the "Gross-Up Payment") such that after payment of all state and
federal taxes on the Consulting Fee and the Gross-Up Payment,
Consultant will retain an amount equal to the amount Consultant
would have received as severance pay under the Employment
Agreement.
The total amount described in (i) and (ii) above shall be paid monthly during
the Term as provided herein.
To the extent provided by the federal COBRA law or, if applicable, state
insurance laws, and by the Company's group health insurance policies, Consultant
will be eligible to continue Consultant's health insurance benefits. In the
event Consultant elects continued coverage under COBRA, the Company, as part of
this Agreement and in consideration thereof, will reimburse Consultant for the
same portion of Consultant's COBRA health insurance premium that the Company
previously paid for Consultant's coverage under the Employment Agreement.
Consultant will be responsible for the same portion of the COBRA health
insurance that Consultant previously paid for coverage under the Employment
Agreement.
The Company shall pay on Consultant's behalf, or reimburse Consultant
for, any expenses reasonably incurred in connection with his rendering of the
Services and which are not incurred in violation of any policy or policies
regarding expenses which may be adopted by the Board of Directors from time to
time. Consultant agrees to submit receipts and other documentation to support
the above expenses as a condition of reimbursement therefor.
Consultant will fully and completely cooperate with the Company with
respect to all matters associated with the taxation or potential taxation of any
payments and reimbursements hereunder. Consultant acknowledges that Consultant
is responsible for consulting his or her own tax advisor with respect to any
taxation matters.
1.
<PAGE> 1
EXHIBIT 10.12
TERMS OF EMPLOYMENT WITH HS.COM, INC.
This document (the Agreement) outlines the terms of employment between Charles
Smith, of 380 Vista Abierta, El Cajon, California, 92019 (Smith), and hs.com,
Inc. a Delaware corporation with a principal place of business at 7777 Alvarado
Road, Suite 401, La Mesa, CA 91941 (the Company).
Position: Smith's position will be President of the Company.
Responsibilities: Smith will discharge faithfully and to the best of his ability
the duties of the office of President as they are set forth in the Company's
bylaws and as required under Delaware Corporation law. Smith will serve at the
direction and pleasure of the Board of Directors of the Company, and he will
devote substantially all of his working time and effort to performing his duties
and responsibilities on behalf of the Company.
Term: The term of Smith's employment is one (1) year, commencing on September
26, 1998, and this agreement will be renewed for successive periods of one (1)
year unless notice of termination is given by either party no fewer than
thirty (30) days prior to the expiration of any such one year employment period.
Salary: Smith's regular salary rate will be $150,000. Payments will be
made twice each month in the amount of $6,250.00, less applicable payroll taxes
and other deductions required by law or that Smith authorizes in writing.
Smith's annual salary will be subject to review and increase, but not decrease,
from time to time as decided by the Board of Directors, provided that Smith's
annual salary rate will increase to $216,000 upon the occurrence of any of the
following events: the registration of the securities of the Company in a public
offering; the merger of the Company with a publicly traded corporation; or the
investment of a cumulative total of $3,000,000 in the capital stock of the
Company on or after November 1, 1998.
Bonus: Smith will be eligible to participate in any incentive bonus program that
the Company's Board of Directors may establish for its executive employees. The
expected terms of the bonus program will be a maximum bonus of 50% of the salary
paid during the year in which the bonus is earned, based on achievement of
company-wide financial and other success objectives.
Equity Compensation: In addition to the cash compensation to be paid as set
forth above, the Company will issue to Smith 42,000 shares of the Company's
common stock (the "Shares"). Three-fourths of the Shares, (including any
additional shares issued to Smith in respect of such Shares as a result of a
stock split, stock dividend or other event) are subject to divestiture on the
following condition:
If Smith completes twelve (12) or more months of continuous employment
with the Company under this Agreement but less than forty-eight (48)
consecutive months, for each full month and any partial month less than
forty-eight (48) months of such continuous employment, 2.0833% of the
Shares shall be divested.
<PAGE> 2
Divested shares shall revert to the Company, and Smith shall receive no
compensation for them or have any rights whatever in regard to them.
The certificates representing the Shares shall bear a legend stating that the
Shares: 1) are not registered under federal or state securities laws; and 2) may
not be transferred until registered or the Company's legal counsel issues an
opinion stating that such restrictions need no longer apply. The legend shall
contain any other restrictions as are required by law. The Company will hold in
escrow the certificates representing the Shares that are subject to divestiture.
At Smith's request, the Company will deliver to him certificates representing
any Shares held in escrow by the Company that are no longer subject to
divestiture. During the period that the Shares or any part of them are subject
to being divested under this provision, Smith shall be deemed the record owner
and shall have all other rights incident to ownership of such Shares, including
the right to notice of meetings and the right to vote on any matters on which
holders of the Company's common stock are entitled to vote.
Anything in this provision to the contrary notwithstanding, upon a change in
control of the Company (as defined below), the divestiture conditions set forth
in this provision shall be of no further force and effect on the date such
change in control becomes effective. As used here, the term change in control
shall mean either: 1) a merger of the Company into or consolidation of the
Company with another corporation, and less than 50% of the directors of the
resulting corporation immediately following the merger or consolidation were
directors of the Company immediately prior to the merger or consolidation, or 2)
a sale by the Company of all or substantially all of its assets.
Benefits: The Company does not yet have a benefit program in place for its
executives and employees. When it establishes one, Smith and his dependents will
be eligible to participate in that program on the terms of eligibility
established by the Company.
Termination: Events that will automatically terminate this agreement will be
Smith's death or a disability that prevents him from performing substantially
all of his duties and responsibilities for a period of 90 days.
Severance Compensation: In the event that the Company terminates or elects not
to renew Smith's employment without cause, as defined below, he will be entitled
to continue to receive his regular salary only for the period of one year
following the effective date of termination. That salary continuation shall be
payable at the Company's election in either a lump sum or on the same basis as
his regular salary. The Company will withhold from such severance payment or
payments those payroll taxes and other amounts required by law or authorized by
Smith in writing. If Smith's employment is terminated for cause, he will not be
entitled to receive any severance pay or any other severance compensation. For
purposes of this provision, cause is defined as any of the following: 1)
material acts of dishonesty; 2) a repeated violation of Company policy (whether
or not written) after receiving written notice of such policy; 3) failure by
Smith to perform any material aspect of his duties after written warning
received from the Board of Directors; or 4) the breach by Smith of any term of
this Agreement.
<PAGE> 3
Non-Competition and Confidentiality: By virtue of Smith's position as President
of the Company, he will come to possess significant amounts of confidential
information about the Company and the way that it conducts its business. Even if
some or all of that information is available from other or public sources, Smith
will have been exposed to it in a way such that his use of that information
after termination of his employment would enable him to compete unfairly against
the Company. For that reason, for one (1) year following the termination of
Smith's employment with the Company, he will not engage, directly or indirectly,
in any activity that is competitive with the business of Company as and where it
was conducted or planned to be conducted at the time of Smith's termination,
regardless of the reason for or circumstances of his termination. Smith will be
obligated to maintain the confidentiality of any trade secret or confidential
business information that he acquires about the Company during his employment,
and Smith will refrain from using any such information until it becomes publicly
available through lawful means. These restrictions are in addition to, not in
place of, any protection provided to trade secret information under California
law.
Assignment: The Company may assign its rights and obligations under this
agreement, in which event it shall be binding upon, and inure to the benefit of,
the person or entity to whom it is assigned.
Entire Agreement: This Agreement contains the entire understanding and agreement
reached between Smith and the Company, and it supersedes any discussions or
agreements that have been had or made prior to its execution. It may only be
modified by a writing signed by the party against which the modification is to
be enforced.
Governing Law: This Agreement will be enforce in accordance with the laws of the
State of California.
hs.com, Inc. Charles Smith
By: /s/ MICHAEL D. CHERMAK /s/ CHARLES SMITH
--------------------------- --------------------------
Michael D. Chermak
Chairman
Date: 11/12/98 Date: 11/12/98
Per M. Chermak at signing on 11/12/98. The interpretation of employment is one
year guaranteed, and then one year roll-overs automatically unless the 30 day
notice is given by either party. There is no "at will" clause or intent in this
agreement.
/s/ LORI O'BRIEN 11/17/98
- ------------------------------
LORI O'BRIEN
<PAGE> 4
[MEDIBUY.COM LETTERHEAD]
May 14,1999
Mr. Charlie Smith
President
Medibuy.com
7777 Alvarado Road
Suite 401
La Mesa, CA 91941
Dear Charlie:
Per your original employment agreement, the level of compensation promised in
the agreement exceeds your current compensation by $18,000. This decision was
required to maintain executive salaries at a consistent level during company
financing negotiations.
To ensure the terms of your original agreement remain intact, you will be
granted a single cash bonus of $18,000 to accommodate this difference in salary
structure. This payment will be made no later than June 15th, 1999.
Sincerely,
/s/ MICHAEL D. CHERMAK
- ------------------------
Michael D. Chermak
Chairman
<PAGE> 5
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
entered into as of October 26, 1999 (the "Effective Date"), by and between
MEDIBUY.COM, INC., a Delaware corporation (the "Company") and CHARLES R. SMITH
("Executive").
WHEREAS, the Company and Executive previously entered into an Employment
Agreement, dated November 12, 1998 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement as set
forth in this Amendment.
NOW THEREFORE, in consideration of the mutual benefits contained herein,
the parties, intending to be legally bound, hereby agree as follows:
1. Except as otherwise defined herein, capitalized terms used but
not defined herein shall have the meanings given to them in the Employment
Agreement.
2. The Employment Agreement is hereby amended as follows:
(a) Executive will hold the position of Executive Vice
President of Customer Advocacy and no longer hold the position of President of
the Company.
(b) For purposes of clarification, the parties agree that
Executive was entitled to receive 36,000 pre-stock split shares of the Company's
common stock rather than 42,000 pre-stock split shares; and
(c) The following provision hereby amends and restates the
last paragraph under the heading "Equity Compensation" in its entirety:
In the event of (i) a sale, lease or other disposition
of all or substantially all of the assets of the Company, (ii) a
merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the
Company is the surviving corporation but the shares of Common
Stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property, whether in the form
of securities, cash or otherwise, then any surviving corporation
or acquiring corporation shall assume the Shares or shall
substitute similar stock awards for the Shares. In the event any
surviving corporation or acquiring corporation refuses to assume
the Shares or to substitute similar stock awards for the Shares
and Executive employment has not been terminated, then with
respect to the Shares held by Executive, the vesting of Shares
subject to divesting shall be accelerated in full at or prior to
such event.
After the first date upon which any security of the
Company is listed (or approved for listing) upon notice of
issuance on any securities exchange or designated (or approved
for designation) upon notice of issuance as a national market
security on an interdealer quotation system if such securities
exchange or interdealer quotation system has been certified in
accordance with the provisions
1.
<PAGE> 6
of Section 25100(o) of the California Corporate Securities Law
of 1968 (the "Listing Date") and in the event of an acquisition
by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, or any comparable successor
provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of
the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of the
Board of Directors of the Company (the "Board"), then with
respect to the Shares held by Executive, if Executive's
continuous service has not terminated, the vesting of the Shares
subject to the divesting shall be accelerated in full.
After the Listing Date, in the event that the
individuals who, as of the Listing Date, are members of the
Board (the "Incumbent Board"), cease for any reason to
constitute at least fifty percent (50%) of the Board, then with
respect to the Shares subject to divesting held by Executive, if
Executive's continuous service has not terminated, the vesting
of the Shares subject to divesting shall be accelerated in full.
If the election, or nomination for election, by the Company's
shareholders of any new director of the Board was approved by a
vote of at least fifty percent (50%) of the Incumbent Board,
such new director shall be considered as a member of the
Incumbent Board.
3. This Amendment shall be governed by and construed in accordance
with the laws of the State of California as such laws are applied to contracts
entered into and performed entirely within California by California residents.
4. This Amendment may be signed in any number of counterparts, each
of which will be deemed an original, and all of which taken together shall
constitute one and the same instrument.
5. Except as specifically amended hereby, the Employment Agreement
shall remain in full force and effect. This Amendment constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements or understandings, inducements
or conditions, express or implied, written or oral, between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MEDIBUY.COM, INC.
/s/ CHARLES R. SMITH By: /s/ DENNIS J. MURPHY
- ----------------------------------- --------------------------------------
CHARLES R. SMITH Name: Dennis J. Murphy
-------------------------------------
Title: President & Chief Executive
Officer
-----------------------------------
2.
<PAGE> 7
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of January 28, 2000 by and between MEDIBUY.COM, INC.,
a Delaware corporation (the "Company") and CHARLES R. SMITH ("Executive").
A. Executive is the EXECUTIVE VICE PRESIDENT OF CUSTOMER ADVOCACY of the
Company pursuant to an employment agreement dated as of NOVEMBER 12, 1998, as
amended (the "Employment Agreement"); and
B. Because of Executive's intimate knowledge of the business of the
Company, the Company and Executive desire to amend the Employment Agreement to
provide for a consulting agreement between the Company and Executive upon
Executive's termination of employment.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT.
1.1 The parties agree to replace the provisions relating to severance
payments with the Consulting Agreement and terms as contemplated in this
Amendment.
1.2 Section 5(b) of the Employment Agreement is hereby amended and
replaced in its entirety by the following:
"Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, then upon EXECUTIVE furnishing
COMPANY with an executed Waiver and Release (in the form attached
hereto as Appendix B), COMPANY and EXECUTIVE shall then each
execute and deliver a Consulting Agreement in the form attached
hereto as EXHIBIT A. Notwithstanding the foregoing, if any party
fails to deliver an executed copy of the Consulting Agreement,
such agreement shall be deemed to be entered into by both parties
and shall continue in full force and effect. The parties
acknowledge that EXECUTIVE shall not be entitled to any payment
or benefit under the Consulting Agreement unless EXECUTIVE shall
first execute the Waiver and Release."
1.3 The heading for Section 6 of the Employment Agreement is hereby
modified and replaced in its entirety by the following:
"Confidentiality, Conflicts of Interest and Non-Interference."
1.4 Section 6(b) ("Restrictive Covenant") of the Employment Agreement is
hereby deleted from the Employment Agreement and replaced with the following:
"[Deleted]"
1.5 Except as expressly modified hereby, all of the terms of the
Employment Agreement shall continue in full force and effect.
1.
<PAGE> 8
2. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
3. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
4. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Executive. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
5. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
6. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
Charles R. Smith
--------------------
--------------------
7. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
8. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
9. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
2.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By: /s/ Dennis J. Murphy
------------------------------------
Name: Dennis J. Murphy
----------------------------------
Title: CEO
---------------------------------
Executive:
/s/ Charles R. Smith
----------------------------------------
3/6/00
--------------------
3.
<PAGE> 10
EXHIBIT A
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
effective as of ________________, 200__ by and between MEDIBUY.COM, INC., a
Delaware corporation (the "Company") and CHARLES R. SMITH ("Consultant").
A. Consultant and the Company previously entered into an employment
agreement dated as of _____________, as amended (the "Employment Agreement");
and
B. Consultant and the Company desire to enter into a consultancy
arrangement upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. CONSULTING.
1.1 In consideration for the promises and covenants set forth herein,
for the period (the "Engagement Period") beginning on the effective date of
Consultant's termination of employment under the Employment Agreement (the
"Consulting Date") and ending on the date one year after the Consulting Date,
the Company and Consultant agree that Consultant shall perform the services and
undertake the duties and responsibilities set forth in Schedule A attached
hereto and incorporated herein (collectively, the "Services"). Consultant shall
render the Services under the terms and conditions set forth in this Agreement.
1.2 During the Engagement Period, Consultant will not be considered an
agent or an employee of the Company; Consultant will not have authority to make
any representation, contract, or commitment on behalf of the Company and
Consultant agrees not to do so; and Consultant will not be entitled to any of
the benefits which the Company may make available to its employees, such as
group insurance, profit sharing, or retirement benefits.
1.3 During the Engagement Period, Consultant will be solely responsible
for all tax returns and payments to any federal, state, or local tax authority
with respect to Consultant's performance of services and the receipt of fees or
other compensation and benefits under this Agreement. The Company will report
amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue
Service as required by law. The Company will not: make withholdings or
deductions from Consultant's payment checks; make contributions for Social
Security, employment insurance or disability insurance; or obtain workers'
compensation insurance on Consultant's behalf. During the Engagement Period,
Consultant shall comply with all applicable state and federal laws governing
self-employed individuals, including obligations such as payment of taxes,
Social Security, disability and other contributions based on compensation and
benefits paid to Consultant under this Agreement. Consultant hereby indemnifies
the Company against any and all such taxes or contributions, including penalties
and interest.
1.
<PAGE> 11
1.4 During the Engagement Period, subject to the terms and restrictions
of this Agreement, Consultant may engage in employment, consulting or other work
relationships in addition to Consultant's work for the Company. The Company
agrees to make reasonable arrangements to enable Consultant to perform
Consultant's consulting services for the Company at such times and in such a
manner so that it does not unreasonably interfere with other work activities in
which Consultant may engage.
2. TERM. The term of this Agreement (the "Term") shall commence upon the
Consulting Date. This Agreement shall remain in full force and effect until
completion of the Engagement Period.
3. CONSULTING FEES. As payment for the Services, Consultant shall receive cash
fees as set forth in Schedule B attached hereto and incorporated herein, which
shall constitute complete payment for the Services.
4. NO OTHER BENEFITS. During the Term, Consultant shall not be entitled to any
other compensation or benefits, including benefits provided generally to
employees of the Company, and Consultant's compensation shall not be subject to
withholding, unless, in the Company's view, withholding is required by
applicable law.
5. CONFIDENTIAL INFORMATION. In connection with the performance of Services
under the Employment Agreement and this Agreement, Consultant may become
familiar with trade secrets and confidential information of the Company (which
shall include all trade secrets and work product resulting from Consultant's
provision of the Services to the Company), which derive independent economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use
("Confidential Information"). Except as may be reasonably necessary while
providing the Services, Consultant agrees that, during the Term of this
Agreement and thereafter, Consultant and any agents and employees of Consultant
will not disclose or utilize any of the Confidential Information (including
without limitation techniques, designs, buying plans, drawings, leases, store
designs, rollout plans, developments, equipment, prototypes, sales, supplier and
customer information and relationships, and business and financial information
relating to the business, products, practices and techniques of the Company) to
which Consultant has been privy, unless Consultant becomes legally required to
disclose any such Confidential Information, in which event Consultant shall
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy. Upon the termination of this
Agreement, Consultant shall deliver to the Company all equipment, notes,
documents, memoranda, reports, files, books, correspondence, lists or other
written or graphic records and the like belonging to the company which are or
have been in Consultant's possession or control.
6. PRESERVATION OF CONFIDENTIAL INFORMATION; NONCOMPETITION.
6.1 Consultant agrees that, in order to protect the Confidential
Information of the Company and in consideration of the fees received hereunder,
during the Term of this Agreement, Consultant shall not, without first obtaining
the prior written approval of the Company, directly or indirectly engage in any
activities in competition with the Company, or become an officer, director or
employee of, or consultant to, or investor in, a business engaged in
2.
<PAGE> 12
competition with the Company's current business (specifically, any person or
entity whose principal business is promoting and facilitating via the Internet
transactions between third parties for the wholesale sale and distribution of
goods, equipment and services in the healthcare field) and such other business
or businesses in which the Company comes to be actively engaged during the term
of Consultant's employment with the Company under the Employment Agreement. For
purposes of this agreement, "healthcare field" means the provision of goods
and/or services to any person, firm, corporation, business, partnership, limited
liability company, association or other entity involved directly in the
healthcare industry and/or to any person with respect to their medical or
healthcare needs, including, without limitation, hospitals, surgical centers,
medical clinics, outpatient facilities, medical groups, managed care
organizations, health maintenance organizations, medical or health related
associations, nursing homes, extended care facilities, doctors, physicians,
dentists, chiropractors, veterinarians and other healthcare providers,
practitioners, suppliers, patients or any other person providing or receiving
healthcare service of any nature whatsoever.
6.2 Ownership by Consultant, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this Section 6.
7. SEVERABILITY. To the extent any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected, such deletion to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only the duration, extent
or activities which may validly and enforceably be covered.
8. REMEDIES. In any event of a breach of Consultant's obligations under this
Agreement, Consultant agrees that (a) any and all proceeds, funds, payments and
proprietary interests, of every kind and description, arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and (b) the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
9. INJUNCTIVE RELIEF. Consultant understands and agrees that the Company could
not be reasonably or adequately compensated in damages in an action at law for
Consultant's breach of his obligations under this Agreement. Accordingly,
Consultant specifically agrees that the Company shall be entitled to an
injunction enjoining Consultant or any person or persons acting for or with
Consultant in any capacity whatsoever from violating any of the terms herein.
This provision with respect to injunctive relief shall not diminish the right of
the Company to claim and recover damages pursuant to Section 9 in addition to
injunctive relief.
10. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants that (a)
Consultant is not restricted or prohibited, contractually or otherwise, from
entering into and performing each of the terms and covenants contained in this
Agreement, and (b) Consultant's
3.
<PAGE> 13
execution and performance of this Agreement is not a violation or breach of any
other agreement to which Consultant is a party.
11. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
12. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
13. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Consultant. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
14. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
15. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
--------------------
--------------------
--------------------
16. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
17. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
4.
<PAGE> 14
18. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Consultant:
----------------------------------------
----------------
5.
<PAGE> 15
SCHEDULE A
SERVICES, DUTIES AND RESPONSIBILITIES
During the Term, Consultant shall, upon request, consult with the
Company by telephone, by mail and in person from time to time on a part-time
basis during regular business hours. The consultation shall concern the
management, operation, marketing, sales, purchasing, technology, financing and
other aspects of the business of the Company, and may include Consultant's
direct contacting of third parties at the reasonable request of the Company.
1.
<PAGE> 16
SCHEDULE B
CONSULTING FEE AND BENEFITS
The Company shall pay to Consultant for the Services an annual amount
equal to the sum of:
(i) an amount equal to the annual salary of Consultant in effect
at the time of termination under the Employment Agreement (the
"Consulting Fee") plus
(ii) to the extent the payment of the amount described in (i)
above is subject to state or federal taxation beyond that to
which it would have been subject as severance pay under the
Employment Agreement, the Company will pay an additional amount
(the "Gross-Up Payment") such that after payment of all state and
federal taxes on the Consulting Fee and the Gross-Up Payment,
Consultant will retain an amount equal to the amount Consultant
would have received as severance pay under the Employment
Agreement.
The total amount described in (i) and (ii) above shall be paid monthly during
the Term as provided herein.
To the extent provided by the federal COBRA law or, if applicable, state
insurance laws, and by the Company's group health insurance policies, Consultant
will be eligible to continue Consultant's health insurance benefits. In the
event Consultant elects continued coverage under COBRA, the Company, as part of
this Agreement and in consideration thereof, will reimburse Consultant for the
same portion of Consultant's COBRA health insurance premium that the Company
previously paid for Consultant's coverage under the Employment Agreement.
Consultant will be responsible for the same portion of the COBRA health
insurance that Consultant previously paid for coverage under the Employment
Agreement.
The Company shall pay on Consultant's behalf, or reimburse Consultant
for, any expenses reasonably incurred in connection with his rendering of the
Services and which are not incurred in violation of any policy or policies
regarding expenses which may be adopted by the Board of Directors from time to
time. Consultant agrees to submit receipts and other documentation to support
the above expenses as a condition of reimbursement therefor.
Consultant will fully and completely cooperate with the Company with
respect to all matters associated with the taxation or potential taxation of any
payments and reimbursements hereunder. Consultant acknowledges that Consultant
is responsible for consulting his or her own tax advisor with respect to any
taxation matters.
1.
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into between medibuy.com, a
Delaware Corporation with a principal place of business at 7777 Alvarado Road,
Suite 401, La Mesa, California, 91941 ("COMPANY") and Norman R. Farquhar of 9
Marbella, Dana Point, California 92629 ("EXECUTIVE").
1. Employment.
COMPANY hereby employs EXECUTIVE, and EXECUTIVE hereby agrees to accept
employment from COMPANY, as Executive Vice President and Chief Financial Officer
of COMPANY. EXECUTIVE agrees during the term of his employment under this
Agreement to perform the duties and responsibilities customarily required of
such position, and to be subject to COMPANY's bylaws and Delaware corporation
law. EXECUTIVE agrees to perform such services consistent with his position as
shall be reasonably determined from time to time by the Board of Directors.
EXECUTIVE further agrees to use his best efforts to promote the interests of
COMPANY and to devote his full business time and energies to the business and
affairs of COMPANY, unless otherwise authorized by the Chief Executive Officer
of COMPANY. EXECUTIVE may, however, engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties to COMPANY hereunder.
2. Term of Employment.
The employment under this Agreement shall commence on October 25, 1999
and shall end on October 25, 2000, provided that the term of the Agreement shall
be extended automatically for successive periods of one year unless otherwise
terminated under Paragraph 5 of this Agreement.
-1-
<PAGE> 2
3. Compensation.
(a) Base Salary. As compensation for services provided to COMPANY,
EXECUTIVE shall receive a salary at the annual rate of $225,000, less such
payroll and withholding taxes as required by law to be deducted and such other
amounts as EXECUTIVE shall authorize in writing. The salary shall be payable in
semi-monthly installments. Such salary may be increased, but not decreased, from
time to time as decided in the discretion of the Board of Directors of COMPANY.
(b) Bonus. As additional compensation for services rendered by
EXECUTIVE, EXECUTIVE shall be entitled to participate in any incentive bonus
program that COMPANY's Board of Directors may establish for its executive
employees. Such bonus program shall provide a maximum bonus of fifty percent
(50%) of the salary paid during the year in which the bonus is earned, based
upon factors established by the Board of Directors or COMPANY's Chief Executive
Officer.
(c) Equity Compensation. As further compensation for the services
rendered by EXECUTIVE, upon his commencement of employment with COMPANY pursuant
to this Agreement and approval by COMPANY's Board of Directors, EXECUTIVE will
be granted an incentive stock option to purchase 300,000 shares of Common Stock
of COMPANY at an exercise price not to exceed $3.60 per share. Such options
shall be issued pursuant to, and their exercise and the issuance of shares upon
exercise shall be subject to, the conditions of the COMPANY's 1999 Omnibus
Equity Plan (the "Plan").
(i) Vesting of Options. EXECUTIVE'S incentive stock options
shall vest according to the following schedule:
-2-
<PAGE> 3
Upon EXECUTIVE's completion of 6 full months of employment
pursuant to this Agreement, 13% of the option shares, or
39,000 shall vest and be subject to exercise immediately,
and upon EXECUTIVE's completion of one full year of
employment pursuant to this Agreement, an additional 12% of
the option shares, or 36,000, shall vest and be subject to
exercise immediately, provided, however, that in the event
EXECUTIVE resigns his employment with Company prior to the
completion of one full year of employment under this
Agreement, any shares of COMPANY'S Common Stock that
EXECUTIVE has acquired by virtue of the exercise of such
options shall be subject to COMPANY's right to repurchase at
the price EXECUTIVE paid for them, and any options that have
vested but which EXECUTIVE has not yet exercised shall
become null and void.
The remaining 225,000 option shares shall vest and be subject to
exercise at the rate of 6,250 shares for each full month
that EXECUTIVE'S employment continues under this Agreement
after the first anniversary hereunder, up to a maximum of
225,000 shares.
(ii) In the event that within two years following the effective
date of a Change in control" (as defined below) EXECUTIVE's
employment is terminated without cause, or EXECUTIVE's
duties as Executive Vice President and Chief Financial
Officer are significantly changed, the balance of the
options for 300,000 shares granted to EXECUTIVE under this
Agreement that have not vested as of the date of such
termination or significant change in duties shall vest
immediately. "Change in control" shall mean either (i) a
dissolution, liquidation, or sale of all or substantially
all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving
corporation; (iii) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's
common stock outstanding immediately
-3-
<PAGE> 4
preceding the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash
or otherwise; (iv) after the Listing Date, an acquisition by
any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, as hereafter amended or
succeeded, excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or an
affiliate of the Company, of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of securities of the Company or its successor
representing at least fifty percent (50%) of the combined
voting power entitled to vote in the election of directors;
or (v) after the Listing Date, if individuals who, as of the
date of the adoption of this Plan, are members of the Board
(the "Incumbent Board"), cease for any reason to constitute
at least fifty percent (50%) of the Board, provided that, if
the election, or nomination for, election, by the Company's
stockholders of any new director was approved by a vote of
at least fifty percent (50%) of the Incumbent Board, such
new director shall be considered as a member of the
Incumbent Board, notwithstanding the foregoing, in the case
of (ii) and (iii) above, such transactions shall only be
deemed a "change in control" if the stockholders of the
Company or its successor immediately prior to such merger,
consolidation or reverse merger: (A) hold less then 50% of
the outstanding securities of the
-4-
<PAGE> 5
surviving company following the merger or consolidation, or
(B) in the event that the securities of an affiliated entity
are issued to the stockholders of the Company in the
transaction, hold less then 50% of the outstanding
securities of such entity corporation.
For purposes of this section "Listing Date" shall mean the
first date upon which any security of the COMPANY is listed
(or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for
designation) upon notice of issuance as a national market
security on an interdealer quotation system if such
securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section
25100(o) of the California Corporate Securities Law of 1968.
(d) Additional Compensation. In addition to the other forms of
compensation to be paid to EXECUTIVE under this Agreement,
COMPANY shall pay to EXECUTIVE a signing bonus in the sum of
$150,000 (gross amount).
4. Participation in Benefit Plans, Reimbursement of Business
Expenses and Moving Expenses.
(a) Benefit Plans. During the term of this Agreement, EXECUTIVE shall
be provided with medical insurance, vacation benefits, sick leave benefits, and
holidays which
-5-
<PAGE> 6
are not less than, and on terms no less favorable than, COMPANY provides to its
other executive employees.
(b) Reimbursement of Business Expenses. During the term of this
Agreement, COMPANY shall reimburse EXECUTIVE promptly for all expenditures,
including travel, entertainment, parking and business meetings (including the
dues and business related expenses of memberships at appropriate business clubs,
provided such memberships are approved in writing by the Chief Executive Officer
of COMPANY), provided such expenses are incurred and submitted for reimbursement
in accordance with the policies then in effect, as established from time to time
by the Board of Directors.
5. Termination of Employment.
(a) Automatic Termination. This Agreement will automatically
terminate in the event of EXECUTIVE's death, or EXECUTIVE's disability which has
prevented EXECUTIVE from performing substantially all of his duties and
responsibilities for a continuous period of ninety (90) days. COMPANY shall have
no further obligations to EXECUTIVE or her estate upon such automatic
termination, except to honor the exercise of any stock options that have vested
prior to the date of such termination, subject to the applicable conditions of
the Plan.
(b) Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, COMPANY shall, subject to the conditions set forth
in Section 6(b), below, continue to pay EXECUTIVE his salary at the level in
effect at the time of
-6-
<PAGE> 7
termination for a period of twelve (12) months, plus any accrued, but unused
vacation, and less any applicable payroll and withholding taxes or other legally
required deductions, provided EXECUTIVE first executes the Waiver and Release,
attached to this Agreement as Appendix B. The salary continuation for EXECUTIVE
shall be paid in the same manner and at the same intervals as if EXECUTIVE
continued his employment during that one year period. COMPANY reserves the right
to pay the one-year salary continuation amount in a lump sum, discounted to
present value using a discount factor or 6%. No other compensation or benefits
shall be due to EXECUTIVE.
(c) Termination for Cause. Notwithstanding the provisions of
sub-paragraph 5(b), COMPANY may terminate EXECUTIVE's employment for cause. For
purposes of this Agreement, COMPANY shall have "cause" to terminate EXECUTIVE's
employment in the event of the following: (i) conviction of EXECUTIVE for any
crime, or entry of a plea of nolo contendere for any crime involving moral
turpitude or dishonesty;
(ii) EXECUTIVE's participation in a fraud or act of dishonesty against COMPANY;
(iii) EXECUTIVE's willful misfeasance or nonfeasance of duty that materially
injures the reputation, business or business relationships of COMPANY or any of
its officers, directors or affiliates, or
(iv) a material breach by EXECUTIVE of any term of this Agreement or the
Proprietary Information and Inventions Agreement that EXECUTIVE has entered into
with the Company, or any of the Company's written policies and procedures.
-7-
<PAGE> 8
In the event EXECUTIVE's employment is terminated for cause, he will not be
entitled to receive any severance pay or any other severance compensation.
(e) Resignation. EXECUTIVE retains the right to resign or otherwise
voluntarily terminate his employment with COMPANY upon ninety (90) days' written
notice to the Chief Executive Officer. In the event EXECUTIVE resigns or
otherwise voluntarily terminates his employment with COMPANY, EXECUTIVE shall
not be entitled to any compensation, including benefits, beyond the effective
date of his resignation.
(f) Stock Options. Subject to the Change in Control provisions of
Section 3(c)(ii), above, only the shares subject to the stock options granted to
EXECUTIVE above that have vested up to the date of the termination of or his
resignation from his employment under this Agreement may be exercised by
EXECUTIVE, such exercise to be subject to the conditions set forth in the Plan.
Any stock options that are unvested as of the date of EXECUTIVES's termination,
for whatever reason, shall be null and void.
6. Noncompetition, Confidentiality and Conflicts of Interest.
(a) EXECUTIVE agrees and understands that, due to the nature of his
position with COMPANY, he will gain possession of confidential information about
COMPANY and the way it conducts its business. In conjunction with the execution
of, and as part of the consideration given for, this Agreement, EXECUTIVE will
execute the Proprietary Information and Inventions Agreement that is attached to
this Agreement as Appendix C. EXECUTIVE's duties and obligations under Appendix
C shall survive termination of his employment with COMPANY. EXECUTIVE
acknowledges that a remedy at law for any breach or threatened breach by him of
the provisions of
-8-
<PAGE> 9
Appendix C would be inadequate to protect COMPANY against the consequences of
such breach, and he therefore agrees that the COMPANY shall be entitled to
injunctive relief in case of any such breach or threatened breach.
(b) Restrictive Covenant. During any period that EXECUTIVE is
receiving severance compensation from COMPANY following the termination date of
EXECUTIVE's employment under this Agreement, EXECUTIVE shall not, without first
obtaining the prior written approval of COMPANY, directly or indirectly engage
in any activities in competition with COMPANY, or become an officer, director or
employee of, or consultant to, a business engaged in competition with COMPANY's
current business (specifically, any person or entity whose principal business is
promoting and facilitating via the Internet transactions between third parties
for the wholesale sale and distribution of goods, equipment and services in the
healthcare field and such other business or businesses in which COMPANY comes to
be actively engaged during the term of EXECUTIVE'S employment under this
Agreement. In the event that EXECUTIVE undertakes any such activities without
written permission from COMPANY, COMPANY'S obligation to pay EXECUTIVE severance
compensation shall cease. For purposes of this Agreement, "healthcare field"
means the provision of goods and/or services to any person, firm, corporation,
business, partnership, limited liability company, association or other entity
involved directly in the healthcare industry and/or to any person with respect
to their medical or healthcare needs, including, without limitation, hospital,
surgical centers, medical clinics, outpatient facilities, medical groups,
managed care organizations, health maintenance organizations, medical or health
related associations, nursing homes, extended care facilities, doctors,
physicians, dentists, chiropractors, veterinarians and other healthcare
providers, practitioners, suppliers, patients or any other person providing or
receiving healthcare service of any nature whatsoever.
-9-
<PAGE> 10
(c) Conflicts of Interest. EXECUTIVE agrees not to acquire, assume or
participate in, directly or indirectly, any position, investment or interest
known by him to be adverse or antagonistic to COMPANY, its business or
prospects, financial or otherwise. However, EXECUTIVE may own, as a passive
investor, securities of any publicly traded companies, provided his beneficial
ownership of the stock of any one such corporation does not exceed 1% of such
corporation's voting stock.
(d) Non-interference. While employed by COMPANY, and for a period of
one (1) year immediately following the termination of his employment, EXECUTIVE
will not interfere with the business of COMPANY by:
(i) soliciting, attempting to solicit, inducing or otherwise
causing any employee of COMPANY to terminate his or his employment in order to
become an employee, consultant or contractor to or for any competitor of
COMPANY;
(ii) directly or indirectly soliciting the business of any
customer of COMPANY which at the time of termination or one year prior thereto
was listed on COMPANY's customer list, which solicitation, if successful, would
result in the loss of business or potential business for COMPANY.
7. Notices.
For purposes of this Agreement, notices and other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States Registered or
Certified Mail, return receipt requested, postage prepaid, addressed as follows:
If to EXECUTIVE: Norman R. Farquhar
9 Marbella
Dana Point, CA 92629
-10-
<PAGE> 11
If to COMPANY: medibuy.com
7777 Alvarado Road, Suite 401
LaMesa, California 91941
Attn: The Chief Executive Officer
or at such other address as any party may have furnished to the other in
writing subsequent to the execution of this Agreement or, in the case of
EXECUTIVE, to the address listed for him in COMPANY's records, and in the case
of COMPANY, to the address known by him to be where the office of the Chief
Executive Officer of COMPANY is located.
8. Modifications; Waivers; Applicable Law. No provision in this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing, signed by EXECUTIVE and by the Chief
Executive Officer of COMPANY.
9. Severability.
If any provision of this Employment Agreement is determined to be
invalid or is in any way modified by any governmental agency, tribunal, or court
of competent jurisdiction, such determination shall be considered as a separate,
distinct, and independent part of this Agreement and shall not affect the
validity or enforceability of any of the remaining provisions of this Agreement.
10. Successor Rights and Assignment.
This Agreement shall bind, inure to the benefit of and be enforceable by
EXECUTIVE's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and legatees. The rights and obligations of
COMPANY under this Agreement may be assigned by
-11-
<PAGE> 12
COMPANY, in which event it shall be binding upon, and inure to the benefit of,
the person(s) or entity(ies) to whom it is assigned. EXECUTIVE may not assign
his duties hereunder and he may not assign any of his rights hereunder without
the written consent of COMPANY.
IN WITNESS WHEREOF, EXECUTIVE and COMPANY have signed this Agreement on
the dates indicated below.
EXECUTIVE:
Dated: 10/6/99 /s/ Norman R. Farquhar
----------------------------------------
Norman R. Farquhar
MEDIBUY.COM, INC.
Dated: 10/6/99 /s/ Dennis J. Murphy
----------------------------------------
Dennis J. Murphy
Chairman and Chief Executive Officer
-12-
<PAGE> 13
WAIVER AND RELEASE OF CLAIMS
In exchange for payment to me of amounts pursuant to Section 5 (and for
the other benefits provided therein) of my Employment Agreement (the
"Agreement"), to which this form is attached, I hereby furnish medibuy.com, Inc.
(the "Company") with the following release and waiver.
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys' fees, damages, indemnities and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising at any time prior to and
including my employment termination date with respect to any claims relating to
my employment and the termination of my employment, including but not limited
to, claims pursuant to any federal, state or local law relating to employment
including, but not limited to, discrimination claims, claims under the
California Fair Employment and Housing Act, and the Federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"), or claims for wrongful
termination, breach of the covenant of good faith, contract claims, tort claims,
and wage or benefit claims, including but not limited to, claims for salary,
bonuses, commissions, stock, stock options, vacation pay, fringe benefits,
severance pay or any form of compensation.
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Company. I further acknowledge that if I am over 40 I have been advised, as
required by the Older Workers Benefit Protection Act, that: (a) the waiver and
release granted herein does not relate to claims which may arise after this
agreement is executed; (b) I have the right to consult with an attorney prior to
executing this agreement (although I may choose voluntarily not to do so); (c) I
have twenty-one (21) days from the date I receive this agreement, in which to
consider this agreement (although I may choose voluntarily to execute this
agreement earlier); (d) I have seven (7) days following the execution of this
agreement to revoke my consent to the agreement; and (e) this agreement shall
not be effective until the seven (7) day revocation period has expired.
This release shall not extend to the Company's obligations which survive the
termination of my employment agreement, such as severance pay due me, if any,
and any other benefit plan or program, such as the Company's Stock Option Plan.
Date: 10-6-99 By: /s/ N. Farquhar
----------------------------
[Employee]
1.
<PAGE> 14
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of January 28, 2000 by and between MEDIBUY.COM, INC.,
a Delaware corporation (the "Company") and NORMAN R. FARQUHAR ("Executive").
A. Executive is the EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
of the Company pursuant to an employment agreement dated as of OCTOBER 25, 1999,
as amended (the "Employment Agreement"); and
B. Because of Executive's intimate knowledge of the business of the
Company, the Company and Executive desire to amend the Employment Agreement to
provide for a consulting agreement between the Company and Executive upon
Executive's termination of employment.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT.
1.1 The parties agree to replace the provisions relating to severance
payments with the Consulting Agreement and terms as contemplated in this
Amendment.
1.2 Section 5(b) of the Employment Agreement is hereby amended and
replaced in its entirety by the following:
"Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, then upon EXECUTIVE furnishing
COMPANY with an executed Waiver and Release (in the form attached
hereto as Appendix B), COMPANY and EXECTIVE shall then each
execute and deliver a Consulting Agreement in the form attached
hereto as EXHIBIT A. Notwithstanding the foregoing, if any party
fails to deliver an executed copy of the Consulting Agreement,
such agreement shall be deemed to be entered into by both parties
and shall continue in full force and effect. The parties
acknowledge that EXECUTIVE shall not be entitled to any payment
or benefit under the Consulting Agreement unless EXECUTIVE shall
first execute the Waiver and Release."
1.3 The heading for Section 6 of the Employment Agreement is hereby
modified and replaced in its entirety by the following:
"Confidentiality, Conflicts of Interest and Non-Interference."
1.4 Section 6(b) ("Restrictive Covenant") of the Employment Agreement is
hereby deleted from the Employment Agreement and replaced with the following:
"[Deleted]"
1.5 Except as expressly modified hereby, all of the terms of the
Employment Agreement shall continue in full force and effect.
1.
<PAGE> 15
2. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
3. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
4. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Executive. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
5. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
6. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
Norman R. Farquhar
9 Marbella
Dana Point, CA 92629
7. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
8. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
9. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
2.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By: /s/ Dennis J. Murphy
------------------------------------
Name: Dennis J. Murphy
----------------------------------
Title: CEO
---------------------------------
Executive:
/s/ Norman R. Farquhar
----------------------------------------
----------------
3.
<PAGE> 17
EXHIBIT A
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
effective as of ________________, 200__ by and between MEDIBUY.COM, INC., a
Delaware corporation (the "Company") and NORMAN R. FARQUHAR ("Consultant").
A. Consultant and the Company previously entered into an employment
agreement dated as of _____________, as amended (the "Employment Agreement");
and
B. Consultant and the Company desire to enter into a consultancy
arrangement upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. CONSULTING.
1.1 In consideration for the promises and covenants set forth herein,
for the period (the "Engagement Period") beginning on the effective date of
Consultant's termination of employment under the Employment Agreement (the
"Consulting Date") and ending on the date one year after the Consulting Date,
the Company and Consultant agree that Consultant shall perform the services and
undertake the duties and responsibilities set forth in Schedule A attached
hereto and incorporated herein (collectively, the "Services"). Consultant shall
render the Services under the terms and conditions set forth in this Agreement.
1.2 During the Engagement Period, Consultant will not be considered an
agent or an employee of the Company; Consultant will not have authority to make
any representation, contract, or commitment on behalf of the Company and
Consultant agrees not to do so; and Consultant will not be entitled to any of
the benefits which the Company may make available to its employees, such as
group insurance, profit sharing, or retirement benefits.
1.3 During the Engagement Period, Consultant will be solely responsible
for all tax returns and payments to any federal, state, or local tax authority
with respect to Consultant's performance of services and the receipt of fees or
other compensation and benefits under this Agreement. The Company will report
amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue
Service as required by law. The Company will not: make withholdings or
deductions from Consultant's payment checks; make contributions for Social
Security, employment insurance or disability insurance; or obtain workers'
compensation insurance on Consultant's behalf. During the Engagement Period,
Consultant shall comply with all applicable state and federal laws governing
self-employed individuals, including obligations such as payment of taxes,
Social Security, disability and other contributions based on compensation and
benefits paid to Consultant under this Agreement. Consultant hereby indemnifies
the Company against any and all such taxes or contributions, including penalties
and interest.
1.
<PAGE> 18
1.4 During the Engagement Period, subject to the terms and restrictions
of this Agreement, Consultant may engage in employment, consulting or other work
relationships in addition to Consultant's work for the Company. The Company
agrees to make reasonable arrangements to enable Consultant to perform
Consultant's consulting services for the Company at such times and in such a
manner so that it does not unreasonably interfere with other work activities in
which Consultant may engage.
2. TERM. The term of this Agreement (the "Term") shall commence upon the
Consulting Date. This Agreement shall remain in full force and effect until
completion of the Engagement Period.
3. CONSULTING FEES. As payment for the Services, Consultant shall receive cash
fees as set forth in Schedule B attached hereto and incorporated herein, which
shall constitute complete payment for the Services.
4. NO OTHER BENEFITS. During the Term, Consultant shall not be entitled to any
other compensation or benefits, including benefits provided generally to
employees of the Company, and Consultant's compensation shall not be subject to
withholding, unless, in the Company's view, withholding is required by
applicable law.
5. CONFIDENTIAL INFORMATION. In connection with the performance of Services
under the Employment Agreement and this Agreement, Consultant may become
familiar with trade secrets and confidential information of the Company (which
shall include all trade secrets and work product resulting from Consultant's
provision of the Services to the Company), which derive independent economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use
("Confidential Information"). Except as may be reasonably necessary while
providing the Services, Consultant agrees that, during the Term of this
Agreement and thereafter, Consultant and any agents and employees of Consultant
will not disclose or utilize any of the Confidential Information (including
without limitation techniques, designs, buying plans, drawings, leases, store
designs, rollout plans, developments, equipment, prototypes, sales, supplier and
customer information and relationships, and business and financial information
relating to the business, products, practices and techniques of the Company) to
which Consultant has been privy, unless Consultant becomes legally required to
disclose any such Confidential Information, in which event Consultant shall
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy. Upon the termination of this
Agreement, Consultant shall deliver to the Company all equipment, notes,
documents, memoranda, reports, files, books, correspondence, lists or other
written or graphic records and the like belonging to the company which are or
have been in Consultant's possession or control.
6. PRESERVATION OF CONFIDENTIAL INFORMATION; NONCOMPETITION.
6.1 Consultant agrees that, in order to protect the Confidential
Information of the Company and in consideration of the fees received hereunder,
during the Term of this Agreement, Consultant shall not, without first obtaining
the prior written approval of the Company, directly or indirectly engage in any
activities in competition with the Company, or become an officer, director or
employee of, or consultant to, or investor in, a business engaged in
2.
<PAGE> 19
competition with the Company's current business (specifically, any person or
entity whose principal business is promoting and facilitating via the Internet
transactions between third parties for the wholesale sale and distribution of
goods, equipment and services in the healthcare field) and such other business
or businesses in which the Company comes to be actively engaged during the term
of Consultant's employment with the Company under the Employment Agreement. For
purposes of this agreement, "healthcare field" means the provision of goods
and/or services to any person, firm, corporation, business, partnership, limited
liability company, association or other entity involved directly in the
healthcare industry and/or to any person with respect to their medical or
healthcare needs, including, without limitation, hospitals, surgical centers,
medical clinics, outpatient facilities, medical groups, managed care
organizations, health maintenance organizations, medical or health related
associations, nursing homes, extended care facilities, doctors, physicians,
dentists, chiropractors, veterinarians and other healthcare providers,
practitioners, suppliers, patients or any other person providing or receiving
healthcare service of any nature whatsoever.
6.2 Ownership by Consultant, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this Section 6.
7. SEVERABILITY. To the extent any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected, such deletion to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only the duration, extent
or activities which may validly and enforceably be covered.
8. REMEDIES. In any event of a breach of Consultant's obligations under this
Agreement, Consultant agrees that (a) any and all proceeds, funds, payments and
proprietary interests, of every kind and description, arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and (b) the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
9. INJUNCTIVE RELIEF. Consultant understands and agrees that the Company could
not be reasonably or adequately compensated in damages in an action at law for
Consultant's breach of his obligations under this Agreement. Accordingly,
Consultant specifically agrees that the Company shall be entitled to an
injunction enjoining Consultant or any person or persons acting for or with
Consultant in any capacity whatsoever from violating any of the terms herein.
This provision with respect to injunctive relief shall not diminish the right of
the Company to claim and recover damages pursuant to Section 9 in addition to
injunctive relief.
10. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants that (a)
Consultant is not restricted or prohibited, contractually or otherwise, from
entering into and performing each of the terms and covenants contained in this
Agreement, and (b) Consultant's
3.
<PAGE> 20
execution and performance of this Agreement is not a violation or breach of any
other agreement to which Consultant is a party.
11. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
12. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
13. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Consultant. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
14. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
15. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
--------------------
--------------------
--------------------
16. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
17. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
4.
<PAGE> 21
18. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Consultant:
/s/ Norman R. Farquhar
----------------------------------------
----------------
5.
<PAGE> 22
SCHEDULE A
SERVICES, DUTIES AND RESPONSIBILITIES
During the Term, Consultant shall, upon request, consult with the
Company by telephone, by mail and in person from time to time on a part-time
basis during regular business hours. The consultation shall concern the
management, operation, marketing, sales, purchasing, technology, financing and
other aspects of the business of the Company, and may include Consultant's
direct contacting of third parties at the reasonable request of the Company.
1.
<PAGE> 23
SCHEDULE B
CONSULTING FEE AND BENEFITS
The Company shall pay to Consultant for the Services an annual amount
equal to the sum of:
(i) an amount equal to the annual salary of Consultant in effect
at the time of termination under the Employment Agreement (the
"Consulting Fee") plus
(ii) to the extent the payment of the amount described in (i)
above is subject to state or federal taxation beyond that to
which it would have been subject as severance pay under the
Employment Agreement, the Company will pay an additional amount
(the "Gross-Up Payment") such that after payment of all state and
federal taxes on the Consulting Fee and the Gross-Up Payment,
Consultant will retain an amount equal to the amount Consultant
would have received as severance pay under the Employment
Agreement.
The total amount described in (i) and (ii) above shall be paid monthly during
the Term as provided herein.
To the extent provided by the federal COBRA law or, if applicable, state
insurance laws, and by the Company's group health insurance policies, Consultant
will be eligible to continue Consultant's health insurance benefits. In the
event Consultant elects continued coverage under COBRA, the Company, as part of
this Agreement and in consideration thereof, will reimburse Consultant for the
same portion of Consultant's COBRA health insurance premium that the Company
previously paid for Consultant's coverage under the Employment Agreement.
Consultant will be responsible for the same portion of the COBRA health
insurance that Consultant previously paid for coverage under the Employment
Agreement.
The Company shall pay on Consultant's behalf, or reimburse Consultant
for, any expenses reasonably incurred in connection with his rendering of the
Services and which are not incurred in violation of any policy or policies
regarding expenses which may be adopted by the Board of Directors from time to
time. Consultant agrees to submit receipts and other documentation to support
the above expenses as a condition of reimbursement therefor.
Consultant will fully and completely cooperate with the Company with
respect to all matters associated with the taxation or potential taxation of any
payments and reimbursements hereunder. Consultant acknowledges that Consultant
is responsible for consulting his or her own tax advisor with respect to any
taxation matters.
1.
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into between medibuy.com, a
Delaware Corporation with a principal place of business at 7777 Alvarado Road,
Suite 401, La Mesa, California, 91941 ("COMPANY") and Bob Witt of 1331 Cotton
St., Menlo Park, CA 94025 ("EXECUTIVE").
1. Employment.
COMPANY hereby employs EXECUTIVE, and EXECUTIVE hereby agrees to accept
employment from COMPANY, as Executive Vice President of Web Technology for
COMPANY. EXECUTIVE agrees during the term of his employment under this Agreement
to perform the duties and responsibilities customarily required of such
position, and to be subject to COMPANY's bylaws and Delaware Corporation law.
EXECUTIVE agrees to perform such services as shall be determined from time to
time by the Chief Executive Officer of COMPANY and its Board of Directors.
EXECUTIVE further agrees to use his best efforts to promote the interests of
COMPANY and to devote his full business time and energies to the business and
affairs of COMPANY, unless otherwise authorized by the Chief Executive Officer
of COMPANY. EXECUTIVE may, however, engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties to COMPANY hereunder.
2. Term of Employment.
The employment under this Agreement shall commence on May 10,1999 and
shall end on March 29, 2000, provided that the term of the Agreement shall be
extended automatically for successive periods of one year unless otherwise
terminated under Paragraph 5 of this Agreement.
3. Compensation.
<PAGE> 2
(a) Base Salary. As compensation for services provided to COMPANY,
EXECUTIVE shall receive a salary at the annual rate of $185,000, less such
payroll and withholding taxes as required by law to be deducted and such other
amounts as EXECUTIVE shall authorize in writing. The salary shall be payable in
semi-monthly installments. Such salary may be increased, but not decreased, from
time to time as decided in the discretion of the Board of Directors of COMPANY.
(b) Bonus. As additional compensation for services rendered by
EXECUTIVE, EXECUTIVE shall be entitled to participate in any incentive bonus
program that COMPANY's Board of Directors may establish for its executive
employees. Such bonus program shall provide a maximum bonus of fifty percent
(50%) of the salary paid during the year in which the bonus is earned, based
upon factors established by the Board of Directors.
(c) Equity Compensation. As further compensation for the services
rendered by EXECUTIVE, upon his commencement of employment with COMPANY pursuant
to this Agreement and approval by COMPANY's Board of Directors, EXECUTIVE will
be granted an incentive stock option to purchase shares of Common Stock of
COMPANY at an exercise price per share equal to the fair market value of the
Common Stock (as determined by the Board of Directors) as of the date of this
Agreement. Such options shall be issued pursuant to, and their exercise and the
issuance of shares upon exercise shall be subject to, the conditions of the
COMPANY's 1999 Equity Incentive Plan (the "Plan").
(i) Vesting of Options. EXECUTIVE'S incentive stock options shall vest
according to the following schedule:
Upon EXECUTIVE's completion of the first six (6) months of employment
under this Agreement, 13% of the option shares shall vest and be
subject to exercise immediately.
<PAGE> 3
Upon EXECUTIVE's completion of the second six (6) months of employment
under this Agreement, 12% of the option shares shall vest and be
subject to exercise immediately.
EXECUTIVE's 15,000 remaining option shares shall vest and be subject to
exercise at the rate of 416.67 shares for each full month that
EXECUTIVE'S employment continues under this Agreement after the
first anniversary hereunder.
In the event that COMPANY undergoes a "change in control" (as
defined below) and EXECUTIVE's employment is terminated without cause or
EXECUTIVE's duties are significantly changed within twelve (12) months
thereafter (measured from the effective date of the change in control),
the balance of the options for 20,000 shares granted to EXECUTIVE under
this Agreement that have not vested as of the date of such termination
or significant change in duties shall vest immediately. "Change in
control" shall mean either 1) a merger of COMPANY into, or a
consolidation of COMPANY with, another person or business entity with
the result that less than fifty percent (50%) of the directors of the
resulting business entity immediately following the merger or
consolidation were directors of COMPANY immediately prior to the merger
or consolidation; 2) a sale by COMPANY of more than fifty percent (50%)
of its assets at the time of the agreement to sell or 3) a transaction
or series of transactions by which more than 50% of the voting equity
securities of COMPANY come to be under the control of a single entity or
a group of entities acting in concert to acquire control of COMPANY.
4. Participation in Benefit Plans, Reimbursement of Business Expenses and
Moving Expenses.
(a) Benefit Plans. During the term of this Agreement, EXECUTIVE shall
be provided with medical insurance, vacation benefits, sick leave benefits, and
holidays which
-3-
<PAGE> 4
are not less than, and on terms no less favorable than, COMPANY provides to its
other executive employees.
(b) Reimbursement of Business Expenses. During the term of this
Agreement, COMPANY shall reimburse EXECUTIVE promptly for all expenditures,
including travel, entertainment, parking, business meetings, including the dues
and business related expenses of memberships at appropriate business clubs,
provided such memberships are approved in writing by the Chief Executive Officer
of COMPANY, and such expenses are incurred and submitted for reimbursement in
accordance with the policies established from time to time by the Board of
Directors.
(c) Moving Expenses. COMPANY shall reimburse EXECUTIVE for all actual
relocation expenses, up to a maximum of $130,000 for EXECUTIVE's relocation to
the San Diego area in accordance with the terms of the Relocation Benefits
Agreement, which Agreement is attached hereto as Appendix A. Any amounts paid to
EXECUTIVE to compensate him for taxes on amounts received by him hereunder which
are not tax deductible shall be subject to, not in addition to, the limit of
$130,000 set forth in the preceding sentence.
5. Termination of Employment.
(a) Automatic Termination. This Agreement will automatically terminate
in the event of EXECUTIVE's death, or EXECUTIVE's disability which prevents
EXECUTIVE from performing substantially all of his duties and responsibilities
for a continuous period of ninety (90) days. COMPANY shall have no further
obligations to EXECUTIVE or his estate upon such automatic termination, except
to honor the exercise of any stock options that have vested prior to the date of
such termination, subject to the applicable conditions of
-4-
<PAGE> 5
the Plan. (b) Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, COMPANY shall, subject to the conditions set forth
in Section 6(b), below, continue to pay EXECUTIVE his salary at the level in
effect at the time of termination for a period of twelve (12) months, plus any
accrued, but unused vacation, and less any applicable payroll and withholding
taxes or other legally required deductions, provided EXECUTIVE first executes
the Waiver and Release, attached to this Agreement as Appendix B. The salary
continuation for EXECUTIVE shall be paid in the same manner and at the same
intervals as if EXECUTIVE continued his employment during that one year period.
COMPANY reserves the right to pay the one-year salary continuation amount in a
lump sum, discounted to present value using a discount factor or 6%. No other
compensation or benefits shall be due to EXECUTIVE.
(c) Termination for Cause. Notwithstanding the provisions of
Sub-paragraph 5(b), COMPANY may terminate EXECUTIVE's employment for cause. For
purposes of this Agreement, COMPANY shall have "cause" to terminate EXECUTIVE's
employment in the event of the following:
1) EXECUTIVE commits a criminal act of dishonesty;
2) EXECUTIVE commits a repeated violation of a written COMPANY
Policy after being provided with written notice by COMPANY which
specifies the initial Policy violation;
3) Continued failure by EXECUTIVE to perform the material aspects
of EXECUTIVE's duties and responsibilities after written warning
from the Board of Directors specifying the duties or
responsibilities which EXECUTIVE has failed to perform;
4) A material breach by EXECUTIVE of any provision of this
Agreement.
-5-
<PAGE> 6
In the event EXECUTIVE's employment is terminated for cause, he will not
be entitled to receive any severance pay or any other severance
compensation.
(d) Resignation. EXECUTIVE retains the right to resign or
otherwise voluntarily terminate his employment with COMPANY upon ninety
(90) days' written notice to the Chief Executive Officer. In the event
EXECUTIVE resigns or otherwise voluntarily terminates his employment
with COMPANY, EXECUTIVE shall not be entitled to any compensation,
including benefits, beyond the effective date of his resignation.
(e) Stock Options. Subject to the Change in Control provisions
of Section 3(c)(ii), above, only the shares subject to the stock options
granted to EXECUTIVE above that have vested up to the date of the
termination of or his resignation from his employment under this
agreement may be exercised by EXECUTIVE, such exercise to be subject to
the conditions set forth in the Plan. Any stock options that are
unvested as of the date of EXECUTIVE's termination shall be null and
void.
6. Noncompetition, Confidentiality and Conflicts of Interest.
(a) EXECUTIVE agrees and understands that, due to the nature of his
position with the COMPANY, he will gain possession of confidential information
about COMPANY and the way it conducts its business. In conjunction with the
execution of, and as part of the consideration given for, this Agreement,
EXECUTIVE will execute the Proprietary Information and Inventions Agreement that
is attached to this Agreement as Appendix C. EXECUTIVE's duties and obligations
under Appendix C shall survive termination of his employment with COMPANY.
EXECUTIVE acknowledges that a remedy at law for any breach or threatened breach
by him of the provisions of Appendix C would be inadequate to protect COMPANY
against the consequences of such breach,
<PAGE> 7
and he therefore agrees that the COMPANY shall be entitled to injunctive relief
in case of any such breach or threatened breach.
(b) Restrictive Covenant. During any period that EXECUTIVE is receiving
severance compensation from COMPANY following the termination date of
EXECUTIVE's employment under this Agreement, EXECUTIVE shall not, without first
obtaining the prior written approval of COMPANY, directly or indirectly engage
in any activities in competition with COMPANY, or accept employment or establish
a business relationship with a business engaged in competition with COMPANY
(specifically, promoting and receiving revenue for the marketing, sale and
distribution of goods, equipment and services in the "Healthcare Field" via the
Internet, as that term is defined in the license agreement between COMPANY and
among others, iBO$, Inc. dated March 25, 1999), and such other businesses as
COMPANY comes to be actively engaged in during the term of this Agreement, in
any geographical area in which COMPANY, as of the termination date, either
conducts or plans to conduct business. In the event that EXECUTIVE undertakes
any such activities without written permission from COMPANY, COMPANY'S
obligation to pay EXECUTIVE severance compensation under this provision shall
cease.
(c) Conflicts of Interest. EXECUTIVE agrees not to acquire, assume or
participate in, directly or indirectly, any position, investment or interest
known by him to be adverse or antagonistic to COMPANY, its business or
prospects, financial or otherwise. However, EXECUTIVE may own, as a passive
investor, securities of any publicly traded companies, provided his beneficial
ownership of the stock of any one such corporation does not exceed 1% of such
corporation's voting stock.
<PAGE> 8
(d) Non-interference. While employed by COMPANY, and for a period of one
(1) year immediately following the termination of his employment, EXECUTIVE
will not interfere with the business of COMPANY by:
(i) soliciting, attempting to solicit, inducing or otherwise
causing any employee of COMPANY to terminate his or her employment in
order to become an employee, consultant or contractor to or for any
competitor of COMPANY;
(ii) directly or indirectly soliciting the business of any
customer of COMPANY which at the time of termination or one year prior
thereto was listed on COMPANY's customer list, which solicitation, if
successful, would result in the loss of business or potential business
for COMPANY.
7. Notices.
For purposes of this Agreement, notices and other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States Registered or
Certified Mail, return receipt requested, postage prepaid, addressed as follows:
If to EXECUTIVE:
If to COMPANY: medibuy.com, Inc.
777 Alvarado Road, Suite 401
La Mesa, California 91941
Attn: The Chief Executive Officer
or at such other address as any party may have furnished to the other in writing
subsequent to the execution of this Agreement or, in the case of EXECUTIVE, to
the address listed for him in
<PAGE> 9
COMPANY's records, and in the case of COMPANY, to the address known by EXECUTIVE
to be where the office of the Chief Executive Officer of COMPANY is located.
8. Modifications; Waivers; Applicable Law.
No provision in this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing, signed by
EXECUTIVE and by the Chief Executive Officer of COMPANY.
9. Severability.
If any provision of this Employment Agreement is determined to be
invalid or is in any way modified by any governmental agency, tribunal, or court
of competent jurisdiction, such determination shall be considered as a separate,
distinct, and independent part of this Agreement and shall not affect the
validity or enforceability of any of the remaining provisions of this Agreement.
10. Successor Rights and Assignment.
This Agreement shall bind, inure to the benefit of and be enforceable by
EXECUTIVE's personal or legal representatives, executors, administrators,
successors, heirs, distributees, and legatees. The rights and obligations of
COMPANY under this Agreement may be assigned by COMPANY, in which event it shall
be binding upon, and inure to the benefit of, the person(s) or entity(ies) to
whom it is assigned. EXECUTIVE may not assign his duties hereunder and he may
not assign any of his rights hereunder without the written consent of COMPANY.
IN WITNESS WHEREOF, EXECUTIVE and COMPANY have signed this Agreement on
the dates indicated below.
<PAGE> 10
EXECUTIVE:
Dated: 5/15/99 /s/ Bob Witt
------------------------- ----------------------------
MEDIBUY.COM, INC.
Dated: 5/10/99 By: /s/ DENNIS J. MURPHY
------------------------- --------------------------
Its:
-------------------------
-10-
<PAGE> 11
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into effective as of January 28, 2000 by and between MEDIBUY.COM, INC.,
a Delaware corporation (the "Company") and ROBERT WITT ("Executive").
A. Executive is the EXECUTIVE VICE PRESIDENT AND CHIEF INFORMATION
OFFICER of the Company pursuant to an employment agreement dated as of MAY 10,
1999, as amended (the "Employment Agreement"); and
B. Because of Executive's intimate knowledge of the business of the
Company, the Company and Executive desire to amend the Employment Agreement to
provide for a consulting agreement between the Company and Executive upon
Executive's termination of employment.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT.
1.1 The parties agree to replace the provisions relating to severance
payments with the Consulting Agreement and terms as contemplated in this
Amendment.
1.2 Section 5(b) of the Employment Agreement is hereby amended and
replaced in its entirety by the following:
"Termination Not for Cause. In the event that COMPANY terminates
this Agreement without cause, then upon EXECUTIVE furnishing
COMPANY with an executed Waiver and Release (in the form attached
hereto as Appendix B), COMPANY and EXECUTIVE shall then each
execute and deliver a Consulting Agreement in the form attached
hereto as EXHIBIT A. Notwithstanding the foregoing, if any party
fails to deliver an executed copy of the Consulting Agreement,
such agreement shall be deemed to be entered into by both parties
and shall continue in full force and effect. The parties
acknowledge that EXECUTIVE shall not be entitled to any payment
or benefit under the Consulting Agreement unless EXECUTIVE shall
first execute the Waiver and Release."
1.3 The heading for Section 6 of the Employment Agreement is hereby
modified and replaced in its entirety by the following:
"Confidentiality, Conflicts of Interest and Non-Interference."
1.4 Section 6(b) ("Restrictive Covenant") of the Employment Agreement is
hereby deleted from the Employment Agreement and replaced with the following:
"[Deleted]"
1.5 Except as expressly modified hereby, all of the terms of the
Employment Agreement shall continue in full force and effect.
1.
<PAGE> 12
2. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
3. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
4. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Executive. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
5. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
6. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
Robert Witt
P.O. Box 2853
La Jolla, CA 92038
7. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
8. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
9. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
2.
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By: /s/ Dennis J. Murphy
-----------------------------
Name: Dennis J. Murphy
---------------------------
Title: CEO
--------------------------
Executive:
/s/ Robert Witt
---------------------------------
----------------
3.
<PAGE> 14
EXHIBIT A
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
effective as of ________________, 200__ by and between MEDIBUY.COM, INC., a
Delaware corporation (the "Company") and ROBERT WITT ("Consultant").
A. Consultant and the Company previously entered into an employment
agreement dated as of _____________, as amended (the "Employment Agreement");
and
B. Consultant and the Company desire to enter into a consultancy
arrangement upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. CONSULTING.
1.1 In consideration for the promises and covenants set forth herein,
for the period (the "Engagement Period") beginning on the effective date of
Consultant's termination of employment under the Employment Agreement (the
"Consulting Date") and ending on the date one year after the Consulting Date,
the Company and Consultant agree that Consultant shall perform the services and
undertake the duties and responsibilities set forth in Schedule A attached
hereto and incorporated herein (collectively, the "Services"). Consultant shall
render the Services under the terms and conditions set forth in this Agreement.
1.2 During the Engagement Period, Consultant will not be considered an
agent or an employee of the Company; Consultant will not have authority to make
any representation, contract, or commitment on behalf of the Company and
Consultant agrees not to do so; and Consultant will not be entitled to any of
the benefits which the Company may make available to its employees, such as
group insurance, profit sharing, or retirement benefits.
1.3 During the Engagement Period, Consultant will be solely responsible
for all tax returns and payments to any federal, state, or local tax authority
with respect to Consultant's performance of services and the receipt of fees or
other compensation and benefits under this Agreement. The Company will report
amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue
Service as required by law. The Company will not: make withholdings or
deductions from Consultant's payment checks; make contributions for Social
Security, employment insurance or disability insurance; or obtain workers'
compensation insurance on Consultant's behalf. During the Engagement Period,
Consultant shall comply with all applicable state and federal laws governing
self-employed individuals, including obligations such as payment of taxes,
Social Security, disability and other contributions based on compensation and
benefits paid to Consultant under this Agreement. Consultant hereby indemnifies
the Company against any and all such taxes or contributions, including penalties
and interest.
1.
<PAGE> 15
1.4 During the Engagement Period, subject to the terms and restrictions
of this Agreement, Consultant may engage in employment, consulting or other work
relationships in addition to Consultant's work for the Company. The Company
agrees to make reasonable arrangements to enable Consultant to perform
Consultant's consulting services for the Company at such times and in such a
manner so that it does not unreasonably interfere with other work activities in
which Consultant may engage.
2. TERM. The term of this Agreement (the "Term") shall commence upon the
Consulting Date. This Agreement shall remain in full force and effect until
completion of the Engagement Period.
3. CONSULTING FEES. As payment for the Services, Consultant shall receive cash
fees as set forth in Schedule B attached hereto and incorporated herein, which
shall constitute complete payment for the Services.
4. NO OTHER BENEFITS. During the Term, Consultant shall not be entitled to any
other compensation or benefits, including benefits provided generally to
employees of the Company, and Consultant's compensation shall not be subject to
withholding, unless, in the Company's view, withholding is required by
applicable law.
5. CONFIDENTIAL INFORMATION. In connection with the performance of Services
under the Employment Agreement and this Agreement, Consultant may become
familiar with trade secrets and confidential information of the Company (which
shall include all trade secrets and work product resulting from Consultant's
provision of the Services to the Company), which derive independent economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use
("Confidential Information"). Except as may be reasonably necessary while
providing the Services, Consultant agrees that, during the Term of this
Agreement and thereafter, Consultant and any agents and employees of Consultant
will not disclose or utilize any of the Confidential Information (including
without limitation techniques, designs, buying plans, drawings, leases, store
designs, rollout plans, developments, equipment, prototypes, sales, supplier and
customer information and relationships, and business and financial information
relating to the business, products, practices and techniques of the Company) to
which Consultant has been privy, unless Consultant becomes legally required to
disclose any such Confidential Information, in which event Consultant shall
provide the Company with prompt notice thereof so that the Company may seek a
protective order or other appropriate remedy. Upon the termination of this
Agreement, Consultant shall deliver to the Company all equipment, notes,
documents, memoranda, reports, files, books, correspondence, lists or other
written or graphic records and the like belonging to the company which are or
have been in Consultant's possession or control.
6. PRESERVATION OF CONFIDENTIAL INFORMATION; NONCOMPETITION.
6.1 Consultant agrees that, in order to protect the Confidential
Information of the Company and in consideration of the fees received hereunder,
during the Term of this Agreement, Consultant shall not, without first obtaining
the prior written approval of the Company, directly or indirectly engage in any
activities in competition with the Company, or become an officer, director or
employee of, or consultant to, or investor in, a business engaged in
2.
<PAGE> 16
competition with the Company's current business (specifically, any person or
entity whose principal business is promoting and facilitating via the Internet
transactions between third parties for the wholesale sale and distribution of
goods, equipment and services in the healthcare field) and such other business
or businesses in which the Company comes to be actively engaged during the term
of Consultant's employment with the Company under the Employment Agreement. For
purposes of this agreement, "healthcare field" means the provision of goods
and/or services to any person, firm, corporation, business, partnership, limited
liability company, association or other entity involved directly in the
healthcare industry and/or to any person with respect to their medical or
healthcare needs, including, without limitation, hospitals, surgical centers,
medical clinics, outpatient facilities, medical groups, managed care
organizations, health maintenance organizations, medical or health related
associations, nursing homes, extended care facilities, doctors, physicians,
dentists, chiropractors, veterinarians and other healthcare providers,
practitioners, suppliers, patients or any other person providing or receiving
healthcare service of any nature whatsoever.
6.2 Ownership by Consultant, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this Section 6.
7. SEVERABILITY. To the extent any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected, such deletion to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only the duration, extent
or activities which may validly and enforceably be covered.
8. REMEDIES. In any event of a breach of Consultant's obligations under this
Agreement, Consultant agrees that (a) any and all proceeds, funds, payments and
proprietary interests, of every kind and description, arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and (b) the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
9. INJUNCTIVE RELIEF. Consultant understands and agrees that the Company could
not be reasonably or adequately compensated in damages in an action at law for
Consultant's breach of his obligations under this Agreement. Accordingly,
Consultant specifically agrees that the Company shall be entitled to an
injunction enjoining Consultant or any person or persons acting for or with
Consultant in any capacity whatsoever from violating any of the terms herein.
This provision with respect to injunctive relief shall not diminish the right of
the Company to claim and recover damages pursuant to Section 9 in addition to
injunctive relief.
10. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants that (a)
Consultant is not restricted or prohibited, contractually or otherwise, from
entering into and performing each of the terms and covenants contained in this
Agreement, and (b) Consultant's
3.
<PAGE> 17
execution and performance of this Agreement is not a violation or breach of any
other agreement to which Consultant is a party.
11. GOVERNING LAW. This Agreement is made in San Diego, California and shall be
interpreted and enforced under the internal laws of the State of California.
12. ENTIRE AGREEMENT. This Agreement and any agreements referenced herein
constitute the entire agreement between the parties and may be waived, modified
or amended only by an agreement in writing signed by both parties.
13. ASSIGNMENT. This Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. This Agreement
may not be assigned by Consultant. This Agreement may not be assigned by the
Company except in connection with a merger of the Company or pursuant to the
sale, transfer or other conveyance of all or substantially all of the assets of
the Company.
14. WAIVER. No covenant, term or condition of this Agreement or breach thereof
shall be deemed waived unless the waiver is in writing, signed by the party
against whom enforcement is sought, and any waiver shall not be deemed to be a
waiver of any preceding or succeeding breach of the same or any other covenant,
term or condition.
15. NOTICE. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to the Company:
Chairman of the Board
medibuy.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, California 92121
If to Executive:
--------------------
--------------------
--------------------
16. HEADINGS. Headings or captions of paragraphs or sections of this Agreement
are for convenience of reference only and shall not be considered in the
interpretation of this Agreement.
17. COUNTERPART. This Agreements may be executed in two counterparts, each of
which shall be deemed an original, all of which together shall constitute one
and the same instrument.
4.
<PAGE> 18
18. ATTORNEY CONSULTATION. Each party has been informed of his/her/its right to
consult with his/her/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the date set forth in the first paragraph hereof.
The Company:
MEDIBUY.COM, INC.
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Consultant:
----------------------------------------
----------------
5.
<PAGE> 19
SCHEDULE A
SERVICES, DUTIES AND RESPONSIBILITIES
During the Term, Consultant shall, upon request, consult with the
Company by telephone, by mail and in person from time to time on a part-time
basis during regular business hours. The consultation shall concern the
management, operation, marketing, sales, purchasing, technology, financing and
other aspects of the business of the Company, and may include Consultant's
direct contacting of third parties at the reasonable request of the Company.
1.
<PAGE> 20
SCHEDULE B
CONSULTING FEE AND BENEFITS
The Company shall pay to Consultant for the Services an annual amount
equal to the sum of:
(i) an amount equal to the annual salary of Consultant in effect
at the time of termination under the Employment Agreement (the
"Consulting Fee") plus
(ii) to the extent the payment of the amount described in (i)
above is subject to state or federal taxation beyond that to
which it would have been subject as severance pay under the
Employment Agreement, the Company will pay an additional amount
(the "Gross-Up Payment") such that after payment of all state and
federal taxes on the Consulting Fee and the Gross-Up Payment,
Consultant will retain an amount equal to the amount Consultant
would have received as severance pay under the Employment
Agreement.
The total amount described in (i) and (ii) above shall be paid monthly during
the Term as provided herein.
To the extent provided by the federal COBRA law or, if applicable, state
insurance laws, and by the Company's group health insurance policies, Consultant
will be eligible to continue Consultant's health insurance benefits. In the
event Consultant elects continued coverage under COBRA, the Company, as part of
this Agreement and in consideration thereof, will reimburse Consultant for the
same portion of Consultant's COBRA health insurance premium that the Company
previously paid for Consultant's coverage under the Employment Agreement.
Consultant will be responsible for the same portion of the COBRA health
insurance that Consultant previously paid for coverage under the Employment
Agreement.
The Company shall pay on Consultant's behalf, or reimburse Consultant
for, any expenses reasonably incurred in connection with his rendering of the
Services and which are not incurred in violation of any policy or policies
regarding expenses which may be adopted by the Board of Directors from time to
time. Consultant agrees to submit receipts and other documentation to support
the above expenses as a condition of reimbursement therefor.
Consultant will fully and completely cooperate with the Company with
respect to all matters associated with the taxation or potential taxation of any
payments and reimbursements hereunder. Consultant acknowledges that Consultant
is responsible for consulting his or her own tax advisor with respect to any
taxation matters.
1.
<PAGE> 1
EXHIBIT 10.25
LEASE
by and between
PARADIGM RESOURCES, L.C.
A UTAH LIMITED LIABILITY COMPANY
as Landlord
and
PARTNET INC.,
A UTAH CORPORATION
as Tenant
FOR SUITE 204
OF A BUILDING LOCATED AT
615 ARAPEEN DRIVE
SALT LAKE CITY, UTAH
<PAGE> 2
INDEX TO LEASE AGREEMENT: PARADIGM RESOURCES, L.C.
SALT LAKE CITY, UTAH
<TABLE>
<S> <C>
ARTICLE 1. BASIC LEASE PROVISIONS; ENUMERATION OF EXHIBITS ................ 1
SECTION 1.01 BASIC LEASE PROVISIONS ................................. 1
SECTION 1.02 SIGNIFICANCE OF A BASIC LEASE PROVISION ................ 3
SECTION 1.03 ENUMERATION OF EXHIBITS ................................ 3
ARTICLE II. GRANT AND PREMISES ............................................ 3
SECTION 2.01 PREMISES ............................................... 3
ARTICLE III. RENT ......................................................... 3
SECTION 3.01 BASE MONTHLY RENT ...................................... 3
SECTION 3.02 ESCALATION ............................................. 3
SECTION 3.03 TENANT'S SHARE OF LANDLORD'S EXPENSES .................. 4
SECTION 3.04 REPORT OF COSTS AND STATEMENT OF ESTIMATED COSTS ....... 4
SECTION 3.05 PAYMENT OF ADDITIONAL RENT ............................. 5
SECTION 3.06 TAXES .................................................. 5
SECTION 3.07 PAYMENTS ............................................... 5
ARTICLE IV. RENTAL TERM, COMMENCEMENT DATE & PRELIMINARY TERM ............. 5
SECTION 4.01 RENTAL TERM ........................................... 5
SECTION 4.02 RENTAL COMMENCEMENT DATE ............................... 5
SECTION 4.03 PRELIMINARY TERM ....................................... 6
ARTICLE V. CONSTRUCTION OF PREMISES ....................................... 6
SECTION 5.01 CONSTRUCTION BY LANDLORD ............................... 6
SECTION 5.02 CHANGES AND ADDITIONS BY LANDLORD ...................... 6
SECTION 5.03 DELIVERY OF POSSESSION ................................. 6
ARTICLE VI. TENANT'S WORK & LANDLORD'S CONTRIBUTION ....................... 6
SECTION 6.01 TENANT'S WORK .......................................... 6
ARTICLE VII. USE .......................................................... 7
SECTION 7.01 USE OF PREMISES ........................................ 7
SECTION 7.02 HAZARDOUS SUBSTANCES ................................... 7
ARTICLE VIII. OPERATION AND MAINTENANCE OF COMMON AREAS ................... 7
SECTION 8.01 CONSTRUCTION AND CONTROL OF COMMON AREAS ............... 7
SECTION 8.02 LICENSE ................................................ 8
ARTICLE IX. ALTERATIONS, SIGNS, LOCKS & KEYS .............................. 8
SECTION 9.01 ALTERATIONS ............................................ 8
SECTION 9.02 SIGNS .................................................. 8
SECTION 9.03 LOCKS AND KEYS ......................................... 8
ARTICLE X. MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS ................... 9
SECTION 10.01 LANDLORD'S OBLIGATION FOR MAINTENANCE ................. 9
SECTION 10.02 TENANT'S OBLIGATION FOR MAINTENANCE ................... 9
SECTION 10.03 SURRENDER AND RIGHTS UPON TERMINATION ................. 9
ARTICLE XI. INSURANCE AND INDEMNITY ....................................... 9
SECTION 11.01 LIABILITY INSURANCE AND INDEMNITY ..................... 9
SECTION 11.02 FIRE AND CASUALTY INSURANCE ........................... 10
SECTION 11.03 WAIVER OF SUBROGATION ................................. 10
ARTICLE XII. UTILITY CHARGES .............................................. 10
SECTION 12.01 OBLIGATION OF LANDLORD ................................ 10
SECTION 12.02 OBLIGATIONS OF TENANT ................................. 11
SECTION 12.03 LIMITATIONS ON LANDLORDS LIABILITY .................... 11
ARTICLE XIII. OFF-SET STATEMENT, ATTORNMENT AND SUBORDINATION ............. 12
SECTION 13.01 OFF-SET STATEMENT ..................................... 12
SECTION 13.02 ATTORNMENT ............................................ 12
SECTION 13.03 SUBORDINATION ......................................... 12
SECTION 13.04 MORTGAGEE SUBORDINATION .............................. 12
SECTION 13.05 REMEDIES .............................................. 12
ARTICLE XIV. ASSIGNMENT ................................................... 12
</TABLE>
i
<PAGE> 3
INDEX TO LEASE AGREEMENT: PARADIGM RESOURCES, L.C.
SALT LAKE CITY, UTAH
<TABLE>
<S> <C>
SECTION 14.01 ASSIGNMENT ............................................ 12
ARTICLE XV. WASTE OR NUISANCE ............................................. 12
SECTION 15.01 WASTE OR NUISANCE ..................................... 12
ARTICLE XVI. NOTICES ...................................................... 12
SECTION 16.01 NOTICES ............................................... 12
ARTICLE XVII. DESTRUCTION OF THE PREMISES ................................. 12
SECTION 17.01 DESTRUCTION ........................................... 12
ARTICLE XVIII. CONDEMNATION ............................................... 13
SECTION 18.01 CONDEMNATION .......................................... 13
ARTICLE XIX. DEFAULT OF TENANT............................................. 13
SECTION 19.01 DEFAULT - RIGHT TO RE-ENTER ........................... 13
SECTION 19.02 DEFAULT - RIGHT TO RE-LET ............................. 14
SECTION 19.03 LEGAL EXPENSES ........................................ 14
ARTICLE XX. BANKRUPTCY, INSOLVENCY OR RECEIVERSHIP ........................ 14
SECTION 20.01 ACT OF INSOLVENCY, GUARDIANSHIP, ETC .................. 14
ARTICLE XXI. LANDLORD ACCESS .............................................. 14
SECTION 21.01 LANDLORD ACCESS ....................................... 14
ARTICLE XXII. LANDLORD'S LIEN ............................................. 15
SECTION 22.01 LANDLORD'S LIEN ....................................... 15
ARTICLE XXIII. HOLDING OVER ............................................... 15
SECTION 23.01 HOLDING OVER .......................................... 15
SECTION 23.02 SUCCESSORS ............................................ 15
ARTICLE XXIV. RULES AND REGULATIONS ....................................... 15
SECTION 24.01 RULES AND REGULATIONS ................................. 15
ARTICLE XXV. QUIET ENJOYMENT .............................................. 15
SECTION 25.01 QUIET ENJOYMENT ....................................... 15
ARTICLE XXVI. SECURITY DEPOSIT ............................................ 15
SECTION 26.01 SECURITY DEPOSIT ...................................... 15
ARTICLE XXV11. MISCELLANEOUS PROVISIONS ................................... 16
SECTION 27.01 WAIVER ................................................ 16
SECTION 27.02 ENTIRE AGREEMENT ...................................... 16
SECTION 27.03 FORCE MAJEURE ......................................... 16
SECTION 27.04 LOSS AND DAMAGE ....................................... 16
SECTION 27.05 ACCORD AND SATISFACTION ............................... 16
SECTION 27.06 NO OPTION ............................................. 16
SECTION 27.07 ANTI-DISCRIMINATION ................................... 16
SECTION 27.08 SEVERABILITY .......................................... 16
SECTION 27.09 OTHER MISCELLANEOUS PROVISIONS ........................ 16
SECTION 27.10 REPRESENTATION REGARDING AUTHORITY .................... 17
ADDITIONAL PROVISIONS ..................................................... 17
SIGNATURES ................................................................ 18
LANDLORD ACKNOWLEDGMENT ................................................... 18
TENANT ACKNOWLEDGMENT ..................................................... 18
</TABLE>
ii
<PAGE> 4
LEASE AGREEMENT
ARTICLE 1. BASIC LEASE PROVISIONS; ENUMERATION OF EXHIBITS
SECTION 1.01 BASIC LEASE PROVISIONS
(A) DATE: JANUARY 12, 1999
(B) LANDLORD: PARADIGM RESOURCES, L.C., a Utah limited liability company
(C) ADDRESS OF LANDLORD FOR NOTICES (SECTION 16.01): 2733 East Parleys Way,
Suite 300, Salt Lake City, UT 84109.
(D) TENANT: PARTNET INC., a Utah corporation
(E) ADDRESS OF TENANT FOR NOTICES (SECTION 16.01): 423 So. Wakara way, Salt
Lake City, UT 84108. After opening for business at Leased Premises,
notice address will be the Leased Premises.
(F) PERMITTED USES (SECTION 7.01). Research, software programming, computer
network services assembly and general office uses.
(G) TENANT'S TRADE NAME (EXHIBIT "E" - SIGN CRITERIA): Partner Inc.
(H) BUILDING (SECTION 2.01): Situated at approx. 615 Arapeen Drive, in the
City of Salt Lake, County of Salt Lake, State of Utah.
(I) PREMISES (SECTION 2.01): A portion of the first floor of the Building at
the approximate location outlined on Exhibit "A-1" known as Suite 204
consisting of approximately 6,026 square feet of gross rentable area.
Said area is calculated by multiplying the full second floor usable area
of 5,019 s.f. by 1.2007 to account for Tenant's proportionate share of
common area corridors, lobby, mechanical, electrical, and other service
rooms etc. in the Building.
(J) DELIVERY OF POSSESSION (SECTION 5.03): On or before February 15, 1999,
Preliminary Term begins on Delivery of Possession (Section 4.03).
(K) RENTAL TERM, COMMENCEMENT AND EXPIRATION DATE (SECTIONS 4.01 & 4.02):
The Rental Term shall commence on the earlier of (a) fifteen (15) days
after Delivery of Possession or (b) opening of Tenant for business at
the Premises, and shall be for a period of five (5) full Lease Years
ending January 31, 2004, subject to Tenant right to terminate set forth
in Section 1.01(X).
(L) BASE MONTHLY RENT (SECTION 3.01):
Eight Thousand Two Hundred Eighty Five and 75/100ths Dollars ($8,285.75)
(M) ESCALATIONS IN BASE MONTHLY RENT (SECTION 3.02): The Base Monthly Rent
shall be increased annually on the first day of each February commencing
in the year 2000 ("Escalation Date") proportionate to any increase in
the U.S. Dept. of Labor, Bureau of Labor Statistics Consumer Price Index
for Urban Consumers, All City Average (1982-84=100). To calculate
said increase, Landlord shall use a fraction the denominator of which
shall be said index for the month of November, 1998 and the numerator of
which shall be the index for the November immediately previous the
Escalation Date. If there is a decrease in the relevant Consumer Price
Index, the Base Monthly Rent shall not be adjusted. If the U.S.
Department of Labor ceases to publish said Consumer Price Index, the
Landlord shall substitute an index which in Landlord's reasonable good
faith judgment most nearly approximates the Consumer Price Index
specified herein.
(N) LANDLORD'S SHARE OF OPERATING EXPENSES (SECTION 3.03): The Base Monthly
Rent shall be absolutely net to the Landlord as provided in Section
3.03.
(O) TENANT'S PRO RATA SHARE OF OPERATING EXPENSES (SECTION 3.03): Tenant
shall be responsible for all operating expenses as defined in Section
3.03. Tenant's proportionate of Basic Costs shall be 6.715%. Said
operating expenses include Basic Costs, Direct Costs and Metered Costs
as defined in Section 3.03 and are currently estimated to be $4.50 per
square foot or $2,259.75 monthly.
(P) UTILITIES AND SERVICES. Subject to the provisions of Section 3.03, 12.01
and 12.02, this Lease provides that the utilities and services shall be
paid or reimbursed by Tenant
(Q) LANDLORD'S CONTRIBUTION TO TENANT'S WORK (SECTION 6.02): Ninety Six
Thousand Four Hundred Sixteen and no/100ths Dollars ($96,416.00)
payable as set forth in Section 6.02 herein. If
1
<PAGE> 5
Tenant fails to spend all of Landlord's contribution then Landlord shall
reduce the Base Monthly Rent as set forth in Section 1.01 (L) by $ 1.00
for every $100.00 which Tenant does not spend.
(R) PREPAID RENT: $8,034.67 paid upon execution of this Lease to be applied
to the first installment(s) of Base Monthly Rent due hereunder.
(S) EXCESS HOUR UTILITY CHARGES AND HOURS OF OPERATION (SECTION 12.02):
Standard operating hours for the Building shall be 7:00 a.m. to 6:00
p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday,
excluding holidays. To the extent Tenant operates during any time in
excess of those specified above, Tenant shall pay an extra hourly
utility charge of $0.20 per hour per 1,000 usable square feet for
lighting and electricity and $3.00 per hour per 1,000 usable square feet
for mechanical/HVAC system for each full or partial hour during which
Tenant operates.
(T) ADJUSTMENTS BASED ON FINAL AREA DETERMINATION: Upon final completion,
the Building shall be measured and the actual rentable area of the
Premises determined in accordance with standards of Section 2.01. The
sums set forth in Sections 1.01 (L), (M), (O), (Q) and (U) shall then be
proportionately adjusted to reflect the actual area of the Premises.
(U) SECURITY DEPOSIT (SECTION 26.01): Eight Thousand Dollars ($8,000.00)
(V) GUARANTOR(S): Don R. Brown
(W) GUARANTOR'S ADDRESS: 423 So. Wakara Way, Salt Lake City, UT 84108
(X) TENANT RIGHT TO TERMINATE: If Tenant needs additional space and Landlord
can not provide sufficient space contiguous to Tenant's Leased Premises
in the Building, then Tenant may elect to terminate this Lease effective
on not less than ninety (90) days prior written notice given to Landlord
and upon payment of the "unamortized portion" of the Landlord's
Contribution to Tenant Work set forth in Section 1.01 (Q), which payment
shall be made not less than five (5) days prior to the Termination Date.
To calculate the "unamortized portion", Landlord shall multiply the
amount of Landlord Contribution set forth in Section 1.01 (Q) as
adjusted pursuant to Section 1.01 (T) by a fraction, the numerator of
which shall be the number of months between the Termination Date as
provided in this Section 1.01 (X) and January 31, 2004 and the
denominator of which shall be 60.
2
<PAGE> 6
SECTION 1.02 SIGNIFICANCE OF A BASIC LEASE PROVISION. The foregoing
provisions of Section 1.01 summarize for convenience only certain fundamental
terms of the Lease delineated more fully in the Articles and Sections referenced
therein. In the event of a conflict between the provisions of Section 1.01 and
the balance of the Lease, the latter shall control.
SECTION 1.03 ENUMERATION OF EXHIBITS. The exhibits enumerated in this
Section and attached to this Lease are incorporated in the Lease by this
reference and are to be construed as a part of the Lease.
EXHIBIT "A" - SITE PLAN
EXHIBIT "A-1" - FIRST LEVEL PLAN
EXHIBIT "B" - LEGAL DESCRIPTION(S)
EXHIBIT "C" - LANDLORD'S WORK
EXHIBIT "D" - TENANT'S WORK
ARTICLE II. GRANT AND PREMISES
SECTION 2.01 PREMISES. Landlord has heretofore obtained a long-term
ground lease covering that certain tract of real property situated in the
University of Utah Research Park in Salt Lake City, State of Utah, more
particularly described in Exhibit "B" attached hereto, together with certain
easement for access rights. (Said tract is hereinafter referred to as the
"Property").
Landlord owns a building on the Property referred to in Section 1.01 (H)
(hereinafter the "Building") suitable for use as office research and development
space, together with related parking facilities and other improvements necessary
to enable to the Building to be so used (the Building and related facilities and
improvements are hereinafter collectively referred to as the "Improvements").
In consideration for the rent to be paid and covenants to be performed
by Tenant, Landlord hereby leases to Tenant, and Tenant leases from Landlord for
the Term and upon the terms and conditions herein set forth premises described
in Section 1.01(I) (hereinafter referred to as the "Premises" or "Leased
Premises"), located in the Building. Gross rentable area measurements herein
specified are from the exterior of the perimeter walls of the building to the
center of the interior walls. In addition, the factor set forth in Section 1.01
(1) has been added to the area as measured above to adjust for Tenant's
proportionate share of common hallways, restrooms, elevators, stairways, etc. in
the building.
The exterior walls and roof of the Premises and the areas beneath said
Premises are not demised hereunder, and the use thereof together with the right
to install, maintain, use, repair, and replace pipes, ducts, conduits, and wires
leading through the Premises in locations which will not materially interfere
with Tenant's use thereof and serving other parts of the building or buildings
are hereby reserved to Landlord. Landlord reserves (a) such access rights
through the Premises as may be reasonably necessary to enable access by Landlord
subject to reasonable notice to Tenant to the balance of the building and
reserved areas and elements as set forth above; and (b) the right to install or
maintain meters on the Premises to monitor use of utilities. In exercising such
rights, Landlord will use reasonable efforts so as to not commit waste upon the
Premises and as far as practicable to minimize annoyance, interference or damage
to Tenant when making modifications, additions or repairs.
Subject to the provisions of Article VIII, Tenant and its customers,
agents and invitees have the right to the non-exclusive use, in common with
others of such unreserved automobile parking spaces, driveways, footways, and
other facilities designated for common use within the Building, except that with
respect to non-exclusive automobile parking spaces, Tenant shall cause its
employees to park their cars only in areas specifically designated from time to
time by Landlord for that purpose. Landlord shall have the right to designate,
in its sole business judgment, certain spaces as "customer" parking spaces and
Tenant shall use its best efforts to cause its employees not to park in said
customer parking.
ARTICLE III. RENT
SECTION 3.01 BASE MONTHLY RENT. Tenant agrees to pay to Landlord the
Base Monthly Rent set forth in Section 1.01(L), as adjusted pursuant to Section
1.01(T), at such place as Landlord may designate, without prior demand
therefor, without offset or deduction and in advance on or before the first day
of each calendar month during the Rental Term, commencing on the Rental
Commencement Date. In the event the Rental Commencement Date occurs on a day
other than the first day of a calendar month, then the Base Monthly Rent to be
paid on the Rental Commencement Date shall include both the Base Monthly Rent
for the first full calendar month occurring after the Rental Commencement Date,
plus the Base Monthly Rent for the initial fractional calendar month prorated on
a per-diem basis (based upon a thirty (30) day month).
SECTION 3.02 ESCALATION. As set forth in Section 1.01(M).
3
<PAGE> 7
SECTION 3.03 TENANT'S SHARE OF LANDLORD'S EXPENSES.
(a) "Basic Costs" shall mean all reasonable actual costs and expense
incurred by Landlord in connection with the ownership, operation, management and
maintenance of the Property Improvements located thereon including, but not
limited to, all reasonable expenses incurred by Landlord as a result of
Landlord's compliance with any and all of its obligations under this Lease (or
under similar leases with other tenants). In explanation of the foregoing, and
not in limitation thereof, Basic Costs shall include: all real and personal
property taxes and assessments (whether general or special, known or unknown,
foreseen or unforeseen) and any tax or assessment levied or charged in lieu
thereof, whether assessed against Landlord and/or Tenant and whether collected
from Landlord and/or Tenant; snow removal, trash removal, common area utilities,
cost of equipment or devices used to conserve or monitor energy consumption,
supplies, insurance, license, permit and inspection fees, cost of services of
independent contractors, cost or compensation (including employment taxes and
reasonable fringe benefits) of all persons who perform regular and recurring
duties connected with day-to-day operation, maintenance, repair, and replacement
of the Building, its equipment and the adjacent walk, and landscaped area
(including, but not limited to janitorial, scavenger, gardening, security,
parking, elevator, painting, plumbing, electrical, mechanical, carpentry, window
washing, structural and roof repairs and reserves, signing and advertising), but
excluding persons performing services not uniformly available to or performed
for substantially all Building tenants; and rental expense or a reasonable
allowance FOR depreciation of personal property used in the maintenance,
operation and repair of the Building. The foregoing notwithstanding, Basic Costs
shall not include depreciation on the Building and Improvements; amounts paid
toward principal or interest of loans of Landlord; nor "Direct Costs" as defined
in Section 3.03 (b). If the cost of any repair or replacement exceeds $5,000.00
and is of the nature normally defined as a "capital cost" under generally
accepted accounting principles, then such cost shall be amortized together with
interest at 10% per annum and charged as a "Basic Cost" over the useful life of
said repair or replacement. Tenant shall pay its Proportionate Share of Basic
Costs. "Tenant's Proportionate Share of Basic Costs" shall mean the percentage
derived from a fraction, the numerator of which is the gross rentable area of
the Premises as set forth in Section 1.01(I) and the denominator of which is
the gross rentable square footage of the Building (89,741 s.f.). Tenant's
Proportionate Share of Basic Costs initially is set forth in Section 1.01(O),
subject to increase or decrease due to increases or decreases in the gross
rentable square footage of the Premises and/or the Building.
(b) "Direct Costs" shall mean all actual costs and expenses incurred by
Landlord in connection with the operation, management, maintenance, replacement,
and repair of the Premises, including but not limited to janitorial services,
maintenance, repairs, supplies, utilities, heating, ventilation, air
conditioning, and property management fees, (which property management fees
shall not exceed four (4%) percent of the Base Monthly Rent set forth herein).
If any category of Direct Costs can only be determined on a Building wide basis,
Tenant's proportionate share of any such category of Direct Costs will be based
on the same percentage established for Tenant's Proportionate Share of Basic
Costs.
(c) Landlord may cause at Landlord's sole cost and expense (which shall
not be reimbursable in whole or in part by Tenant) meters or monitors to be
installed to measure actual electrical and ventilation/air conditioning usage in
the Premises by Tenant. "Metered Costs" shall mean the actual cost of such
usage. If such meters are installed, Tenant shall pay Landlord monthly, as
Additional Rent, the estimated costs of such metered electrical and
ventilation/air conditioning usage. If the costs of ventilation/air conditioning
usage are not separately metered for tenants in the Building said costs shall be
considered Direct Costs and shall be calculated as set forth in 3.03(a).
(d) "Estimated Costs" shall mean the projected amount of Direct Costs,
Metered Costs and Proportionate Share of Basic Costs. The Estimated Costs for
the calendar year in which the Lease commences are set forth in Section 1.01(O),
and are not included in the Base Monthly Rent. If the Estimated Costs as of the
date Tenant takes occupancy are greater than the Estimated Costs at the time
this Lease is executed, the Estimated Costs shall be increased to equal the
Estimated Costs as of the date of Tenant's occupancy.
SECTION 3.04 REPORT OF COSTS AND STATEMENT OF ESTIMATED COSTS.
(a) Within sixty (60) days after the expiration of each calendar year
occurring during the term of this Lease, Landlord shall furnish Tenant a written
statement ("Annual Report of Costs") of the Tenant's actual Direct Costs,
Metered Costs and Proportionate Share of Basic Costs occurring during the
previous calendar year. Such Annual Report of Costs shall show in reasonable
detail a breakdown of the components of the Costs set forth herein. The Annual
Report of Costs shall specify the amount by which said actual costs for the
previous year exceeds or is less than the amounts paid by Tenant as Estimated
Costs during the previous calendar year.
4
<PAGE> 8
(b) At the same time specified in Section 3.04 (a), Landlord
shall furnish Tenant a written statement of the Estimated Costs for the
then current calendar year ("Annual Statement of Estimated Costs.")
(c) Landlord's records of costs shall be open to inspection by
Tenant at Landlord's office during business hours and upon five (5) days
prior written notice to Landlord of Tenant's desire to conduct such
inspection. If Tenant discovers any errors in Landlord's calculations as
a result of such inspections, Landlord shall immediately adjust such
costs and credit or charge Tenant for its share of the discrepancy.
SECTION 3.05 PAYMENT OF ADDITIONAL RENT. Tenant shall pay additional
rent ("Additional Rent") as follows:
(a) With each monthly payment of Base Monthly Rent pursuant to
Section 3.01 above, Tenant shall pay TO Landlord, without offset or
deduction, one-twelfth (1/12th) of the Annual Statement of Estimated
Costs. If at any time Landlord obtains information that indicates that
any of the categories of cost comprising Estimated Costs are
significantly different than as calculated in the Annual Statement of
Estimated Costs then in effect, Landlord may amend said Statement in
order to reflect a more accurate prediction of the actual costs that
will be incurred during the calendar year, and Tenant will pay amended
Additional Rent consistent with said amended Statement.
(b) Within thirty (30) days after delivery of the Annual Report
of Costs, Tenant shall pay to Landlord the amount by which Direct Costs,
Metered Costs and Proportionate Share of Basic Costs, as specified in
the Report, exceed the aggregate of Estimated Costs actually paid by
Tenant as Additional Rent for the year at issue.
(c) If the Annual Report of Costs indicates that the Estimated
Costs paid by Tenant exceeded the actual Direct Costs, Metered Costs and
Proportionate Share of Basic Costs for the same year, Landlord, at its
sole election, shall either (i) pay the amount of such excess to Tenant,
or (ii) apply such excess against the next installments) of Base Monthly
Rent and/or Additional Rent due hereunder and so notify Tenant.
SECTION 3.06 TAXES.
(a) Landlord shall pay all real property taxes and assessments
(all of which are hereinafter collectively referred to as "Taxes') which
are levied against or which apply with respect to the Premises to be
reimbursed by Tenant as a part of Basic Costs.
(b) Tenant shall prior to delinquency pay all taxes,
assessments, charges, and fees which during the Rental Term hereof may
be imposed, assessed, or levied by any governmental or public authority
against or upon Tenant's use of the Premises or any inventory, personal
property, fixtures or equipment kept or installed, or permitted to be
located therein by Tenant.
SECTION 3.07 PAYMENTS. All payments of Base Monthly Rent, Additional
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 principal office set
forth in Section 1.01 (C), 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. If Tenant shall fail to pay any
Base Monthly Rent or any Additional Rent or any other amounts or charges within
five (5) days after the due date, Tenant shall pay interest from the due date of
such past due amounts to the date of payment, both before and after judgment at
a rate equal to the greater of fourteen (14%) percent per annum or two (2%)
percent over the "prime" or "base" rate charged by Zions First National Bank of
Utah at the due date of such payment; provided however, that in any case the
maximum amount or rate of interest to be charged shall not exceed the maximum
non-usurious rate in accordance with applicable law. Notwithstanding the above,
Landlord shall waive said interest for one late payment in any calendar year
provided that Tenant pays the past due charge within five (5) days after notice
from Landlord that the charge is past due.
ARTICLE IV. RENTAL TERM, COMMENCEMENT DATE & PRELIMINARY TERM
SECTION 4.01 RENTAL TERM. The initial term of this Lease shall be for
the period defined as the Rental Term in Section 1.01(K), plus the partial
calendar month, if any, occurring after the Rental Commencement Date (as
hereinafter defined) if the Rental Commencement Date occurs other than on the
first day of a calendar month. "Lease Year" shall include twelve (12) calendar
months, except that first Lease Year will also include any partial calendar
month beginning on the Rental Commencement Date.
SECTION 4.02 RENTAL COMMENCEMENT DATE. The Rental Term of this Lease and
Tenant's obligation to pay rent hereunder shall commence as set forth in Section
1.01K (the "Rental Commencement Date"). Within five (5) days after Landlord's
request to do so, Landlord and Tenant shall execute a written
5
<PAGE> 9
affidavit, in recordable form, expressing the Rental Commencement Date and the
termination date, which affidavit shall be deemed to be part of this Lease.
SECTION 4.03 PRELIMINARY TERM. The period between the date Tenant enters
upon the Premises and the commencement of the Rental Term will be designated as
the "preliminary term" during which neither Base Monthly Rent nor Additional
Rent shall accrue; however, other covenants and obligations of Tenant shall be
in full force and effect. Delivery of possession of the Premises to Tenant AS
provided in Section 5.03 shall be considered "entry" by Tenant and commencement
of "preliminary term".
ARTICLE V. CONSTRUCTION OF PREMISES
SECTION 5.01 CONSTRUCTION BY LANDLORD. Landlord will construct the
Building in which the Premises are to be located. The Premises shall be
constructed substantially in accordance with Outline Specifications entitled
"Landlord's Work" marked Exhibit "C" attached hereto and made a part hereof. it
is understood and agreed by Tenant that no minor changes which do not impair
Tenant's efficient business use of the Leased Premises from any plans or from
said Outline Specifications made necessary during construction of the Premises
or the Building shall affect or change this Lease or invalidate same.
SECTION 5.02 CHANGES AND ADDITIONS BY LANDLORD. Landlord hereby reserves
the right at any time, and from time to time, to make alterations or additions
TO, and to build additional stories on the Building in which the Premises are
contained and to build adjoining the same and to modify the existing parking or
other common areas to accommodate additional buildings. Landlord also reserves
the right to construct other buildings or improvements in the Building area from
time to time, on condition that if the Building area is expanded so as to
include any additional buildings, Landlord agrees to create or maintain a
parking ratio adequate to meet local laws and ordinances, including the right to
add land to the Building or to erect parking structures thereon. Notwithstanding
the above, the addition of new improvements shall not, after constructed,
materially interfere with Tenant's access to or from or use of the Leased
Premises. Furthermore, during construction, Landlord shall undertake prudent
reasonable steps to minimize interference with Tenant's access to or from the
Leased Premises.
SECTION 5.03 DELIVERY OF POSSESSION. Except as hereinafter provided,
Landlord shall deliver the Premises to Tenant ready for Tenant's Work on or
before the date set forth in Section 1.01(j). The Premises shall be deemed as
ready for delivery when Landlord shall have substantially completed construction
of the portion of the said Premises to be occupied exclusively by Tenant, in
accordance with Landlord's obligations set forth in Exhibit "C". Landlord shall,
from time to time during the course of construction, provide information to
Tenant concerning the progress of construction of said Premises, and will give
written notice to Tenant when said Premises are in fact ready for Tenant's Work.
Notwithstanding the foregoing, Landlord shall have the right to extend the date
for delivery of possession of the Premises for a period of three one (1) month
periods by notice in writing given to Tenant any time prior to said delivery
date. If any disputes shall arise as to the Premises being ready for delivery of
possession, a certificate furnished by Landlord's architect in charge so
certifying shall be conclusive and binding of that fact and date upon the
parties. It is agreed that by occupying the Premises as a tenant, Tenant
formally accepts the same and acknowledges that the Premises are in the
condition called for hereunder, except for items specifically excepted in
writing at date of occupancy as "incomplete".
ARTICLE VI. TENANT'S WORK & LANDLORD'S CONTRIBUTION
SECTION 6.01 TENANT'S WORK. Tenant agrees to provide all work of
whatsoever nature in accordance with its obligations set forth in Exhibit "D".
Tenant agrees to furnish Landlord, within the time periods required in Exhibit
"D", with a complete and detailed set of plans and specifications drawn by some
qualified person reasonably acceptable to Landlord setting forth and describing
Tenant's Work in such detail as Landlord may reasonably require and in
compliance with Exhibit "D", unless this requirement be waived in writing by
Landlord. If said plans and specifications are not so furnished by Tenant within
the required time periods, then Landlord may, at its option, in addition to
other remedies Landlord may enjoy, cancel this Lease at any time thereafter
while such plans and specifications have not been so furnished. No material
deviation from the final set of plans and specifications once submitted to and
approved by Landlord, shall be made by Tenant without Landlord's prior written.
consent, which shall not be unreasonably withheld. Landlord shall have the right
to approve Tenant's architect and contractor to be used in performing Tenant's
Work, and the right to require and approve insurance or bonds provided by Tenant
or such contractors. in due course after completion of Tenant's Work, Tenant
shall certify to Landlord the itemized cost of Tenant improvements and fixtures
located upon the Premises.
SECTION 6.02 LANDLORD CONTRIBUTION TO TENANT'S WORK. In addition to
Landlord Work to be completed pursuant to Exhibit "C", Landlord shall contribute
the amount set forth in Section 1.01 (Q) toward Tenant's Work set forth in
Exhibit "D". If Tenant does not spend all of the Contribution to Tenant's Work,
then Landlord shall reduce the Base Monthly Rent as set forth in Section 1.01
(L) by $1.00 for each $100.00 of Landlord Contribution which Tenant does not
spend.
6
<PAGE> 10
ARTICLE VII. USE
SECTION 7.01 USE OF PREMISES. Tenant shall use the Premises solely for
the purpose of conducting the business indicated in Section 1.01(F) and for
purposes ordinarily incidental to such use and only for such purposes and in
such manner as are permitted both by the Protective Covenants relating to the
University of Utah Research Park and by any existing legislation concerning the
Research Park. Tenant shall not make any use of the Premises which might cause
cancellation or an increase in the cost of any insurance policy covering the
same unless Tenant commits to pay the amount of increase in said insurance
premium in addition to other payments set forth in this Lease. Tenant shall not
make any use of the Leased Premises any article, item, or thing which is
prohibited by the standard form of fire insurance policy. Tenant shall not
commit any waste upon the Leased Premises and shall not conduct or allow any
business activity, or thing on the Leased Premises which is an annoyance or
causes damage to Landlord, to other sub-tenants, occupants, or users of the
Improvements, or to occupants of the vicinity. Tenant shall comply with and
abide by all laws, ordinances, and regulations of all municipal, county, state,
and federal authorities which are now in force or which may hereafter become
effective with respect to use and occupancy of the Premises. Landlord represents
that to the best of its knowledge and understanding, that upon delivery of
possession as set forth in Section 5.03, the Building will comply with all
currently applicable laws, ordinances and regulations of municipal, county,
state and federal authorities.
SECTION 7.02 HAZARDOUS SUBSTANCES.
(a) Landlord shall be responsible for removal of any Hazardous
Substances that existed at the Project prior to construction or any that
Landlord has or does install at the Premises OR Building. After
reasonable inquiry, Landlord is not aware of any existing Hazardous
Substances within the Project areas.
(b) Tenant shall not use, produce, store, release, dispose or
handle in or about the Leased Premises or transfer to or from the Leased
Premises (or permit any other party to do such acts) any Hazardous
Substance except in compliance with all applicable Environmental Laws.
Tenant shall not construct or use any improvements, fixtures or
equipment or engage in any act on or about the Leased Premises that
would require the procurement of any license or permit pursuant to any
Environmental Law. Upon Tenant obtaining actual knowledge of same,
Tenant shall immediately notify Landlord of (i) the existence of any
Hazardous Substance on or about the Leased Premises that may be in
violation of any Environmental Law (regardless of whether Tenant is
responsible for the existence of such Hazardous Substance), (ii) any
proceeding or investigation by any governmental authority regarding the
presence of any Hazardous Substance on the Leased Premises or the
migration thereof to or from any other property, (iii) all claims made
or threatened by any third party against Tenant relating to any loss or
injury resulting from any Hazardous Substance, or (iv) Tenant's
notification of the National Response Center of any release of a
reportable quantity of a Hazardous Substance in or about the Leased
Premises. "Environmental Laws" shall mean any federal, state or local
statute, ordinance, rule, regulation or guideline pertaining to health,
industrial hygiene, or the environment, including without limitation,
the federal Comprehensive Environmental Response, Compensation, and
Liability Act; "Hazardous Substance" shall mean all substances,
materials and wastes that are or become regulated, or classified as
hazardous or toxic, under any Environmental Law. If it is determined
that any Hazardous Substance exists on the Leased Premises resulting
from any act of Tenant or its employees, agents, contractors, licensees,
subtenants or customers, then Tenant shall immediately take necessary
action to cause the removal of said substance and shall remove such
within ten (10) days after discovery. Notwithstanding the above, if the
Hazardous Substance is of a nature that can not be reasonably removed
within ten (10) days Tenant shall not be in default if Tenant has
commenced to cause such removal and proceeds diligently thereafter to
complete removal, except that in all cases, any Hazardous Substance must
be removed within sixty (60) days after discovery thereof. Furthermore,
notwithstanding the above, if in the good faith judgment of Landlord,
the existence of such Hazardous Substance creates an emergency or is of
a nature which may result in immediate physical danger to persons AT the
Property, Landlord may enter upon the Leased Premises and remove such
Hazardous Substances and, if the existence was a result of the act of
the Tenant or its employee, agent, contractor, licensee, subtenant, or
customers, Landlord may charge the cost thereof to Tenant as Additional
Rent.
ARTICLE VIII. OPERATION AND MAINTENANCE OF COMMON AREAS
SECTION 8.01 CONSTRUCTION AND CONTROL OF COMMON AREAS. All automobile
parking areas, driveways, entrances and exits thereto, and other facilities
furnished by Landlord in or near the buildings or Building, including if any,
employee parking areas, truck ways, loading docks, mail rooms or mail pickup
areas, pedestrian sidewalks and hallways, landscaped areas, retaining walls,
stairways, elevators, utility rooms, restrooms and other areas and improvements
provided by Landlord for the general use in common tenants, their officers,
agents, employees and customers, shall at all times be subject to the exclusive
control and management of Landlord which shall have the right from time to time
to establish,
7
<PAGE> 11
reasonable non-discriminatory Rules and Regulations with respect to all
facilities and modify and enforce areas mentioned in this Section. Landlord
shall have the right to construct, maintain and operate lighting and drainage
facilities on or in all said areas and improvements; to police the same, from
time to time to change the area, level, location and arrangement of parking
areas and other facilities hereinabove referred to; to restrict parking by
tenants, their officers, agents and employees to employee parking areas; to
close temporarily all or any portion of said areas or facilities to such extent
as may, in the opinion of counsel, be legally sufficient to prevent a dedication
thereof or the accrual of any rights to any person or the public therein; to
assign "reserved" parking spaces for exclusive use of certain tenants or for
customer parking, to discourage non-employee and non-customer parking; and to do
and perform such other acts in and to said areas and improvements as, in the
exercise of good business judgment, the Landlord shall determine to be advisable
with a view toward maintaining of appropriate convenience uses, amenities, and
for permitted uses by tenants, their officers, agents, employees and customers.
Landlord will operate and maintain the common facilities referred to above in
such a manner as it, in its sole discretion, shall determine from time to time
but in any event, Landlord shall maintain the common facilities in a clean,
sanitary and safe condition in accordance with applicable laws, rules and
regulations. Landlord shall take reasonable measures to minimize to the extent
reasonably possible interference with Tenant's business while performing
Landlord's common area maintenance responsibilities, but Landlord shall not be
liable for any interference resulting from Landlord's prudent performance of
said responsibilities. Without limiting the scope of such discretion, Landlord
shall have the full right and authority to employ all personnel and to make all
Rules and Regulations pertaining to and necessary for the proper operation,
security and maintenance of the common areas and facilities. Building and/or
project signs, traffic control signs and other signs determined by Landlord to
be in best interest of the Building, will be considered part of common area and
common facilities.
SECTION 8.02 LICENSE. All common areas and facilities not within the
Premises, which Tenant may be permitted to use and occupy, are to be used and
occupied under a revocable license, and if the amount of such areas be
diminished, Landlord shall not be subject to any liabilities nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
diminution of such areas be deemed constructive or actual eviction, so long as
such revocations or diminutions are deemed by Landlord to serve the best
interests OF the Building. Notwithstanding the above, Landlord shall not
permanently materially alter Tenant's access to or from the Leased Premises.
ARTICLE IX. ALTERATIONS, SIGNS, LOCKS & KEYS
SECTION 9.01 ALTERATIONS. Tenant shall not make or suffer to be made any
alterations or additions to the Premises in excess of $5,000 or which may affect
the building structure or building HVAC, electrical or plumbing systems without
the prior written consent of Landlord. Any additions to, or alterations of the
Premises except movable furniture, equipment and trade fixtures shall become a
part of the realty and belong to Landlord upon the termination of Tenant's lease
or renewal term or other termination or surrender of the Premises to Landlord.
SECTION 9.02 SIGNS. Subject to the restrictions of the University
Research Park and obtaining written prior approval of University Research Park
and of Landlord and any required municipal or other public approvals and subject
to full conformity with Exhibit "E" Tenant at its own expense, may place a
suitable Tenant identification sign on the Building and/or Premises, provided
that any such sign shall be in the same general Building location and the
general design conforms to the same design and style of other tenant signs on
the Building. If any sign is erected prior to obtaining written University
Research Park and Landlord approval Tenant shall be required to remove said sign
and repair any damage caused thereby at its sole cost and expense. At the
termination of this Lease, Tenant shall remove said signs. Tenant shall repair
any damage caused by the installation or removal of any Tenant signs. All work
shall be completed in a good and workmanlike manner
SECTION 9.03 LOCKS AND KEYS.
(a) The building shall be equipped with an electronic card
access system at entrance to building as well as primary doors of the
Leased Premises. Landlord shall issue, monitor, and program key cards
for Tenant and Tenant's employees, as reasonably needed. Tenant shall
pay the Landlord's cost for program key cards requested by Tenant. When
employment relationships change, Tenant shall cooperate to attempt to
retrieve said key cards from employees leaving Tenant.
(b) Where key access exists, Tenant may change locks or install
other locks on doors, but if Tenant does, Tenant must provide Landlord
with duplicate keys within twenty four hours after said change or
installation.
(c) Upon termination of this Lease Tenant shall deliver to
Landlord all cards and keys to the Premises including any interior
offices, toilet rooms, combinations to built-in safes, etc. which shall
have been furnished to or by the Tenant or are in the possession of the
Tenant.
8
<PAGE> 12
ARTICLE X. MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS
SECTION 10.01 LANDLORD'S OBLIGATION FOR MAINTENANCE. Landlord shall
maintain and repair: (1) the areas outside the Premises including hallways,
stairways, elevators, public restrooms, if any, general landscaping, parking
areas, driveways and walkways; (2) the Building structure including roof,
exterior walls, and foundation; and (3) all plumbing, electrical, heating, and
air conditioning systems. However, if the need for such repairs or maintenance
results from any careless, wrongful or negligent act or omission of Tenant,
Tenant shall pay the entire cost of any such repair or maintenance including a
reasonable charge to cover Landlord's supervisory overhead. Except in case of
emergency repairs of which Landlord becomes aware of, Landlord shall not be
obligated to repair any damage or defect until receipt of written notice from
Tenant of the need of such repair and Landlord shall have a reasonable time
after receipt of such notice in which to make such repairs. Tenant shall give
immediate notice to Landlord in case of fire or accidents in the Premises or in
the building of which the Premises are a part or of defects therein or in any
fixtures or equipment provided by Landlord. If Landlord does not repair such
items within a reasonable time, Tenant may do so on behalf of Landlord and bill
the cost thereof to Landlord who shall pay such within twenty (20) days after
receipt thereof unless Landlord notifies Tenant in writing that Landlord
disputes the repair or cost thereof.
SECTION 10.02 TENANT'S OBLIGATION FOR MAINTENANCE.
(a) Tenant shall provide its own janitorial service and keep and
maintain the Premises including the interior wall surfaces and windows,
floors, floor coverings and ceilings in a clean, sanitary and safe
condition in accordance with the laws of the State and in accordance
with all directions, rules and regulations of the health officer, fire
marshall, building inspector, or other proper officials of the
governmental agencies having jurisdiction, at the sole cost and expense
of Tenant, and Tenant shall comply with all requirements of law,
ordinance and otherwise, affecting said Premises.
(b) Tenant shall pay, when due, all claims for labor or material
furnished, for work under Sections 9.01, 9.02 and 10.02 hereof, to or
for Tenant at or for use in the Premises, and shall bond such work if
reasonably required by Landlord to prevent assertion of claims against
Landlord.
(c) Tenant agrees to be responsible for all furnishings,
fixtures and equipment located upon the Premises from time to time and
shall replace carpeting within the Premises if same shall be damaged by
tearing, burning, or stains resulting from spilling anything on said
carpet, reasonable wear and teat accepted.
SECTION 10.03 SURRENDER AND RIGHTS UPON TERMINATION.
(a) This Lease and the tenancy hereby created shall cease and
terminate at the end of the Rental Term hereof, or any extension or
renewal thereof, without the necessity of any notice from either
Landlord or Tenant to terminate the same, and Tenant hereby waives
notice to vacate the Premises and agrees that Landlord shall be entitled
to the benefit of all provisions of law respecting summary recovery of
possession of Premises from a Tenant holding over to the same extent as
if statutory notice has been given.
(b) Upon termination of this Lease at any time and for any
reason whatsoever, Tenant shall surrender and deliver up the Premises to
Landlord in the same condition as when the Premises were delivered to
Tenant or as altered as provided in Section 9.01, ordinary wear and tear
excepted. Upon request of Landlord, Tenant shall promptly remove all
personal property from the Premises and repair any damage caused by such
removal. Obligations under this Lease relating to events occurring or
circumstances existing prior to the date of termination shall survive
the expiration or other termination of the Rental Term of this Lease.
ARTICLE XI. INSURANCE AND INDEMNITY
SECTION 11.01 LIABILITY INSURANCE AND INDEMNITY. Tenant shall, during
all terms hereof, keep in full force and effect a policy of public bodily injury
and property damage liability insurance with respect to the Premises, with a
combined single limit of not less than Two Million Dollars ($2,000,000.00) per
occurrence. The policy shall name Landlord, Property Manager (i.e., Woodbury
Corporation) and any other persons, firms or corporations designated by Landlord
and Tenant as insured, and shall contain a clause that the insurer will not
cancel or change the insurance without first giving the Landlord ten (10) days
prior written notice. Such insurance shall include an endorsement permitting
Landlord and Property Manager to recover damage suffered due to act or omission
of Tenant, notwithstanding being named as an additional "Insured party" in such
policies. Such insurance may be furnished by Tenant under any blanket policy
carried by it or under a separate policy therefor. The insurance shall be with
an insurance company approved by Landlord and a copy of the paid-up policy
evidencing such insurance or a certificate of insurer
9
<PAGE> 13
certifying to the issuance of such policy shall be delivered to Landlord. If
Tenant fails to provide such insurance, Landlord may do so and charge same to
Tenant.
Tenant will indemnify, defend and hold Landlord harmless from and
against any and all claims, connection with loss of life, personal injury and/or
damage to actions, damages, liability and expense in property arising from or
out of any occurrence in, upon or at the Premises or from the occupancy or use
by Tenant of the Premises or any part thereof, or occasioned by any act or
omission of Tenant, its agents, contractors, employees, servants, sublessees,
concessionaires or business invitees unless caused by the negligence of Landlord
its employees, contractors or agents, and to the extent not covered by its fire,
casualty and liability insurance. In case Landlord shall, without fault of its
part, be made a party to any litigation commenced by or against Tenant, then
Tenant shall protect and hold Landlord harmless and shall pay ALL costs,
expenses and reasonable attorney fees incurred or paid by either in defending
itself or enforcing the covenants and agreements of this Lease.
SECTION 11.02 FIRE AND CASUALTY INSURANCE.
(a) Subject to the provisions of this Section 11.02, Landlord
shall secure, pay for, and at all times during the terms hereof
maintain, insurance providing coverage upon the building improvements in
an amount equal to the full insurable value thereof (as determined by
Landlord) and insuring against the perils of fire, extended coverage,
vandalism, and malicious mischief. All insurance required hereunder
shall be written by reputable, responsible companies licensed in the
State of Utah. Tenant shall have the right, at its request at any
reasonable time, to be furnished with copies of the insurance policies
then in force pursuant to this Section, together with evidence that the
premiums therefor have been paid.
(b) Tenant agrees to maintain at its own expense such fire and
casualty insurance coverage as Tenant may desire or require in respect
to Tenant's personal property, equipment, furniture, fixtures or
inventory and Landlord shall have no obligation in respect to such
insurance or losses. All property kept or stored on the Premises by
Tenant or with Tenant's permission shall be so done at Tenant's sole
risk and Tenant shall indemnify Landlord against and hold it harmless
from any claims arising out of loss or damage to same.
(c) Landlord represents that the Premises will be initially
designed to permit the operation of Tenant's computer-related business
as described to Landlord as of the date of this Lease without any
increase in casualty insurance premium. Thereafter, Tenant will not
permit said Premises to be used for any purpose which would render the
insurance thereon void or cause cancellation thereof or increase the
insurance risk or increase the insurance premiums (unless Tenant agrees
to pay such increased premiums) in effect just prior to the commencement
of this Lease. Tenant agrees to pay as additional rent the total amount
of any increase in the insurance premium of Landlord over that in effect
prior to the commencement of this lease resulting from Tenant use of the
Premises. If Tenant installs any electrical or other equipment which
overloads the lines in the Premises, Tenant shall at its own expense
make whatever changes are necessary to comply with the requirements of
Landlord's insurance.
(d) Tenant shall be responsible for all glass breakage within
the Premises and any exterior glass breakage resulting from acts or
negligence of Tenant, its employees, agents, contractors, licensees,
subtenants, or customers and agrees to immediately replace all glass
broken or damaged, for which Tenant is responsible, with glass of the
same quality as that broken or damaged. Landlord may replace, at
Tenant's expense, any such broken or damaged glass if not replaced by
Tenant within five (5) days after such damage and charge the cost
thereof to Tenant. Landlord shall be responsible for replacement of any
other damaged glass at the Premises or the Building and shall similarly
replace such in the same manner required of Tenant hereunder.
SECTION 11.03 WAIVER OF SUBROGATION. Each party hereto does hereby
release and discharge the other party hereto and any officer, agent, employee or
representative of such party, of and from any liability whatsoever hereafter
arising from loss, damage or injury caused by fire or other casualty for which
insurance (permitting waiver of liability and containing a waiver of
subrogation) is carried by the injured party at the time of such loss, damage or
injury to the extent of any recovery by the injured party under such insurance.
ARTICLE XII. UTILITY CHARGES
SECTION 12.01 OBLIGATION OF LANDLORD. Subject to the terms of Section
3.03 and unless otherwise agreed in writing by the parties, during the term of
this Lease the Landlord shall cause to be furnished to the Premises during
standard business hours (7:00 a.m. to 6:00 p.m. Monday through Friday and 8:00
a.m. to 1:00 p.m. on Saturday), except Holidays, the following utilities and
services, the cost and expense of which shall be included in Direct Costs,
Metered Costs and/or Basic Costs as appropriately categorized by the Landlord:
10
<PAGE> 14
(a) Electricity, water, gas and sewer service.
(b) Telephone connection, but not including telephone stations and
equipment (it being expressly under-stood and agreed that Tenant
shall be responsible for the ordering and installation of
telephone lines and equipment which pertain to the Premises).
(c) Heat and air-conditioning to such extent and to such levels as,
in Landlord's judgment, is reasonably required for the
comfortable use and occupancy of the Premises subject however to
any limitations imposed by University Research Park or any
government agency. The parties agree and understand that the
above heat and air-conditioning will be provided Monday through
Friday from 7:00 a.m. to 6:00 p.m. and Saturday from 8:00 a.m.
to 1:00 p.m.
(d) Snow removal and parking lot sweeping services.
(e) Elevator service.
SECTION 12.02 OBLIGATIONS OF TENANT. Tenant shall arrange for and shall
pay the entire cost and expense of all telephone stations, equipment and use
charges, electric light bulbs (but not fluorescent bulbs used in fixtures
originally installed in the Premises) and ALL other materials and services not
expressly required to be provided and paid for pursuant to the provisions of
Section 12.01 above. Tenant covenants to use good faith efforts to reasonably
conserve utilities by turning off lights and equipment when not in use and
taking such other reasonable actions in accordance with sound standards for
energy conservation. Landlord reserves the right at Landlord's sole expense
(without reimbursement for such installation and meter costs from Tenant) to
separately meter or otherwise monitor any utility usage and to separately charge
Tenants for its own utilities, in which case an equitable adjustment shall be
made to Base Rental and Tenant's share of Operating Expenses as set forth in
this Lease. Additional limitations of Tenant are as follows:
(a) Tenant will not, without the written consent of Landlord,
which consent shall not be unreasonably withheld, use any machine or
device at the Premises using current in excess of 208 volts which will
in any way or to any extent increase the amount of electricity or water
usually furnished or supplied for use on the Premises for the use
designated in Section 7.01 above, nor connect with electrical current,
except through existing electrical outlets in the Premises, or water
pipes, any apparatus or device, for the purposes of using electric
current or water.
(b) If Tenant shall require water or electric current in excess
of that usually furnished or supplied for use of the Premises, or for
purposes other than those designated in Section 7.01 above, Tenant shall
first procure the written consent of Landlord for the use thereof, which
consent Landlord may refuse and/or Landlord may cause a water meter or
electric current meter to be installed in the Leased Premises, so as to
measure the amount of water and/or electric current consumed for any
such use. The cost of such meters and of installation maintenance, and
repair thereof shall be paid for by Tenant and Tenant agrees to pay
Landlord promptly upon demand by Landlord for all such water and
electric current consumed as shown by said meters, at the rates charged
for such service by the City in which the Building is located or the
local public utility, as the case may be, furnishing the same, plus any
additional expense incurred in keeping account of the water and electric
current so consumed.
(c) If and where heat generating devices are used in the
Premises which materially affect the temperature otherwise maintained by
the air conditioning system, Landlord reserves the right to install
additional or supplementary air conditioning units for the Premises, and
the entire cost of installing operating, maintaining and repairing the
same shall be paid by Tenant to Landlord promptly after demand by
Landlord.
To the extent that Tenant operates hours in excess of the stated
standard business hours, Tenant may cause Landlord to provide services
set forth in Section 12.01 (a), (b), (c) and (e) above; however, Tenant
shall pay extra hourly utility charges as set forth in Section 1.01(S)
herein. If electricity is metered pursuant to Section 3.03(c), then
Tenant shall not be required to pay extra electrical charges as
electrical usage during 'excess hours' will be metered and charged to
Tenant in any case.
SECTION 12.03 LIMITATIONS ON LANDLORDS LIABILITY. Landlord shall not be
liable for and Tenant shall not be entitled to terminate this Lease or to
effectuate any abatement or reduction of rent by reason of Landlord's failure to
provide or furnish any of the foregoing utilities or services if such failure
was reasonably beyond the control of Landlord. In no event shall Landlord be
liable for loss or injury to persons or property, however, arising or occurring
in connection with or attributable to any failure to furnish such utilities or
services even if within the control of Landlord.
11
<PAGE> 15
ARTICLE XIII. OFF-SET STATEMENT, ATTORNMENT AND SUBORDINATION
SECTION 13.01 OFF-SET STATEMENT. Tenant agrees within ten (10) days
after request therefor by Landlord to execute in recordable form and deliver to
Landlord a statement in writing, certifying
(a) that this Lease is in full force and effect,
(b) the date of commencement of the Rental Term of this
Lease,
(c) that rent is paid currently without any off-set or
defense thereto,
(d) the amount of rent, if any paid in advance, and
(e) that there are no uncured defaults by Landlord or
stating those claimed by Tenant.
SECTION 13.02 ATTORNMENT. Tenant shall, 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 or deed of trust made by Landlord covering the Premises,
attorn to the purchaser upon any such foreclosure or sale and recognize such
purchaser as the Landlord under this Lease.
SECTION 13.03 SUBORDINATION. Tenant agrees that this Lease shall, at the
request of Landlord, be subordinate to any first mortgages or deeds of trust
that may hereafter be placed upon said Premises and to any and all advances to
be made thereunder, and to the interest thereon, and all renewals, replacements
and extensions thereof, provided the mortgagees or trustees named in said
mortgages or deeds of trust shall agree to recognize the Lease of Tenant in the
event of foreclosure, if Tenant is not in default and execute a non-disturbance
agreement in a form acceptable to Landlord's lender.
SECTION 13.04 MORTGAGEE SUBORDINATION. Tenant hereby agrees that this
Lease shall, if at any time requested by Landlord or any lender in respect to
Landlord's financing of the building or project in which the Premises are
located or any portion hereof, be made superior to any mortgage or deed of trust
that may have preceded such Lease.
SECTION 13.05 REMEDIES. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for the Tenant with full power and authority to execute and
deliver in the name of the Tenant any such instruments described in this Article
XIII upon failure of the Tenant to execute and deliver any of the above
instruments within fifteen (15) days after written request so to do by
Landlord; and such failure shall constitute a breach of this Lease entitling the
Landlord, at its option, to cancel this Lease and terminate the Tenant's
interest therein.
ARTICLE XIV. ASSIGNMENT
SECTION 14.01 ASSIGNMENT. Tenant may assign or sublet all or any portion
of the Premises, or any part thereof for the same use permitted in Section 1.01
(F), provided that Tenant shall maintain continuing liability for all
obligations under this Lease. Tenant may not assign or sublet for any other use
without the written consent of Landlord, which consent will not be withheld
unreasonably.
ARTICLE XV. WASTE OR NUISANCE
SECTION 15.01 WASTE OR NUISANCE. Tenant shall not commit or suffer to be
committed any waste upon the Premises, or any nuisance or other act or thing
which may disturb the quite enjoyment of any other tenant in the building in
which the Premises may be located, or elsewhere within the Building.
ARTICLE XVI. NOTICES
SECTION 16.01 NOTICES. Except as provided in Section 19.01, any notice
required or permitted hereunder to be given or transmitted between the parties
shall be either personally delivered, or mailed postage prepaid by registered
mall, return receipt requested, addressed if to Tenant at the address set forth
in Section 1.01 (E), and if to Landlord at the address set forth in Section
1.01(C). Either party may, by notice to the other given as prescribed in this
Section 16.01, change its above address for any future notices which are mailed
under this Lease.
ARTICLE XVII. DESTRUCTION OF THE PREMISES
SECTION 17.01 DESTRUCTION.
(a) If the Premises are partially or totally destroyed by fire
or other casualty insurable under standard fire insurance policies with
extended coverage endorsement so as to become
12
<PAGE> 16
partially or totally untenantable, the same shall be repaired or rebuilt
as speedily as practical under the circumstances at the expense of the
Landlord, unless Landlord elects not to repair or rebuild as provided in
Subsection (b) of this Section 17.01. During the period required for
restoration, a just and proportionate part of Base Rent, additional rent
and other charges payable by Tenant hereunder shall be abated until the
Premises are repaired or rebuilt. Notwithstanding the above, if Landlord
cannot reasonably restore the Premises to a tenantable condition within
120 days after the occurrence of the casualty, then Landlord shall
notify Tenant and Tenant may elect to terminate this Lease by giving
written notice to Landlord within 10 days after receipt of Landlord's
notice.
(b) If the Premises are (I) rendered totally untenantable by
reason of an occurrence described in Subsection (a), or (II) damaged or
destroyed as a result of a risk which is not insured under Landlord's
fire insurance policies, or (III) at least twenty percent (20%) damaged
or destroyed during the last two years of the Rental Term, or (IV) if
the Building is damaged in whole or in part (whether or not the Premises
are damaged), to such an extent that Tenant cannot practically use the
Premises for its intended purpose, then and in any such events Landlord
may at its option terminate this Lease Agreement by notice in writing to
the Tenant within sixty (60) days after the date of such occurrence.
Unless Landlord gives such notice, this Lease Agreement will remain in
full force and effect subject to this Section 17.01 and Landlord shall
repair such damage at its expense as expeditiously as possible under the
circumstances.
(c) If Landlord should elect or be obligated pursuant to
Subsection (b) above to repair or rebuild because of any damage or
destruction, Landlord's obligation shall be limited to the original
Building any other work or improvements which may have been originally
performed or installed at Landlord's expense. If the cost of performing
Landlord's obligation exceeds the actual proceeds of insurance paid or
payable to Landlord on account of such casualty, Landlord may terminate
this Lease Agreement 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 for such purpose. Tenant shall replace all work and
improvements not originally installed or performed by Landlord at its
expense.
(d) Except as stated in this Article XVII, Landlord shall not be
liable for any loss or damage sustained by Tenant by reason of
casualties mentioned hereinabove or any other accidental casualty.
ARTICLE XVIII. CONDEMNATION
SECTION 18.01 CONDEMNATION. As used in this Section the term
"Condemnation Proceeding" means any action or proceeding in which any interest
in the Premises or Building is taken for any public or quasi-public purpose by
any lawful authority through exercise of the power of eminent domain or right of
condemnation or by purchase or otherwise in lieu thereof. If the whole of the
Premises is taken through Condemnation Proceedings, this Lease shall
automatically terminate as of the date possession is taken by he condemning
authority. If in excess of twenty-five (25%) percent of the Premises is taken,
either party hereto shall have the option to terminate this Lease by giving the
other written notice of such election at any time within thirty (30) days after
the date of taking. If less than twenty-five (25%) percent of the space is taken
and Landlord determines, in Landlord's sole discretion, that a reasonable amount
of reconstruction thereof will not result in the Premises or the Building
becoming a practical improvement reasonably suitable for use for the purpose for
which it is designed, then Landlord may elect to terminate this Lease Agreement
by giving thirty (30) days written notice as provided hereinabove. In all other
cases, or if neither party exercises its option to terminate, this Lease shall
remain in effect and the rent payable hereunder from and after the date of
taking shall be proportionately reduced in proportion to the ratio of: (1) the
area contained in the Premises which is capable of occupancy after the taking;
to (II) the total area contained in the Premises which was capable of occupancy
prior to the taking. in the event of any termination or rental reduction
provided for in this Section, there shall be a proration of the rent payable
under this Lease and Landlord shall refund any excess theretofore paid by
Tenant. Whether or not this Lease is terminated as a consequence of Condemnation
Proceedings, all damages or compensation awarded for a partial or total taking,
including any sums compensating Tenant for diminution in the value of or
deprivation of its leasehold estate, shall be the sole and exclusive property of
Landlord, except that Tenant will be entitled to any awards intended to
compensate Tenant for expenses of locating and moving Tenant's operations to a
new space.
ARTICLE XIX. DEFAULT OF TENANT
SECTION 19.01 DEFAULT - RIGHT TO RE-ENTER. In the event of any failure
of Tenant to pay any rental due hereunder within ten (10) days after written
notice that the same is past due shall have been mailed to Tenant, or any
failure by Tenant to perform any other of the terms, conditions or covenants
required of Tenant by this Lease within thirty (30) days after written notice of
such default shall have been mailed to Tenant, or if Tenant shall permit this
Lease to be taken under any writ of execution, then Landlord, besides other
rights or remedies it may have, shall have the right to declare this Lease
terminated and shall
13
<PAGE> 17
have the immediate right of re-entry and may remove all persons and property
from the Premises. Such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of Tenant, without evidence of
notice or resort to legal process and without being deemed guilty of trespass,
or becoming liable for any loss or damage which may be occasioned thereby.
Tenant hereby waives all compensation for the forfeiture of the term or its loss
of possession of the Premises in the event of the forfeiture of this Lease as
provided for above. If Tenant has abandoned the Premises and notices are not
deliverable to Tenant at the address provided by Tenant for notices, in lieu of
mailing, Landlord may conspicuously post such notice for ten (10) consecutive
days at the main entrance to or in front of the Premises, and such notice shall
constitute a good, sufficient, and lawful notice for the purpose of declaring a
forfeiture of this Lease and for terminating all of the rights of the Tenant
hereunder.
SECTION 19.02 DEFAULT - RIGHT TO RE-LET. Should Landlord elect to
re-enter, as herein provided, or should it take possession pursuant to legal
proceedings or pursuant to any notice provided for by law, it may either
terminate this Lease or it may from time to time, without terminating this
Lease, make such reasonable alterations and repairs as may be necessary in order
to relet the Premises, and may relet said Premises or any part thereof for such
term or terms (which may be for a term extending beyond the term of this Lease)
and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable. Upon each such reletting,
all rentals received by Landlord from such reletting shall be applied first to
the payment of any reasonable costs and expenses of such reletting, including
brokerage fees and attorney's fees and costs of such alterations and repairs;
second, to the payment of rent or other unpaid obligations due hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
rent as the same may become due and payable hereunder. If such rental received
from such reletting during any month be less than that to be paid during that
month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. No such re-entry or taking
possession of said Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant or unless the termination thereof be decreed by a court or competent
jurisdiction. Notwithstanding any such reletting without termination, Landlord
may at any time elect to terminate this Lease for such previous default. Should
Landlord at any time terminate this Lease for any default, in addition to any
other remedies it may have, it may recover from Tenant all damages it may incur
by reason of such default, including the cost of recovering the Premises,
reasonable attorney's fees, and including the worth at the time of such
termination of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated term over the
then reasonable rental value of the Premises for the remainder of the stated
term, all of which amounts shall be immediately due and payable.
SECTION 19.03 LEGAL EXPENSES. In case of default by either party in the
performance and obligations under this Lease, the defaulting party shall pay all
costs incurred in enforcing this Lease, or any right arising out of such
default, whether by suit or otherwise, including a reasonable attorney's fee.
ARTICLE XX. BANKRUPTCY, INSOLVENCY OR RECEIVERSHIP
SECTION 20.01 ACT OF INSOLVENCY, GUARDIANSHIP, ETC. The following shall
constitute a default of this Lease by the Tenant for which Landlord, at
Landlord's option, may immediately terminate this Lease.
(a) The appointment of a receiver to take possession of all or
substantially all of the assets of the Tenant.
(b) A general assignment by the Tenant of his assets for the
benefit of creditors.
(c) Any action taken or suffered by or against the Tenant under
any federal or state insolvency or bankruptcy act.
(d) The appointment of a guardian, conservator, trustee, or
other similar officer to take charge of all or any substantial part of
the Tenant's property.
Except as set forth herein, neither this Lease, nor any interest therein
nor any estate thereby created shall pass to any trustee, guardian, receiver or
assignee for the benefit of creditors or otherwise by operation of law.
ARTICLE XXI. LANDLORD ACCESS
SECTION 21.01 LANDLORD ACCESS. Landlord or Landlord's agent shall have
the right to enter the Premises at all reasonable times to examine the same, or
to show them to prospective purchasers or
14
<PAGE> 18
lessees of the Building, or to make all repairs, alterations, improvements or
additions as Landlord may deem necessary or desirable, and Landlord shall be
allowed to take all material into and upon said Premises that may be required
therefor without the same constituting an eviction of Tenant in whole or in
part, and rent shall not abate while said repairs, alterations, improvements, or
additions are being made, by reason of loss or interruption of business of
Tenant, or otherwise. During the ninety days prior to the expiration of the
Rental Term of this Lease or any renewal term, Landlord may exhibit the Premises
to prospective tenants and place upon the Premises the usual notices "To Let" or
"For Rent" which notices Tenant shall permit to remain thereon with molestation.
ARTICLE XXII. LANDLORD'S LIEN
SECTION 22.01 LANDLORD'S LIEN. Tenant hereby grants to Landlord a lien
upon the improvements, trade fixtures and furnishings of Tenant to secure full
and faithful performance of all of the terms of this Lease. Landlord agrees to
subordinate its lien to Tenant's equipment financing lender provided such is on
the form provided by Landlord.
ARTICLE XXIII. HOLDING OVER
SECTION 23.01 HOLDING OVER. Any holding over after the expiration of the
Rental Term hereof shall be construed to be a tenancy at sufferance and all
provisions of this Lease Agreement shall be and remain in effect except that the
monthly rental shall be double the amount of rent (including any adjustments as
provided herein) payable for the last full calendar month of the Rental Term
including renewals or extensions.
SECTION 23.02 SUCCESSORS. All rights and liabilities herein given to, or
imposed upon, the respective parties hereto shall extend to and bind the several
respective heirs, executors, administrators, successors and assigns of the said
parties; and if there shall be more than one tenant, they shall all be bound
jointly and severally by the terms, covenants and agreements herein.
ARTICLE XXIV. RULES AND REGULATIONS
SECTION 24.01 RULES AND REGULATIONS. Tenant shall comply with all
reasonable nondiscriminatory rules and regulations which are now or which may be
hereafter prescribed by the Landlord and posted in or about said Premises or
otherwise brought to the notice of the Tenant, both with regard to the project
as a whole and to the Premises including common facilities.
ARTICLE XXV. QUIET ENJOYMENT
SECTION 25.01 QUIET ENJOYMENT. Upon payment by the Tenant of the rents
herein provided, and upon the observance and performance of all the covenants,
terms and conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord, subject,
nevertheless, to the terms and conditions of this Lease and actions resulting
from future eminent domain proceedings and casualty losses.
ARTICLE XXVI. SECURITY DEPOSIT
SECTION 26.01 SECURITY DEPOSIT. The Landlord herewith acknowledges
receipt of the amount set forth in Section 1.01 (U) which it is to retain as
security for the faithful performance of all the covenants, conditions and
agreements of this Lease, but in no event shall the Landlord be obliged to apply
the same upon rents or other charges in arrears or upon damages for the Tenant's
failure to perform the said covenants, conditions and agreements; the Landlord
may so apply the Security Deposit, at its option; and the Landlord's right to
the possession of the Leased Premises for non-payment of rents or for other
reasons shall not in any event be affected by reason of the fact that the
Landlord holds this Security Deposit. The said sum, if not applied toward the
payment of rents in arrears or toward the payment of damages suffered by the
Landlord by reason of the Tenant's breach of the covenants, conditions and
agreements of this Lease, is to be returned to Tenant without interest when this
Lease is terminated, according to these terms, and in no event is the said
Security Deposit to be returned until Tenant has vacated the Leased Premises and
delivered possession to the Landlord.
15
<PAGE> 19
In the event that the Landlord repossesses Leased Premises because of
the Tenant's default or because of the Tenant's failure to carry out the
covenants, conditions and agreements of this Lease, Landlord may apply the said
Security Deposit toward damages as may be suffered or shall accrue thereafter by
reason of the Tenant's default or breach. In the event of bankruptcy or other
debtor-creditor proceedings against Tenant as specified in Article XX, the
Security Deposit shall be deemed to be applied first to the payment of Rents and
other charges due Landlord for the earliest possible periods prior to the filing
of such proceedings. The Landlord shall not be obliged to keep the said Security
Deposit as a separate fund, but may mix the same with its own funds.
ARTICLE XXVII. MISCELLANEOUS PROVISIONS
SECTION 27.01 WAIVER. No failure on the part of Landlord or Tenant to
enforce any covenant or provision of this Lease shall discharge or invalidate
such covenant or provision or affect the right of that party to enforce the same
in the event of any subsequent breach. One or more waivers of any covenant or
condition by Landlord or Tenant shall not be construed as a waiver of a
subsequent breach of the same covenant or condition and the consent to or
approval of any subsequent similar act by the other party. No breach of a
covenant or condition of this Lease shall be deemed to have been waived by
Landlord or Tenant, unless such waiver be in writing signed by the waiving
party.
SECTION 27.02 ENTIRE AGREEMENT. This Lease constitutes the entire
Agreement and understanding between the parties hereto and supersedes all prior
discussions, understandings and agreements. This Lease may not be altered or
amended except by a subsequent written agreement executed by all parties.
SECTION 27.03 FORCE MAJEURE. Any failure to perform or delay in
performance by either party of any obligation under this Lease, other than
Tenant's obligation to pay rent, shall be excused if such failure or delay is
caused by any strike, lockout, governmental restriction or any similar cause
beyond the control of the party so falling to perform, to the extent and for the
period that such continues.
SECTION 27.04 LOSS AND DAMAGE. The Landlord shall not be responsible or
liable to the Tenant for any loss or damage that may be occasioned by or through
the acts or omissions of persons occupying all or any part of the premises
adjacent to or connected with the Premises or any part of the building of which
the Premises are a part, or for any loss or damage resulting to the Tenant or
his property from bursting, stoppage or leaking of water, gas sewer or steam
pipes or for any damage or loss of property within the Premises from any cause
whatsoever.
SECTION 27.05 ACCORD AND SATISFACTION. No payment by Tenant or receipt
by Landlord of a lesser amount than the amount owing hereunder shall be deemed
to be other than on account of the earliest stipulated amount receivable from
Tenant, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or receivable or pursue any other
remedy available under this Lease or the law of the state where the Premises are
located.
SECTION 27.06 NO OPTION. The submission of this Lease for examination
does not constitute a reservation of or option for the Premises and this Lease
becomes effective as a lease only upon full execution and delivery thereof by
Landlord and Tenant.
SECTION 27.07 ANTI-DISCRIMINATION. Tenant herein covenants by and for
itself, its heirs, executors, administrators and assigns and all persons
claiming under or through it, and this Lease is made and accepted upon and
subject to the following conditions: That there shall be no discrimination
against or segregation of any person or group of persons on account of race,
sex, marital status, color, creed, national origin or ancestry, in the leasing,
subleasing, assigning, use, occupancy, tenure or enjoyment of the Premises, nor
shall the Tenant itself, or any person claiming under or through it, establish
or permit any such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy of tenants,
lessees, sublessees, or subtenants in the Premises.
SECTION 27.08 SEVERABILITY. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall be invalid
or unenforceable to any extent, the remainder of this Lease, or the application
of such term, covenant or condition to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be affected thereby
and each term, covenant or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
SECTION 27.09 OTHER MISCELLANEOUS PROVISIONS. This instrument shall not
be recorded without the prior written consent of Landlord; however, upon the
request of either party hereto, the other party shall join in the execution of a
memorandum or "short form" lease for recording purposes which memorandum shall
describe the parties, the Premises, the Rental Term and shall incorporate this
Lease by reference, and may include other special provisions. The captions which
precede the Sections of this Lease
16
<PAGE> 20
are for convenience only and shall in no way affect the manner in which any
provisions hereof is construed. In the event there is more than one Tenant
hereunder, the liability of each shall be joint and several. This instrument
shall be governed by and construed in accordance with the laws of the State
wherein the Premises are located. Words of any gender used in this Lease shall
be held to include any other gender, and words in the singular number shall be
held to include the plural when the sense requires. Time is of the essence of
this Lease and every term, covenant and condition herein contained.
SECTION 27.10 REPRESENTATION REGARDING AUTHORITY. The persons who have
executed this Agreement represent and warrant that they are duly authorized to
execute this Agreement in their individual or representative capacity as
indicated.
ADDITIONAL PROVISIONS: None
17
<PAGE> 21
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
SIGNATURES:
LANDLORD
PARADIGM RESOURCES, L.C., A UTAH
LIMITED LIABILITY COMPANY
By: /s/ W. RICHARDS WOODBURY
-------------------------------------
W. Richards Woodbury, Manager
By: /s/ DON R. BROWN
-------------------------------------
Don R. Brown, Manager
TENANT
PARTNET, INC., A UTAH CORPORATION
By: /s/ DON R. BROWN
-------------------------------------
Don R. Brown, President
LANDLORD ACKNOWLEDGMENT
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On this 12 day of January, 1999 before me personally appeared W. RICHARDS
WOODBURY and DON R. BROWN to me personally known, who being by me duly sworn
did each for himself say that he is a Manager of that certain limited liability
company known as PARADIGM RESOURCES, L.C., and that the within instrument was
executed on behalf of said company by authority granted in said companies
operating agreement.
NOTARY PUBLIC
STATE OF UTAH
[SEAL] My Commission Expires /s/ KIM A. KUBOTA
June 21, 2001 -----------------------------------
KIM A. KUBOTA Notary Public
2677 Parleys Way
Salt Lake City, Utah 84109
TENANT ACKNOWLEDGMENT
(CORPORATE)
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On this 12 day of January, 1999 before me personally appeared Don R.
Brown, known to me to be the President of Partnet, Inc., the corporation that
executed the within instrument, known to me to be the person who executed the
within instrument on behalf of the corporate therein named, and acknowledged to
me that such corporation executed the within instrument pursuant to its bylaws
or a resolution of its board of directors.
NOTARY PUBLIC
STATE OF UTAH
[SEAL] My Commission Expires /s/ KIM A. KUBOTA
June 21, 2001 -----------------------------------
KIM A. KUBOTA Notary Public
2677 Parleys Way
Salt Lake City, Utah 84109
18
<PAGE> 22
GUARANTY
TO INDUCE PARADIGM RESOURCES L.C., a Utah limited company, to enter into
that certain Lease Agreement dated the 12 day of January, 1999 by and between
PARADIGM RESOURCES L.C., a Utah limited liability company, and Don Brown hereby
guarantees to PARADIGM RESOURCES L.C., a Utah limited liability company, the
Landlord, and its successors and assigns the due and punctual payment of all
rent thereunder, and the performance of all covenants, conditions and agreements
to be paid or performed by Tenant in or under the foregoing Lease.
Notwithstanding the above, the dollar amount of this Guaranty is expressly
limited amount of the "unamortized value" of the Landlord's Contribution to
Tenant's Work plus any interest accrued at fourteen (14%) percent per annum from
the date of demand for payment under this Guaranty to the date of actual
payment. Said "unamortized value" shall be product calculated by multiplying the
Landlord's Contribution to Tenant's Work as set forth in Section 1.01 (Q) as
adjusted pursuant to Section 1.01 (T) by a fraction the denominator of which
shall be sixty (60) and the numerator of which shall be the number of months
remaining in the lease term for which rent has not been paid.
The undersigned waives any demand for performance upon Tenant and any
notice to the undersigned of non-payment or non-performance by Tenant and hereby
waives all suretyship defenses. The undersigned further consents to any
indulgences granted or allowed to Tenant, including but not limited to granting
of extensions of times for payment or taking of any notes or other obligations
or any security for payment of sums due or to become due, without notice to the
undersigned and without thereby in any manner releasing or affecting the
liability of the undersigned.
DATED JANUARY 12, 1999
/s/ DON R. BROWN
-----------------------------------
Don R. Brown
ACKNOWLEDGMENT
STATE OF UTAH )
: ss.
COUNTY OF SL )
On this 12 day of JANUARY 1999 personally appeared before me Don R. Brown,
signer of the foregoing instrument, who duly acknowledged to me that he executed
the same.
NOTARY PUBLIC
STATE OF UTAH
[SEAL] My Commission Expires /s/ KIM A. KUBOTA
June 21, 2001 -----------------------------------
KIM A. KUBOTA Notary Public
2677 Parleys Way
Salt Lake City, Utah 84109
<PAGE> 23
[FLOOR PLAN]
<PAGE> 24
[FLOOR PLAN]
<PAGE> 25
[FLOOR PLAN]
<PAGE> 26
EXHIBIT "B"
LEGAL DESCRIPTION
Beginning at a point on the northwesterly right-of-way line of Chipeta Way
said point being South 44(degrees)00'00" West along the monument line 546.107
feet and North 46(degrees)00'00" East 52.00 feet from a Salt Lake City monument
located at the P.T. of Chipeta Way and running thence South 44(degrees)00'00"
West along said northwesterly right-of-way line 43.261 feet to a point of
curvature; thence along the arc of a 660.000 foot radius curve to the right and
said northwesterly right-of-way line, through a central angle of
24(degrees)00'07", 276.484 feet to a point of compound curvature; thence along
the arc of a 45.000 foot radius curve to the right, through a central angle of
81(degrees)21'51 ", 63.903 feet to a point of reverse curvature, said point also
being on the northeasterly right-of-way line of Arapeen Drive; thence along the
arc of a 600.575 foot radius curve to the left, through a central angle of
18(degrees)21'58", 192.515 feet to a point of tangency; thence North
49(degrees)00'00" West along said northeasterly right-of-way line 484.077 feet;
thence North 41(degrees)00'00" East 300.000 feet; thence South 49(degrees)00'00"
East 800.892 feet to the point of beginning.
<PAGE> 27
EXHIBIT "C"
LANDLORD'S WORK
The following is a description of the construction, and limitations of
same, which will be provided exclusively by the Landlord at Landlord's expense
unless indicated otherwise herein. The basic site, common areas, and building
shell improvements will be provided by Landlord in accordance with plans and
specifications, prepared by Landlord's Architect, and shall be of a type and
quality indicated herein or determined by Landlord's Architect. Where two types
of materials, structures, or installations are indicated, the option will be
exclusively with the Landlord.
A. GENERAL
1. CODE COMPLIANCE: Work shall satisfy all regulatory agency requirements
having jurisdiction over the project, including but not limited to, meeting all
applicable building codes, regulations and ordinances in force and adapted by
the local municipality, County and State building officials. The project shall
comply with the provisions of the Americans With Disability Act (ADA) in regard
to site and building accessibility, and parking requirements.
2. GENERAL CONDITIONS: Work shall include all usual and customary costs
for General Conditions associated with Landlords work, including but not limited
to the following:
a. Liability and builder's risk insurance;
b. Costs for permits, sewer and water connection fees, etc.;
c. Sales and use taxes;
d. Temporary field offices, toilet facilities, supplies and
equipment;
e. Miscellaneous equipment rentals;
f. Trash removal and clean-up;
g. Survey, staking & layout;
h. Jobsite field supervision;
i. Mobilization;
j. Temporary utility hook-ups and expenses for water, electricity
and telephone;
k. Quality assurance, including materials testing, inspections and
special inspections;
l. No performance and payment bonds are provided but Landlord
warrants the completion of the work, and agrees to make payment for all
obligations pertaining to Landlord's work.
3. WARRANTY: All work shall have a minimum of one (1) year general
building warranty from the date of initial building completion, five (5) years
for HVAC compressors, and ten (10) years roof membrane and flashings.
4. ENGINEERING: All construction shall be performed according to the
recommendations contained in Geotechnical Investigation and other engineering
reports specific to the site, and in accordance with good engineering and design
practices.
B. SITE WORK
1. EARTHWORK AND DRAINAGE: Perform all earthwork, excavation, grading, and
preparation of building pads and parking lot areas to receive final finishes.
Site to be graded to provide adequate site drainage, including storm water
retention areas, culverts, catch basins, drywalls, and other storm water
appurtenances. Storm water retention may occur in parking areas and drives
except at principal entries and access points.
2. CONCRETE: Install all exterior concrete, curb and gutter, vertical
curbs, valley gutters, sidewalks, retaining walls, transformer and trash
enclosure pads, and patio areas.
<PAGE> 28
3. LANDSCAPING: Furnish and install landscaping and automatically
controlled underground sprinkler systems in planters around the perimeter of the
building and parking lots where indicated on the Site Plan - Exhibit "A". The
general character and quality of such landscape improvements shall be similar to
that provided at other adjacent buildings.
4. PARKING LOT PAVING: Install all parking lot improvements, asphalt
paving, striping, and signage substantially in accordance with the Site Plan -
Exhibit A. Parking to be laid out in a 90E configuration with designated
handicapped parking stalls and signage, and ten (10) designated guest parking
stalls near the main building entrance.
5. UTILITIES: Provide all utility mains including culinary water, fire
protection, storm drainage, sanitary sewer, gas, electrical, and telephone and
install in accordance with the governing municipal and utility company
standards. Utility lines shall be sized to meet the requirements of the intended
building use and those set forth in this Exhibit C and Exhibit D.
6. POWER AND TELEPHONE: Extend power and telephone mains to electrical
rooms and provide distribution panels at a central location as more specifically
described herein. Fiber optic service, if available, to be provided exclusively
by the telephone utility at the request of the Tenant. Cost, if any, of fiber
optic systems is not included in Landlord's work.
7. TRASH ENCLOSURE: Provide one (1) trash enclosure to contain a standard
sized dumpster, located where shown on Site Plan. The enclosure shall be a
minimum of 5' high, constructed of materials and finishes compatible with the
exterior building and shall include access gates, concrete-filled protective
pipe bollards and a concrete housekeeping pad and apron.
8. EXTERIOR LIGHTING: Provide parking lot lighting throughout the site
which shall consist of 30'-0" high pole-mounted fixtures on raised concrete
bases, with spacing and lamp sizes to achieve a minimum lighting level of 1.5
footcandles to ensure nighttime security for employees and to enhance the
property. Provide soffit or wall-mounted fixtures at all building entrances and
exits.
9. EXTERIOR SIGNAGE: See Exhibit 'E' Sign Criteria.
C. SHELL BUILDING
1. SUPERSTRUCTURE: Construct a three-story building consisting of steel
structural support members on continuous concrete or spot footings of the shape,
size, and configuration as shown on Exhibit "A-1". All work to be in accordance
with plans and specifications prepared by Landlord's Architect and as follows.
a. FOUNDATION: Design and install a concrete foundation system to
resist all superimposed horizontal and vertical loads based upon the
recommendations of the geotechnical investigation report and customary
structural engineering practices.
b. SLAB-ON-GRADE: The slab-on-grade shall be a minimum of 4" thick,
3,000 psi concrete, with welded wire fabric reinforcing, supported on a 4"
aggregate base course. Sawcut control joints at spacing intervals
recommended by the structural engineer. Slabs shall be constructed with a
flatness tolerance of 1/4" in 10' radius.
c. COLUMNS: Structural columns shall be steel tube, wide flange or
pipe, spaced at approximately 28'0" x 30'0" typical.
d. STRUCTURAL FRAME. Combination of wide flange beams and girders
with open web steel joist and girder/beams and composite steel and
concrete suspended floor deck. Spacing to be as required to support
suspended loads and support appropriate lateral and vertical loads.
Lateral loads to be resisted utilizing moment frame design
e. SUSPENDED FLOOR SLABS: 6" concrete on 3" steel deck capable of
supporting a live load of 80 lbs. per square foot, and a dead load of 20
lbs. per square foot, with a designed vibration frequency rating not more
than 16,000 micro-in./sec.
f. ROOF STRUCTURE: To be a combination of steel beam and open web
steel joist and girder with steel deck. Roof structure shall slope to
perimeter roof drains/scuppers at a minimum pitch of 1/4' per 1'-0".
Provide built-up crickets around the building perimeter and at rooftop
equipment to divert run-off toward roof drains.
g. CLEARANCE: The clear height from floor to the underside of the
first floor and structure above shall be 12'6" at the lowest point and
from the wombsecond and third floors to the floor or roof structure above
at the lowest point shall be 12'0" with approximately 2'0" depth
of
<PAGE> 29
structural support joists. Floor to floor height between first and second
floor is 15'0" and between second and third floors and the roof is 14'6"
total.
2. EXTERIOR ENCLOSURE: To be a combination of load bearing masonry,
masonry veneer, and window wall more or less as depicted on Exhibit A-1.
a. STRUCTURAL FRAME: To be covered with colored and/or decorative
masonry units in a decorative configuration of colors, textures, and
coursing that will provide relief to the primary building wall material.
Veneers to use standard or large size brick units.
b. GLAZING: Glazing shall be provided around the building perimeter,
utilizing a combination of floor-to-ceiling storefront systems, full
height slab-to-roof curtain wall systems and "ribbon" or strip window
openings. The extent of glazing shall be as shown on the attached Exhibit
A-1. Vision glass and spandrel panels shall consist of 1" thick tinted or
reflective, insulated units set in manufacturer's standard color anodized
aluminum frames.
c. ENTRANCE DOORS AND HARDWARE: The main building entrance shall
match the shell building glazing systems. A pair of main entrance doors
and vestibule shall be provided with sidelights and manufacturer's
standard push/pull entrances hardware assemblies. Secondary employee
entrances shall be provided matching the shell building glazing systems
with a single door and sidelight and manufacturers standard push/pull
entrance hardware assembly. Entrances to be equipped with electronic key
pad or card reading security lock mechanism at Landlord's option.
d. EXTERIOR EXIT AND MAN-DOORS AND HARDWARE: Where a exterior door
is for service use only, Landlord may provide a standard, painted,
hollow-metal door and frame. Provide lockset-type hardware, closures and
exit devices as required by code and to maintain building security.
e. LOADING DOCK: Provide covered loading area with a 6'0 by 8'0
double door at grade and secure area for temporary storage of delivered
supplies and materials.
3. ROOF: Roof structure to be designed to carry imposed equipment,
structural and snow drift loads and a 30 pound live load. Roof membrane and
roofing appurtenances to generally be as follows:
a. MEMBRANE: To be a single-ply 60 mil un-reinforced or 45 mil
reinforced mechanically fastened or ballasted EPDM membrane system.
Provide a ten (10) year manufacturer's roof warranty.
b. INSULATION: Roof insulation shall provide a minimum insulating
value of R-19. Roof insulation shall be rigid board-type installed over
the deck or fiberglass batt below the deck or combination thereof.
c. DRAINAGE: The roof structure shall be designed and constructed to
slope to perimeter roof drains and interior roof leaders that extend
exposed down the inside face of the exterior walls. Primary drains to
connect underground to storm water system. Over flow drains to be provided
with turnouts daylighting at on-grade concrete splash blocks.
d. ROOF ACCESS: Provide one (1) 2'-6" x 3'-0" interior roof hatch,
with metal ships ladder, safety "ladder-up" post device and padlock, or at
Landlord's option, extend a stairway to roof.
e. ROOF CURBS: Provide permanent roof curbs, integrated into the
roof structure, at all roof-mounted equipment.
f. ROOF FLASHING: Provide a minimum of 24 gauge sheetmetal flashing,
counter-flashing and reglets where necessary to establish a weather tight
and moisture resistant condition.
g. ROOF-MOUNTED EQUIPMENT SCREENING: Extend perimeter walls above
the roof deck to a sufficient height, or construct equipment screen walls,
to satisfy the local municipality's requirements for visually screening
all roof-mounted equipment.
D. COMMON AREAS, LOBBIES, CORRIDORS, AND RESTROOMS
1. RESTROOMS FOR TENANT'S OCCUPYING FULL FLOORS: Tenant shall have
independent restrooms for its exclusive use which shall be constructed as part
of the "Additional Work To Which Construction Contribution Is Applied" or to
"Tenant Work".
2. RESTROOMS FOR TENANT'S OCCUPYING PARTIAL FLOORS: Landlord shall
construct men's and women's restrooms containing the number of stalls required
by code in conformance with the American's With Disabilities Act and with
finishes indicated.
<PAGE> 30
a. FINISHES: Floors to have ceramic tile with tile base. Wet walls
to be ceramic tile. Other walls to have vinyl wall coverings over gypsum
board. Ceilings to be painted gypsum board. All colors and types to be as
selected by Landlord's architect.
b. ACCESSORIES: Provide floor mounted enameled metal toilet
partitions; and stainless steel or chrome plated surface mounted paper
holders, coat hooks, grab bars, mirrors, soap dispensers, paper towel
dispensers, waste receptacles, and sanitary napkin dispensers all in
accordance with codes.
c. MILLWORK: Provide artificial marble or laminate covered counter
tops and drop panels with recessed ceramic or integral artificial marble
walls bowls, Utilize chrome plated brass-bodied, electronically operated
flush valves and faucets.
3. COMMON AREAS: Common lobbies will be created at each main building
entrance together with stairways, elevator, elevator equipment, janitor's
mechanical and other such rooms which serve and/or are available for use by all
tenants within the building. Such common facilities may also include restrooms
on floors serving multiple tenants and connecting corridors where deemed
necessary.
4. PUBLIC AREA FINISHES: Common lobbies, stairways, and corridors shall
have all finishes provided as follows:
a. WALLS: Walls to be exposed decorative masonry, marble or ceramic
tile, or gypboard. All gypboard walls to be either painted or covered with
vinyl wall coverings or tile as selected by Landlord's architect.
b. FLOORS: To have ceramic or marble tile and/or carpet. Carpet to
be cut pile and/or loop nylon, 32 oz. minimum face weight, either
stretched over pad or direct glued to floor surface at the option of
Landlord's architect.
c. BASE AND TRIM: Floor base to either be 6" high ceramic or marble
tile or wood (stained or painted) as selected by Landlord's architect.
Walls may also include other wood trims, chair rails, or crown molds as
may be selected by Landlord's architect to achieve a pleasing and
attractive decor.
d. CEILINGS: To be a combination of suspended painted gypboard and
2'0" x 2'0" acoustical tile and grid. Acoustical tile to have beveled or
tegular edge on 1" wide grid. Colors to be as selected by Landlord's
architect.
5. INTERIOR DOORS AND HARDWARE: Landlord shall provide 3'-0" x 7'-0" solid
core wood doors with hollow metal or wood frame at Landlord's option, stained
and finished on all interior doors within or adjoining common areas. Hardware
will typically include 1-1/2 pair hinges, door stop, and commercial grade
lockset. Closer and rated assemblies to be provided where required by code.
6. TENANT ENTRANCE DOORS AND SIDELIGHTS: To be provided between common
lobbies and Leased Premises. Assemblies to be constructed and rated in
accordance with codes. Doors to be flush panel solid core wood 3'0" x 7'0" with
adjoining sidelight in painted hollow metal frames together with 1-1/2" pair
hinges, door stop, and closer. Sidelight(s) to be 2'0" x 7'0" minimum width with
clear wired/tempered glass. Entrances to be equipped with electronic card
reading security lock mechanism or standard mortise type lockset with deadbolt
at Landlord's option.
7. EQUIPMENT AREA FINISHES: Provide mechanical and/or service and
equipment areas including walkways, trash rooms, janitors rooms, common
electrical rooms, mechanical rooms and shafts. Finishes to be as follows:
a. WALLS: Painted gypboard.
b. FLOORS: Sealed concrete or vinyl composition tile as selected by
Landlord's architect.
c. BASE: 4" coved vinyl base where provided. Penthouse mechanical
rooms will have no base.
d. CEILINGS: Suspended gypboard, 2'0" x 4'0" acoustical tile, or
exposed to structure as deemed appropriate by Landlord's architect.
8. HVAC AND LIGHTING: All common areas shall include complete HVAC system,
distribution, ventilation, controls, and finishes, and complete electrical power
service and lighting. Lighting in common lobbies and corridors to either be
recessed cans with fluorescent lamps, lay-in parabolic fixtures, or other
decorative fixture as selected by Landlord's architect.
<PAGE> 31
9. ALTERATIONS: Landlord reserves the right to make any additional
changes, modifications, alterations, or additions to common areas utilizing a
design and materials as determined appropriate by Landlord's Architect to
achieve overall building design schemes developed by Landlord's Architect.
10. DEMISING WALLS: Landlord shall install demising partitions between
common lobbies, corridors, stairways, restrooms, and leased premises which shall
be one-hour fire-rated and constructed of masonry or steel studs and 5/8" gypsum
board. Such partitions shall extend from floor to underside of roof or floor
construction above. No gypsum board to be installed on Tenant side of demising
walls, corridors, and exterior walls. Make
E. LANDLORD'S WORK WITHIN THE PREMISES (PAID FOR LANDLORD AS PART OF SHELL
CONSTRUCTION)
1. UTILITIES: Basic functional main utility lines and systems shall be
provided to all common facilities and to mechanical equipment, central
telephone, and electrical rooms or panels on each floor or within the Leased
Premises as indicated:
2. HEATING, VENTILATING AND AIR CONDITIONING (HVAC): The facility shall
contain a complete heating, ventilating and air conditioning system, consisting
of common boiler, chiller, air handling fans, building exhaust, relief, and
makeup air fans, water towers, and other central mechanical equipment required
for a variable air volume distribution system. The HVAC system shall be designed
to meet ASHRAE standards and shall be based upon the occupancy levels and
loading conditions indicated herein. Central mechanical equipment shall be
housed in a mechanical room in or around the central core of the building or
where otherwise determined necessary.
a. DESIGN CRITERIA: The HVAC system shall be designed to maintain
the facility with an inside design temperature between 74E F and 78E F dry
bulb summer and 68E F and 70E F dry bulb winter when outside temperatures
are 8E F dry bulb winter and 95E F dry bulb - 66E F wet bulb summer.
Internal gain design shall be based upon 2.75 watts per square foot
lighting maximum, 4 watts per square foot power and miscellaneous maximum,
and 1 person per 100 sq. ft. of net usable building area. Ventilation
shall be 15 CFM per person.
b. ZONES: The mechanical engineering design shall incorporate
perimeter and interior zones, based upon solar exposure. Landlord to
initially provide VAV boxes and controls for one zone per 2,000 sq. ft. of
gross leaseable area.
c. DUCTWORK: The base HVAC system shall include all central plant
equipment, sheetmetal plenum drops, medium pressure supply air loop, and
branch takeoffs with VAV boxes to each zone. Return air collection shell
generally be by means of open air plenum above ceiling. A return
air collection branch duct will be provided to within the Leased Premises
for connection of laboratory return and / or exhaust air. Main supply
ductwork shall be entirely insulated. Return air collection ductwork to be
un-insulated.
d. EXHAUST AND RELIEF AIR FANS: Provide central roof-mounted power
exhaust fans and shafts, with factory curbs, and branch ductwork extended
to Leased Premises to which tenant exhaust systems may attach. Exhaust and
makeup air capacity shall be 150 cfm per 1,000 sq. ft. of gross leaseable
area. Additional capacity is available for laboratory areas, fume hoods,
etc. if needed at a cost of $1,000.00 per 1,000 cfm.
e. TEMPERATURE CONTROL: The operation of each VAV box shall be
controlled by a temperature sensor located within the zoned space. All
temperature sensors and smoke detectors shall be interconnected with an
energy management and monitoring system with pre-set limited controls
adjustable from within the Premises.
f. ENERGY MANAGEMENT SYSTEM (EMS): The HVAC system shall be
controlled by a computerized energy management system, sufficient in
capacity to monitor and control the operation of each piece of mechanical
equipment during normal business hours, as well as after hour occupancy.
The system shall also have the capability for lighting control and to
interface with smoke detectors, fire alarm and security hardware devices.
g. HOURS OF OPERATION: Unless indicated otherwise in this Lease,
mechanical systems shall operate during all normal business hours from
7:00 a.m. to 6:00 p.m. five days per week and 8:00 a.m. to 1:00 p.m. on
Saturdays, except on holidays. Each leased space shall be equipped with
one keyed manual, timed override switch per approximately 6,000 sq. ft. to
permit operation of mechanical systems during after hours or weekend and
holiday periods. Tenant to pay additional rent at Landlord's customary
standard rate for off hours mechanical operation.
<PAGE> 32
h. OTHER: All other HVAC secondary distribution supply and return
air ductwork, registers, diffusers, grills, dampers, etc. shall be
supplied as part of "Work Included To Which Construction Contribution Is
Applied".
3. PLUMBING: The building plumbing system shall include all main utility
piping to the Leased Premises together with piping necessary for interior storm
piping (roof leaders) and piping insulation; and all HVAC central equipment
piping and branch distribution piping to VAV boxes supplied by Landlord.
Plumbing systems to common facilities and exterior hose bibs to also be
provided.
a. WATER: Provided in ceilings above restrooms, janitor's rooms,
mechanical rooms, etc. A 1-1/2 inch water supply and shutoff valve to be
provided to each leased premises.
b. SEWER: Underground mains to be extended to restrooms, janitor's
rooms, etc. A four (4) inch sewer line to be provided to each leased
premises of sufficient depth to enable sewer access to all points within
the premises.
c. NATURAL GAS: None provided except as required to common boilers,
HVAC equipment, and water heaters. Gas is available for Tenant at Tenant's
cost for extending service and making a separate metered connection at gas
service meter center.
d. OTHER GASES: None provided. All such facilities and piping to be
provided by Tenant.
4. AUTOMATIC FIRE SPRINKLER SYSTEM: An overhead wet, fully automatic fire
sprinkler system shall be provided, consisting of a main fire riser, horizontal
distribution piping, and a combination of upright sprinkler heads at exposed
areas and pendent sprinkler heads at finished ceiling conditions. The fire
sprinkler system shall be designed for Light Hazard Group density in accordance
with NFPA 13. supplied by Tenant. Landlord shall provide a complete system
within the shell building and one drop and head per 130 sq. ft. within Leased
Premises.
a. MONITORING: The fire sprinkler system shall incorporate all
requirements of the local Fire Marshal. The fire sprinkler riser shall
include electric alarm, water flow valve, and tamper devices for hook-up
to a fire alarm monitoring service.
b. CODE: All sprinkler piping shall be installed in accordance with
NFPA 13 for seismic protection as required by local codes.
c. OTHER: In IDF, Main Server Rooms, Computer Rooms, and other
special areas, fire suppression units shall be supplied as part of "Work
Included To Which Construction Contribution Is Applied".
5. ELECTRICAL: Main building electrical systems to be provided of
sufficient size and capacity to accommodate Tenant's needs including main
electrical service which shall be brought from the closest available electrical
utility power source to a utility owned transformer and from such transformer to
interior service entrance sections located in a building main electrical room.
a. POWER: Power to be of a sufficient size to accommodate Tenant's
requirements as described herein. Main service to either be 277/480 volt
with step down transformers for 120/208 volt receptacles and equipment or
120/208 volt power supply throughout in a three phase, four-wire
configuration.
b. DESIGN CRITERIA: Tenant's designed power capacity shall be based
upon an occupancy load of 1 person per 100 sq. ft. of net usable area,
with 6 watts per square foot general and miscellaneous power use, and 2.75
watts per sq. ft. lighting.
c. PANELS: The service entrance section cabinet, current
transformers, metering sections, main distribution panels and sub-panels
shall be consolidated in an Electrical Room located in or around the
central core of the building. To the extent determined advisable by the
electrical engineer, if determined to be more economical, subpanels may be
provided in locations outside of the main electrical room subject to
approval of Tenant as to location. Panels to be of sufficient size to
handle Tenant's requirements and to include main disconnect switch,
together with wiring and raceways between main distribution cabinets and
panels.
d. POWER METERS: Power circuitry to accommodate Tenant's
requirements for receptacles and equipment shall be 120/208 volt
throughout in a three phase, four-wire configuration. Consumption shall be
measured by means of a sub-meter placed around all power circuits used by
Tenant. Tenant shall pay as additional rent for all power usage. Amount
shall be determined by multiplying the watt hours used by the standard
rate charged by the municipal power utility company.
<PAGE> 33
e. LIGHTING: All ceiling lights to be 277/480 volt. Lights to be
operable during all normal business hours as indicated herein and
monitored to automatically shutoff at the close of normal operating hours.
Leased Premises to be equipped with one keyed manual, timed override
switch per approximately 6,000 sq. ft. to permit operation of ceiling
lighting during after hours or weekend and holiday periods. Tenant to pay
additional rent at Landlord's customary standard rate for off hours
lighting operation
f. TELEPHONE: Landlord to provide main telephone service trunk line
into building and main cable to telephone equipment rooms on each floor.
All terminations, cross-overs, and distribution wiring from panels to the
various equipment and receptacles shall be supplied as part of "Work
Included To Which Construction Contribution Is Applied".
g. EMERGENCY POWER: Landlord has provided a diesel powered emergency
generator to serve building emergency power needs with additional capacity
for Tenant usage. Tenant may connect to the emergency power system at a
cost of $350.00 per kilowatt of capacity. Tenant to pay all costs related
to the extension of emergency circuits to Tenant's Leased Premises from
central panels located on each floor.
h. OTHER: All other electrical power distribution systems from
panels to the various electrical equipment receptacles lighting, data, and
telephone cabling, etc. shall be supplied as part of "Work Included To
Which Construction Contribution Is Applied".
F. PLANS AND SPECIFICATIONS
1. SHELL DRAWINGS: Landlord shall initially prepare all final construction
drawings, details, and specifications completely describing site and building
improvements for Landlord provided work and building shell construction.
Landlord shall pay all costs and engineering fees required and related thereto.
2. TENANT SPACE LAYOUT AND DESIGN: Landlord shall provide building shell
construction drawings to Tenant's space planner/architect. Space planner shall
prepare a preliminary space layout plan showing the configuration of various
spaces desired within the Leased Premises. Such drawing shall be prepared on CAD
using Landlord's shell building configuration. Landlord's architect shall review
such drawing, discuss any required modifications until the layout meets Landlord
and Tenant's mutual approval. After approval of space layout drawing Tenant's
space planner shall provide the following additional services:
a. REFLECTED CEILING PLAN: To show the layout of lay-in ceilings and
the location of all desired lay-in light fixtures, recessed cans, and
other decorative lighting if any.
b. ELECTRICAL POWER PLAN: To show the location of all electrical
outlets, telephone or data connection points in fixed walls, special
equipment, power poles if any, or other points of connection of electrical
power to tenant landscaped furniture systems. Plan should include a
complete description of the power requirements to each work station,
conference rooms, server room, computer room, or other designated spaces.
c. FINISH SCHEDULE: A schedule of finishes for each room, including
specification or description of each finish material, paint color, floor
covering, tile colors, etc.
d. ELEVATIONS AND DETAILS: Elevations, details, or other information
requested by Landlord's architect showing cabinetry and millwork or other
special details and finishes.
e. SPECIFICATIONS: Written data or cut sheets with respect to
materials and finishes or other accessories, fixtures, hardware, and
installations requested by Tenant to be provided by Landlord.
3. TENANT CONSTRUCTION DRAWINGS: Upon receipt of final Tenant layout
drawings reflected ceiling plans, power plans, etc. Landlord shall prepare final
engineered working drawings including mechanical, plumbing, and electrical
drawings completely describing all work to be performed related to Tenant's
interior finishes and work required to which construction contributions is to be
applied. Tenant shall pay Landlord 65 cents per sq. ft. of gross leaseable area
for the cost of final engineering required and related thereto.
4. TENANT'S APPROVAL: Tenant shall review final construction drawings. Any
changes required shall be promptly communicated to Landlord who shall revise the
construction drawings and re-submit to Tenant until such drawings are
satisfactory and agreeable to Tenant in all respects. Landlord will not commence
construction of Tenant's interior finishes until receipt of written approval
from Tenant of final construction plans.
<PAGE> 34
5. TIMING: All plans and approvals or comments thereto shall be
communicated by Express Mail and where possible fax. Upon submission of plans to
either party, reviews and responses shall be given within five (5) working days
of receipt thereof. All plans shall be prepared as expeditiously as reasonably
possible so as to not delay construction. It is the intent that plans for
interior tenant finishes be completed within 45 days after the date of the
Lease.
6. DEVIATIONS: Landlord may make minor deviations to the approved plan
where deemed necessary by Landlord's Architect due to site conditions or where
good engineering and design may so dictate provided the aesthetic effect or
function of the space is not materially altered.
7. TENANT'S REPRESENTATIVE; RESPONSIBILITIES: Tenant shall designate an
individual to be considered as Tenant's representative who shall have authority
to approve and/or initiate changes with respect to Tenant's finish work. Unless
specifically notified otherwise, Landlord may rely on the directives or
instructions given by Tenant's representative and Tenant shall accept all
decisions and be responsible for the payment of all cost for work related to
changes or other improvements within the Lease Premises, as implemented under
the direction of the representative.
G. CONSTRUCTION OF TENANT'S LEASED PREMISES
1. GENERAL: The construction of Tenant's improvements shall generally be
by Landlord in accordance with the procedures and criteria herein. Tenant shall
be responsible for the entire cost thereof except to the extent that a Tenant
Improvement Allowance or Construction Contribution is specified in the Lease.
Tenant interior finish plans showing all Tenant finish construction to be
performed by Landlord will be prepared as indicated above.
2. CONSTRUCTION PROCEDURE: Tenant finish plans shall be separately bid
from other construction work within the facility. Landlord shall obtain a
minimum of three proposals. Tenant shall review such proposals and may request
changes and modifications thereto to implement cost savings or other
requirements. Landlord will not commence construction until receipt of Tenant's
written approval of cost proposals, authorization to proceed, and payment of any
deposit is made.
3. PAYMENT: Tenant may either provide a letter of credit in a form and
from a financial institution acceptable to landlord in the full amount of the
construction cost, or deposit funds in the full amount of the construction cost
in an escrow account upon which Landlord may draw, or provide some other
assurance acceptable to Landlord that Tenant has the financial capacity to pay
for its construction obligation. Where a Construction Allowance or Contribution
is provided by Landlord, Tenant shall only be required to provide evidence or
deposit funds in the amount by which the construction cost exceeds Landlord's
contribution.
4. PROGRESS PAYMENTS: Tenant shall pay 50% of the payment required
pursuant to Section 6.3 above and the remaining fifty (50%) percent shall be
paid on or before January 15, 1999. Late payments to be assessed an interest
charge at a rate of one percent (1 %) per month.
5. INSPECTION: Upon completion of the work, Tenant and Landlord shall
jointly inspect the space and prepare a deficiency list which describes any
defects or incomplete work. Landlord's contractor shall immediately make any
necessary corrections.
6. CONSTRUCTION BY TENANT: In the event that this Lease requires Tenant's
interior finish to be constructed by Tenant or a contractor hired directly by
Tenant, all procedures regarding the preparation of plans and construction
drawings shall remain as indicated herein. The procedures regarding bidding,
contracting for, and payment described herein shall not apply. Tenant may not
proceed with any construction until all plans have been approved in writing by
Landlord. Tenant shall perform all work in accordance with Exhibit "D".
H. ADDITIONAL WORK WITHIN TENANT'S LEASED PREMISES TO BE PROVIDED BY
LANDLORD. (BEYOND THAT DESCRIBED ABOVE OR THAT WHICH CURRENTLY EXISTS).
None
I. WORK PROVIDED BY LANDLORD TO WHICH CONSTRUCTION CONTRIBUTION IS APPLIED.
1. DRYWALL CONSTRUCTION: All drywall surfaces shall be prepared for a
smooth painted finish.
a. PERIMETER, DEMISING, AND AREA SEPARATION WALLS: Install 5/8"
Type X sheetrock extending from floor to window sill and from
window head to the underside of deck above, or where no
windows exist from floor to underside of deck. Fire tape as
required to achieve a 1-hour rating and install rockwool,
other acceptable insulation, or otherwise fill voids between
top of wall and deck flutes on all rated assemblies. Provide 2
layers of 5/8" sheetrock on area separation wall to achieve
2-hour rated assembly. Make allowance for deflection at top
track
<PAGE> 35
b. INTERIOR PARTITIONS: Conference rooms, server rooms, and other
designated walls to be constructed of 3-5/8" metal studs at
24" o.c., with sound insulation and 5/8" sheetrock on both
sides extending full height. Sheetrock shall be taped, sanded
and ready for wall finishes. Provide fire rated partition
assemblies where required by code. Partitions dividing other
Tenant rooms shall be similarly constructed except that no
sound insulation will be installed and partitions shall extend
to approximately 6" above the finished ceiling height. Ceiling
height is generally at 9'-0". In laboratory or other wet areas
use water resistant sheetrock.
c. COLUMNS: All perimeter and interior columns except tube
columns not engaging any partition wall shall be furred out
with metal studs and 5/8" gypsum board to 6" above finished
ceiling. Sheetrock shall be taped, sanded and ready for
finishes.
d. CEILINGS: Restroom, janitor's room, or other areas designated
by Tenant's space planner shall be suspended sheetrock on
metal tracks, taped and finished, ready for paint. Storage,
equipment or other special purpose rooms may be left exposed
to the structure where approved by Landlord.
2. DOORS, FRAMES & HARDWARE: Tenant interior doors, frames and hardware
shall be consistent with those to be supplied by Landlord as part of
building shell construction and as follows.
a. DOORS: Restroom and utility room doors shall be 3'-0" x 8'-0"
solid core, clear maple/with plain sliced veneers, or plastic
laminate clad doors, clad to match; pre-machined for hardware.
Provide UL fire rating labels as required.
b. FRAMES: All frames shall be 8'-0" height of welded hollow
metal construction with painted finish or pre-finished three
piece metal construction with snap on covers (Timely). Provide
UL fire rating labels as required.
c. HARDWARE: Provide a complete assembly of hardware for each
door, including locksets with lever handles, 1-1/2 pair
hinges, and door stops. Provide door closers where required by
code. Hardware shall be commercial grade, have a clear
aluminum (26D) finish, and meet the requirements of the ADA,
where applicable. Keying shall be coordinated with building
shell.
d. DOORS WITH SIDELIGHTS: Frames used in conjunction with doors
with sidelights to be clear anodized aluminum. Openings to
match standard details and to extend from floor to height of
door with intermediate, horizontal divider at 30". Provide
clear tempered glass. Where wireglass is required by code, use
type with square vertical and horizontal pattern.
3. WALL FINISHES: All interior sheetrock walls shall receive a standard
three coat paint application. Colors to be at Tenant's option except
in front reception areas. Vinyl wall covering to be provided in
front reception areas. Vinyl wall covering of Tenant's choice and
option may be utilized elsewhere in lieu of paint. In laboratory or
other wet areas use epoxy paint, FRP board or other water resistant
finish.
4. FLOOR FINISHES: Landlord shall provide 26 oz. level-loop carpet
directly glued to floor throughout the Premises or other floor
coverings as may be designated by Tenant's space planner. Equipment
rooms, file rooms, or other areas designated by Tenant's space
planner to have vinyl composition tile or static resistive tile.
Laboratory areas subject to water or chemical spillage shall utilize
chemical resistant and water tight materials and application
methods. Colors and styles at Tenant's option, selected from
manufacturer's standard line.
5. WALL BASE: To be 4" high, sewn edged carpet, straight or coved,
vinyl base, wood or tile to be provided throughout. Colors at
Tenant's option.
6. CEILING FINISHES: To be a factory finished, 1" wide suspended, metal
grid system with 2'0" x 4'0" tegular edge and standard fissure
finish, with a minimum STC rating of 65. Suspended gypboard or open
ceilings may be utilized in special purpose rooms where requested by
Tenant's space planner. Ceilings shall generally be constructed at
9'-0" above finished floor except where Tenant's equipment or other
structural elements dictate otherwise.
7. MILLWORK: Provide plastic laminate counter-top with 4" back-splash
and base cabinets in breakrooms and other areas as mutually
determined by Landlord's architect and Tenant's space planner. Wood
casings, chair rails, ceiling coves, and/or base matching color and
finish of wood doors may be used around doors and windows or in
other locations where deemed acceptable by Tenant. Other millwork or
shelving to be provided as detailed or directed by Tenant's space
planner.
8. RESTROOMS: Not included, but provided as indicated in Section D of
this Exhibit "C" Tenant may install additional restrooms, showers,
or other special facilities requiring plumbing connections to the
extent desired at Tenant's sole cost and expense.
9. BREAKROOM: Breakroom construction shall generally include plastic
laminate clad, base cabinets, countertops, and wall cabinets of the
length determined necessary by Tenant, with a two compartment sink,
in-line electric water heater, and special electrical outlets for
refrigerator, dishwasher, and microwave oven or other appliances.
10. WINDOW COVERINGS: To be 3" vertical shades of a uniform type and
color as dictated by Landlord's architect on all exterior windows.
Coverings on interior windows are at Tenant's option subject to
approval by Landlord as to type and color.
<PAGE> 36
11. HVAC: Provide additional VAV boxes, associated water piping, and
controls as required to augment that provided by Landlord, if
necessary. All secondary supply and return air distribution from all
VAV boxes and return air collection ducts, including all diffusers,
registers, dampers, outlets, and grilles shall be provided. Make
connections to shell provided systems. Provide final control wiring,
balancing, and start-up, etc. utilizing materials and systems
matching those provided elsewhere in the facility by Landlord.
Exhaust fans in conference rooms and breakrooms shall be extended to
main supply lines.
a. ZONES: The mechanical engineering design shall incorporate
perimeter and interior zones, based upon solar exposure, and
individual zones for spaces with special heating or air
conditioning demands, such as Computer Room; Main Server Room;
IDF Rooms; and all conference Rooms and Vendateria.
b. CONTROLS: All temperature sensors and smoke detectors shall be
interconnected with Landlord's energy management and
monitoring system. Each zone shall be equipped with
thermostatic control boxes adjustable within preset limits for
individual comfort. Type shall match those utilized elsewhere
in the building and each control shall be equipped with an
override switch for HVAC operation and a separate override
switch for ceiling lights. Override switches may be keyed at
Tenant's option.
c. SPECIAL PURPOSE ROOMS: Such rooms requiring 24 hour cooling or
which contain extraordinary loads must be equipped with
independent cooling equipment that is self-contained to the
extent possible. Remote condensers, if required, shall be
located within ceiling plenums, mechanical penthouses, or if
necessary, in alternate locations determined by Landlord (but
not on rooftops). All such equipment shall be connected to
Tenant's power panel and circuited through Tenant's power
submeter. Landlord reserves the right to assess a power
consumption surcharge to Tenant based on the load requirement
and demand factor associated with any such special purpose
equipment.
d. DUCTWORK: All supply ductwork to be metal with 1" wrap
insulation and/or insulated duct liner. Branch takeoffs from
supply air mains to be a minimum of 5'-0" in length. Flexible
ductwork may be utilized for drops but shall not exceed 10'-0"
in length. Provide balancing dampers as necessary. All bends
to have turning vanes.
e. EXHAUST SYSTEMS: Exhaust fans in conference rooms and
breakrooms shall be extended to main supply lines. Exhaust
duct from equipment hoods etc. to be connected to main exhaust
shafts and all required balancing and smoke/fire dampers and
controls provided. Utilize Teflon lined or other special duct
where good engineering practice may dictate.
12. FIRE SPRINKLERS: Tenant is responsible for the relocation or
addition of any fire sprinkler heads and drops including the
adjustment of the height of any sprinkler heads provided by Landlord
to the extent required in order to maintain a design in conformance
with NFPA #13 and other applicable codes and requirements of
Landlord's insurance carrier. All heads and escutcheons shall match
the type and color provided elsewhere in the facility. Tenant to
provide special chemical sprinkler systems where operations dictate.
13. ELECTRICAL: Provide overhead lighting, special lighting, emergency
lighting, switches, duplex outlets, horns, strobes, phone outlets,
and other electrical devices as required by codes and as determined
by Tenant's space planner. Work shall include all circuitry,
wiring, conduits, raceways, disconnects and breakers, and
termination devices extending from panels to equipment and fixtures
provided.
a. CONDUIT AND WIRING: Wire to be copper, minimum #12 THW and
enclosed in minimum 1/2" rigid steel conduit. All conduit and
wiring to be concealed in walls or ceiling plenums above. MC
cabling and wiring or flexible conduit may only be utilized
where specifically approved by Landlord. Low voltage,
telephone and data wiring shall be plenum rated of the size
and type required for the specific application. Category V
wire to be provided for all data cabling.
b. POWER DISTRIBUTION IN FIXED WALLS:
1) Light switches and outlets to be white colored, 20 amp
devices or of any other matching type specifically
required.
2) Provide duplex outlets where required or indicated by
Tenant's space planner. Outlets for computerized
equipment to be on isolated ground circuits. GFI
receptacles to be provided in breakrooms and other areas
adjacent to water sources.
3) Provide box and conduit extending to ceiling plenum
above for required data or telephone outlets.
c. WORK STATION DISTRIBUTION SYSTEMS: Provide in-slab and/or
overhead electrical power distribution systems to power poles
or other designated location to connect to and deliver
services to each work station.
1) In-slab distribution shall consist of empty conduit and
floor junction boxes or a premanufactured ducted system.
Overhead distribution shall consist of a grid of empty
conduit and junction boxes mounted to the roof
structure. These distribution
<PAGE> 37
systems, combined, shall be of sufficient size, spacing
and density to serve the initial work stations as well
as to provide flexibility for future work station
reconfigurations.
2) Cable trays are recommended for data and
telecommunication distribution. If not provided, such
wiring should be bundled together and hung from the
structure in a uniform and well organized manner and
shall not be laid loosely in a random alignment on top
of ceiling systems. All wiring terminations and
equipment to be provided, installed, and paid for by
Tenant.
3) Perimeter furred walls, interior partitions and furred
columns shall be used to extend conduit feeds and
conductors from the overhead grid system to Tenant's
work station wire management raceways. Dropped cables
not enclosed in walls or power poles are prohibited.
d. INTERIOR LIGHTING: General office areas and conference rooms
to have 2'-0" x 4'-0" and/or 18-cell deep parabolic light
fixtures with T-8 lamps and electronic ballasts. Exit lights
to have clear aluminum finish and LED type lettering. Provide
recessed fluorescent can lights or other special fixtures
selected by Tenant's space planner. Utility rooms, breakrooms,
and storage rooms may be furnished with lay-in fixtures with
acrylic lenses or surface mounted, acrylic wrapped flourescent
fixtures. Provide exit, life-safety and emergency battery-pack
lighting as required to meet applicable codes.
e. FIRE ALARM: Tenant shall provide a fire alarm system
throughout the premises as required by codes including but not
limited to local annunciators, strobes, manual pull stations,
smoke detectors, controls at dampers and emergency lighting.
All devices must match those used elsewhere in the facility
must be interconnected with Landlord's master alarm control
panel.
f. SECURITY: Building security shall consist of rough-in for
electrically operated card access devices located at each
building main entrance. At Tenant's option main entrance doors
may also be provided with a card access lock control mechanism
connected with Landlord's building system. All materials must
match those used elsewhere within the facility. Additional
security systems may be provided by the Tenant at Tenant's
option.
g. TELEPHONE & DATA: Overhead telephone and data distribution
systems shall be provided as indicated above. All other work
associated with telecommunications and data services shall be
provided, installed, and paid for by Tenant. On-site fiber
optic may be utilized by Tenant at Tenant's option. Tenant
responsible for contracting with a local telephone dial-tone
provider.
h. UN-INTERRUPTED POWER SUPPLY: Provide all panels, circuitry,
wiring, batteries, switching devices and other items required
to provide an uninterrupted power source.
i. EMERGENCY GENERATOR: Make connection to emergency panels
provided by Landlord as set forth in Section E.5.g. of this
Exhibit "C/D". Pay any additional costs to augment or enlarge
existing system or for extraordinary use and equipment as
described in Exhibit "C".
14. GENERAL CONDITIONS: All general conditions as described in Paragraph
A, relating to Tenant interior finishes shall be included.
15. SEISMIC BRACING: All fixtures, equipment, suspended ceiling systems,
other equipment, and piping supported from the structure above shall
be seismically braced in accordance with local codes and good
engineering design.
16. OTHER: Any work that is otherwise required to place the Premises in
a finished occupiable condition shall be provided by Tenant in
accordance with plans and specifications approved in advance by
Landlord's architect.
J. LOCATING THE WORK OF OTHER TENANT'S WITHIN THE PREMISES
1. LANDLORD'S RIGHT: In addition to any rights that Landlord or other
building occupants might have through the Restrictions, Rules, and Covenants
related to this project, Landlord and other Tenants shall have the right to
locate utility mains and other facilities within the Premises, when such
location is dictated by necessities of engineering design, good practice, and/or
code requirements. These shall be located, wherever possible, in ceiling plenums
and walls or so as to cause the minimum of interference with the Tenant and to
be unobtrusive in appearance, and so as not to materially interfere with
Tenant's business or use of space.
2. CEILING PLENUMS: This right to locate work within the Premises shall
include the right to locate work in ceiling plenum areas between finished
ceiling and roof or floor deck above, as well as on the roof or under the roof
thereof.
3. TYPES: Facilities may include, but are not necessarily limited to:
drains, water supply, sewerage lines, refrigerant lines, sprinkler risers,
electric power circuits, telephone circuits, pump stations,
<PAGE> 38
electric panel boards, sanitary vents, air supply, ducts and shafts, exhaust
ducts, and flues servicing other building occupants.
4. LOCATION: Such areas shall be located adjacent to an interior wall and
shall in no event exceed one (1.0%) percent of the floor area.
<PAGE> 39
EXHIBIT "D"
TENANT'S WORK
The following is a description of the construction, and limitations of same,
which will be provided exclusively by the Tenant unless indicated otherwise
herein. Except as specifically described in Exhibit "C" of this Lease, the
Tenant is responsible for the final design and construction of all interior
improvements within its premises including all architectural, plumbing,
mechanical, electrical, finishes, and furnishings necessary to place the
premises in a complete and occupiable condition in accordance with the
requirements and specifications described herein. Where two types of materials,
structures, or installations are indicated, the option will be the Tenant's.
A. PLANS AND SPECIFICATIONS
To be prepared in accordance with the criteria and procedures outlined in
Exhibit "C" of this Lease. Notwithstanding anything to the contrary
elsewhere in the Lease, Tenant shall pay the costs of all plan preparation
and construction documents describing Tenant Finish work. Landlord's
mechanical and electrical engineers shall be utilized to perform all final
construction documents describing plumbing, HVAC, and electrical
installations required.
B. LANDLORD'S WORK WITHIN THE PREMISES (PAID FOR BY TENANT AS PART OF TENANT
FINISH)
1. PURCHASES BY LANDLORD: Landlord reserves the right to provide
certain materials and/or improvements on behalf of Tenant where
deemed prudent by Landlord. Wherever materials and/or improvements
are provided by Landlord, Tenant will be charged at Landlord's
actual cost thereof, but may include markup for a ratable share of
General Conditions and contractor overhead and fee plus five (5%)
percent for Landlord's overhead.
2. SCOPE: Such items of work may include but is not limited to the
following:
a. ENTRANCE DOOR CARD ACCESS: At the election of Tenant, provide
card access pad, magnetic lock or electric strike and
installation of electronic controls compatible with main
building system.
b. DOORS: To facilitate timely completion for doors that have
special sizes or finishes.
c. VAV BOXES: Provide branch takeoff, hot water piping, and box
including electrical connection where deemed prudent.
d. TEMPERATURE CONTROL: Provide controls compatible with building
system including installation and programming.
3. TENANT SPACE LAYOUT AND DESIGN: Where requested by tenant only. Rate
to be 75 cents per sq. ft. Final electrical and mechanical
engineering to be provided at a competitive rate based on the scope
and complexity of the installation required.
C. TENANT'S WORK TO WHICH LANDLORD CONTRIBUTION SHALL NOT BE APPLIED
1. SIGNAGE: Suite identification signs and signage within the premises.
Exterior signs, if permitted.
2. SPECIAL MILLWORK: Reception counters and other special purpose work
stations, counters, and cabinetry.
<PAGE> 40
3. FURNITURE SYSTEMS: Landscape office furniture, shelving, desks, and
other associated accessories, tables, chairs, couches, artwork,
planters and plants, and other furnishings.
4. EQUIPMENT: Office equipment, copy machines, faxes, computers,
servers, telephone equipment, switch boards, handsets, sound
systems, security equipment, safes, audio visual equipment, etc.
5. OTHER SPECIALTIES: Chalk boards, white boards, tack boards,
projection screens, movable or operable wall systems, postal
accessories, etc.
<PAGE> 41
AMENDMENT TO LEASE
WHEREAS, PARADIGM RESOURCES L.C., as Landlord, entered into a Lease dated
January 12, 1999, with PARTNET, INC., as Tenant, for space known as Suite 204 in
a building located at 615 Arapeen Drive, Salt Lake City, Utah; and
WHEREAS, MEDIBUY.COM, INC. purchased PARTNET, INC. and desires to lease
additional space contiguous to Suite 204 as cross-hatched on the attached
Exhibit "A."
NOW THEREFORE, PARADIGM RESOURCES L.C., as Landlord, and MEDIBUY.COM,
INC., as Tenant, hereby agree to amend the lease as follows:
1. In addition to the currently leased Suite 204, Tenant agrees to lease
Suite 203, consisting of 6,490 square feet, resulting in a total of
12,516 square feet.
2. The provisions of Section 1.01, set forth on Exhibit "B" attached
hereto, shall be substituted for the existing Section 1.01 effective
on the Rental Commencement Date.
3. CONSTRUCTION CONTRIBUTION FOR SUITE 203. Landlord shall make an
additional contribution toward Tenant Work in Suite 203 of Eighty
Three Thousand Seventy Two Dollars ($83,072.00) payable in accordance
with the terms of this Lease.
4. FIRST RIGHT TO LEASE. Landlord shall grant Tenant a first right to
lease. Subject to conditions set forth in paragraph 5 below, all of
the space north of Western Systems on the west side of level two
(hereinafter "the West Space") at the same rents applicable at the
time and upon the same terms and conditions set forth herein, except
that the Landlord contribution toward Tenant Work shall be adjusted
proportionate to the ratio that the then expected rental term of the
West Space bears to five (5) years. For example, if there is expected
to be three (3) years rental term on the West Space, then the $16 per
square foot construction contribution shall be sixty percent (60%) of
$16/SF or $9.60/SF. Notwithstanding the above, at the time Tenant
elects to lease the West Space, Tenant may elect to extend the
primary lease term for Suites 203 and 204 to at least sixty (60)
months from the expected rental commencement date on the West Space
and receive a full $16/SF construction contribution to Tenant Work.
5. CONDITIONS OF FIRST RIGHT TO LEASE.
a. Such right is subordinate to the right of Western Systems which
occupies space on level two contiguous on the south to the West
Space.
b. Landlord shall notify Tenant in writing when Landlord deems that
Landlord has a user for the West Space and Tenant shall have ten
(10) days from the
<PAGE> 42
date of such notice to elect in writing whether or not to take
said West Space. A failure by Tenant to respond within the
required time period shall be deemed a rejection of Tenant's
first right to lease.
c. If Tenant rejects its first right to lease as granted herein and
Landlord fails to enter into a lease with Landlord's prospective
tenant within sixty (60) days after Tenant rejects its first
right to lease, then Tenant's first right to lease shall be
renewed and Landlord shall repeat the process set forth in
paragraph 5.b. above.
d. Tenant may not be required to lease all of the West Space, but
must elect to lease at least the space for which Landlord has
notified Tenant that Landlord has a prospective user.
6. SPACE PLANNING. Upon execution of this Amendment, Landlord will
proceed immediately to assist Tenant with space planning and
construction of Tenant Work.
Dated this 29th day of February, 2000.
PARADIGM RESOURCES, INC., a Utah limited
liability company
By /s/ RICHARDS WOODBURY
-------------------------------------
W. Richards Woodbury, Manager
By /s/ DON BROWN
-------------------------------------
Don Brown, Manager
MEDIBUY.COM, INC., a Delaware corporation
By /s/ NORMAN FARQUHAR
-------------------------------------
Its EVP & CFO
---------------------------------
<PAGE> 43
LANDLORD ACKNOWLEDGEMENT
STATE OF UTAH )
ss.
COUNTY OF SALT LAKE )
On this ____ day of February 2000, before me personally appeared W.
RICHARDS, WOODBURY and DON R. BROWN, to me personally known, who being by me
duly sworn, did say that they are Managers of that certain limited liability
company known as PARADIGM RESOURCES, L.C., and that the within instrument was
executed by them, for and on behalf of said partnership.
-----------------------------
Notary Public
TENANT ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
ss.
COUNTY OF SAN DIEGO )
On this 6th day of March 2000, before me personally appeared Norman
Farquhar known to me to be the EVP & CFO of MEDIBUY.COM, INC., the corporation
that executed the within instrument, known to me to be the person who executed
the within instrument on behalf of the corporation therein named, and
acknowledged to me that such corporation executed the within instrument
pursuant to its bylaws or a resolution of its board of directors.
/s/ DIANA CORTEZ
-----------------------------
Notary Public
[NOTARY SEAL]
<PAGE> 44
EXHIBIT "A"
[LAYOUT OF U OF U RESEARCH PARK]
<PAGE> 45
EXHIBIT "B"
LEASE AGREEMENT
ARTICLE 1. BASIC LEASE PROVISIONS: ENUMERATION OF EXHIBITS
SECTION 1.01 BASIC LEASE PROVISIONS
(A) DATE: February , 2000
(B) LANDLORD: PARADIGM RESOURCES, L.C., a Utah limited liability company
(C) ADDRESS OF LANDLORD FOR NOTICES (SECTION 16.01): 2733 East Parleys Way,
Suite 300, Salt Lake City, UT 84109.
(D) TENANT: medibuy.com, Inc., a Delaware corporation
(E) ADDRESS OF TENANT FOR NOTICES (SECTION 16.01): 10120 Pacific Heights
Boulevard, Suite 100, San Diego, CA 92121
(F) PERMITTED USES (SECTION 7.01): Research, software programing, computer
network services, assembly and general office uses.
(G) TENANT'S TRADE NAME (EXHIBIT "D" - SIGN CRITERIA): PartNET or medibuy.com
(H) BUILDING (SECTION 2.01): Situated at 615 Arapeen Drive, in the City of
Salt Lake, County of Salt Lake, State of Utah.
(I) PREMISES (SECTION 2.01): That portion of the building at the approximate
location outlined on Exhibit "A" known as Suites 203 and 204 consisting of
approximately 12,516 square feet of gross rentable area. Approximately
16.619% of such area is Tenant's proportionate share of common area
hallways, restrooms, etc. in the building.
(J) DELIVERY OF POSSESSION (SECTION 5.03): Tenant is already in possession as
to Suite 204. Within sixty (60) days after execution of Lease and
completion of Tenant space plans and specifications, Preliminary Term
begins on Delivery of Possession (Section 4.03).
(K) RENTAL TERM, COMMENCEMENT AND EXPIRATION DATE (SECTIONS 4.01 & 4.02): The
Rental Term shall commence on the earlier of (a) fifteen (15) days after
Delivery of Possession of Suite 203 or (b) opening of Tenant for business
at the Premises at Suite 203, and shall be for a period of four (4) full
Lease Years ending March 31, 2004.
(L) BASE MONTHLY RENT (SECTION 3.01): Seventeen Thousand Five Hundred Fifty
and 00/100ths Dollars ($17,550.00).
(M) ESCALATIONS IN BASE MONTHLY RENT (SECTION 3.02): The Base Monthly Rent
shall be increased annually on the first day of each April commencing in
the year 2001 ("Escalation Date") proportionate to any increase in the
U.S. Dept. of Labor, Bureau of Labor Statistics Consumer Price Index for
Urban consumers, All City Average (1982-84 = 100). To calculate said
increase, Landlord shall use a fraction the denominator of which shall be
said index for the month of January, 2000, and the numerator of which
shall be the index for the January immediately previous the Escalation
Date.
<PAGE> 46
If there is a decrease in the relevant Consumer Price Index, the Base
Monthly Rent shall not be adjusted. If the U.S. Department of Labor ceases
to publish said Consumer Price Index, the Landlord shall substitute an
index which in Landlord's reasonable good faith judgment most nearly
approximates the Consumer Price Index specified herein.
(N) LANDLORD'S SHARE OF OPERATING EXPENSES (SECTION 3.03): The Base Monthly
Rent shall be absolutely net to the Landlord as provided in Section 3.30.
(O) TENANT'S PRO RATA SHARE OF OPERATING EXPENSES (SECTION 3.03): Tenant shall
be responsible for all operating expenses as defined in Section 3.03.
Tenant's proportionate of Basic Costs shall be 13.947%. Said operating
expenses include Basic Costs. Direct Costs, and Metered Costs as defined
in Section 3.03 and are currently estimated to be $4.60 per square foot or
$4,797.80 monthly.
(P) UTILITIES AND SERVICES. Subject to the provisions of Section 3.03, 12.01
and 12.02, this Lease provides that the utilities and services shall be
paid or reimbursed by Tenant.
(Q) LANDLORD'S CONTRIBUTION TO TENANT'S WORK (SECTION 6.02): Landlord has made
contribution relating to Suite 204. Landlord shall make an additional
contribution at Suite 203 of Eighty Three Thousand Seventy Two and
00/100ths Dollars ($83,072.00).
(R) PREPAID RENT: $ None paid upon execution of this Lease to be applied to
the first installment(s) of Base Monthly Rent due hereunder.
(S) EXCESS HOUR UTILITY CHARGES AND HOURS OF OPERATION (SECTION 12.02):
Standard operating hours for the Building shall be 7:00 a.m. to 6:00 p.m.
Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday, excluding
holidays. To the extent Tenant operates during any time in excess of those
specified above, Tenant shall pay an extra hourly utility charges of $0.20
per hour per 1,000 square feet for lighting and electricity and $3.00 per
hour per 1,000 square feet for mechanical/HVAC system for each full or
partial hour during which Tenant operates.
(T) SECURITY DEPOSIT (SECTION 26.01): Seventeen Thousand Six Hundred and
00/100ths Dollars ($17,600.00), which consists of Nine Thousand and
00/100ths Dollars ($9,000.00) in previously held Security Deposits for
Suite 204 and Eight Thousand Six Hundred and 00/100ths Dollars ($8,600.00)
of additional Security Deposit due upon execution of this Lease.
<PAGE> 1
EXHIBIT 10.32
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 230.406
VITRIA CONTRACT NUMBER: _____________________
[VITRIA TECHNOLOGY, INC. LOGO]
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement (the "Agreement") is entered into
between Vitria Technology, Inc., a Delaware corporation ("Vitria") located at
945 Stewart Drive, Sunnyvale, CA 94086, and Medibuy.com, Inc. ("Licensee"), for
the purpose of setting forth the terms and conditions upon which Vitria shall
grant to Licensee a license to use the Products and provide the services listed
on Exhibit A attached hereto.
THE EFFECTIVE DATE OF THIS AGREEMENT IS DECEMBER _____, 1999.
1. DEFINITIONS
"Client" means an application that invokes, typically via a network protocol,
the software functions provided by one or more Servers.
"Client Environment" means a hardware/operating system/graphical user interface
combination on which a Client, or any portion thereof, is run.
"Confidential Information" The confidentiality obligations between the parties
shall not apply to any information (a) which is in the public domain or which
becomes part of the public domain through no fault of the party receiving the
confidential information (the "receiving party"); (b) which is known by the
receiving party prior to the disclosure thereof by the disclosing party (as
established by documentary evidence); (c) which is lawfully received by the
receiving party from a third party who provided such information without breach
of any separate confidentiality obligation owed to the disclosing party; (d)
which is disclosed by the disclosing party to any third party without
restriction on further disclosure; or (e) which is independently developed by
personnel having no access to the disclosing party's confidential information
(as established by documentary evidence). Confidential information also may be
disclosed to third parties as may be required by law in the reasonable judgment
of the receiving party's attorneys. In the event of disclosure under the
preceding sentence, the receiving party promptly shall notify the disclosing
party of the same so that the disclosing party may seek a protective order or
other appropriate remedy, and the receiving party shall not oppose action by the
disclosing party to obtain such an order or remedy.
"DBMS" means a specific database management system on which the Product is run.
"Designated Developer" means a person within Licensee designated by Licensee to
develop applications with the Product.
"Documentation" means the user manuals and operator instructions issued by
Vitria in conjunction with the Products.
"Effective Date" means the date set forth above.
"Host Site" means the Licensee data centers, or other similar facilities that
are functioning as Licensee's outsource facilities to host the computer systems
for the Licensee. Host Site specifically excludes Licensee's customers.
<PAGE> 2
"Host Product" or "Host Products" means a Product hosted by the Licensee for a
3rd party.
"Order Form" means the Vitria's standard form for ordering Product licenses and
services attached as Exhibit A.
"Price List" means Vitria's standard product list and fee schedule in effect at
the time a Product license or service is ordered by the Licensee.
"Product" or "Products" means the computer software program(s) owned or
distributed by Vitria for which Licensee is granted a license pursuant to this
Agreement, and subsequent Updates thereto, whether in printed or machine
readable form.
"Server" means the specific installed instance of a Product in execution on a
given Server Environment.
"Server Environment" means a hardware/operating system combination (e.g.,
Sun/Solaris) on which the Product, or any portion thereof, is run.
"Site Product" or "Site Products" means the Products under the heading Site
Products on the Exhibit A that are licensed for distribution as specified in
Section 2.4.
"Standard Technical Support" means the technical support services specified in
4.1 and Exhibit B of this Agreement.
"Support Fees" means the fees payable annually for Standard Technical Support.
"Supported License" means a Product license for which the Licensee has a current
order for annual Standard Technical Support.
"Trading Partner" means the entity designated by Licensee who has either a
signed a sublicense agreement with Licensee or directly with Vitria, and is
licensed to receive the Site Products as set forth hereunder.
"Updates" means updated versions of the Products and Documentation which
encompass logical improvements, extensions and other changes to the Products
which are generally made available to Product licensees who are current in their
payment of Support Fees.
2. LICENSE GRANT
2.1 License and Documentation Rights
2.1.1 Vitria hereby grants to the Licensee, subject to the terms and
conditions of this Agreement, a nonexclusive, nontransferable,
nonassignable and perpetual license to use the Products and
Documentation obtained pursuant to this Agreement. Licensee may
license and install Product licenses designated as "Production"
licenses at the Host Site or a Licensee customer site provided that
such Product licenses (i) may only be used in conjunction with
Licensee's customers applications under the sole management of
Licensee, and (ii) are resident and installed solely at the Host
Site, customer site, or jointly between the Host Site [...***...]
Prior to any installation of the Products at either the Host Site or
a Licensee customer site, Licensee shall ensure that it has a
written agreement with such entity which is at least as restrictive
as this Agreement in the protection of Vitria's rights in and to the
Products. On Vitria's written request, Licensee shall provide a copy
of all such agreements to Vitria.
Any Production Product licenses at the customer sites must be
managed, installed, maintained and under the control of the Licensee
(and may be either directly, or indirectly through the Host Site) at
all times.
2.1.2 The Licensee may make two (2) copies of the Products for archival or
backup purposes. All archival and backup copies are subject to the
provisions of this Agreement and all titles, trademarks, and
copyright and restricted rights notices shall be reproduced in such
copies.
* Confidential Treatment Requested
<PAGE> 3
2.1.3 The number of Designated Developers, the number of Servers and the
particular Client and Server Environment(s) on which the Products
may be used are limited as set forth in the applicable Order Form.
2.1.4 [...***...]
In order to qualify a referral, Licensee must (i) register the
Software sales opportunity with the appropriate Vitria Regional
Manager and (ii) obtain approval using the Qualifying Order Form
attached as Exhibit C to this Agreement.
[...***...]
2.2 License Restrictions
2.2.1 Transfer. A Product may be transferred to another Licensee location
within the United States and Canada upon written notice to Vitria.
Transfer of a Product outside the United States and Canada shall be
permitted only with Vitria's prior written consent An additional
license fee will be due for a transfer of any Product to a Client
Environment or Server Environment not previously licensed by the
Licensee.
2.2.2 Licensee shall not cause or permit the reverse engineering,
disassembly, or decompilation of the Products.
2.2.3 The Products may be used solely to integrate Licensee's customer's
applications that are installed at a Host Site or customer's site
solely on the Server Environments and Client Environments designated
on the applicable Order Form. Licensee shall ensure that no third
parties, including but not limited to Licensee's customers, have any
rights to access or use the Product licenses designated as
"Development" licenses as set forth in Exhibit A. Any breach by the
Host Site or any of Licensee's customers of the terms of this
Agreement will be considered a breach of this Agreement by Licensee.
2.2.4 Licensee shall not permit any parent, subsidiaries, affiliated
entities or third parties to use the Products except as set forth in
this Section 2.
2.3 Verification. On Vitria's reasonable request, but not more frequently than
semi-annually, the Licensee shall furnish Vitria with a signed statement
verifying that the Products are being used pursuant to the provisions of
this Agreement, and identifying the scope of Licensee's use of the
Products as reasonably requested by Vitria, including without limitation
the Client Environment(s), Server Environment(s) and RDBMS's used by
Licensee, and the number of Designated Developers and users.
2.4. Redistribution of the Site Products.
2.4.1 Vitria shall enable Licensee, through the Vitria FTP site, to
download the designated number of copies of the Site Products for
sublicensing to its designated Trading Partners. As a convenience to
Licensee, and on Licensee's written Notice to Vitria, Vitria will
secure the standard Vitria software licensing agreement directly
with the designated Trading Partner and effect delivery of the Site
Products to the Trading Partner directly from Vitria. Licensee
agrees that certain connectors set forth in Exhibit A may not be
generally commercially available from Vitria as of the Effective
Date, Licensee's receipt of the Connector SDK shall satisfy Vitria's
* Confidential Treatment Requested
<PAGE> 4
obligation of delivery. If and when additional Connectors listed in
Exhibit A become generally commercially available from Vitria,
trading Partner and Licensee shall be entitled, upon written request
to Vitria, to obtain a license for the named Connector at no
additional fee, [...***...] or [...***...] owed by [...***...]
Prior to any sublicensing by Licensee to a Trading Partner, Licensee
shall ensure that it has a fully executed sublicensing agreement
between such Trading Partner and Licensee in the form and format,
and at least as restrictive as, the Agreement. On Licensee's request
to the Vitria Contracts Manager, Vitria will deliver an electronic
copy of its then current software license agreement to Trading
Partner. Further, for any sublicense agreement directly from the
Licensee to a Trading Partner, Licensee shall ensure that the
license of the Site Product (i) is restricted to use by the Trading
Partner solely for use of automating business processes, between an
internal Trading Partner system and the Licensee, and such Trading
Partner Site Server may not be used by the Trading Partner to
integrate Trading Partner's internal systems or business processes
or for the purpose of hosting, and (ii) may be terminated by
Licensee on 30 days Notice in accordance with Section 2.5. Any
breach of the sublicense agreement by Trading Partner shall be
considered by Vitria to be a breach by Licensee of this Agreement.
Licensee shall promptly Vitria with Notice of any such breach.
2.5 Termination of the Site Product Sublicense Agreements.
If Licensee, in its sole discretion determines that the business model for
the Licensee-to-Trading Partner relationship should be terminated,
Licensee shall give 30 days written Notice to Vitria. Upon such Notice,
Vitria shall terminate all license agreements with the Trading Partners
that it has licensed directly for the Trading Partner Site Server and
Licensee shall terminate all sublicense agreements with the Trading
Partners for the Trading Partner Site Server. Trading Partners shall be
instructed by Licensee and Vitria to return or destroy all copies of the
Trading Partner Site Server bundles in accordance with the applicable
agreement with such Trading Partner.
3. INVOICING, PAYMENT AND TAXES
3.1 Invoicing and Payment
3.1.1 Invoices for payment of all license fees, first year Support Fees or
other fees shall be payable on the dates as set forth in the
applicable Order Form. Unless specified otherwise in an Order Form,
invoices are due and payable net 45 days from Vitria's invoice date.
Licensee will provide Vitria with a written purchase order for
Product licenses and Standard Technical Support Services at the time
of execution of an Order Form. Within 5 days after the Effective
Date of this Agreement, the applicable Order Form and payment to
Vitria of the associated license fees, Support Fees or other fees
set forth in the Order Form, Vitria shall provide access to the
Vitria FTP site to enable Licensee to download the licensed Products
and Documentation.
3.1.2 All fees shall be deemed overdue if they remain unpaid [...***...]
days after they become payable. All overdue amounts shall bear
interest at the rate of one and [...***...] per month or the maximum
legal rate, if less, however, nothing herein shall limit Vitria's
right to terminate this Agreement under Section 6.
3.1.3 Payments shall be in United States dollars. Costs of conversion,
outside collection and related bank charges shall be paid by
Licensee. All shipments by Vitria shall be F.O.B. origin.
3.1.4 If the Licensee's procedures require that an invoice be submitted
against a purchase order before payment can be made, the Licensee
will be responsible for issuing such purchase order [...***...] days
before the payment due date.
3.1.5 Licensee shall reimburse Vitria for all reasonable costs incurred
(including reasonable attorneys' fees) in collecting past due
amounts.
3.1.6 The fees listed in this Agreement do not include taxes; therefore,
Licensee shall be responsible for all taxes, tariffs and
transportation costs related to this Agreement (including
* Confidential Treatment Requested
<PAGE> 5
any value added or sales taxes) other than taxes on Vitria's income.
The Licensee shall pay or reimburse Vitria for all sales, use,
excise, personal property, value-added, or other federal, state or
local taxes, duties, or any similar assessments based on the
licenses granted or the services provided under this Agreement or on
the Licensee's use of the Products.
4. SERVICES
4.1 Standard Technical Support Services
4.1.1 So long as Vitria continues to offer similar support services to its
other Product licensees, and subject to payment by the Licensee of
the applicable Standard Technical Support Fees, Vitria will provide
annual Standard Technical Support for Supported Licenses as follows
in accordance with the terms set forth in Exhibit B.
4.1.2 Vitria will provide telephone consultation at Vitria's service
location, to assist the Licensee in identifying, verifying and
resolving problems in the use and operation of the Product.
Telephone assistance services shall be limited to those Licensee
personnel indicated in the Order Form, as amended from time to time
by Licensee upon written notice to Vitria.
4.2 Consulting and Training Services
4.2.1 Licensee may order on-site consulting services from Vitria at
Vitria's then-standard consulting rates in accordance with Vitria's
then standard Professional Services Agreement. Any scheduled service
dates will be agreed upon mutually, subject to availability of
Vitria personnel.
4.2.2 Licensee may schedule and enroll in Vitria's standard training
courses provided by Vitria. Such training courses shall be rendered
in accordance with and subject to the terms of this Agreement . All
consulting and training services must be utilized by Licensee within
six (6) months following the date ordered by Licensee.
4.2.3 Unless otherwise agreed to by the parties in writing, Vitria
consulting services will be limited to transferring knowledge to and
mentoring Licensee's staff on "best practices" concerning the
Products, and reviewing and providing input on Licensee's design and
implementation of applications developed and deployed using the
Products. Development and deployment of Licensee's applications will
remain at all times under Licensee's control and direction. Ultimate
responsibility for development and deployment of such applications
is with Licensee, and Vitria will not be liable to Licensee or any
third party for any delay in completion or noncompletion of any
Licensee application.
5. OWNERSHIP AND NONDISCLOSURE
5.1 Ownership
5.1.1 Licensee acquires only the right to use the Products and
Documentation, and does not acquire any rights of ownership. All
rights, title, and interest in and to the Products and
Documentation, including without limitation all intellectual
property rights therein, shall at all times remain with Vitria and
its licensors.
5.1.2 Applications and other software that Licensee develops using the
Products, and all changes or modifications to such applications and
other software, will remain the sole property of Licensee. Vitria
shall have no interest in such applications or other software or
such changes or modifications.
5.2 Nondisclosure
5.2.1 The parties agree, on behalf of themselves, their affiliated
companies, and their employees, independent contractors and
consultants, that they shall not use, except as otherwise expressly
permitted hereunder, or disclose to any third person, including any
of its affiliates, or to any employee of the receiving party without
a need to know, either during or after the term of this Agreement,
any Confidential Information.
<PAGE> 6
5.2.2 The parties and their respective employees, independent contractors
and consultants shall use the same degree of care as used to protect
its own confidential information of a similar nature, but in no
event less than reasonable care, to avoid disclosure of Confidential
Information.
5.2.3 In the event of a breach of this Section 5.2, money damages will not
be an adequate remedy, and therefore, in addition to any other legal
or equitable remedies, the disclosing party shall be entitled to
seek an injunction or other equitable relief against such breach
without necessity of posting bond or security, which is expressly
waived.
5.3 Authorized Disclosure. Either party may disclose the general existence and
nature of this Agreement, but may not disclose the specific terms of this
Agreement without the prior consent of the other party.
6. TERM AND TERMINATION
6.1 Term. This Agreement and each license granted hereunder shall continue in
perpetuity, unless terminated as provided in Paragraph 6.2 below or
otherwise agreed by the parties.
6.2 Termination. The Licensee may terminate this Agreement or any license at
any time. Vitria may terminate this Agreement or any license upon written
notice if the Licensee breaches this Agreement and fails to correct the
breach within thirty (30) days following written notice specifying the
breach.
6.3 Effect of Termination. The termination of this Agreement or any license
shall not limit either party from pursuing any other remedies available to
it, including injunctive relief, nor shall such termination relieve the
Licensee's obligation to pay all fees that accrued prior to such
termination.
6.4 Return of Products upon Termination. Upon termination of any license
granted under this Agreement, the Licensee shall (i) cease using the
applicable Products, and (ii) represent in writing to Vitria within one
month after termination that the Licensee has destroyed or has returned to
Vitria the Products, Documentation and all copies. This requirement
applies to copies and storage in all forms, partial and complete, in all
types of media and computer memory, and whether or not modified or merged
into other materials.
7. WARRANTIES, REMEDIES, LIMITATION OF LIABILITY
7.1 Infringement Indemnity
7.1.1 Vitria will defend and indemnify the Licensee against all costs
(including reasonable attorneys' fees and subject to provisions of
Section 7.6) arising from a claim that Products furnished and used
within the scope of this Agreement infringe a United States
copyright or United States patent provided that (i) the Licensee
notifies Vitria in writing within 30 days of the claim, (ii) Vitria
has sole control of the defense and all related settlement
negotiations, and (iii) the Licensee provides Vitria with the
assistance, information, and authority necessary to perform the
above; reasonable out-of-pocket expenses incurred by the Licensee in
providing such assistance will be reimbursed by Vitria.
7.1.2 Vitria shall have no liability for any claim of infringement based
on (i) use of a superseded or altered release of Products if such
infringement would have been avoided by the use of a current
unaltered release of the Products that Vitria provides to the
Licensee, or (ii) the combination, operation, or use of any Products
furnished under this Agreement with programs or data not furnished
by Vitria if such infringement would have been avoided by the use of
the Products without such programs or data.
7.1.3 In the event the Products are held or are believed by Vitria to
infringe, Vitria may, at its sole option, and at its expense, to (i)
modify the Products to be non-infringing, (ii) obtain for the
Licensee a license to continue using the Products, (iii) substitute
the Products with other software reasonably suitable to Licensee, or
(iv) terminate the license for the infringing Products and refund
the license fees paid for those Products. This Section 7.1 states
Vitria's entire liability for infringement.
<PAGE> 7
7.2 Product Warranty
7.2.1 Except as stated below, for each Supported License Vitria warrants
that each Product will perform the functions described in the
associated Documentation when operated on the specified platform for
a period of 30 days from the date of shipment of such Product to
Licensee.
7.2.2 Vitria does not warrant that each Product will meet Licensee's
requirements, that the Products will operate in the combinations
which Licensee may select for use or with all non-Vitria software
used by Licensee, that the operation of each Product will be
uninterrupted or error-free, or that all Product errors will be
corrected. Vitria will undertake to correct any reported error
condition in accordance with its then-current Standard Technical
Support policies. Vitria shall have no obligation to undertake
correction of errors caused by Licensee modifications to the
Product. Licensee's sole and exclusive remedy for Product
nonconformity shall be recovery of the license fees paid to Vitria
for such nonconforming Product.
7.2.3 As an accommodation to the Licensee, Vitria may supply the Licensee
with (i) preproduction releases of Products labeled "Alpha," "Beta"
or otherwise, which are not suitable for production use, and (ii)
shareware items containing code developed by Vitria and/or its
Licensees and partners. Notwithstanding anything to the contrary in
this Agreement, such preproduction releases and shareware are
provided to Licensee "as is" without warranty of any kind, express
or implied, and neither party will be responsible to the other for
any losses, claims or damages of whatever nature arising out of
Licensee's use of such items. Standard Technical Support does not
include support or updating of shareware items. Licensee will
promptly report any error condition discovered in a preproduction
release, and provide Vitria with appropriate test data if necessary
to resolve problems encountered by Licensee with a preproduction
release.
7.3 Media Warranty. Vitria warrants all media delivered to Licensee to be free
of defects in materials and workmanship under normal use for 90 days from
the Effective Date. Replacement of media without charge is the Licensee's
sole and exclusive remedy in the event of a media defect.
7.4 Services Warranty. Vitria warrants that its Standard Technical Support,
consulting and other services will be of a professional quality conforming
to generally accepted industry standards and practices. This warranty
shall be valid for 90 days from completion of service. For any breach of
the above warranty, Licensee's exclusive remedy and Vitria's entire
liability shall be (i) the re-performance of the services, or (ii) if
Vitria is unable to perform the services as warranted, recovery of the
fees paid to Vitria for such deficient services.
7.5 Limitations of Warranties. THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU
OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.6 Limitation of Liability. IN NO EVENT SHALL VITRIA BE LIABLE FOR LOSS OF
PROFITS, REVENUE OR PRODUCT USE, OR LOSS OR INACCURACY OF DATA, AND IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES INCURRED BY EITHER PARTY OR ANY THIRD PARTY, EVEN
IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
EXCEPT WITH RESPECT TO SECTION 7.1, VITRIA'S LIABILITY FOR DAMAGES
HEREUNDER, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A
WARRANTY, SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID BY THE LICENSEE
UNDER THIS AGREEMENT FOR THE RELEVANT LICENSE OR SERVICE. IF SUCH DAMAGES
RESULT FROM THE LICENSEE'S USE OF A PRODUCT, SUCH LIABILITY SHALL BE
LIMITED TO LICENSE FEES PAID BY THE LICENSEE FOR THE RELEVANT PRODUCT.
7.7 Year 2000 Compliance. Vitria confirms that Product will record, store,
process and present calendar dates falling on or after January 1, 2000, in
the same manner and with the same functionality as it performed before
January 1, 2000 and that such Software will be interoperable with other
software provided that such other software functions in accordance with
its specifications
<PAGE> 8
and stores, processes and presents calendar dates falling on or after
January 1, 2000 in the same manner and with the same functionality as it
performed before January 1, 2000.
7.8 The provisions of this Section 7 allocate the risks under this Agreement
between Vitria and the Licensee. Vitria's pricing reflects this allocation
of risk and the limitation of liability specified herein.
8. GENERAL TERMS
8.1 Appendices; Counterparts. All recitals and appendices are hereby
incorporated into this Agreement. This Agreement may be executed in any
number of counterparts and/or duplicate originals.
8.2 Assignment. Licensee may not assign this Agreement without the prior
written consent of Vitria, which consent will not be unreasonably
withheld. Any purported assignment in contravention of this section is
null and void. A transfer of a controlling interest in the equity of
Licensee shall be deemed an assignment for purposes of this subsection.
Subject to the foregoing, this Agreement will bind and inure to the
benefit of any successors or assigns.
8.3 Attorney's Fees. The prevailing party in any suit under this Agreement
shall recover all costs, expenses and reasonable attorney fees incurred in
such action.
8.4 Controversies. Before either party commences any action against the other
party, it shall give written notice to the other party of its intention to
file a claim, and the senior management of the parties then shall meet in
good faith to resolve the dispute.
8.5 Definitions and Section Headings. Singular terms shall be construed as
plural, and vice versa, where the context requires. Section headings are a
matter of convenience and shall not be considered part of this Agreement.
8.6 Entire Agreement. This Agreement is the complete and exclusive statement
of the understandings of the parties, and it supersedes and merges all
prior proposals and understandings, whether oral or written, relating to
the subject matter of this Agreement. This Agreement may not be modified
except in writing, signed by an officer of Vitria and a duly authorized
representative of Licensee, and expressly referring to this Agreement.
This Agreement takes precedence over any purchase order issued by either
party, which may be accepted by the other party for administrative
convenience only.
8.7 Export. The parties shall comply with the Export Laws. Neither party will
export or re-export directly or indirectly (including via remote access)
any part of the Deliverables, or any Confidential Information to any
country for which a validated license is required under the Export Laws
without first obtaining a validated license.
8.8 Force Majeure. Neither party will be responsible for failure of
performance, other than for an obligation to pay money, due to causes
beyond its control, including, without limitation, acts of God or nature;
labor disputes; sovereign acts of any federal, state or foreign
government; or shortage of materials.
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, but without giving
any effect to the choice of law principles thereunder.
8.10 Independent Contractors; Nonexclusive. Vitria and Licensee are independent
contractors and will so represent themselves in all regards. Neither party
may bind the other in any way. Nothing in this Agreement will be construed
to make either party the agent or legal representative of the other or to
make the parties partners or joint venturers.
8.11 Notices. Notices will be delivered to a party's address stated in the
signature block of this Agreement, or to another address which a party
properly notified the other that notices should be sent.
8.12 Restricted Rights. The Vitria software provided to Licensee hereunder are
"commercial items" as that term is defined at 48 C.F.R. 2.101 (October
1995) consisting of "commercial computer software" and "commercial
computer software documentation" as such terms are used in 48 C.F.R.
<PAGE> 9
12.212 (Sept 1995) and are provided to the U.S. Government only as a
commercial end item. Consistent with 48 C.F.R. 12.212 and 48 C.F.R.
227.7202 (June 1995), all U.S. Government End Users acquire the Vitria
software and its associated documentation with only those rights set forth
therein.
8.13 Severability. If any provision of this Agreement is found by a court of
competent jurisdiction to be invalid or unenforceable, the remainder of
the Agreement shall continue in full force and effect. However, should
either party reasonably conclude that a provision held to be invalid or
unenforceable was a material inducement to its entering into this
Agreement, and the loss of that provision has deprived it of the benefit
of the bargain reached upon execution of this Agreement, then that party
may, upon 10 days prior written notice, terminate this Agreement.
8.14 Waiver. The waiver of one breach or default shall not constitute the
waiver of any subsequent breach or default, and shall not act to amend or
negate the rights of any party.
LICENSEE: MEDIBUY.COM, INC. VITRIA:
ADDRESS: Vitria Technology, Inc.
945 Stewart Drive
Sunnyvale, CA 94086
Main Phone 408 212-2700
/s/ DANIEL J. MURPHY
- -------------------------------- -------------------------------------
Signature Signature
Dennis Murphy, CEO
- -------------------------------- -------------------------------------
Printed Name/Title Printed Name/Title
12-17-99
- -------------------------------- -------------------------------------
Date Date
Vitria-Contracts/Legal approval:
-------------------------------------
<PAGE> 10
MAINTENANCE SERVICES
TERMS AND CONDITIONS
This attachment relates to and is incorporated into the above-referenced
Software License Agreement between Vitria Technology Inc. and the named Licensee
(the "Agreement"). Capitalized terms not specifically defined below have the
same meaning as in the Agreement.
1. MAINTENANCE SERVICES
In consideration for the fees described in Section 4 below, Vitria will provide
the services described below ("Maintenance Services").
(a) Technical Support. During normal business hours (8:00 a.m. to 6:00 p.m.
Pacific Time, except Vitria published holidays) Vitria shall provide Licensee
technical support for the installation and use of the Software, the
identification of Software and/or Documentation problems and the reporting of
Bugs. Licensee shall designate two (Expert level support) or four (Enterprise
level support) technical contacts to request and receive support services from
Vitria. Additional Licensee contacts can be designated in the Product Schedule
for Vitria's then current fee. Licensee shall notify Vitria in writing of any
changes to the designated Licensee contacts.
(b) Software Updates. Vitria will make available to Licensee each minor and
major functional release of the Software. These releases are generally available
without additional charge to its maintenance customers and which is intended to
replace a prior Software release. A major functional release is indicated by a
change in the first digit of a version number, i.e. from 4.0.0 to 5.0.0; a minor
functional release is indicated by a change in the second digit, i.e. from 4.0.0
to 4.1.0. Maintenance releases, which are indicated by a change in the third
digit of a version number, i.e. from 5.0.1 to 5.0.2, are provided as needed in
response to Licensee inquiry.
(c) Bug Fixes. Vitria shall exercise commercially reasonable efforts to correct
any reproducible malfunction of the Software reported to Vitria by Licensee that
prevents the Software from performing in accordance with the operating
specifications described in the then current Documentation (a "Bug").
2. CONDITIONS OF SERVICE
(a) Retirement of Releases. Vitria provides Maintenance Services for a Software
product version from the date the version becomes generally available until such
version is retired. Vitria retires prior commercial releases of the Software as
follows: (i) one month after the commercial release of the subsequent
maintenance release; (ii) no sooner than six (6) months after the commercial
release of a new minor functional release; (iii) no sooner than twelve (12)
months after the commercial release of a new major functional release. In all
cases, Vitria will provide support services with respect to questions regarding
the "how-to" use of a retired release of the Software for twelve (12) months
following its retirement.
(b) Use of Software. Licensee's use of any Software provided by Vitria as part
of Maintenance Services shall be governed by the terms of the Agreement. Vitria
may change the services included in Maintenance Service at any time, effective
as of the commencement of any renewal period.
3. TERM AND TERMINATION
(a) Term. Maintenance Service shall be provided for a term of one (1) year from
the delivery date of Software under Licensee's initial Product Schedule and
shall be extended each year for one (1) additional year unless terminated by
either party as provided herein.
(b) Termination. Licensee may terminate Maintenance Service at the end of the
term by giving written notice to Vitria at least thirty (30) days prior to the
end of any such term. Vitria may suspend or cancel Maintenance Service if
Licensee fails to make payment pursuant to Section 4 below. Either party may
terminate Maintenance Service if the other party breaches any of the Maintenance
Service terms and conditions and the breach is not remedied within thirty (30)
days after receiving written notice of the breach. In the event the Agreement is
terminated, Maintenance Service will also terminate automatically.
4. FEES AND PAYMENT
<PAGE> 11
(a) Fees. The fee for the first year of Maintenance Service for any Software
licensed is specified in the applicable Product Pricing Schedule. The
applicable fee for any renewal period shall be Vitria's then prevailing price.
For Software licensed after Licensee's initial order, the term of Maintenance
Service will be set, and the fee will be pro-rated, so that the coverage
periods for all Software licensed to Licensee and covered by Maintenance
Services will coincide. When ordered, Maintenance Service must be ordered for
all of the Software on a Product.
(b) Payment. Maintenance Service fees will be billed on an annual basis,
payable in advance and due within [...***...] days of the date of invoice.
(c) Lapse of Coverage. In the event that coverage for Maintenance Service
lapses as a result of termination by Licensee for any reason or by Vitria for
Licensee's non-payment, renewal of such service will require payment by
Licensee of a reinstatement fee to Vitria equal to [...***...] of the sum of
the fees for any previously unpaid contract period(s) plus full payment for the
pending annual period.
5. EXCLUSIONS. Vitria shall have no obligation to support:
(a) Software modified without Vitria's written consent;
(b) Use of the Software other than in accordance with the Documentation;
(c) Software installed on any computer hardware or in combination with other
software, except as specified in the Documentation.
6. LIMITATION OF LIABILITY. Vitria's aggregate liability for damages from any
cause of action whatsoever relating to Vitria's obligations to provide
Maintenance Service shall by limited to the amount paid by Licensee for such
services for the applicable year. Vitria's liability shall be further limited
as provided in the Agreement.
7. SERVICE CONTRACT. THESE TERMS AND CONDITIONS CONSTITUTE A SERVICE CONTRACT
AND NOT A PRODUCT WARRANTY. THIS ATTACHMENT IS AN ADDITIONAL PART OF THE
AGREEMENT AND DOES NOT CHANGE OR SUPERSEDE ANY TERM OF THE AGREEMENT EXCEPT TO
THE EXTENT UNAMBIGUOUSLY CONTRARY THERETO.
Targeted Accelerated Response Times: (excluding Vitria's holidays)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Priority Failure Description Initial Response Time Status
Expert Enterprise Updates
- -------------------------------------------------------------------------------
1 1 Enterprise-critical
(Product is not functioning) 2 business 1 business By customer
hours hours agreement
- -------------------------------------------------------------------------------
2 Severe Impact - Product 4 business 2 business Once per
inconsistency which signifi- hours hours business day
cantly decreases Customer
productivity (periodic work
stoppages, feature crashes)
- -------------------------------------------------------------------------------
3 Degraded Operations: Product 8 business 4 business Once every
inconsistency which slightly hours hours 3 business
impairs customer productivity days
(Customer can work around
problem)
- -------------------------------------------------------------------------------
4 Minimal Impact: desired change next next Release
in Product (documentation business business notes or
update, cosmetic defects, day day plan for
enhancement requests) next release
- -------------------------------------------------------------------------------
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 12
[Schedules Omitted]
<PAGE> 1
EXHIBIT 10.36
SIGNATURE VERSION
*** Text Omitted and Filed Separately
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406
JOINT MARKETING AND PROMOTION AGREEMENT
between:
HEALTHEON/WEBMD CORPORATION
a Delaware Corporation;
and
MEDIBUY.COM, INC.
a Delaware Corporation
------------------------------
Dated as of January 18, 2000
------------------------------
<PAGE> 2
SIGNATURE VERSION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. DEFINITIONS AND RULES OF CONSTRUCTION..............................................1
1.01 General Definitions......................................................1
1.02 Terms Defined in the Agreement...........................................3
1.03 Rules of Construction....................................................3
2. NEW COMMERCE SITE DEVELOPMENT PLAN.................................................3
3. CREATION OF THE NEW COMMERCE SITE AND MODIFICATIONS TO EXISTING SITES..............4
3.01 Changes to the MEDIBUY Site..............................................4
3.02 Creation of the New Commerce Site........................................4
(a) General................................................................4
(b) Hosting................................................................4
(c) Look and Feel..........................................................4
(d) Access to the New Commerce Site........................................5
3.03 Future Changes to the Look and Feel of the WebMD Professional Site.......5
4. PERFORMANCE STANDARDS..............................................................5
4.01 Technical Performance Standards..........................................5
4.02 Standards Relating to the New Commerce Site..............................6
(a) General................................................................6
(b) Record Keeping.........................................................6
(c) Discounts..............................................................6
5. ADVERTISING AND PROMOTION..........................................................6
5.01 Launch Campaign by WebMD.................................................6
5.02 Post Launch Campaign by WebMD............................................7
5.03 Sales Development Obligations of MEDIBUY.................................7
6. CHANGES TO PRODUCTS AND SERVICES OFFERED BY THE NEW COMMERCE SITE..................7
6.01 Prohibited Uses..........................................................7
6.02 Right of MEDIBUY to Provide New Vendors and Products.....................8
6.03 Right of WebMD to Request that MEDIBUY Introduce New Vendors or Products.8
6.04 Right of WebMD to Request that MEDIBUY Prevent the Offering of Certain
Products or Services to WebMD Members....................................9
6.05 Removal of Illicit and Harmful Items.....................................9
7. EXCLUSIVITY........................................................................9
7.01 Definitions Related to Exclusivity.......................................9
7.02 MEDIBUY's Exclusive Rights..............................................10
(a) Promotion of Medibuy Competitors......................................10
(b) Exceptions............................................................10
7.03 When WebMD May Terminate MEDIBUY's Exclusive Rights.....................11
(a) Failure to Implement the New Commerce Site Development Plan...........11
(b) Failure to Meet Technical Performance Standards.......................11
</TABLE>
ii
<PAGE> 3
SIGNATURE VERSION
<TABLE>
<S> <C>
(c) Sale or Promotion of Certain Products.................................11
7.04 WebMD's Exclusive Rights................................................11
7.05 Sponsorship Arrangements................................................12
7.06 When MEDIBUY May Terminate WebMD's Exclusive Rights.....................12
(a) Failure to Implement the New Commerce Site Development Plan...........12
(b) Sale or Promotion of Certain Products.................................13
7.07 No Exclusive Rights as Regards Services.................................13
8. COMPENSATION......................................................................13
8.01 General.................................................................13
8.02 Payment and Reporting Terms.............................................14
8.03 Audit Rights............................................................15
8.04 Change in Law...........................................................15
8.05 MEDIBUY Linking Option..................................................16
9. LICENSES..........................................................................16
9.01 Reciprocal Right to Use Marks...........................................16
9.02 RESTRICTIONS ON USE OF MARKS............................................16
10. GOVERNANCE AND OVERSIGHT.........................................................17
10.01 Appointment and Role Contract Managers.................................17
10.02 Appointment and Role Steering Group....................................17
11. DISPUTE RESOLUTION...............................................................18
11.01 Efforts by Contract Managers...........................................18
11.02 Efforts by Steering Committee..........................................18
11.03 Mediation and Arbitration..............................................19
12. WEBMD MEMBER DATA................................................................19
12.01 Ownership..............................................................19
12.02 Use of WebMD Member Data...............................................19
12.03 Security and Privacy...................................................20
13. OWNERSHIP OF INTELLECTUAL PROPERTY...............................................20
13.01 Ownership by MEDIBUY...................................................20
13.02 Ownership by WebMD.....................................................20
13.03 Ownership and the New Commerce Site....................................20
14. TERM AND TERMINATION.............................................................21
14.01 Term...................................................................21
14.02 Early Termination by Either Party......................................21
(a) Either Party..........................................................21
(b) By MEDIBUY............................................................21
14.03 Transition Planning....................................................22
14.04 Effect of Termination..................................................22
14.05 Survival...............................................................22
15. REPRESENTATIONS AND WARRANTIES...................................................22
</TABLE>
iii
<PAGE> 4
SIGNATURE VERSION
<TABLE>
<S> <C>
15.01 Mutual Representations and Warranties..................................22
15.02 Representations and Warranties by WebMD................................23
15.03 Representations and Warranties by MEDIBUY..............................23
15.04 Indemnity..............................................................24
(a) Each Party............................................................24
(B) MEDIBUY...............................................................24
15.05 Indemnification Procedure..............................................24
15.06 Infringement Indemnity.................................................25
15.07 No Other Representations or Warranties.................................25
15.08 Remedies Cumulative....................................................25
16. DISCLAIMER OF OTHER WARRANTIES...................................................25
17. LIMITATION OF LIABILITY..........................................................26
18. CONFIDENTIALITY..................................................................26
18.01 Confidential Information...............................................26
18.02 Protection of Confidential Information.................................26
18.03 Permitted Disclosure...................................................27
18.04 Applicability..........................................................27
18.05 Confidentiality of the Terms of this Agreement.........................27
18.06 Public Disclosure of the Terms of this Agreement.......................27
19. MISCELLANEOUS....................................................................28
19.01 Press Release..........................................................28
19.02 No Joint Venture.......................................................28
19.03 Governing Law..........................................................28
19.04 Amendment or Modification..............................................28
19.05 No Assignment..........................................................28
19.06 Notices................................................................29
19.07 Entire Agreement.......................................................30
19.08 Waiver.................................................................30
19.09 No Third Party Beneficiaries...........................................30
19.10 Fees and Expenses......................................................30
19.11 Severability...........................................................30
19.12 Counterparts; Facsimiles...............................................31
19.13 Insurance..............................................................31
</TABLE>
iv
<PAGE> 5
SIGNATURE VERSION
JOINT MARKETING AND PROMOTION AGREEMENT
This JOINT MARKETING AND PROMOTION AGREEMENT (the "Agreement"), by and
among HEALTHEON/WEBMD CORPORATION, a Delaware corporation, located at 4600
Patrick Henry Drive, Santa Clara, CA 95054, ("WebMD"), and MEDIBUY.COM, INC., a
Delaware corporation ("MEDIBUY "), is made and entered into as of the latest of
the signature dates set forth on the signature page below and shall be effective
as of such date (the "Effective Date").
RECITALS
A. WebMD owns and operates a Site on the world wide web currently titled
"WebMD" (the "WebMD Site") at and within the domain Webmd.com having a Home Page
(the "WebMD Home Page") that can be located by using the following universal
resource locator ("URL"), http://www.webmd.com/. The WebMD Site contains an
Action Link to subscription-based healthcare information and services for
healthcare professionals residing in the United States (the "WebMD Professional
Site") and an Action Link to the first, or "start" Page (the "WebMD Consumer
Start Page") of the portion of the WebMD Site which provides free healthcare
information services and online communities for consumers (the "WebMD Consumer
Site").
B. MEDIBUY offers an Internet-based virtual marketplace to healthcare
professionals and vendors at http://www.medibuy.com ("MEDIBUY Site"). Healthcare
purchasing professionals use the transaction models and systems, including but
not limited to the eRFP, eAuction and eCatalog services, available at the
MEDIBUY Site as a quick, convenient way to electronically budget, source and
purchase medical and surgical products, commodity items, medical related
services capital equipment as well as business and facility-related products and
services. ("MEDIBUY Services").
C. This Agreement sets out the terms and conditions pursuant to which
the Parties will provide certain services to each other, and compensate each
other for such services.
NOW, THEREFORE, in consideration of the foregoing recitals (which by
this reference are hereby made a part of this Agreement) and the mutual promises
set forth herein, the parties hereby agree as follows:
1. DEFINITIONS AND RULES OF CONSTRUCTION.
1.01 GENERAL DEFINITIONS.
For purposes of this Agreement, the following terms have the following
specified meanings:
"ABOVE THE FOLD" means the portion of a Page that is designed to be
visible on a standard computer screen set to a resolution of 800 pixels by 600
pixels without requiring the User to scroll horizontally or vertically through
the Page.
1
<PAGE> 6
SIGNATURE VERSION
"ACTION LINK" means a hypertext link, whether contained in a navigation
bar of a Site, an On-Line Ad, a button, tab, other graphical image or other
location on a Site, that, when clicked on by a User, takes the User to a
different Page in a Site or to a Page located on a different Site.
"AFFILIATE" means, with respect to a Party, any Person that, directly or
indirectly, Controls, or is Controlled by, or is under common Control with, such
Party. For the purpose of this defined term, "Controls, Controlled by, or under
common Control with, means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether by contract or through the ownership of voting securities, including the
ownership of more than fifty percent (50%) of the equity, partnership,
membership or similar interest in such Person.
"GOVERNMENTAL BODY" means any federal, state, local, municipal, foreign,
or other government or quasi-governmental authority of any nature (including,
without limitation, any governmental agency, bureau, board, commission, branch,
department, entity, or other instrumentality, and any court or other tribunal).
"CHANGE IN CONTROL" means any change in the actual or beneficial
ownership of more than forty percent (40%) of its voting stock in one or more
related transaction(s), forty percent (40%) or more of such voting stock is held
or controlled by any Third Party.
"HOME PAGE" means the first page seen by a User when the User visits a
Site on the Internet.
"INTERNET" means a global network of interconnected computer networks,
each using the Transmission Control Protocol/Internet Protocol and/or such other
standard network interconnection protocols as may be adopted from time to time,
which is used (among other things) to transmit content between, or enable
commercial transactions between, a Site and a User.
"IP RIGHT" means any copyright, trademark, patent, trade secret, moral
right or other intellectual property or proprietary right of any kind (including
applications therefor and, in the case of patents, any continuation or
divisional patent applications claiming priority thereto), whether arising under
the laws of the United States or any other nation, state or jurisdiction
(including any foreign equivalents thereto).
"LAW" shall mean any code, law (including common law), ordinance,
regulation, rule, or statute applicable to a Person or its business, including
those promulgated, interpreted or enforced by any Governmental Body.
"LOOK AND FEEL" means, with respect to a Site, those elements of the
Graphical User Interface of such Site comprising the visible features,
characteristics and style of such Site which are unique to such Site and are
consistent from page to page and which indicate the common identity of the
various pages and identify such pages as forming a part of a single Site
operated by a specific Person.
2
<PAGE> 7
SIGNATURE VERSION
"PAGE" means a screen of information, including text or graphics, that
is displayed on a User's computer screen when that User accesses a Site on the
Internet.
"PARTY" means a party to this Agreement.
"PERSON" means any individual, corporation, partnership, limited
liability company, trust, association or other entity or organization, including
any governmental or political subdivision or any agency or instrumentality
thereof.
"SITE" means a Home Page and the Pages associated with such Home Page as
a unified Site that are accessible through the use of the Internet at a single
URL.
"THIRD PARTY" means any Person that is not a Party or a wholly owned
Affiliate of a Party.
"USER" means a user of the Internet.
"VENDOR" means a vendor approved by MEDIBUY to participate in
transactions on the New Commerce Site as a provider of products.
"WEBMD MEMBER" means any User who is a then current subscriber to the
WebMD Professional Site developed and offered for access and use by Users
residing in the United States of America.
1.02 TERMS DEFINED IN THE AGREEMENT.
An index of terms defined in the body of the Agreement is attached
hereto as Exhibit 1.02.
1.03 RULES OF CONSTRUCTION.
In this Agreement, unless the context requires otherwise, the singular
shall include the plural and vice versa. The words "including," "includes" or
"included," shall be deemed to be followed by the words "without limitation."
2. NEW COMMERCE SITE DEVELOPMENT PLAN.
Within sixty (60) days following the Execution Date the Parties will use
their best efforts to jointly complete a project plan (the "New Commerce Site
Development Plan") that will set mutually agreeable deadlines for the various
tasks contemplated by this Agreement, including the design, rollout and
implementation of the New Commerce Site, and that sets forth mutually developed
guidelines, processes, procedures and plans for sales and marketing
communications and a mechanism for evaluating and jointly pursuing additional
service opportunities, to the extent such tasks, guidelines, processes,
procedures, plans and mechanisms are not otherwise provided or defined in this
Agreement.
3
<PAGE> 8
SIGNATURE VERSION
3. CREATION OF THE NEW COMMERCE SITE AND MODIFICATIONS TO EXISTING SITES.
3.01 CHANGES TO THE MEDIBUY SITE.
In accordance with the New Commerce Site Development Plan, MEDIBUY will
modify the "Buyer's Center" page of the MEDIBUY Site to include a section equal
in prominence to the "eRFP Manager" and "eAuction Manager" sections and Above
the Fold entitled "Buying for Physician Offices," which shall be an Action Link
leading to a page describing the New Commerce Site through WebMD as the
exclusive channel through which Physician Buyers may access MEDIBUY Services.
3.02 CREATION OF THE NEW COMMERCE SITE.
(a) General
In accordance with the New Commerce Site Development Plan MEDIBUY will
create a new Site (the "New Commerce Site") which: (i) will be hosted by MEDIBUY
on its servers and will be served within a frame served by WebMD as set forth in
the New Commerce Site Development Plan; (ii) will be accessible to WebMD Members
that click on Action Links located on the WebMD Professional Site which are
linked to a transition page on the New Commerce Site (each a "Transition Page");
(iii) will have the Look and Feel of the WebMD Professional Site, including the
navigation bar and other graphics that are generally present when a User visits
the various Pages of the WebMD Professional Site; and (iv) will allow a User to
use the MEDIBUY Services; all in accordance with the following subsections. The
Parties may mutually agree during the Term to have MEDIBUY serve the New
Commerce Site without a WebMD served frame.
(b) Hosting
The New Commerce Site will be hosted by MEDIBUY on its servers (or the
servers of its contractors) at MEDIBUY's sole cost and expense. The URL of the
New Commerce Site will be masked to MEDIBUY's Site by a URL such as
http://medibuy.webmd.com, and any such URL will be owned by WEBMD. If the
Parties agree that the New Commerce Site will be served completely by MEDIBUY
without a WebMD frame, the URL of the New Commerce Site will be a URL such as
http://webmd.medibuy.com and such URL shall be owned by MEDIBUY. WebMD will
receive Page view and reach credit for all User visits to each Transition Page
(which shall constitute the initial page of the New Commerce Site) and MEDIBUY
shall receive Page view and reach credit for all visits to all other pages of
the New Commerce Site. To the extent WebMD serves content to a page of the New
Commerce Site, and the served content constitutes a substantial portion of that
page, then WebMD shall receive Page view and reach credit for all User visits to
that page.
(c) Look and Feel
WebMD shall approve the Look and Feel of the New Commerce Site in its
reasonable discretion. The primary design goal is to preserve as much of the
then current Look and Feel of the WebMD Professional Site as reasonably possible
given the
4
<PAGE> 9
SIGNATURE VERSION
functions which will be available from the New Commerce Site, so that a WebMD
Member who views such Pages will feel that the WebMD Member remains on the WebMD
Professional Site but is experiencing services offered by MEDIBUY. Accordingly,
MEDIBUY will have branding on the New Commerce Site subservient to that of
WebMD, such as "Powered by medibuy.com" at a size smaller than and placement
less prominent than of WebMD branding. On-line Ads will not be placed on the New
Commerce Site. If the Parties agree that the New Commerce Site will be served
completely by MEDIBUY without a WebMD frame, the New Commerce Site will have a
copy of the navigation bar of the WebMD Professional Site (and its Action Links)
so that the WebMD Member can quickly return to the other Pages of the WebMD
Professional Site. WebMD shall design and place Action Links on the WebMD
Professional Site that link to the New Commerce Site, including placement on the
WebMD Professional Site navigation bar at no lower than its second level, thus
allowing a User to access a Transition Page with no more than two Action Link
activations. Each Party will bear its own costs incurred in connection with the
design of the New Commerce Site and the placement of such Action Links.
(d) Access to the New Commerce Site.
Access to the New Commerce Site shall be restricted to WebMD Members.
WebMD Members and all Physician Buyers must access the New Commerce Site through
Action Links on the WebMD Professional Site.
3.03 FUTURE CHANGES TO THE LOOK AND FEEL OF THE WEBMD PROFESSIONAL SITE.
If, after the Effective Date, WebMD wishes to materially alter the Look
and Feel or the design elements of the WebMD Professional Site, then WebMD (i)
will give thirty (30) days advance notice of the "go live" date for such
changes; (ii) will confer with MEDIBUY regarding such changes and cooperate with
MEDIBUY in approving design changes to the New Commerce Site necessitated by the
alterations to the WebMD Professional Site; and (iii) take such other action as
may be commercially reasonable to carry out a coordinated design change. MEDIBUY
shall make and implement such design changes to the New Commerce Site on the "go
live" date for changes by WebMD to the WebMD Professional Site. MEDIBUY will
bear the reasonable costs of any changes required to be made to the Look and
Feel hereunder to the New Commerce Site.
4. PERFORMANCE STANDARDS.
4.01 TECHNICAL PERFORMANCE STANDARDS.
The New Commerce Site will perform at or above the Technical Performance
Standards, a copy of which is attached as Exhibit 4.01.
5
<PAGE> 10
SIGNATURE VERSION
4.02 STANDARDS RELATING TO THE NEW COMMERCE SITE.
(a) General
MEDIBUY covenants that (except as prohibited by applicable Law ) Vendors
at the New Commerce Site will provide WebMD Members with online order
fulfillment for the products and services each offers through the MEDIBUY
Services, including the order fulfillment and credit card processing. MEDIBUY
shall use reasonable commercial efforts to establish a survey program to collect
information from Vendors describing the type, level and quality of customer
service functions provided by the Vendor (e.g. problem resolution, technical or
help desk support, warranty support, and returns and allowances) related to the
sale and delivery of products and services to WebMD Members through the New
Commerce Site and to make such customer service information conspicuously
available to WebMD Members at the New Commerce Site. The New Commerce Site shall
be fully functional seven (7) days per week, twenty-four (24) hours per day,
subject only to planned and unplanned downtime as permitted by the Technical
Standards. MEDIBUY will perform all its services hereunder in a manner that is
consistent with commercially acceptable standards of quality and customer
service applicable to first class on-line marketplace providers and in
accordance with the New Commerce Site Development Plan.
(b) Record Keeping
MEDIBUY shall be responsible for keeping all records with respect to
products sold through the New Commerce Site as may be necessary or reasonably
desirable in order to (i) comply with applicable Law; and (ii) to verify the
service fees due WebMD under this Agreement. Such records shall be maintained so
as to reasonably satisfy any potential audit by any Governmental Body having
jurisdiction over MEDIBUY or by any payor which has paid for items purchased
through the New Commerce Site. Such records shall be subject to audit by WebMD's
representatives pursuant to Section 1.01 during the Term and for one (1) year
thereafter.
(c) Discounts
MEDIBUY shall use its commercially reasonable efforts to establish for
WebMD Members pricing levels from Vendors for products and services offered by
the Vendors at the New Commerce Site at a discount to retail pricing competitive
with discounts provided by MEDIBUY Competitors.
5. ADVERTISING AND PROMOTION.
5.01 LAUNCH CAMPAIGN BY WEBMD.
WebMD shall deploy a launch campaign for the New Commerce Site between
March 1, 2000 and May 31, 2000. By February 15, 2000, WebMD shall present
MEDIBUY the detailed plan for the launch campaign, outlining such elements as
online promotion, placement on the WebMD Professional Site, rewards and
incentive programs, banner ads on lab reports, direct mail campaign, collateral
for physician services used at
6
<PAGE> 11
SIGNATURE VERSION
tradeshows/exhibits, training programs for WebMD Members and development of
internal sales plans.
5.02 POST LAUNCH CAMPAIGN BY WebMD.
WebMD shall deploy on-going advertising for the New Commerce Site after
the launch campaign during the Term. By June 15, 2000, WebMD shall present
MEDIBUY a detailed plan for its post launch campaign, outlining such elements as
online promotion, placement on the WebMD Professional Site, rewards and
incentive programs, banner ads on lab reports, direct mail campaigns, collateral
for physician services used at tradeshows/exhibits, training programs for WebMD
Members and development of internal sales plans.
5.03 SALES DEVELOPMENT OBLIGATIONS OF MEDIBUY.
MEDIBUY shall deploy advertising for the WebMD Site and the New Commerce
Site to its customers during the Term. By February 15, 2000, MEDIBUY shall
present WEBMD a detailed plan for its post launch campaign to develop increased
sales through the New Commerce Site, outlining such elements as online
promotions, providing and promoting the capability to access through the New
Commerce Site products and services from multiple distributors, manufacturers
and providers; providing and promoting the availability of multiple pricing
schemes based on a WebMD Member's affiliations including that with WebMD;
providing and promoting real time purchasing processes; and development of
internal sales plans.
Any online promotions of the New Commerce Site by MEDIBUY shall be under
terms mutually agreed to by the Parties.
6. CHANGES TO PRODUCTS AND SERVICES OFFERED BY THE NEW COMMERCE SITE.
6.01 PROHIBITED USES
MEDIBUY warrants it prohibits Vendors from using the MEDIBUY Services
for anything other than a lawful and legitimate business purpose. Examples of
other than lawful and legitimate business uses by Vendors of the MEDIBUY
Services, but are not limited to, the following: (i) selling or offering (x)
stolen property, counterfeit items, contraband, controlled substances, firearms;
tobacco; pornography, (y) products or services that violate any state or federal
statute or regulation regarding the display, promotion, advertising,
recommending or sale of medical supplies, (z) products or services or any other
material which it is unlawful for the Vendor to sell or a WebMD Member to
acquire (subsections (x)-(z) cumulatively the "Illicit Items"); (ii) placement
on the New Commerce Site of any untrue, malicious, fraudulent, harassing,
offensive or defamatory material, or any material that is irrelevant to a
legitimate use of the site; (iii) introduction of viruses, worms or other
programming routines that are intended to disrupt or interfere with the intended
operation of the site; (iv) insertion of links to other sites of whatever
character; (v) promotion of any unlawful activity or purpose, including any
activity that could give rise to criminal or civil liability; (vi) manipulation
of pricing on transactions by any means, including the placement of bad faith
bids, use of shills in the
7
<PAGE> 12
SIGNATURE VERSION
auction process or collusion between a buyer and seller to cause harm to a
competitor; (vii) unauthorized alteration of any data or information supplied by
another user of the site: or (viii) any activity that infringes on the
copyright, patent, trademark or other rights of any person or entity.
6.02 RIGHT OF MEDIBUY TO PROVIDE NEW VENDORS AND PRODUCTS.
From time to time during the Term, MEDIBUY shall be entitled to
introduce new or replacement (i) Vendors who offer new or replacement products
or services for sale through the New Commerce Site, and (ii) MEDIBUY Services,
provided however, that MEDIBUY may not introduce Vendors who or services
prohibited by Section 6.01.
6.03 RIGHT OF WebMD TO REQUEST THAT MEDIBUY INTRODUCE NEW VENDORS OR PRODUCTS.
If WebMD reasonably believes that WebMD Members would purchase on-line
significant quantities of any specific medical, surgical or office products or
categories of products, WebMD will give MEDIBUY a written notice (the "New
Product Notice") specifying the name and manufacturer or Vendor of the products
or categories and a description thereof and the pricing of same (the "New
Products") or the identity of a company that offers such products or categories
for sale on-line (the "Additional Commerce Partner").
If within ten (10) days of such notice MEDIBUY shall not have given
WebMD written notice of MEDIBUY's intent to introduce Vendors who shall, or the
agreement of current Vendors to offer such New Products, or products that are
substantially similar to the New Products (the "Substitute Product"), as
applicable, on the New Commerce Site within ninety (90) days, then,
notwithstanding any other provisions of this Agreement, WebMD may sell,
distribute or promote the New Products on the WebMD Professional Site or through
the use of an Action Link on the WebMD Professional Site to the Site of a Third
Party or otherwise; or enter into an alliance agreement with such Additional
Commerce Partner pursuant to which WebMD may promote and pursuant to which WebMD
Members can access the on-line offerings of such Additional Commerce Partner, as
applicable for the New Products only.
Furthermore, if within one hundred (100) days of the New Product Notice
the New Commerce Site shall not have begun to offer through Vendors the New
Products or the Substitute Products, WebMD may sell, distribute or promote the
New Products on the WebMD Professional Site or through the use of an Action Link
on the WebMD Professional Site to the Site of a Third Party or otherwise; or
enter into an alliance agreement with such Additional Commerce Partner pursuant
to which WebMD may promote and pursuant to which WebMD Members can access the
on-line offerings of such Additional Commerce Partner, as applicable for the New
Products only.
8
<PAGE> 13
SIGNATURE VERSION
6.04 RIGHT OF WebMD TO REQUEST THAT MEDIBUY PREVENT THE OFFERING OF CERTAIN
PRODUCTS OR SERVICES TO WebMD MEMBERS.
If WebMD reasonably believes that the offering for sale of any product
or service through the New Commerce Site may harm or cause injury to third
parties, or harm the reputation or goodwill of WebMD, or is competitive to
services then offered by WebMD (the "Harmful Items"), MEDIBUY shall not offer,
and shall prevent Vendors from offering, the product or service through the New
Commerce Site following the procedure of Section 6.05.
6.05 REMOVAL OF ILLICIT AND HARMFUL ITEMS.
If (i) MEDIBUY should reasonably know or (ii) MEDIBUY is notified by
WebMD or a Third Party that a Vendor is offering through the New Commerce Site
any Illicit or Harmful Item then MEDIBUY shall use its best efforts to remove
the Illicit or Harmful Item from being offered on the New Commerce Site within
seventy-two (72) hours of MEDIBUY reasonably knowing or being notified of any
Illicit or Harmful Item on the New Commerce Site (the "Removal Period"). Such
best efforts may include (i) instructing and having the Vendor remove the
Illicit or Harmful Item from the New Commerce Site, (ii) MEDIBUY removing the
Illicit or Harmful Item from the New Commerce Site or (iii) preventing the
Vendor from participating in the New Commerce Site until the Illicit or Harmful
Item is removed from the Vendor's offerings on the new Commerce Site. MEDIBUY
shall promptly notify WebMD of all communications between and actions taken by
MEDIBUY and a Vendor concerning any Illicit or Harmful Item during the Removal
Period and thereafter until the Illicit or Harmful Item is removed from the New
Commerce Site.
7. EXCLUSIVITY.
7.01 DEFINITIONS RELATED TO EXCLUSIVITY.
"MEDIBUY COMPETITOR" means a Third Party or Affiliate of a Third Party
having a principal business of providing an on-line marketplace for the sale or
on-line sales of medical, surgical and general office supplies directly to
private practice physicians, out-patient clinics, IDNs, acute care or extended
care facilities; provided however, that notwithstanding the foregoing, the term
MEDIBUY Competitor shall not include (i) E.I. Du Pont De Nemours & Co., or (ii)
any other entity mutually agreed upon by the parties; provided, however that
MEDIBUY agrees to act promptly and reasonably if WebMD requests that additional
entities be added to the foregoing list to determine if it will allow the
amendment, or (iii) any Additional Commerce Partner permitted by Section 6.02
with respect to the sale of New Products only.
"WebMD COMPETITOR" means a Third Party or an Affiliate thereof
principally engaged in the business of providing on-line healthcare information
and services to private practice physicians, out-patient clinics, IDNs, acute
care or extended care facilities or consumers or online health related
communities for consumers, and shall include drkoop.com, CareInsite,
IntelliHealth and Medscape.
9
<PAGE> 14
SIGNATURE VERSION
"PHYSICIAN BUYER" When establishing a buyer's account for the MEDIBUY
Services, each User shall identify itself as purchasing products and services
for (i) an acute care facility, (ii) an extended care facility, (iii) a private
practice physician/physician group or (iv) an out-patient clinic. "Physician
Buyer" shall mean all user who identify themselves under the procedure above as
buying for a private practice physician/physician group or an out-patient
clinic.
7.02 MEDIBUY'S EXCLUSIVE RIGHTS.
(a) Promotion of Medibuy Competitors
Except as otherwise provided herein and except for WebMD's obligations
to (i) McKesson/HBOC Inc. under that certain agreement dated September 1, 1999
as existing as of the Effective Date, and (ii) Neoforma.com Inc. under that
certain agreement dated May 12, 1999 as existing as of the Effective Date,
during the Term, WebMD will not (i) place an Action Link to, or an On-Line
Advertisement or any other advertisement or promotion for, a MEDIBUY Competitor
on any Page of the WebMD Professional Site or any frame to the New Commerce Site
served by WebMD; (ii) otherwise advertise, promote or facilitate, directly or
indirectly, to a WebMD Member or any Person qualified to become a WebMD Member
access to or use of any on-line commerce Site of a MEDIBUY Competitor for the
procurement of medical, surgical or general office supplies, whether in off-line
media, or in any communication made by or on behalf of WebMD, including e-mail,
direct mail, or advertising sent or communicated by WebMD to WebMD Members or
any Person qualified to become a WebMD Member in any manner or (iii) offer
services which are substantially similar to any MEDIBUY Service for the
procurement of any medical, surgical or general office supplies; provided
however, notwithstanding the foregoing, WebMD may advertise to WebMD Members any
medical, surgical or general office supplies product produced or manufactured,
or medical, business and facility-related services provided, by or on behalf of,
any Third Party manufacturer or provider (collectively, the "MEDIBUY Exclusive
Rights").
(b) Exceptions
Notwithstanding the foregoing Section 7.02(a), if a WebMD Member
requires access to a designated Group Purchasing Organization ("GPO") for its
purchasing needs, WebMD shall have the right to (i) customize the WebMD
Professional Site for any such WebMD Member such that the WebMD Member has
access to any GPO(s)the WebMD Member is a member of through the customized WebMD
Professional Site and (ii) create co-branded or non-WebMD branded versions of
the WebMD Professional Site for use by an IDN, acute care center or extended
care center (collectively "Institution") limiting purchasing services access to
only those purchasing services offered by the designated GPO(s) for that
Institution (each an "Institution Channel").
WebMD shall notify MEDIBUY of negotiations to establish an Institution
Channel. MEDIBUY shall have until thirty (30) days after such notice to offer a
solution that will satisfy the needs of the Institution Channel to provide
Institution members the ability to purchase the products and services offered by
a designated GPO(s) to Institution
10
<PAGE> 15
SIGNATURE VERSION
members through the Institution Channel as integrated with the New Commerce
Site. The needs of the Institution Channel may require MEDIBUY to customize the
New Commerce Site as viewed by Institution members, including limiting Vendors
available to designated GPO(s), limiting products and services offered or
presenting Institution member specific pricing. If the Institution rejects the
MEDIBUY solution or does not respond to the solution offered by MEDIBUY within
ten (10) days, WebMD shall offer access to the designated GPO(s) solely by
launching a new browser window in which will appear content solely served by
that GPO. WebMD shall not, other than as set forth in this paragraph, advertise,
promote or facilitate, directly or indirectly, to a WebMD Member or any Person
qualified to become a WebMD Member access to or use of the Site of a designated
GPO(s) for the procurement of medical, surgical or general office supplies.
7.03 WHEN WebMD MAY TERMINATE MEDIBUY'S EXCLUSIVE RIGHTS.
(a) Failure to Implement the New Commerce Site Development Plan
If, at any time during the term of this Agreement, MEDIBUY fails to (i)
implement or (ii) work in good faith with WebMD in the development of the New
Commerce Site Development Plan, then WebMD may, on thirty (30) days advance
written notice and opportunity to cure to MEDIBUY, terminate the MEDIBUY
Exclusive Rights.
(b) Failure to Meet Technical Performance Standards.
If, at any time during the term of this Agreement, MEDIBUY fails to meet
the Technical Performance Standards, then WebMD may, on thirty (30) days advance
written notice to and opportunity to cure for MEDIBUY, terminate the MEDIBUY
Exclusive Rights. Additionally, if at any time during the term of this
Agreement, MEDIBUY fails to meet the Technical Performance Standards for three
(3) consecutive months or three (3) out of twelve (12) consecutive months shall
give WebMD the right to terminate the Exclusive Rights of MEDIBUY.
(c) Sale or Promotion of Certain Products.
If, at any time during the Term of this Agreement, the MEDIBUY Services,
either through the action or omission of MEDIBUY or a Vendor breaches the
prohibitions regarding the sale or promotion of products or services that
violate any state or federal statute or regulation regarding the display,
promotion, advertising, recommending or sale of medical supplies, or products or
services or any other material which it is unlawful for the Vendor to sell or a
WebMD Member to acquire under Section 6.01, or fails to remove Harmful Items
under Section 6.04 then WebMD may, on thirty (30) days advance written notice to
and opportunity to cure for MEDIBUY, terminate the MEDIBUY Exclusive Rights.
7.04 WebMD'S EXCLUSIVE RIGHTS.
Except as otherwise provided herein and except as to MEDIBUY's
obligations to Physiciansite.com, Inc in that certain agreement last dated
November 3, 1999, during the Term, MEDIBUY will not (i) place an Action Link to,
or an On-Line Advertisement or any
11
<PAGE> 16
SIGNATURE VERSION
other advertisement or promotion for, a WebMD Competitor on any Page of the New
Commerce Site or MEDIBUY Site; (ii) otherwise advertise or promote a WebMD
Competitor, whether in off-line media or in on-line media, or in any
communication made by or on behalf of MEDIBUY, including, e-mail, direct mail,
or advertising sent or communicated by MEDIBUY to its Vendors and buyers in any
manner; (iii) offer health related content on, or by use of any Action Link on,
the New Commerce Site, except (x) content concerning trends and statistical
analysis relating to purchasing medical and surgical products, commodity items,
medical related services capital equipment as well as business and
facility-related products and services (y) health related content provided by
WebMD or manufacturers, distributors or sellers of, and directly relating to
products or services offered through the New Commerce Site or the MEDIBUY Site
or with respect to the MEDIBUY Site only, other health related content that is
not otherwise provided by WebMD which may be offered by MEDIBUY in accordance
with the following paragraph or (z) generally and widely published and
distributed journalistic articles or reports principally discussing e-commerce
as it relates to the healthcare supply industry or the healthcare supply chain,
or (iv) offer the MEDIBUY Services to any Physician Buyer other than through the
WebMD Professional Site (collectively, the "WebMD Exclusive Rights").
In the event MEDIBUY proposes to offer health related content provided
by a Third Party (which Third Party shall in no event include any integrated
provider of on-line healthcare information services whose principal business is
competitive with WebMD's principal business, including, for example, drkoop.com,
CareInsite, IntelliHealth and Medscape) on the MEDIBUY Site which content is not
then provided by WebMD, MEDIBUY shall notify WebMD of its desire to offer such
content, describing in its notice the nature of the desired content. WebMD shall
have until thirty (30) days after MEDIBUY'S notice to provide the content as
described in MEDIBUY'S notice. If WebMD rejects the opportunity to provide the
content or fails to provide such content within the 30 day period, then MEDIBUY
shall have the right to offer the Third Party content on the New Commerce Site
and/or the MEDIBUY Site.
7.05 SPONSORSHIP ARRANGEMENTS.
Nothing in this Agreement precludes WebMD or MEDIBUY from co-sponsoring
or co-endorsing any event, service or product also co-sponsored or co-endorsed
by a MEDIBUY Competitor or WebMD Competitor.
7.06 WHEN MEDIBUY MAY TERMINATE WebMD'S EXCLUSIVE RIGHTS.
(a) Failure to Implement the New Commerce Site Development Plan
If, at any time during the term of this Agreement, WebMD fails to work
in good faith with MEDIBUY in the development of the New Commerce Site
Development Plan, then MEDIBUY may, on thirty (30) days advance written notice
and opportunity to cure to WebMD, terminate the WebMD Exclusive Rights.
12
<PAGE> 17
SIGNATURE VERSION
(b) Sale or Promotion of Certain Products.
If, at any time during the Term of this Agreement, either through its
action or omission, WebMD sells or promotes products or services, other than
through the New Commerce Site, that violate any state or federal statute or
regulation regarding the display, promotion, advertising, recommending or sale
of medical supplies then MEDIBUY may, on thirty (30) days advance written notice
to and opportunity to cure for WebMD, terminate the WebMD Exclusive Rights.
7.07 NO EXCLUSIVE RIGHTS AS REGARDS SERVICES
Notwithstanding anything to the contrary herein, the Agreement does not
preclude WebMD from creating a hyperlink from the WebMD Professional Site to,
advertising, promoting or facilitating, directly or indirectly, to a WebMD
Member access to any page solely relating to medical, business and
facility-related services of an on-line commerce Site of a MEDIBUY Competitor;
provided such page does not advertise, promote or facilitate, directly or
indirectly, the sale of medical products, surgical products, or general office
supplies.
If at any time during the Term WebMD notifies MEDIBUY it has entered
into an agreement precluding the New Commerce Site from offering WebMD Members a
specific service, MEDIBUY shall use commercially reasonable efforts to remove
the specific service from being offered on the New Commerce Site, but in no
instance more than thirty (30) days after such notice.
8. COMPENSATION.
8.01 GENERAL.
(a) MEDIBUY will pay WebMD:
(i) a Slotting Fee during each year of the Term for the services
delivered by and obligations of WebMD under Section 7.04 according to the
following chart
<TABLE>
<S> <C>
2000 $[...***...]
2001 $[...***...]
2002 $[...***...]
</TABLE>
in equal quarterly payments on each January 1, April 1, July 1 and
October 1. In 2000 the January 1 and April 1 installments (aggregate
$[...***...]) shall be paid within fifteen (15) days of the Effective Date,
plus;
(ii) for the services delivered by WebMD under Sections 5.01, 5.02
[...***...] of all Net Fees for transactions derived from the MEDIBUY Services
described as eAuction
13 * Confidential Treatment Requested
<PAGE> 18
SIGNATURE VERSION
and as further described in attached Schedule 8.01 by WebMD Members through the
New Commerce Site during the Term, plus;
(iii) for the services delivered by WebMD under Sections 5.01, 5.02
[...***...] of all Net Fees for transactions derived from the MEDIBUY Services
described as eRFP and eCatalog (when available) and as further described in
attached Schedule 8.01 by WebMD Members through the New Commerce Site during the
Term; and
(iv) a mutually determined percentage of all compensation derived from
each MEDIBUY Service available hereafter through the New Commerce Site.
"Net Fees" means all compensation received by MEDIBUY attributable to
the use of the MEDIBUY Services by WebMD Members, excluding only those amounts
that MEDIBUY rebates to any WebMD Member, any credit card or other fees charges
to and payable by MEDIBUY as a result of the method of payment selected by the
WebMD Member, and any refund that MEDIBUY makes to any WebMD Member, which
amount would not have been included in Net Fees had it not been refunded.
(b) WebMD will pay MEDIBUY a Sales Development Fee for the services
delivered by MEDIBUY under Article 4 and Section 5.03, as follows:
<TABLE>
<S> <C>
2000 $[...***...]
2001 $[...***...]
2002 $[...***...]
</TABLE>
in equal quarterly payments on each January 1, April 1, July 1, and
October 1 during the Term. The April 1, 2000 Sales Development Fee payment shall
be $[...***...]and payable March 31, 2000.
(c) Neither Party shall be entitled to compensation from the other Party
except as set forth in this Article 8.
8.02 PAYMENT AND REPORTING TERMS.
MEDIBUY will remit the designated percentage of Net Fees payable to
WebMD under Section 8.01 (a)(ii)-(i) within thirty (30) days following the end
of the month in which such fees were earned. MEDIBUY shall provide WebMD with a
report of the fees earned by WebMD at the time such fees are remitted to WebMD.
MEDIBUY also shall maintain records of all transactions subject to this Article,
which records shall be subject to audit by WebMD in accordance with Section
1.01.
14 * Confidential Treatment Requested
<PAGE> 19
SIGNATURE VERSION
8.03 AUDIT RIGHTS
Each Party shall have the right to audit the other Party no more than
twice per twelve (12) month period, and only during reasonable business hours
and upon reasonable notice to the audited Party, to determine the accuracy of
Net Fees payable to WebMD, or to determine the other Party's compliance with
Section 7.03 or Section 7.06, provided such audit is limited in scope to those
materials of a Party relevant to determine the accuracy of payments made by
MEDIBUY. If WebMD discovers a shortfall in the amount of fees paid by MEDIBUY
for any period during the Term, MEDIBUY shall promptly remit the shortfall to
WebMD following receipt of notice of the shortfall from WebMD. In addition,
MEDIBUY shall pay for the cost of WebMD's audit or review in the event WebMD
discovers a shortfall equal to at least five percent (5%) of the total amount
originally paid by MEDIBUY. In the event of any dispute regarding the audit
determination of either Party, the disputing Party shall notify the other Party
of the nature of such dispute, the dispute will be referred to the Dispute
Resolution provisions of this Agreement set out at Article 11.
8.04 CHANGE IN LAW.
The Parties agree that in the event after the Effective Date of this
Agreement there is a change in any applicable Law, which change would make
continued performance by either Party under this Agreement impossible,
intolerable, or in material violation of applicable Law, then, in such instance,
this Agreement shall be modified in writing by the Parties hereto in accordance
with the following procedures:
To the extent that this Agreement fails to comply with any applicable
Law due to a change described by this Section 8.04, the Parties shall
immediately modify this Agreement, including this Section 10, within thirty (30)
days after the effective date of such change in order to comply with applicable
Law and to preserve the economic benefits contemplated by the Parties; and, if
the Parties cannot, after good faith negotiations, mutually agree within such
30-day period upon changes necessary to comply with such applicable Law, this
Agreement shall immediately terminate and be of no further force and effect.
Further, upon the effective date of any such change in applicable Law,
either Party may request a suspension of both Parties' performance under this
Agreement until a modification under this Section 8.04 has been agreed to, and
upon such request the performance by both Parties will be suspended until the
Parties have agreed to such a modification, but any compensation earned by WebMD
pursuant to this Agreement prior to such a suspension will be paid when due. For
the purpose of this Section 8.04, the term "Law" shall include administrative
rulings, judicial decisions, manual provisions, fraud alerts prepared by the
Department of Health and Human Services' Office of the Inspector General ("OIG")
and Advisory Opinions Issued by the OIG.
15
<PAGE> 20
SIGNATURE VERSION
8.05 MEDIBUY LINKING OPTION
In lieu of the agreements and obligations set forth in Articles 2-8,
MEDIBUY may elect to have WebMD provide a direct link to the MEDIBUY site on a
non-exclusive basis. Such link must be at least as prominent as that of any
other provider of medical products, surgical products or general office supplies
on the WebMD Site. In lieu of the compensation in Section 8.01, if MEDIBUY
elects this option, MEDIBUY shall pay a one time upfront fee of [...***...] for
allowing such access to the MEDIBUY Site from the WebMD Site.
9. LICENSES.
9.01 RECIPROCAL RIGHT TO USE MARKS.
Each Party hereby grants to each of the other Parties a world-wide,
royalty-free, non-exclusive license during the term to use all of such granting
Party's Marks set forth in Exhibit 9.01 hereto solely in connection with the
organization and operation of the New Commerce Site and the advertising,
marketing and promotion thereof and of products and services in each case in
accordance with the terms and conditions of this Agreement. Each party granting
a license to use Marks pursuant to the preceding sentence retains all right,
title and interest in and to the Marks provided by such Party, and does not
convey any proprietary interest therein to any other Party other than the
license rights specifically granted herein. Any use of a Party's Mark by the
other Party shall be pre-approved by the Party.
9.02 RESTRICTIONS ON USE OF MARKS.
In addition to the other terms and conditions of this Agreement
pertaining to the use of the Marks, the use by each Party of any mark belonging
to any other Party (a "Co-Party Mark") shall be subject to the following terms
and conditions:
i) Each Party expressly acknowledges that it shall not use any
Co-Party Mark in any manner or for any purpose except as specifically
permitted by this agreement.
ii) Each Party acknowledges that each of the Co-Party Marks is
widely known, is a trade name, trademark, service mark, logo and/or
domain name owned by the Party to whom it is attributed hereunder (the
"mark owner"), has obtained prestige and distinction as a designation
for high quality products or services, has gained wide public acceptance
and goodwill and is of great value and importance to the mark owner. the
parties further acknowledge and agree that all use of the marks in
connection with the new commerce site and the advertising, marketing and
promotion thereof must preserve and protect the prestige and value of
the marks and all rights of the respective mark owners therein and
thereto.
16 * Confidential Treatment Requested
<PAGE> 21
SIGNATURE VERSION
(iii) Each Party shall use the Co-Party Marks strictly in
compliance with all applicable legal requirements. Each party shall
cause to appear on all materials on or in connection with which any
Co-Party Mark is used, such legends, markings and notices as may be
reasonably necessary in order to give appropriate notice of any
trademark or other rights therein or pertaining thereto.
(iv) Each Party shall execute any documents reasonably required
by a mark owner to confirm such mark owner's ownership of all rights in
and to such mark owner's Co-Party Mark and the respective rights of the
parties pursuant to this agreement.
(v) No Party ever shall challenge the ownership of or the
validity of a Co-Party Mark or any application for registration thereof,
or any trademark registrations thereof, or any rights of the relevant
mark owner therein. Also, no Party shall seek to register a Co-Party
Mark or any variation or simulation thereof for any products or
services, without the prior written consent of the mark owner.
(vi) If any Party learns of any infringement or imitation of a
Co-Party Mark, it promptly shall notify the relevant mark owner thereof.
The relevant mark owner thereupon shall take such action as it deems
advisable for the protection of its rights in and to such Co-Party Mark.
No mark owner shall be required to take any action if it deems it
inadvisable to do so and no other party may take any action with respect
to a Co-Party Mark without the relevant mark owner's prior written
approval.
(vii) No Party has authorized any other Party hereunder to use
its marks or any designation or identification relating to its marks or
products in any manner or capacity other than as provided herein, except
as may be set forth in a separate signed writing between such parties.
10. GOVERNANCE AND OVERSIGHT.
10.01 APPOINTMENT AND ROLE CONTRACT MANAGERS.
Promptly following the Effective Date, each Party shall appoint an
individual who shall serve as such Party's primary representative for purposes
of this Agreement (each, a "Contract Manager"). Each Party may replace its
Contract Manager from time to time during the Term on Notice to the other Party.
Each Contract Manager shall have overall responsibility for managing and
coordinating the performance of its Party's obligations under this Agreement.
10.02 APPOINTMENT AND ROLE STEERING GROUP.
Promptly following the Effective Date, the Parties will establish a
steering group, consisting of three executives from WebMD and three executives
from MEDIBUY. The steering group will meet on a regular basis, either in person
or via conference call, to set overall direction, monitor progress and resolve
issues regarding the affiliation created
17
<PAGE> 22
SIGNATURE VERSION
under this Agreement. The steering group will direct the Contract Managers to
implement the Agreement and roll-out of the affiliation seamlessly to all WebMD
Members.
11. DISPUTE RESOLUTION.
11.01 EFFORTS BY CONTRACT MANAGERS.
Any dispute arising under this Agreement shall be considered first in
person or by telephone by Contract Managers within seven business days after
receipt (the date of receipt being referred to as the "Dispute Date") of a
Notice from either Party specifying the nature of the dispute and referencing
this Section. If for any reason, including a failure to meet or communicate, the
Contract Managers have not resolved such dispute to the satisfaction of the
Parties within twelve business days after the Dispute Date, then Contract
Managers shall immediately refer such dispute to the Steering Committee.
11.02 EFFORTS BY STEERING COMMITTEE.
Each Steering Committee member shall make a good faith attempt to
consider such dispute in person or by telephone within twelve business days of a
dispute being referred to him or her. The Steering Committee 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
Steering Committee 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 non-privileged information, reasonably related to this Agreement,
will be honored in order that each of the Parties may be fully advised of the
other's position; provided, however, neither Party shall be required to disclose
its confidential or proprietary information. The specific format for the
discussions will be left to the discretion of the Steering Committee, but may
include the preparation of agreed-upon statements of fact or written statements
of position. The Parties agree that any such written statements will be prepared
in connection with settlement negotiations, and as such will be privileged and
shall not be used against the Party who prepared such statement unless it is
subsequently introduced by the preparing Party in formal proceedings.
Should the Steering Committee fail to reach agreement within 30 days of
the initiation of the dispute resolution process (or such longer period as such
representatives may agree in writing), then formal proceedings for the
resolution of a dispute may be commenced in accordance with Section 11.03.
The dispute resolution requirements set forth in this Article 11 shall
not apply to claims arising out of or related to: (a) any infringement or
misappropriation of either Party intellectual property, and (b) any violation of
the confidentiality obligations set forth in Article 18.
18
<PAGE> 23
SIGNATURE VERSION
11.03 MEDIATION AND ARBITRATION.
The parties agree that any and all disputes, claims or controversies
arising out of or relating to this agreement that cannot be resolved pursuant to
Sections 11.01 or 11.02 shall be submitted to American Arbitration Association
(the "Arbitration Firm"), or its successor, for mediation, and if the matter is
not resolved through mediation, then it shall be submitted to the Arbitration
Firm, or its successor, for final and binding arbitration. Either Party may
commence mediation by providing to the Arbitration Firm and the other Party a
written request for mediation, setting forth the subject of the dispute and the
relief requested. The mediation will be conducted in accordance with the
Arbitration Firm's rules and procedures in effect at the time of filing of the
demand for arbitration. The parties will cooperate with the Arbitration Firm and
with one another in selecting a mediator from the Arbitration Firm's panel of
neutrals, and in scheduling the mediation proceedings. The parties covenant that
they will participate in the mediation in good faith, and that they will share
equally in its costs. All offers, promises, conduct and statements, whether oral
or written, made in the course of the mediation by any of the parties, their
agents, employees, experts and attorneys, and by the mediator or any employees
of the Arbitration Firm, are confidential, privileged and inadmissible for any
purpose, including impeachment, in any arbitration or other proceeding involving
the parties, provided that evidence that is otherwise admissible or discoverable
shall not be rendered inadmissible or non-discoverable as a result of its use in
the mediation. Either Party may initiate arbitration with respect to the matters
submitted to mediation by filing a written demand for arbitration at any time
following the initial mediation session or 45 days after the date of filing the
written request for mediation, whichever occurs first. The mediation may
continue after the commencement of arbitration if the parties so desire. Unless
otherwise agreed by the parties, the mediator shall be disqualified from serving
as arbitrator in the case. The provisions of this Section may be enforced by any
court of competent jurisdiction, and the Party seeking enforcement shall be
entitled to an award of all costs, fees and expenses, including attorneys fees,
to be paid by the Party against whom enforcement is ordered.
12. WebMD MEMBER DATA.
12.01 OWNERSHIP.
WebMD shall own all data provided by a WebMD Member; whether collected
at the WebMD Site or the New Commerce Site (the "WebMD Member Data").
12.02 USE OF WebMD MEMBER DATA.
MEDIBUY may only use WebMD Member Data to the extent necessary to
facilitate use of the MEDIBUY Services by the WebMD Member through the New
Commerce Site, and for no other purpose. WebMD may provide MEDIBUY such WebMD
Member Data, at WebMD's sole discretion. MEDIBUY may use for its own internal
purposes during the Term WebMD Member Data collected through the New Commerce
Site in a format that describes the habits, usage patterns, demographics, and/or
buying patterns of WebMD Members as a group but does not indicate the identity
of any
19
<PAGE> 24
SIGNATURE VERSION
particular WebMD Member, and information about an individual WebMD Member
presented in a form distinguishable from information relating to other WebMD
Members, but not in a form that enables a recipient to personally identify any
WebMD Member or locate or contact any WebMD Member ,even on an identity-blind
basis (the "Aggregate Information"). MEDIBUY shall make available to WebMD all
Aggregate Information in a format mutually agreed upon by the parties.
12.03 SECURITY AND PRIVACY.
Subject to restrictions imposed under applicable Law, WebMD's then
current privacy policy will be the applicable privacy policy for the New
Commerce Site. MEDIBUY agrees not to accept submissions of information through
the New Commerce Site from individuals known to be nationals and residents of
the member states of the European Union.
13. OWNERSHIP OF INTELLECTUAL PROPERTY.
13.01 OWNERSHIP BY MEDIBUY.
WebMD acknowledges that, as between it and MEDIBUY, MEDIBUY owns or is
the licensee of, all right, title and interest in and to all IP Rights contained
on the MEDIBUY Sites, including the MEDIBUY trademarks, except for any WebMD
trademarks displayed on such sites. WebMD understands and agrees that its use of
any of the foregoing MEDIBUY property in connection with this Agreement shall
not create in it any right, title or interest, in or to such property, and that
all such use and goodwill associated with any such use shall inure to the
benefit of MEDIBUY. MEDIBUY shall not develop during the Term or thereafter any
Site having a Look and Feel confusingly similar to that of the WebMD Site or the
New Commerce Site.
13.02 OWNERSHIP BY WebMD.
MEDIBUY acknowledges that, as between it and WebMD, WebMD owns or is the
licensee of, all right, title and interest in and to all IP Rights contained on
the WebMD Sites, including the WebMD trademarks and the WebMD Content, except
for any MEDIBUY trademarks displayed on such sites. MEDIBUY understands and
agrees that its use of any of the foregoing WebMD property in connection with
this Agreement shall not create in it any right, title or interest, in or to
such property, and that all such use and goodwill associated with any such use
shall inure to the benefit of WebMD.
13.03 OWNERSHIP AND THE NEW COMMERCE SITE.
Notwithstanding any statement to the contrary in this Agreement, MEDIBUY
acknowledges the Look and Feel of the New Commerce Site is the sole and
exclusive property of WebMD. WebMD acknowledges that any materials used on the
New Commerce Site developed solely by MEDIBUY without assistance from WebMD, as
between WebMD and MEDIBUY, shall be the sole exclusive property of MEDIBUY.
MEDIBUY acknowledges that any materials used on the New Commerce Site developed
20
<PAGE> 25
SIGNATURE VERSION
solely be WebMD without assistance from MEDIBUY, as between WebMD and MEDIBUY,
shall be the sole exclusive property of WebMD.
14. TERM AND TERMINATION.
14.01 TERM.
This Agreement shall begin on the Effective Date, and shall expire April
1, 2003 (the "Term"), unless terminated earlier as provided below.
14.02 EARLY TERMINATION BY EITHER PARTY.
"Material Breach" means a material uncured breach by a Party to meet its
obligations under this Agreement that (i) has a material adverse effect on the
other Party or (ii) is so egregious that the Agreement fails of its essential
purpose, unless the breaching Party cures such previously uncured failures
within sixty (60) days of receiving Notice thereof.
(a) Either Party
Either Party may terminate this Agreement upon written notice if
(i) the other Party fails to make any payment due hereunder
within 15 days of notice that a payment was not received when
due;
(ii) the other Party commits a Material Breach of this Agreement
that is not cured within the time allowed by this Agreement,
(iii) the other Party files a petition for bankruptcy or is
adjudicated a bankrupt;
(iv) a petition in bankruptcy is filed against the other Party
and such petition is not dismissed within ninety (90) calendar
days;
(v) the other Party becomes insolvent or makes an assignment for
the benefit of its creditors or an arrangement for its creditors
pursuant to any bankruptcy law;
(vi) a receiver is appointed for other Party or its business; or
(b) By MEDIBUY
MEDIBUY may terminate this Agreement upon written notice if
McKessonHBOC Inc. exercises its right to have WebMD continue to
place an Action Link to any e-commerce Site designated by
McKessonHBOC after November 12, 2000, which is the date one (1)
year after the consummation of the transactions contemplated by
the Healtheon-WebMD Reorganization Agreement.
21
<PAGE> 26
SIGNATURE VERSION
14.03 TRANSITION PLANNING.
On April 1, 2002 the Parties may commence negotiations regarding the
renewal or extension of this Agreement, on such terms as the Parties may, in
their sole discretion, deem appropriate. If (i) either Party chooses not to
participate in such negotiations, (ii) either Party gives notice to the other
that it does not believe that the continuations of such negotiations are likely
to result in a renewed or extended agreement, or (iii) if the Parties have not
agreed to the essential terms on which this Agreement will be renewed or
extended by the date two years and six months after the Effective Date, then the
Parties will begin the negotiation of a Transition Plan. The Transition Plan
will set out the procedures that the Parties will follow during the Term to
inform visitors to their respective sites as to the location of the other
Parties' Site after the Term, and such other matters as the Parties may agree.
14.04 EFFECT OF TERMINATION.
Termination of this Agreement by either Party shall not act as a waiver
of any breach of this Agreement and shall not act as a release of either Party
hereto from any liability for breach of such Party's obligations under this
Agreement.
Within forty-five (45) calendar days following the expiration or
termination of this Agreement, each Party shall pay to the other Party all sums,
if any, due and owing as of the date of expiration or termination, net of any
amounts due from the other Party as of such date.
Upon the termination of this Agreement each Party (i) will promptly
disable and remove any Action Links between such Party's sites (including Action
Links, if any, from Controlled Sites) and the New Commerce Site, as applicable;
(ii) shall promptly remove from such Party's sites all copies of all the other
Party's trademarks; (iii) shall promptly cease all other uses of the other
Party's trademarks and (iv) take such other actions as may be contained in the
Transition Plan.
14.05 SURVIVAL.
Articles 11, 13, 15, 16, 17, and 18, and Sections 1.01, 14.04, 19.03,
and 19.11 shall survive expiration or termination of this Agreement.
15. REPRESENTATIONS AND WARRANTIES.
15.01 MUTUAL REPRESENTATIONS AND WARRANTIES.
Each Party hereby represents and warrants to the other Party that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all the
necessary power and authority (i) to conduct its business in the manner in which
its business is currently being conducted, (ii) to own and use its assets in the
manner in which its assets are currently
22
<PAGE> 27
SIGNATURE VERSION
owned and used, and (iii) to enter into this Agreement and perform its
obligations under this Agreement; and
(b) Its execution and delivery of this Agreement, and the performance of
its obligations and duties hereunder, do not and will not (i) conflict with or
result in any breach of any provision of its certificate of incorporation or
by-laws, (ii) require any filing with, or permit, authorization, consent or
approval of, any Governmental Body, (iii) result in a violation or breach of, or
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, any terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which it is a party or by which any of its properties or assets
may be bound, (iv) violate any order, writ, injunction, decree, or Law
applicable to it, excluding from the foregoing clauses (ii), and (iii) such
filings, violations, breaches or defaults which would not, individually or in
the aggregate, have a material adverse effect on it or its ability to perform
under this Agreement.
15.02 REPRESENTATIONS AND WARRANTIES BY WebMD.
WebMD represents and warrants that:
a. The WebMD Site does not and will not contain any matter which
constitutes or results in a claim that, if true, constitutes libel, slander,
false light, invasion of privacy or any other tort against or with respect to
any Third Party;
b. To the knowledge of WebMD, the WebMD Site, and the Look and
Feel of any frame to the New Commerce Site served by WebMD does not and will not
infringe the IP Rights of any Third Party; and
c. The WebMD Professional Site, Look and Feel and any frame to
the New Commerce Site served by WebMD do not and will not violate applicable
Law.
15.03 REPRESENTATIONS AND WARRANTIES BY MEDIBUY.
MEDIBUY represents and warrants that:
a. The MEDIBUY Site and the New Commerce Site do not and will not
contain any matter which constitutes or results in a claim that, if true,
constitutes a libel slander, false light, invasion of privacy or any other tort
against or with respect to any Third Party;
b. To the knowledge of MEDIBUY, the MEDIBUY Site and the New
Commerce Site do not and will not infringe the IP Rights of any Third Party;
c. The MEDIBUY Site and the New Commerce Site do not and will not
violate applicable Law.
23
<PAGE> 28
SIGNATURE VERSION
15.04 INDEMNITY.
(a) Each Party
Each Party (the "Indemnifying Party") shall indemnify, defend and hold
the other Party harmless from and against all Losses incurred in connection with
or arising from any claim asserted by a Third Party that, if true, would
constitute a breach of a representation or warranty made by the Indemnifying
Party in Section 15.01, 15.02 or 15.03.
(b) MEDIBUY
MEDIBUY will indemnify, defend and hold WebMD harmless from any and all
loss, cost, damage, expenses, including interest, penalties, cost of
investigation and defense, and reasonable attorneys' and other professional fees
and expenses, claims or demands of any kind or nature whatever that arise in any
way out of a Vendor's participation in or medibuy's operation of the New
Commerce Site, including, but not limited to, products liability claims.
"LOSSES" shall mean any and all losses, actual damages (and not special
or consequential damages), liabilities, costs, and expenses, including interest,
penalties, cost of investigation and defense, and reasonable attorneys' and
other professional fees and expenses.
15.05 INDEMNIFICATION PROCEDURE.
A Party seeking indemnification under Section 15.04 (the "Indemnified
Party") shall promptly notify the Indemnifying Party in writing of any claim for
indemnification; provided, however, that failure to give such notice shall not
relieve the Indemnifying Party of any liability hereunder (except to the extent
the Indemnifying Party has suffered actual material prejudice by such failure).
The Indemnified Party shall tender sole defense and control of such
claim to the Indemnifying Party. The Indemnified Party shall, if requested by
the Indemnifying Party, give reasonable assistance to the Indemnifying Party in
defense of any claim. The Indemnifying Party shall reimburse the Indemnified
Party for any reasonable legal expenses directly incurred from providing such
assistance, as such expenses are incurred.
The Indemnifying Party shall have the right to consent to the entry of
judgment with respect to, or otherwise settle, an indemnified claim with the
prior written consent of the Indemnified Party, which consent shall not be
unreasonably withheld; provided, however, that the Indemnified Party may
withhold its consent if any such judgment or settlement imposes any unreimbursed
monetary or continuing non-monetary obligation on such Party or does not include
an unconditional release of that Party and its Affiliates from all liability in
respect of claims that are the subject matter of the indemnified claim.
24
<PAGE> 29
SIGNATURE VERSION
15.06 INFRINGEMENT INDEMNITY.
Each Party (the "Indemnifying Party") shall defend, indemnify, and hold
harmless the other Party (the "Indemnified Party") and all its employees,
officers, directors and agents at Indemnifying Party's expense from and against
any and all claims, lawsuits, actions, decrees, judgments, orders, injunctions,
or demands of any kind, including court costs, expenses and reasonable
attorney's fees, to the extent that such claim, lawsuit, action, decree,
judgment, order, injunction, or demand of any kind is based on a claim that the
WebMD Professional Site, Look and Feel or any frame served by WebMD around the
New Commerce Site, when WebMD is the Indemnifying Party, or the MEDIBUY Site or
New Commerce Site (other than the Look and Feel or any frame served by WebMD
around the New Commerce Site, when MEDIBUY is the Indemnifying Party, infringes
a patent or copyright or the trade secret, IP Right or other proprietary right
of a Third Party ("Infringement"), provided that Indemnifying Party is notified
within 15 days in writing by Indemnified Party as to any such action and is
given full authority, information, and assistance (at Indemnifying Party's
expense) for the defense thereof and the right to control and direct the
investigation, preparation, defense, and settlement of such action provided a
failure to notify the Indemnifying Party as provided in this Section shall not
relieve any Party from its obligation to provide indemnification to extent such
failure is not prejudicial. This paragraph states an Indemnifying Party's sole
liability with respect to claims of Infringement.
15.07 NO OTHER REPRESENTATIONS OR WARRANTIES.
Each Party acknowledges that the other Party makes no representations,
warranties or agreements related to the subject matter hereof that are not
expressly provided for in this Agreement.
15.08 REMEDIES CUMULATIVE.
Except as otherwise expressly specified herein, the rights and remedies
granted to each Party under this Agreement are cumulative and in addition to,
and not in lieu of, any other rights or remedies that such Party has under the
express terms of this Agreement.
16. DISCLAIMER OF OTHER WARRANTIES.
EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPLICITLY
PROVIDED FOR IN ARTICLE 15, THE OTHER PARTY MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO (A) THE USEFULNESS, ACCURACY,
COMPLETENESS, FEASIBILITY, RELIABILITY OR EFFECTIVENESS OF SUCH PARTY'S SITES OR
IP RIGHTS; (B) THAT SUCH PARTY'S SITES WILL OPERATE UNINTERRUPTED OR ERROR-FREE;
OR (C) THAT DEFECTS IN SUCH PARTY'S SITES OR IP RIGHTS HAVE BEEN OR WILL BE
CORRECTED. WITHOUT LIMITING THE FOREGOING, EACH PARTY HEREBY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
ANY
25
<PAGE> 30
SIGNATURE VERSION
DAMAGES CAUSED BY THE FAILURE, DISRUPTION, DOWNTIME, INTERRUPTION, INCORRECT
LINKAGE, DELAY, INACCURACY OR OTHER NONPERFORMANCE OF SUCH PARTY'S SITES.
17. LIMITATION OF LIABILITY.
EXCEPT IN THE EVENT OF WILLFUL MISCONDUCT OR A CLAIM PURSUANT TO
INDEMNIFICATION OBLIGATIONS UNDER SECTIONS 15.06 or 15.04(b) HEREIN, IN NO EVENT
SHALL A PARTY TO THIS AGREEMENT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, FOR LOST PROFITS, IN
ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT, EVEN IN THE EVENT SUCH
PARTY HAS BEEN ADVISED AS TO THE POSSIBILITY OF SUCH DAMAGES.
18. CONFIDENTIALITY.
18.01 CONFIDENTIAL INFORMATION.
"Confidential Information" means information about the disclosing
Party's business or activities that are proprietary or confidential, other than
Trade Secrets, which are marked or designated by such Party as "confidential" or
"proprietary;" that is of value to a Party. "Trade Secret" means any information
of a Party which (i) derives economic value, actual or potential, from not being
generally known to and not being readily ascertainable by proper means by other
persons who can obtain economic value from its disclosure or use, and (ii) is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy. No information shall be considered Confidential Information or
Trade Secret of a disclosing Party if it can be shown that such information: (i)
was known to the recipient prior to the date of disclosure by the disclosing
Party directly or indirectly from a source other than one having an obligation
of confidentiality to the disclosing Party; (ii) hereafter becomes known
(independently of disclosure by the disclosing Party) to the recipient directly
or indirectly from a source other than one having an obligation of
confidentiality to the disclosing Party; (iii) becomes publicly known or
otherwise ceases to be confidential, except through a breach of this Agreement
by the recipient; or (iv) was independently developed by the recipient without
use of Confidential Information or a Trade Secret of the other Party.
18.02 PROTECTION OF CONFIDENTIAL INFORMATION.
The Parties recognize that, in connection with the performance of this
Agreement, each of them may disclose to the other its Confidential Information
and Trade Secrets, including the creation of materials and the development of
technology and techniques that are not generally known in the industry. The
Party receiving any Confidential Information or Trade Secret of the other Party
agrees to maintain the confidential status of such Confidential Information or
Trade Secret and not to use any such Confidential Information or Trade Secret
for any purpose other than the purposes for which it was originally disclosed to
the receiving Party, and not to disclose any of such Confidential
26
<PAGE> 31
SIGNATURE VERSION
Information to any Third Party until three (3) years after the Termination of
the Agreement and to keep any Trade Secret confidential for as long as it
remains a Trade Secret.
18.03 PERMITTED DISCLOSURE.
The Parties acknowledge and agree that each may disclose Confidential
Information or a Trade Secret: (i) as required by law; (ii) to their respective
directors, officers, employees, attorneys, accountants and other advisors or
independent contractors, who are under an obligation of confidentiality no less
stringent than set forth herein, on a "need-to-know" basis; (iii) to their
respective Affiliates; or (iv) in connection with disputes or litigation between
the Parties that related to such Confidential Information or Trade Secret and
each Party shall endeavor to limit disclosure to that purpose.
Confidential Information or a Trade Secret may be disclosed to a legal,
judicial or governmental entity, or as required by the rules or orders of a
court or governmental entity, provided that, before such disclosure, the
recipient shall give reasonable advance notice of such so that the disclosing
Party can seek a protective order or the appropriate protection for the
Confidential Information or Trade Secret.
18.04 APPLICABILITY.
The foregoing obligations shall apply to directors, officers, employees
and representatives of the Parties and any other Person to whom the Parties have
delivered copies of, or permitted access to, such Confidential Information or
Trade Secret in connection with the performance of this Agreement, and each
Party shall advise each of the above of the obligations set forth in this
Article.
18.05 CONFIDENTIALITY OF THE TERMS OF THIS AGREEMENT.
Except as required by law (including disclosures necessary or
appropriate in filings with the Securities Exchange Commission or any other
Governmental Body) or generally accepted accounting principles, and except to
assert its rights hereunder or for disclosures on a "need-to-know" basis to its
own officers, directors, employees and professional advisers or to prospective
investors or acquirers in connection with an investment in or acquisition of
such Party, each Party hereto agrees that neither it, nor its directors,
officers, employees, consultants or agents shall disclose the specific terms of
this Agreement without the prior consent of the other Party.
18.06 PUBLIC DISCLOSURE OF THE TERMS OF THIS AGREEMENT.
Each Party consents to the filing of the Agreement with the U.S.
Securities and Exchange Commission by the other party and to reference such
Party's name and a description of this Agreement in any such filings. In
connection with any public disclosure or filing with any governmental agency,
including the Securities and Exchange Commission, each Party agrees to seek
confidential treatment of the terms and conditions of this Agreement. In
addition, any description of this Agreement, or any redacted version of this
Agreement, intended to be filed or attached to any publicly filed document
27
<PAGE> 32
SIGNATURE VERSION
by a Party shall be submitted to the other Party for review and input prior to
filing. Notwithstanding anything to the contrary herein, neither Party may use
any Mark of the other Party in any public disclosure or filing with any
governmental agency, including the Securities and Exchange Commission, without
the express written consent of the other Party.
19. MISCELLANEOUS.
19.01 PRESS RELEASE.
The Parties agree to issue a joint press release about this Agreement
promptly upon the Effective Date.
19.02 NO JOINT VENTURE.
The sole relationship between the Parties shall be that of independent
contractors. No partnership, joint venture, or other formal business
relationship is hereby created between the Parties hereto. Neither Party shall
make any warranties or representations, or assume or create any obligations, on
the other Party's behalf except as may be expressly permitted hereunder or in
writing by such other Party. Each Party shall be solely responsible for the
actions of all their respective employees, agents and representatives.
19.03 GOVERNING LAW.
This Agreement shall be interpreted and construed in accordance with the
laws of the State of California without regard to the principles of conflicts of
laws, and with the same force and effect as if fully executed and performed
therein, and the laws of the United States of America.
19.04 AMENDMENT OR MODIFICATION.
This Agreement may not be amended, modified or supplemented by the
Parties in any manner, except by an instrument in writing signed on behalf of
each of the Parties by a duly authorized officer or representative.
19.05 NO ASSIGNMENT.
MEDIBUY shall not transfer or assign any rights or delegate any
obligations hereunder including by assignment of this Agreement and the
obligations hereunder to any successor of MEDIBUY by way of merger,
consolidation, reorganization, Change of Control or the acquisition of
substantially all of the business and assets of MEDIBUY relating to the
Agreement to any WebMD Competitor in whole or in part, whether voluntarily or by
operation of law. WebMD shall not transfer or assign any rights or delegate any
obligations hereunder including by assignment of this Agreement and the
obligations hereunder to any successor of WebMD by way of merger, consolidation,
reorganization, Change of Control or the acquisition of substantially all of the
business and assets of WebMD relating to the Agreement to any MEDIBUY Competitor
in whole or in part, whether voluntarily or by operation of law. Any purported
transfer, assignment
28
<PAGE> 33
SIGNATURE VERSION
or delegation by either Party in violation of the above restrictions shall be
null and void and of no force or effect. An assignment will not relieve a Party
to this Agreement of any obligations under this Agreement.
19.06 NOTICES.
Any notice or other communication to be given hereunder shall be in
writing and shall be (as elected by the Party giving such notice): (i)
personally delivered; (ii) transmitted by postage prepaid registered or
certified mail, return receipt requested; (iii) deposited prepaid with a
nationally recognized overnight courier service; or (iv) sent by facsimile.
Unless otherwise provided herein, all notices shall be deemed to have been duly
given on: (a) the date of receipt (or if delivery is refused, the date of such
refusal) if delivered personally or by courier; (b) three (3) days after the
date of posting if transmitted by mail; or (c) if transmitted by facsimile, the
date a confirmation of transmission is received. Either Party may change its
address for purposes hereof on not less than three (3) days prior notice to the
other Party. Notices hereunder shall be directed to, unless otherwise instructed
by the receiving Party:
If to MEDIBUY to:
MEDIBUY.com, Inc.
10120 Pacific Heights Boulevard, Suite 100
San Diego, CA 92121
Attn: Chief Financial Officer
Fax: 858-550-5039
With a Copy to (which shall not constitute notice):
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: Jeremy D. Glaser, Esq.
Fax: 858-453-3555
If to WebMD, to:
Healtheon/WebMD Corporation
3399 Peachtree Road
Suite 400
The Lenox Building
Atlanta N.E., GA 30326
Attn: General Counsel
Fax: 404-479-7603
29
<PAGE> 34
SIGNATURE VERSION
With a copy to (which shall not constitute notice):
Alston & Bird LLP
One Atlantic Center
1201 W. Peachtree Street
Atlanta, GA 30309-3424
Attn: James A. Harvey
Fax: 404-881-7777
19.07 ENTIRE AGREEMENT.
This Agreement represents the entire agreement of the Parties with
respect to the subject matter hereof and supersedes all prior and/or
contemporaneous agreements and understandings, written or oral between the
Parties with respect to the subject matter hereof.
19.08 WAIVER.
Any of the provisions of this Agreement may be waived by the Party
entitled to the benefit thereof. Neither Party shall be deemed, by any act or
omission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by the waiving Party, and then only to the
extent specifically set forth in such writing. A waiver with reference to one
event shall not be construed as continuing or as a bar to or waiver of any right
or remedy as to a subsequent event.
19.09 NO THIRD PARTY BENEFICIARIES.
Nothing express or implied in this Agreement is intended to confer, nor
shall anything herein confer, upon any Person other than the Parties and the
respective successors or assigns of the Parties, any rights, remedies,
obligations or liabilities whatsoever.
19.10 FEES AND EXPENSES.
Each Party shall be responsible for the payment of its own costs and
expenses, including attorney's fees and expenses, in connection with the
negotiation and execution of this Agreement.
19.11 SEVERABILITY.
If the application of any provisions of this Agreement to any particular
facts of circumstances shall be held to be invalid or unenforceable by any court
of competent jurisdiction, then: (i) the validity and enforceability of such
provision or provisions as applied to any other particular facts or
circumstances and the validity of other provisions of this Agreement shall not
in any way be affected or impaired thereby; and (ii) such provision or
provisions shall be reformed without further action by the Parties hereto and
only to the extent necessary to make such provision or provisions valid and
enforceable when applied to such particular facts and circumstances.
30
<PAGE> 35
SIGNATURE VERSION
19.12 COUNTERPARTS; FACSIMILES.
This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, and such
counterparts together shall constitute one and the same instrument. Each Party
shall receive a duplicate original of the counterpart copy or copies executed by
it. For purposes hereof, a facsimile copy of this Agreement, including the
signature pages hereto, shall be deemed to be an original. Notwithstanding the
foregoing, the Parties shall each deliver original execution copies of this
Agreement to one another as soon as practicable following execution thereof.
19.13 INSURANCE.
Throughout the Term, each Party shall procure and maintain at its own
expense insurance naming the other Party as an additional insured and an
additional loss payee, solely for purposes of the indemnification provisions of
this Agreement which insurance must be satisfactory to other Party, of the
following types and in the following amounts: at least $2 million in general
liability insurance, which, in the case of WebMD, contains a rider or provision
that expressly covers losses and claims made in connection with WebMD's
provision of content over the Internet to Third Parties, and in the case of
MEDIBUY, contains a rider or provision that expressly covers losses and claims
made in connection with MEDIBUY's operation of the New Commerce Site, and
umbrella liability insurance coverage in the amount of $4 million. All insurance
to be maintained by a Party under this Section shall be with companies licensed
to do business in the State of California for MEDIBUY and Georgia for WebMD and
reasonably acceptable to the other Party. Each Party shall furnish to the other
Party certificates of insurance or other appropriate documentation (including
evidence of renewal of insurance) evidencing all coverage referenced in this
Section. Such certificates or other documentation will include a provision
whereby thirty (30) days' notice must be received by the other Party prior to
cancellation or material alteration of the coverage by either a Party or the
insurer in question.
31
<PAGE> 36
SIGNATURE VERSION
IN WITNESS WHEREOF, the duly authorized representatives of the Parties
of have executed this Agreement as of the date first written below.
ATTEST: MEDIBUY.COM, INC.
By: /s/ Matt Feiner By: /s/ Norman Farquhar
---------------------------------- -------------------------------
Name: Matt Feiner Name: Norman Farquhar
------------------------------- ----------------------------
Title: Controller Title: Executive V.P. & CFO
------------------------------- ----------------------------
DATE: 1/18/00 DATE: 1/18/00
------------------------------- ----------------------------
ATTEST: HEALTHEON/WebMD CORPORATION
By: /s/ Joseph H. Ashlconti By: /s/ Jeffrey T. Arnold
---------------------------------- -------------------------------
Name: Joseph H. Ashlconti Name: Jeffrey T. Arnold
------------------------------- ----------------------------
Title: Assistant General Counsel & V.P Title: CEO
------------------------------- ----------------------------
DATE: 1/18/00 DATE: 1/18/00
------------------------------- ----------------------------
32
<PAGE> 37
SIGNATURE VERSION
Exhibit 1.02 - Index of Terms Defined in the body of the Agreement.
<TABLE>
<S> <C>
Aggregate Information..............................................Section 12.02
Agreement........................................................First Paragraph
Arbitration Firm...................................................Section 11.03
Confidential Information...........................................Section 18.01
Contract Manager...................................................Section 10.01
Dispute Date.......................................................Section 11.01
Effective Date...................................................First Paragraph
Harmful Items.......................................................Section 6.04
Illicit Items......................................................Section 6.021
Indemnified Party..................................................Section 15.05
Indemnifying Party.................................................Section 15.04
Infringement.......................................................Section 15.06
Losses.............................................................Section 15.04
Material Breach....................................................Section 14.02
MEDIBUY..........................................................First Paragraph
MEDIBUY Competitor..................................................Section 7.01
MEDIBUY Services.......................................................Recital A
MEDIBUY Site...........................................................Recital A
New Commerce Site................................................Section 3.02(a)
New Commerce Site Development Plan....................Section 4.02(a). Section 2
New Product.........................................................Section 6.02
Physician Buyer.....................................................Section 7.01
Removal Period......................................................Section 6.05
Substitute Product..................................................Section 6.02
Term...............................................................Section 14.01
Transition Page..........................................................3.02(a)
URL....................................................................Recital A
WebMD............................................................First Paragraph
WebMD Competitor....................................................Section 7.01
WebMD Consumer Site....................................................Recital A
WebMD Consumer Start Page..............................................Recital A
WebMD Exclusive Rights..............................................Section 7.04
WebMD Home Page........................................................Recital A
WebMD Professional Site................................................Recital A
WebMD Site.............................................................Recital A
</TABLE>
33
<PAGE> 38
Exhibit 4.01 - Technical Performance Standards.
1. PERFORMANCE
A) All pages of the New Commerce Site must load quickly: the average
page load time must be no more than 5 seconds below the Keynote Business 40.
(For example, in September 1999, this average was 5.51 seconds, on a T1 as
measured by the Keynote monitoring service from different Keynote agents across
the Internet.).
B) All pages of the New Commerce Site must average 99.3% up time, as
measured by Keynote monitoring service.
C) The New Commerce Site must post a mutually approved message in the
event of a system outage.
D) Measurements in this Section 1 are to be made on a monthly basis.
2. MONITORING/REPORTING
A) MEDIBUY or MEDIBUY's supplier of web hosting services must use
Keynote monitoring service, or other similar service approved by MEDIBUY and
reasonably acceptable to WebMD, to provide daily monitoring of the New Commerce
Site performance and availability.
B) MEDIBUY will provide to WebMD weekly or other appropriate periodic
reports which detail server up time with the following details per period:
(i) average response time;
(ii) actual daily response time detail;
(iii) average server up time; and
(iv) actual daily server up time.
C) This information will be e-mailed to WebMD's Contract Manager each
Monday for the previous period's reports.
3. ESCALATION PROCEDURES
A) MEDIBUY will notify, or will cause its supplier of web hosting
services, to notify WebMD within ten (10) minutes of a service outage: Status
information to include:
(i) reason for the outage; and
(ii) ETA for service restoration.
34
<PAGE> 39
SIGNATURE VERSION
B) Notification to WebMD shall occur by the following communications
channels (or other channels designated by WebMD from time to time):
[email protected]
Nawaf Muallem: 404-307-5086
Mitch Miller: 404-229-9883
C) If WebMD becomes aware of a service outage and has not been notified
by e-mail by MEDIBUY or its hosting service provider, WebMD may contact MEDIBUY
and will be given the information listed in 3.A).
D) MEDIBUY shall continue to notify WebMD with updated status for the
duration of the outage.
E) MEDIBUY shall also provide a post incident summary including:
(i) the cause of the problem;
(ii) method used to correct the problem; and
(iii) measures MEDIBUY, or its web hosting supplier, will take to
prevent further occurrences
4. BUSINESS RESUMPTION
A) MEDIBUY, or MEDIBUY's web hosting supplier, must prove the ability to
switch processing from a primary server to a hot backup server within five (5)
minutes.
B) MEDIBUY, or MEDIBUY's web hosting supplier, must perform an analysis
that documents all of the single points of failure in MEDIBUY's web site system,
including network components such as routers, hardware and software components.
C) MEDIBUY, or MEDIBUY's web hosting supplier, must eliminate all of the
single points of failure within MEDIBUY's web site system, within three (3)
months from the date of this Agreement.
35
<PAGE> 40
Exhibit 8.01
MEDIBUY SERVICES DESCRIPTIONS
eAUCTION. Our eAuction service, launched in June 1999, gives users the
opportunity to buy and sell new and used equipment in an auction style format.
Through eAuction, buyers can access information about and submit bids for items
being auctioned by sellers. Buyers can browse available auctioned products or
conduct specific searches through hundreds of products ranging from pre-owned,
"as-is" products to reconditioned and seller-warranted products.
Through eAuction, sellers can maximize the value of their excess assets
by offering them for sale on a worldwide basis. The auction style format helps
distributors, manufacturers and healthcare providers by automating and reducing
the costs of liquidating excess inventory.
eRFP. Our eRFP service, launched in April 1999, automates and reduces
inefficiencies in the request-for-proposal process for the procurement of
healthcare supplies. Through eRFP, a buyer can anonymously submit a
request-for-proposal, commonly known as an RFP, to sellers registered within the
product categories selected by the buyer. In this manner, buyers can submit RFPs
for items in our eCatalog as well as other items and services not currently in
our eCatalog. Sellers can then submit proposals in response to the RFP. Finally,
the buyer can review aggregated responses and accept the proposal that best
meets its needs. eRFP gives sellers an equal opportunity to submit proposals
against RFPs in an anonymous setting and is designed to lower costs and reduce
the time required for buyers to locate products and services.
eCATALOG. Our eCatalog service, launched in December 1999, provides our
buyers with ability to purchase a large variety of products and services
available through our Web site's electronic catalog. Buyers can use eCatalog to
compare products based on product characteristics and price and to purchase and
automatically re-order products and services.
The information provided through our eCatalog service is electronically
linked with our sellers' databases, ensuring current and accurate seller pricing
and immediate access to available inventory information. Our eCatalog service
provides consistently updated seller information reflecting changes to a
seller's product database. In addition, our eCatalog service coordinates
buyer-specific pricing structures to offer buyers either current market pricing
or specific pre-negotiated contract pricing. eCatalog enables sellers to provide
targeted electronic marketing information to accompany their product listings,
allowing them to compete on product features and not just price. Should a buyer
ultimately decide that a product's price, availability or other terms are not
attractive, the buyer can immediately use eRFP to solicit proposals from
potential sellers in an attempt to improve these terms.
<PAGE> 41
Exhibit 9.01
MEDIBUY MARKS WebMD MARKS
- --------------------------------------- --------------------------------
MEDIBUY WEBMD
<PAGE> 42
SIGNATURE VERSION
MODIFICATION OF JOINT MARKETING AGREEMENT
38
<PAGE> 43
SIGNATURE VERSION
March 3, 2000
Chief Executive Officer
Healtheon/WebMD Corporation.
3399 Peachtree Road
Suite 400
The Lenox Building
Atlanta N.E., GA 30326
RE: MODIFICATION OF JOINT MARKETING AND PROMOTION AGREEMENT
The purpose of this letter is to modify certain provisions of the Joint
Marketing and Promotion Agreement (the "Agreement") between medibuy.com, Inc.
("MEDIBUY") and Healtheon/WebMD Corporation ("WebMD") and to memorialize certain
recent discussions between the parties.
As you know, MEDIBUY is in discussions with Premier, Inc. ("Premier")
relating to an e-commerce outsourcing agreement under which medibuy or its
affiliate will provide e-commerce services to Premier and its members and
affiliates (the "E-Commerce Outsourcing Agreement"). Premier has raised concerns
about our ability to effectively implement such transactions in light of the
terms of the Agreement. In view of these developments, the following
modifications and acknowledgements are made:
The parties agree that:
- - the definition of "Physician Buyer" in the Agreement (Section 7.01) shall
specifically exclude any physicians, physician groups or outpatient clinics
that are participants in programs operated by Premier or its affiliates
("Premier Programs") and are owned, employed or managed by Premier, Premier
members or their affiliates.
- - the definition of "WebMD Competitor" in the Agreement used in Section 7.04
(i) (but not with respect to the New Commerce Site) and Section 7.04 (ii)
shall specifically exclude Premier and any of its affiliates, and any
services or offerings that are directed to physicians, physician groups, or
outpatient clinics that are provided, sponsored or managed by Premier or its
affiliates or members of Premier or its affiliates. Provided, the existence
of Provider Select as an affiliate of Premier or such other affiliate of
Premier principally engaged in providing products or services to physicians,
physician groups or outpatient clinics (the "Other Premier Affiliate") shall
not be deemed to make Premier or its other affiliates a WebMD Competitor for
the purposes of the Agreement. Provided further, that for the purposes of
Sections 7.04(i) and Section 7.04 (ii), Provider Select and the Other
Premier Affiliate shall not be excluded from the definition of a WebMD
Competitor. Notwithstanding anything
39
<PAGE> 44
SIGNATURE VERSION
to the contrary herein or in the Agreement, MEDIBUY shall not (i) place an
Action Link to, or an On-Line Advertisement or any other advertisement or
promotion for any Premier Program on any Page of the New Commerce Site or
publicly available non-password protected Page of the MEDIBUY Site that
includes a direct link to a Premier Program that is principally engaged in
providing products or services to physicians, physician groups or outpatient
clinics that are not owned, employed or managed by Premier, Premier members
or their affiliates; or (ii) otherwise advertise or promote to any
non-Premier members or Premier affiliates any Premier Program that is
principally engaged in providing products or services to physicians,
physician groups or outpatient clinics that are not owned, employed or
managed by Premier, Premier members or their affiliates, whether in off-line
media or in on-line media, or in any communication made by or on behalf of
MEDIBUY, including, e-mail, direct mail, or advertising sent or communicated
by MEDIBUY to its Vendors and buyers in any manner.
WebMD hereby consents to the potential transaction between medibuy and
Premier, including (i) the issuance of equity securities of medibuy in excess of
40% of the total outstanding equity securities of medibuy and (ii) the entering
into of the E-Commerce Outsourcing Agreement provided, during the term of the
Agreement, that no e-commerce services shall be provided by medibuy under such
agreement to Premier's Provider Select affiliate or Other Premier Affiliate
without the consent of WebMD which may be withheld in the sole discretion of
WebMD.
For the purposes of this letter an "affiliate" means, with respect to an
entity, any person that, directly or indirectly, Controls, or is Controlled by,
or is under common Control with, such entity. "Controls, Controlled by, or under
common Control with" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a person,
whether by contract or through the ownership of voting securities, including the
ownership of more than fifty percent (50%) of the equity, partnership,
membership or similar interest in such person.
Please sign this letter below to acknowledge your agreement and approval of the
foregoing. This letter may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which when taken together shall
constitute one and the same instrument. Except only as acknowledged above, all
of the terms and provisions of the Agreement shall continue unchanged and in
full force and effect.
Very truly yours,
MEDIBUY.COM, INC.
By: /s/ Dennis Murphy
-------------------------------------
Dennis Murphy
President and Chief Executive Officer
40
<PAGE> 45
SIGNATURE VERSION
Accepted and Agreed as of ____________, 2000
HEALTHEON/WebMD CORPORATION
By: /s/ Geoffrey Rutledge
-------------------------------------
Geoffrey Rutledge
Vice President, Business Development
41
<PAGE> 1
EXHIBIT 10.37
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement (the "AGREEMENT") is made and entered
into as of February 14, 2000 (the "EFFECTIVE DATE") by and between
drugstore.com, inc., a Delaware corporation ("DRUGSTORE.COM") and medibuy.com,
Inc., a Delaware corporation ("MEDIBUY.COM"). Certain defined terms shall have
the meanings as set forth in Exhibit A to this Agreement.
The parties agree as follows:
1. CO-BRANDED SITE FOR HOME HEALTH CARE PROCUREMENT
1.1 HHC Site. medibuy.com shall, at its expense, develop and launch a home
healthcare web site to offer products and services to the home healthcare
industry hosted by medibuy.com (the "HHC SITE") and that uses medibuy.com's
instant catalog technology. The HHC Site will, among other things, allow health
care providers that have registered with medibuy.com ("CLIENTS") to create and
maintain databases of their patients' requirements and access "catalogs" of
suppliers of products that serve such patient requirements. The HHC Site will be
accessible only by registered Clients of medibuy.com. Clients include, among
other entities, home care agencies, integrated delivery network ("IDN")
discharge planners, and healthcare Group Purchasing Organizations ("GPOS").
Clients do not and shall not include end consumers. The HHC Site will be
co-branded using the trademarks and service marks of medibuy.com and
drugstore.com subject to each party's license of such marks and consent to their
particular usage. The HHC Site will not contain advertising or promotions for
any Third Party goods or services other than those offered through other
medibuy.com web sites or www.drugstore.com provided that the HHC Site shall not
contain advertisements or promotions for DS Competitors (as defined below at
Section 10).
1.2 Launch Plan. Within ninety (90) days following the Effective Date, the
Parties will use their best efforts to jointly complete a project plan that will
set mutually agreeable deadlines for the various stages of development of the
HHC Site, including the design, rollout and implementation of the HHC Site by
medibuy.com and preparation of the Health eCatalog (as defined below) by
drugstore.com, mutually agreeable methods of data transfer and transaction
processing and mutually developed guidelines, processes, procedures and plans
for sales and marketing communications. Each of the parties will appoint a
"Contract Manager," who will act as the point person for communications
regarding the project plan. Subject to drugstore.com's delivery of a Health
eCatalog to medibuy.com at least 30 days prior to the launch date, medibuy.com
will launch the HHC Site as mutually agreed by the parties, and the parties
presently anticipate such launch shall occur no later than December 31, 2000.
For the purposes of this Agreement, the "LAUNCH Date" means the date on which
the HHC Site is operational and generally available to Clients to purchase
products or services.
1.3 Avenues of Sales. There will be three avenues of sales of drugstore.com
products by means of the HHC Site:
(i) Health eCatalog
drugstore.com shall, at its expense and in a format determined by its technology
team, develop a "HEALTH ECATALOG" of personal care, wellness, health and beauty
products for the HHC Site, which shall be selected at the sole discretion of
drugstore.com from the products carried at www.drugstore.com subject to
reasonable feedback of medibuy.com as to Client preferences. The Health eCatalog
will be the exclusive source of personal care, wellness, health and beauty
products for the HHC Site. For the purposes of this agreement, "PERSONAL CARE,
WELLNESS, HEALTH, AND BEAUTY PRODUCTS" are those types of products that are
carried by an internet, or bricks and mortar, drugstore. The exclusivity under
this paragraph shall not extend to durable medical equipment or to products and
supplies other than personal care, wellness, health and beauty products. In the
event that an HHC Site database indicates to a Client that a patient needs a
product carried in the Health eCatalog, there will be a direct link from such
database to the Health eCatalog. drugstore.com hereby grants medibuy.com a
royalty-free, non-transferable license during the Term to use the Health
eCatalog in accordance with the terms and provisions of this Agreement.
Following the Term of this Agreement, medibuy.com shall have no rights to the
Health eCatalog and, at drugstore.com's discretion, shall return to
drugstore.com or destroy all copies of the Health eCatalog in its possession.
(ii) RFP Process
Clients will be able to submit an RFP to drugstore.com by means of the HHC Site,
and drugstore.com, at its sole discretion, may respond with a proposal
particularized to such Client. drugstore.com will respond to
1
<PAGE> 2
submitted RFPs within a period of time mutually determined by drugstore.com and
medibuy.com, which shall be consistent with the response time required of other
medibuy.com vendors but in no event more than 5 business days, if drugstore.com
does not respond to the submitted RFP, medibuy.com will submit the RFP to other
registered medibuy.com vendors for a response.
(iii) E-Specials
At drugstore.com's request, the HHC Site may feature "E Specials" on products
that drugstore.com will offer to all Clients at reduced prices. One purpose of
such E Specials may be to reduce excess inventory of selected products. If, in
the event that a drugstore.com E Special does not sell on the HHC Site within
the timeframe designated by drugstore.com, medibuy.com, with the written
permission of drugstore.com, shall offer the E Special on other medibuy.com
sites.
1.4 Servers; Metrics. The HHC Site will be hosted by medibuy.com on its
servers (or the servers of its contractors) at medibuy.com's sole cost and
expense. drugstore.com will receive Page view and reach credit for all User
visits to the initial page of the HHC Site, and medibuy.com shall receive Page
view and reach credit for all visits to all other pages of the HHC Site.
1.5 Shadow Site. medibuy.com shall make available to drugstore.com a
completed HHC Site on a password protected shadow site for review and testing
prior to making the HHC Site publicly available. Neither party shall make the
HHC Site or shadow site publicly available without the other party's prior
approval, which approval shall not be unreasonably withheld.
1.6 Additional Terms and Conditions. The terms and conditions set forth in
Exhibit B are hereby incorporated by reference.
2. TERM; TERMINATION
2.1 Term. Subject to extension pursuant to Section 2.2 or termination
pursuant to Section 2.3, the term of this Agreement (the "TERM") shall be the
five-year period commencing on the Effective Date. For the purposes of this
Agreement, a "YEAR OF THE TERM" is the 12-month period commencing on the
Effective Date and each successive 12-month period during the Term.
2.2 Extension. Unless either party provides written notice to the other
party at least 90 days prior to the five-year anniversary of the Effective Date
that it does not wish to extend the Term, the Term will automatically be
extended for an additional five-year period.
2.3 Termination. In the event of a material breach by either party of any
of its material obligations under this Agreement, which breach is not cured by
the breaching party within thirty (30) days' written notice thereof by the
non-breaching party, the non-breaching party will have the right to terminate
this Agreement. drugstore.com may terminate this Agreement at any time after
December 31, 2001 upon written notice to medibuy.com in the event that (i)
transactions on the HHC Site do not generate Gross Revenue of at least $300
million in 2001 or $800 million in any succeeding year and/or (ii) drugstore.com
does not derive revenue pursuant to Section 9 of this Agreement of at least
$240,000 in 2001 or at least $640,000 in any succeeding year. medibuy.com may
terminate this Agreement at any time after December 31, 2001 upon written notice
to drugstore.com in the event that drugstore.com is not one of the top 5
Internet-only drugstores as measured by annual revenues. For the purposes of
this Agreement, "GROSS REVENUE" includes product revenues as determined by
generally accepted accounting principles ("GAAP"), net of discounts and
provisions for sales returns; "Gross Revenue" does not include revenues from
charging customers for shipping or taxes.
2.4 Effect of Termination. This Section 2.4 and Sections 14.3, 19, 20,
21, 22, 23 and 24 (but not Section 24.2) shall survive any termination of this
Agreement, and no termination of this Agreement shall release either party from
liability for any breach of this Agreement that occurred prior to such
termination. Except as set forth in this Section 2.4 and with respect to
liabilities already incurred under this Agreement, following termination of this
Agreement neither party shall have any obligation to the other party and all
co-branding of the HHC Site shall be removed by medibuy.com as soon as
practicable but in no event later than 20 days following the date of such
termination. With respect to Section 9.1 of this Agreement, to the extent that
Client transactions are completed on the HHC Site during the Term but revenue
attributable to such transactions is paid to medibuy.com following termination
of this Agreement, such payments shall be included in Net Revenue (as defined
below) for the purpose of determining liabilities owed by medibuy.com to
drugstore.com that shall survive termination of this Agreement.
2
<PAGE> 3
3. MEDIBUY.COM MARKETING
3.1 medibuy.com marketing. medibuy.com will actively promote the HHC Site
and its services to its existing and future Clients. medibuy.com will train its
sales force regarding the HHC Site, and the sale of drugstore.com products via
the HHC Site and other medibuy.com sites. medibuy.com shall include information
about medibuy.com's relationship with drugstore.com in presentations to
prospective Clients, and identify the relationship and the HHC Site as
value-added features of the medibuy.com sites. In addition, medibuy.com shall,
at its expense, place co-branded advertisements for the HHC Site in agreed-upon
trade journals subject to drugstore.com's approval, which shall not be
unreasonably withheld. Each Party agrees to submit to the other Party, for that
Party's reasonable review and approval, any marketing items containing
co-branded material. No co-branded marketing material shall be disseminated by
either Party unless such material has been approved in writing by the other
party prior to dissemination, which approval shall not be unreasonably withheld.
medibuy.com shall bear the expenses related to the marketing activities
described in this Agreement except for the drugstore.com marketing activities
set forth in Section 8 of this Agreement or marketing activities undertaken by
drugstore.com other than as detailed in this Agreement.
3.2 medibuy.com Marketing Commitment. medibuy.com shall spend $2.0 million
during each year of the Term for marketing (including costs of direct sales to
Clients and prospective Clients) of the HHC Site to Clients and prospective
Clients. medibuy.com will develop and implement marketing programs that are
reasonably agreeable to the Parties and are designed to increase awareness and
use of the HHC Site and drugstore.com. The Parties acknowledge that any such
programs will be tested and modified as appropriate for desired effectiveness.
4. INTEGRATION OF THE HHC SITE WITH CLIENTS
medibuy.com shall, at its expense and subject to the request and consent of its
Clients, integrate the HHC Site with its Clients' current home care information
systems and processes, including, among other things, designing data
requirements for reporting to Clients and suppliers, such as drugstore.com.
5. ACCESS TO HEALTH ECATALOG
medibuy.com, shall, at its expense, connect the Health eCatalog to the HHC Site
and other medibuy.com sites as contemplated by this Agreement and provide the
framework for sales of drugstore.com products by means of the Health eCatalog,
the RFP Process and E Specials. medibuy.com acknowledges that Clients seeking to
purchase products from drugstore.com will have to open an account with
drugstore.com, providing, among other things, contact information and credit
card information or other billing information acceptable to drugstore.com.
6. DRUGSTORE.COM FEES TO MEDIBUY.COM
drugstore.com will share revenue with medibuy.com as set forth on Exhibit C.
drugstore.com shall be responsible for billing and collecting revenue from
Clients for product sales through the Health eCatalog on the HHC Site or any
other medibuy.com site. medibuy.com shall develop appropriate means of data
transfer from the HHC Site to drugstore.com to facilitate billing of Clients by
drugstore.com. Payments shall be payable on a quarterly basis and shall be due
within 30 days of the end of each quarter. drugstore.com will not share with
medibuy.com revenue from products sold through the main drugstore.com site
(currently www.drugstore.com) or its affiliated sites (which currently includes
www.beauty.com).
3
<PAGE> 4
7. NEW CUSTOMER ACQUISITION FEES
drugstore.com will pay medibuy.com new customer acquisition fees as set forth on
Exhibit D. Payments shall be payable on a quarterly basis and shall be due
within 30 days of the end of each quarter.
A "NEW CUSTOMER" is a Client's patient that (i) has not made a prior purchase
from drugstore.com, and (ii) during the Term, purchases a product from the main
drugstore.com site (currently www.drugstore.com) (x) by means of a MediBuy Promo
(as defined below) or (y) with respect to the patients of one or more GPO member
organizations by means of a link from a medibuy.com site provided that such link
is approved in writing by drugstore.com which approval shall not be unreasonably
withheld. medibuy.com acknowledges that a patient seeking to make a purchase
from drugstore.com will have to open an account with drugstore.com, providing,
among other things, contact information, including without limitation personal
e-mail address, and credit card information.
A "MEDIBUY PROMO" is any promotional link supplied by drugstore.com between a
Client's patient and www.drugstore.com that allows for "customer conversion"
tracking, such as an e-mail with a link to www.drugstore.com or a promotional
mailer that provides a special link for Clients' patients. medibuy.com shall use
all commercially reasonable efforts (subject to privacy obligations and policies
and patients' consent) to obtain for drugstore.com profiles of the patients
served by Clients, including at a minimum each patient's name, e-mail address
and birth date (with respect to each patient, a "PROFILE").
8. DRUGSTORE.COM MARKETING COMMITMENT
drugstore.com shall use all commercially reasonable efforts to deliver a MediBuy
Promo to each patient as to which medibuy.com has provided Profile , including a
financial incentive (a "CONVERSION INCENTIVE") in such MediBuy Promo that is
designed to convert such patient to a New Customer. drugstore.com shall, during
each year of the Term, deliver at least $250,000 in Conversion Incentives
provided that medibuy.com delivers to drugstore.com at least 50,000 patient
Profiles during each such year. Conversion Incentives will be determined by the
drugstore.com marketing group and may include, among other things, "e-coupons"
applicable to a New Customer's first purchase from www.drugstore.com,
complimentary gift packs from drugstore.com and special pricing on certain
products.
In addition, drugstore.com, in consultation with medibuy.com and subject to all
applicable laws and regulations, may promote a program for Clients and/or
Clients' employees (e.g., the health care practitioners that interact with
patients) to convert patients into New Customers and/or to provide Profiles.
9. MEDIBUY.COM FEES TO DRUGSTORE.COM
9.1 medibuy.com will share revenue with drugstore.com as set forth on Exhibit
E. "NET REVENUE" is the revenue paid to medibuy.com that is attributable to
transactions from Clients on the HHC Site as determined in accordance with GAAP,
other than Net Revenue from transactions in which drugstore.com is the supplier
of products.
9.2 medibuy.com represents and warrants that, as of the Effective Date, it
does not charge vendors "Subscription Fees" to offer products or services on
medibuy.com sites. For the purposes of this Agreement, a "SUBSCRIPTION FEE" is
any fee or payment to medibuy.com by a seller of products or services on a
medibuy.com site that is not included within the definition of Net Revenue at
Section 9.1 of this Agreement. The parties agree that, in the event that
medibuy.com charges Subscription Fees, the parties will in good faith negotiate
an amendment to this Agreement providing a basis for drugstore.com to share in
the revenue derived from such Subscription Fees in light of the economic
relationship structured in this Agreement. Notwithstanding anything to the
contrary in this Section 9.2, if the total annual Subscription Fees attributable
to the HHC Site is less than $100,000, drugstore.com shall have no right to
share in the Subscription Fees. The amount of a Subscription Fee attributable to
the HHC Site shall be determined by multiplying such Subscription Fee by a
fraction representing the annual Gross Revenue of the products or services sold
by such party on the HHC Site divided by the annual Gross Revenue of the
products or services sold by such party on all medibuy.com sites, including
without limitation the HHC Site.
9.3 Payments shall be payable on a quarterly basis and shall be due within 30
days of the end of each quarter.
4
<PAGE> 5
10. EXCLUSIVITY
No DS Competitor shall provide personal care, wellness, health and beauty
products for any medibuy.com sites. medibuy.com will operate other web sites and
platforms in addition to the HHC Site. For the purposes of this Agreement, all
web sites and platforms owned or operated by medibuy.com or its Affiliates,
including the HHC Site, are referred to as "MEDIBUY.COM SITES." medibuy.com
shall, at its expense and following and drugstore.com's written agreement to act
as a vendor on a particular medibuy.com site in addition to the HHC Site,
connect the Health eCatalog to such medibuy.com web site, provide the framework
for sales of drugstore.com products by means of the Health eCatalog to the
target of such site, and provide purchasing access to the Health eCatalog on
such site. Notwithstanding the terms of this paragraph, in the event that
medibuy.com, at the request of a GPO, creates a site particularized for such GPO
and such GPO specifically excludes drugstore.com from such site, medibuy.com
shall not be obligated to allow drugstore.com to be a vendor on such site.
No "DS Competitor" may provide such products on any medibuy.com site unless
drugstore.com determines not to connect the Health eCatalog to such site. A "DS
COMPETITOR" means a party that is primarily involved in retail sales to
consumers and of which a significant component of such party's business is the
retail sale of personal care, wellness, health and beauty products and/or
prescription drugs. The DS Competitors, as of the Effective Date, are set forth
on Exhibit F attached hereto and incorporated herein by reference. Exhibit F
shall be updated to include other DS Competitors by written agreement of the
parties provided that a dispute, if any, between the parties as to a proposed
update of Exhibit E shall be resolved in accordance with Section 23 below.
11. PRESCRIPTION DRUGS
11.1 medibuy.com has no plans to sell prescription drugs by any means but
plans to facilitate the sale by other parties of prescription drugs via the HHC
Site and/or other medibuy.com sites. drugstore.com and medibuy.com each
acknowledge and agree that the sale of prescription drugs, including without
limitation infusion therapy, by drugstore.com via the Health eCatalog on the HHC
Site and/or other medibuy.com sites is subject to the resolution in a manner
satisfactory to each party of legal, regulatory and operational issues related
to the sale of prescription drugs via this medium and the payment of a revenue
share to medibuy.com as described below. Without limiting the foregoing, no
party shall have any obligation to proceed with the sale of prescription drugs
via the Health eCatalog absent an opinion of counsel in a form reasonably
satisfactory to such party as to the legal and regulatory propriety of such
arrangement. The parties will in good faith seek to resolve such issues.
11.2 In the event that each of the parties resolves to its satisfaction the
legal, regulatory and operational issues discussed in the preceding paragraph,
drugstore.com shall pay medibuy.com 0.5 percent of the Gross Revenue from
prescription drugs sold by drugstore.com via the Health eCatalog through the HHC
site or other medibuy.com sites. medibuy.com acknowledges that persons seeking
to purchase prescription drugs from drugstore.com will have to open an account
with drugstore.com, providing, among other things, contact information,
including without limitation personal e-mail address, health and insurance data
and credit card information or other billing information acceptable to
drugstore.com.
11.3 Except as otherwise provided in this paragraph, drugstore.com will be
the sole provider of prescription drugs, including without limitation infusion
therapy, via the HHC Site or other medibuy.com sites. Subject to medibuy.com's
good faith cooperation with drugstore.com: (i) to the extent that drugstore.com
has not formulated a plan by September 30, 2000 to offer prescription drugs
other than infusion therapy via the HHC Site and/or other medibuy.com sites
prior to the later of (x) December 31, 2000 or (y) the Launch Date, medibuy.com
may allow a party other than drugstore.com to sell prescription drugs other than
infusion therapy on the HHC Site or other medibuy.com sites; (ii) to the extent
that drugstore.com has not formulated a plan by September 30, 2000 to offer
infusion therapy via the HHC Site and/or other medibuy.com sites prior to the
later of (x) December 31, 2000 or (y) the Launch Date, including without
limitation by means of a contractual arrangement with a Third Party provider of
infusion therapy, medibuy.com may allow a party other than drugstore.com to
offer infusion therapy on the HHC Site or other medibuy.com sites. medibuy.com
acknowledges that infusion therapy is not currently offered by drugstore.com.
11.4 In the event that drugstore.com provides prescription drugs through a
medibuy.com site:
(i) drugstore.com represents, warrants and covenants that it will take all
reasonable steps to comply with the provisions of the VIPPS Certification
Program. The VIPPS Certification Program,
5
<PAGE> 6
established by the National Association of Boards of Pharmacy with respect to
Verified Internet Pharmacy Practices Sites, sets forth among other things,
quality criteria for the fulfillment and delivery of prescriptions.
(ii) medibuy.com represents, warrants and covenants that it will take all
reasonable steps to safeguard the accuracy and confidentiality of prescription
information transmitted via a medibuy.com site.
12. WARRANT
Within three days of the Effective Date,medibuy.com will grant and deliver to
drugstore.com a warrant to purchase 50,000 shares of medibuy.com common stock, a
copy of which is attached hereto as Exhibit G and incorporated herein by
reference (the "WARRANT"). In the event that the exercise price per share set
forth in the Warrant is greater than the initial public offering price of
medibuy.com common stock (the "IPO PRICE"), medibuy.com shall as soon as
practicable cancel the Warrant and issue drugstore.com a substitute warrant
identical in all respects to the Warrant except that the exercise price per
share shall be equal to the IPO Price. In the event of an IPO, drugstore.com
shall comply with an underwriter's lock-up request provided that such lockup
shall equal the lesser of (i) 180 days or (ii) the lock-up period generally
requested by underwriters for holders of 50,000 shares.
13. OTHER POSSIBLE RELATIONSHIPS
medibuy.com and drugstore.com will consider extending their business
relationship in other ways. This may include among other things:
(i) medibuy.com facilitating the use of drugstore.com by hospital
pharmacies
(ii) medibuy.com and drugstore.com may choose to introduce new co-branded
services to medibuy.com's IDN and GPO clients' web-based healthcare communities.
(iii) At the current time, medibuy.com does not plan to consumerize the
HHC Site. If, in the future, medibuy.com changes its strategy, drugstore.com and
medibuy.com, each acting in good faith, will work together to determine whether
and the means by which drugstore.com may assist medibuy.com. Any plan to
consumerize the HHC Site shall require the written agreement of drugstore.com.
Except as set forth in the final sentence of clause (iii) of this Section,
neither of the parties is under any obligation pursuant to this Section. In the
event that the parties choose to pursue any one or more of the possible
relationships set forth in this Section, there shall be no binding commitment
until the negotiation and execution of a definitive written agreement governing
such matters.
14. TRADEMARK LICENSE; INTELLECTUAL PROPERTY RIGHTS
14.1 Each party ("LICENSOR") shall as soon as practicable provide the other
party ("LICENSEE") with samples of Licensor's Trademarks for use on the
Licensee's Site. Licensor hereby grants Licensee a non-exclusive,
non-transferable, royalty-free license during the Term to use Licensor's
Trademarks for the purposes set forth in Sections 1, 3, 7, 8 and 10 of this
Agreement provided that Licensee's use of Trademarks shall be in a form approved
by Licensor, which approval shall not be unreasonably withheld. Licensee
recognizes the great value of the goodwill associated with the Licensor's
Trademarks and acknowledges that such goodwill belongs exclusively to Licensor.
Licensee agrees that (i) it will not assert any interest or property rights in
any of the Licensor's Trademarks; (ii) all uses of the Licensor's Trademarks by
Licensee shall inure to the benefit of and be on behalf of Licensor, and (iii)
nothing in this Agreement shall give Licensee any interest in the Licensor's
Trademarks other than the right to use the Licensor's Trademarks during the Term
in accordance with this Agreement. Licensee shall neither attempt to register
the Licensor's Trademarks alone or as part of its own trademark nor use or
attempt to register any marks confusingly similar to the Licensor's Trademarks.
Licensee acknowledges that a material breach by Licensee of any of its
covenants, obligations or undertakings pursuant to this Section shall cause
Licensor irreparable damage that cannot be readily remedied in monetary damages
in an action at law, thereby entitling Licensor to equitable remedies, including
but not limited to temporary or permanent injunctive relief, costs and
reasonable attorneys' fees. All right, title and interest in and to the
Licensor's Trademarks, other than the specific rights granted to Licensee in
this Agreement, are retained by Licensor for its own use or license to others.
6
<PAGE> 7
14.2 Subject to the license granted by each party under Section 14.1 and the
license granted by drugstore.com under Section 1.3(i), each of the parties
reserves all of its right, title and interest in its patents, copyrights, trade
secrets, trademarks and other intellectual property rights.
14.3 medibuy.com will maintain the transaction history of Clients in the
strictest confidence. medibuy.com will aggregate transactional data for purposes
of assessment of market and business trends. Any such aggregate data is the
property of medibuy.com provided that, with respect to the HHC Site, medibuy.com
will provide such data to drugstore.com at no expense to drugstore.com and
hereby grants drugstore.com a royalty-free, perpetual, non-transferable license
to use such data. Such data will be deemed Confidential Information (as defined
below).
15. AUDIT RIGHTS
Each of the parties shall keep all usual and proper records and books of account
and all usual and proper entries relating to this Agreement in accordance with
GAAP. Either party, through any of its authorized employees, agents,
representatives, attorneys, or accountants, shall have the right, at its
expense, to examine the books, records, and files including those on electronic
media, upon reasonable notice and at reasonable times, directly related to the
transactions covered by this Agreement. Any such inspection will be conducted in
a manner that does not unreasonably interfere with the inspected party's
business activities. Any discrepancies or disputes shall be handled in
accordance with the Dispute Resolution Procedure described below. Upon
resolution of any dispute or discrepancy disclosed by the audit, prompt
adjustment will be made to compensate for any errors or omissions, and if the
overdue payment is in excess of $25,000, the inspected party shall also pay the
reasonable cost of such audit. Except as otherwise provided in this Section, any
audit shall be at the inspecting party's expense. Each party shall have the
right to audit the other party's records no more than once each year of the Term
provided that in the event that an audit reveals a material error or omission,
the auditing party shall have the right to audit the other party's books again
during such year of the Term. Each party recognizes and agrees that information
learned during an audit is confidential and that such information may be used
only in further disposition of the audit.
16. TAXES
Each party shall be solely responsible for payment of all of its own taxes,
including without limitation sales and use taxes or fees incurred in connection
with that party's activities under this Agreement. Each party will reasonably
cooperate with the other party in helping such party acquire such resale
certificates, licenses, tax identification numbers, or other documentation that
may be necessary to ensure that applicable sales and use taxes are properly
allocated.
17. MUTUAL REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants that: (a) it is a corporation duly
organized and validly existing and in good standing under the laws of the state
of its incorporation, (b) it has full power and authority to enter into this
Agreement and to perform its obligations hereunder; (c) it has obtained all
permits, licenses, and other governmental authorizations and approvals required
for its performance under this Agreement; and (d) the services to be rendered by
each party under this Agreement neither infringe nor violate any patent,
copyright, trademark and/or trade secrets of any Third Party.
18. USER DATA
medibuy.com recognizes and agrees that drugstore.com privacy policies prohibit
it from disclosing any customer identifiable information to medibuy.com or any
Third Party. drugstore.com recognizes and agrees that medibuy.com shall be under
no obligation to provide patient identifiable information to drugstore.com
except in accordance with this Agreement. The Parties agree to consult regarding
conforming with each other's privacy policies and to laws and regulations
concerning data privacy.
7
<PAGE> 8
19. DISCLAIMER OF WARRANTIES
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY DISCLAIMS ALL
WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE
IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. Each party acknowledges that it has not entered into this
Agreement in reliance upon any warranty or representation except those
specifically set forth herein.
20. LIMITATION OF LIABILITY
EXCEPT IN THE EVENT OF A BREACH OF A LICENSE GRANT, NEITHER PARTY SHALL BE
LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST
PROFITS ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF A PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
21. INDEMNIFICATION
Each of the parties shall comply with the terms and conditions of the
indemnification procedure attached hereto as Exhibit H (the "INDEMNIFICATION
PROCEDURE").
22. CONFIDENTIALITY
Each of the parties shall comply with the terms and conditions of the
confidentiality provisions attached hereto as Exhibit I.
23. DISPUTE RESOLUTION
Each of the parties shall comply with the terms and conditions of the dispute
resolution procedure attached hereto as Exhibit J (the "DISPUTE RESOLUTION
PROCEDURE").
24. MISCELLANEOUS
24.1 Relationship. The parties are independent contractors under this
Agreement. Each party acknowledges and agrees that it is not and will not be
during the Term an employee or an agent of any other party. Nothing in this
Agreement will be deemed to constitute, create, give effect to or otherwise
recognize a joint venture, partnership, franchise or business entity of any
kind. Nothing in this Agreement will be construed as providing for the sharing
of profits or losses arising out of the efforts of the parties hereto.
24.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and the legal representatives, successors in
interest and permitted assigns, respectively, of each such party. This Agreement
shall not be assigned in whole or in part by any party without the prior written
consent of the other party, such consent not to be unreasonably withheld;
provided, however, that a party may, without consent of the other parties,
assign this Agreement to an Affiliate of the assignor, or to an entity acquiring
substantially all of the assets or capital stock of the assignor due to merger,
acquisition or consolidation so long as (a) the assignor remains liable for the
full and faithful performance of its obligations hereunder, (b) such Affiliate
or successor in writing assumes all of the obligations of the assignor under
this Agreement and agrees to comply with the terms set forth in this Agreement,
and (c) a copy of the assignment is provided to the non-assigning parties.
24.3 Content. Any content on the HHC Site or other medibuy.com site that
either party reasonably determines to be contrary to law or false or misleading
in any material respect shall be removed, upon notice from the determining
party, as soon as practicable by the offending party. After such removal, the
parties may bring the dispute for resolution in accordance with the Dispute
Resolution Procedure.
24.4 Notices. All notices, requests, demands, applications, services of
process, and other communications that are required to be or may be given under
this Agreement shall be in writing and shall be deemed to have been duly given
if sent by facsimile transmission, answer back requested, or delivered by
courier or mailed, certified first class mail, postage prepaid, return receipt
requested, to the parties to this Agreement at the following addresses:
8
<PAGE> 9
If to medibuy.com: medibuy.com
10120 Pacific Heights Blvd, #100
San Diego, CA 92121
Attention: CFO
Fax: 858-587-7217
If to drugstore.com: drugstore.com, inc.
13920 SE Eastgate Way
Suite 300
Bellevue, WA 98005
Attn: General Counsel
Fax: 425-372-3808
or to such other address as the party shall have furnished to the others by
notice given in accordance with this Section. Such notice shall be effective (i)
if delivered in person or by courier, upon actual receipt by the intended
recipient, or (ii) if sent by telecopy or facsimile transmission, on the date of
transmission unless transmitted after normal business hours, in which case on
the following date, or (iii) if mailed, upon the date of first attempted
delivery.
24.5 Waiver. No provision of this Agreement shall be deemed to be waived
and no breach excused unless such waiver or consent shall be in writing and
signed by the party that is claimed to have waived or consented. The failure of
a party at any time, or from time to time, to require performance by the other
parties of any provision hereof shall in no way affect the rights of such party
thereafter to enforce the same nor shall the waiver by a party of any breach of
any provision hereof by the other parties constitute a waiver of any succeeding
breach of such provision, or a waiver of any provision itself, or a waiver of
any other provisions hereof.
24.6 Severability. This Agreement will be enforced to the fullest extent
permitted by applicable law. If for any reason any provision of this Agreement
is held to be invalid or unenforceable to any extent, then such: (a) provision
will be interpreted, construed or reformed to the extent reasonably required to
render the same valid, enforceable and consistent with the original intent
underlying such provision; (b) provision will be void to the extent it is held
to be invalid or unenforceable; (c) provision will remain in effect to the
extent that it is not invalid or unenforceable; and (d) invalidity or
unenforceability will not affect any other provision of this Agreement or any
other agreement between the parties.
24.7 Remedies. Except as otherwise expressly provided in this Agreement,
each and all of the rights and remedies provided in this Agreement, and each and
all of the remedies allowed at law and in equity, will be cumulative, and the
exercise of one right or remedy will not be exclusive of the right to exercise
or resort to any and all other rights or remedies provided in this Agreement or
at law or in equity.
24.8 Injunctive Relief. The parties acknowledge that a material breach of
this Agreement would cause irreparable harm, the extent of which would be
difficult to ascertain. Accordingly, they agree that, in addition to any other
legal remedies to which the non-breaching party may be entitled, such party will
be entitled to obtain immediate injunctive relief in the event of a material
breach of this Agreement.
24.9 Governing Law. This Agreement will be governed by and construed
according to the laws of the State of New York without regard to its choice of
law provisions. Each party irrevocably consents to the exclusive jurisdiction of
the federal courts located in either San Diego County, California or King
County, Washington in connection with any action or proceeding that arises from
or relates to this Agreement. The choice of jurisdiction of San Diego County,
California or King County, Washington shall be at the discretion of the claimant
in such action or proceeding, and each of the parties waives any right to assert
that any such court constitutes an inconvenient or improper forum.
24.10 Publicity. Neither party shall, without the prior approval of the
other party, make any press release or other public announcement concerning the
transactions contemplated by the Agreement, except as and to the extent that any
such party shall be so obligated by law or by the rules, regulations or policies
of any national securities exchange or association or governmental entity, in
which case the other party shall be advised and the parties shall use their best
efforts to cause a mutually agreeable release or announcement to be issued.
24.11 Entire Agreement. All Exhibits to this Agreement are incorporated in
and constitute a part of this Agreement. This Agreement, including the Exhibits
hereto, constitutes the entire understanding
9
<PAGE> 10
between the parties in relation to the subject matter hereof and supersede all
prior discussions, agreements and representations related to this subject
matter, whether oral or written and whether or not executed by a party. Unless
otherwise provided in this Agreement, no modification, amendment or other change
may be made to this Agreement or any part thereof unless reduced to writing and
executed by authorized representatives of all parties.
24.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
[***NEXT PAGE IS SIGNATURE PAGE***]
10
<PAGE> 11
Signature Page to Strategic Alliance Agreement
The parties hereto have duly executed this Agreement as of the date first
written above.
"DRUGSTORE.COM"
drugstore.com, inc., a Delaware corporation
By: /s/ MARK SILVERMAN
--------------------------------------------
Mark Silverman
Its: Vice President, Business Development
"MEDIBUY.COM"
medibuy.com, Inc., a Delaware corporation
By: /s/ DENNIS MURPHY
-------------------------------------------
Dennis Murphy
Its: Chief Executive Officer
<PAGE> 12
AMENDMENT NO. 1 TO STRATEGIC ALLIANCE AGREEMENT
This Amendment No. 1 (the "Amendment") to that certain Strategic Alliance
Agreement (the "Agreement") made and entered into as of February 14, 2000 by and
between drugstore.com, inc., a Delaware corporation ("drugstore.com") and
medibuy.com, Inc., a Delaware corporation ("medibuy.com") is made and entered
into as of March 5, 2000 by and between drugstore.com and medibuy.com. All
defined terms not defined herein shall have the meanings set forth in the
Agreement.
The parties agree as follows:
1. Notwithstanding anything to the contrary in the Agreement or this Amendment,
medibuy.com may permit any members of a group purchasing organization ("GPO") to
purchase by means of any medibuy.com site any products, supplies and/or services
(including without limitation any pharmaceuticals, prescription drugs or other
prescription products) from any GPO-contracted vendor other than a DS Competitor
or GPO-contracted distributor other than a DS Competitor. drugstore.com will be
the sole provider on the HHC Site of pharmaceuticals, prescription drugs or
other prescription products, including without limitation infusion therapy To
the extent that members of a GPO purchase products, supplies and/or services
(including without limitation any pharmaceuticals, prescription drugs or other
prescription products) from any vendor or distributor using the HHC site
(whether under its GPO's contract or otherwise), medibuy.com will be paid
revenue as contemplated by Section 9 of the Agreement and will pay drugstore.com
revenue in accordance with Section 9 of the Agreement.
2. Section 10 of the Agreement is deleted in its entirety and the following is
substituted instead:
10. EXCLUSIVITY
No DS Competitor shall provide personal care, wellness, health and/or beauty
products and/or prescription drugs, including without limitation prescription
drugs used in infusion therapy, for any medibuy.com sites. medibuy.com will
operate other web sites and platforms in addition to the HHC Site. For the
purposes of this Agreement, all web sites and platforms owned by medibuy.com or
its Affiliates, including the HHC Site, the medibuy.com site that is co-branded
with Healtheon/WebMD and any medibuy.com site that may be created in the future
targeted to dermatologists and/or eye care providers are referred to as
"MEDIBUY.COM SITES." drugstore.com acknowledges that medibuy.com does not
currently and has no future plans to create a medibuy.com site targeted to
dermatologists and eye care providers. medibuy.com shall, at its expense and
following and drugstore.com's written agreement to act as a vendor on a
particular medibuy.com site in addition to the HHC Site, connect the Health
eCatalog to such medibuy.com web site, provide the framework for sales of
drugstore.com products by means of the Health eCatalog to the target of such
site, and provide purchasing access to the Health eCatalog on such site.
No "DS Competitor" may provide such products on any medibuy.com site unless
drugstore.com determines not to connect the Health eCatalog to such site. A "DS
COMPETITOR" means a party that is primarily involved in retail sales to
consumers and of which a significant component of such party's business is the
retail sale of personal care, wellness, health and beauty products and/or
prescription drugs. The DS Competitors, as of the Effective Date, are set forth
on Exhibit F attached hereto and incorporated herein by reference. Exhibit F
shall be updated to include other DS Competitors by written agreement of the
parties provided that a dispute, if any, between the parties as to a proposed
update of Exhibit E shall be resolved in accordance with Section 23 below.
3. Section 11.3 of the Agreement is deleted in its entirety and the following is
substituted instead:
11.3 The parties agree that, notwithstanding anything in the Agreement to
the contrary, medibuy.com may contract with wholesale vendors or distributors to
supply pharmaceuticals, prescription drugs and other prescription products,
including without limitation prescription drugs used in infusion therapy, to
medibuy.com sites except as follows:
(i) no DS Competitor may supply prescription drugs, including without
limitation prescription drugs used in infusion therapy, to the HHC Site and/or
any other medibuy.com sites and
(ii) drugstore.com will be the sole provider of prescription drugs,
including without limitation prescription drugs used in infusion therapy, via
the HHC Site, the medibuy.com site that is co-branded with
<PAGE> 13
Healtheon/WebMD andany medibuy.com site that may be created in the future
targeted to dermatologists and/or eye care providers Subject to medibuy.com's
good faith cooperation with drugstore.com, with respect to each such site: (A)
to the extent that drugstore.com fails to provide prescription drugs other than
infusion therapy to such site by the later of (x) December 31, 2000 or (y) three
months after medibuy.com notifies drugstore.com that such products will be
offered on such site, medibuy.com may allow a party other than drugstore.com to
sell prescription drugs other than infusion therapy on such site; and (B) to the
extent that drugstore.com fails to provide infusion therapy to such site,
including without limitation by means of a contractual arrangement with a Third
Party provider of infusion therapy, by the later of (x) December 31, 2000 or (y)
three months after medibuy.com notifies drugstore.com that infusion therapy will
be offered on such site, medibuy.com may allow a party other than drugstore.com
to provide infusion therapy to such site. medibuy.com acknowledges that infusion
therapy is not currently offered by drugstore.com. drugstore.com acknowledges
that medibuy.com currently does not offer prescription drugs on the medibuy.com
site that is co-branded with Healtheon/WebMD.
4. As soon as practicable following medibuy.com's acquisition of Premier Health
Exchange, LLC, medibuy.com shall cause its vice president with responsibility
over strategic relationships to meet with the drugstore.com Vice President of
Business Development to discuss potential business relationships in addition to
those set forth in the Agreement and the Plan (as defined below). medibuy.com
shall use best efforts to market a drugstore.com awareness plan targeted at
patients of entities that make purchases via one or more medibuy.com sites (the
"Plan"), including, among other things, providing information regarding
patients' obtaining prescription drug refills and non-prescription products from
drugstore.com.
5. Within three days of the Effective Date of this Amendment, medibuy.com will
grant and deliver to drugstore.com a warrant to purchase 200,000 shares of
medibuy.com common stock at an exercise price of $0.01 per share in the form
attached hereto as Exhibit A ("Pre-IPO Warrant"). Upon grant and delivery of the
Pre-IPO Warrant, the original warrant to grant 50,000 shares of medibuy.com
common stock granted by medibuy.com to drugstore.com pursuant to the Agreement
(prior to this Amendment) will be canceled by medibuy.com and be null and void.
medibuy.com represents and warrants that there have been no stock splits and/or
dividends of any of its capital stock from January 13, 2000 up to and including
the date of this Amendment. medibuy covenants that, in the event that it
effected or effects a stock split and/or dividend of any of its capital stock at
any time from January 13, 2000 up to and including the date of grant to
drugstore.com of the Pre-IPO Warrant, the number of shares subject to the
Pre-IPO Warrant and the exercise price per share shall be accordingly adjusted
so that drugstore.com shall be entitled to receive the kind and number of shares
of securities of the medibuy.com which it would have owned or would have been
entitled to receive immediately after such action had the Pre-IPO Warrant
already been exercisable by drugstore.com and exercised immediately prior to
such action. medibuy.com represents and warrants that it currently intends to
"split" its common stock on a 2:1, 2.5:1 or 3:1 basis prior to the medibuy.com
initial public offering.
6. Within five days of the closing of the medibuy.com initial public offering,
medibuy.com will grant and deliver to drugstore.com a warrant to purchase
200,000 shares of medibuy.com common stock at an exercise price of $0.01 per
share in the form attached hereto as Exhibit B ("Post-IPO Warrant").
7. In the event of a medibuy.com initial public offering, drugstore.com shall
comply with an underwriter's lock-up request provided that such lockup shall
equal the lesser of (i) 180 days or (ii) the lock-up period generally requested
by underwriters for holders of 200,000 shares (as split-adjusted). In the event
that medibuy.com elects not to complete an initial public offering but an
Affiliate of medibuy.com completes an initial public offering within six months
of this Amendment, medibuy.com shall cause drugstore.com to be granted a
warrant, within 5 days of the closing of such initial public offering, (i) to
purchase that number of shares of common stock of such Affiliate that would give
drugstore.com an equity interest in such entity equal to drugstore.com's equity
interest in medibuy.com as of the date first written above assuming that
drugstore.com's Pre-IPO Warrant and Post-IPO Warrant were exercisable as of the
date first written above and (ii) that shall be on the same terms as the Pre-IPO
Warrant, including without limitation an exercise price of $.01 and an exercise
period of at least one year following the expiration of a 180-day lock-up period
following such IPO. The issuance of any such warrants to purchase stock of the
Affiliate will cancel the Pre-IPO Warrant and Post-IPO Warrant upon delivery.
8. Except as modified by this Amendment, the Agreement remains in full force and
effect. The Agreement and the Amendment, taken together as a whole, constitute
the entire understanding between the parties in relation to the subject matter
hereof and supersede all prior discussions, agreements and
<PAGE> 14
representations related to this subject matter, whether oral or written and
whether or not executed by a party. Unless otherwise provided in the Agreement,
no modification, amendment or other change may be made to the Agreement and/or
the Amendment or any part thereof unless reduced to writing and executed by
authorized representatives of all parties. This Amendment may be executed in two
or more counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument.
[Next page is Signature Page]
<PAGE> 15
SIGNATURE PAGE TO AMENDMENT NO. 1 TO STRATEGIC ALLIANCE AGREEMENT
The parties hereto have duly executed this Agreement as of the date first
written above.
"DRUGSTORE.COM"
drugstore.com, inc., a Delaware corporation
By: /s/ MARK SILVERMAN
-------------------------------------------
Mark Silverman
Its: Vice President, Business Development
"MEDIBUY.COM"
medibuy.com, Inc., a Delaware corporation
By: /s/ DENNIS MURPHY
-------------------------------------------
Dennis Murphy
Its: Chief Executive Officer
<PAGE> 1
EXHIBIT 10.38
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 230.406
PREMIER HEALTH EXCHANGE, L.L.C.
E-COMMERCE OUTSOURCING AGREEMENT
This e-Commerce Outsourcing Agreement (the "Agreement"), is entered into
effective March 4, 2000, by and between Premier Health Exchange, L.L.C. ("PHx"),
and Premier Purchasing Partners, L.P. ("Purchasing Partners"), with reference to
the following facts:
A. Purchasing Partners and PHx are affiliates of Premier, Inc.
("Premier"), the nation's largest alliance of hospitals and health care
organizations.
B. Premier's core objective is to improve the health of communities.
C. Such core objective as well as the objective of helping to assure
that patients receive safe and efficacious care can be accomplished, in part, by
achieving economies of scale and innovations through group strategies and shared
resources.
D. Purchasing Partners operates Premier's acute care group purchasing
organization which represents one of the nation's largest groups of acute care
and related facilities that have come together through Purchasing Partners in an
effort to aggregate their supply purchasing volume in order to obtain more
favorable terms from vendors.
E. PHx is a provider of e-commerce systems and solutions to enable the
use of the Internet in streamlining the supply chain management process with
particular focus on more efficient ordering, tracking and processing of medical
product purchases.
F. Purchasing Partners desires to retain the services of PHx to serve as
Purchasing Partners' provider of e-commerce systems through which Purchasing
Partners' member hospitals and related facilities can take full advantage of the
efficiencies and anticipated cost savings offered by Internet-based
technologies.
G. PHx desires to provide such services to Purchasing Partners, subject
to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises contained
herein and other good and sufficient consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1.0 DEFINITIONS. The following terms as used in this Agreement shall have the
meanings set forth below:
1.1 "COMMITMENT PROGRAM". The Purchasing Partners program that requires
Participating Members to purchase specified levels of certain Contracted
Products and Services from designated Vendors.
1.2 "CONTRACTED PRODUCTS AND SERVICES". The products and services which
are covered under a Standard Group Purchasing Agreement between Purchasing
Partners and a Vendor.
1.3 "CALENDAR YEAR". The twelve (12) month period commencing on January
1 and ending on December 31.
<PAGE> 2
1.4 "DISTRIBUTOR". A distribution or wholesaler company which
distributes to purchasers medical products, pharmaceuticals and other products
or services that have not been manufactured (either by or for) such companies.
1.5 "DISTRIBUTION SERVICES". The warehousing, transport and delivery
services of a Distributor with respect to medical products, pharmaceuticals and
other products or services that have not been manufactured (either by or for)
such Distributor.
1.6 "e-COMMERCE INFORMATION FEE". The fee charged by PHx for providing
value-added information with respect to customer purchasing activity which is
above and beyond the base level of information (equivalent to sales tracings)
customarily provided by PHx.
1.7 "e-COMMERCE OUTSOURCING AGREEMENT". An agreement, such as this
Agreement, between PHx and a Group Purchasing Organization whereby PHx provides
access to the PHx e-Commerce System by the Group Purchasing Organization and its
members and suppliers.
1.8 "e-COMMERCE CONTRACTED PURCHASE VOLUME". The [***] of Contracted
Products and Services purchased by Participating Members from Vendors through
use of the PHx e-Commerce System.
1.9 "e-COMMERCE NON-CONTRACTED PURCHASE VOLUME". The [***] of
Non-Contracted Products and Services purchased by Participating Members through
use of the PHx e-Commerce System.
1.10 "FISCAL YEAR". The twelve (12) month period commencing on July 1
and ending on June 30.
1.11 "GROUP PURCHASING ORGANIZATION". Any entity that meets the
definition of a "Group Purchasing Organization" as set forth in 42 CFR Section
1001.952(j).
1.12 "MATERIALS MANAGEMENT SYSTEMS". Information systems (including
software and hardware) utilized by health care providers to assist in the
organization and management of their product purchasing and materials management
functions.
1.13 "NON-CONTRACTED PRODUCTS AND SERVICES". Products and services which
are not covered under a Purchasing Partners Standard Group Purchasing Agreement.
1.14 "OLM FACILITIES". Any acute care and related facilities that are
owned, leased or managed by a Premier Owner. OLM Facilities are separately
identified as such in Exhibit A hereto.
1.15 "PARTICIPATING MEMBERS". The Premier members set forth on Exhibit A
hereto who shall have the right to access and use the PHx e-Commerce System.
Purchasing Partners shall have the right to provide Exhibit A in electronic form
and shall update Exhibit A on a periodic basis to reflect changes in membership.
* Confidential Treatment Requested
<PAGE> 3
1.16 "PREMIER OWNERS". The limited partners of Purchasing Partners and
the shareholders of Premier. Premier Owners are separately identified as such on
Exhibit A hereto.
1.17 "PERFORMANCE STANDARDS AND SERVICE LEVELS". Objective criteria that
establish the specific elements of PHx's required performance of Services under
this Agreement. The initial Performance Standards and Service Levels are set
forth in Exhibit B hereto. On a quarterly basis, Purchasing Partners and PHx
shall meet to review the Performance Standards and Service Levels and discuss in
good faith any necessary revisions thereto. Any revisions to the Performance
Standards and Service Levels shall be mutually agreed to in writing by the
parties.
1.18 "PHx e-COMMERCE SYSTEM". The Internet-based, electronic commerce
system provided hereunder by PHx to Purchasing Partners, Participating Members,
Vendors and Distributors in accordance with the Performance Standards and
Service Levels. The PHx e-Commerce System enables, without limitation: (i)
online direct ordering, tracking and inventory control by Participating Members
with respect to Contracted Products and Services through use of various
technologies including electronic cataloging technologies such as WebCat (these
functions of the PHx e-Commerce System may be web-based and/or integrated with
ERP systems and Materials Management Systems); (ii) dynamic pricing functions
which include, but are not limited to, online auctions and an electronic request
for quotation system; (iii) an electronic communications infrastructure to
integrate supply chain information with clinical information and other health
care provider-based information as well as provide transaction related
information to Participating Members, Purchasing Partners, Vendors and
Distributors; and (iv) such other capabilities as shall be mutually agreed by
the parties. The PHx e-Commerce System includes all upgrades and enhancements
implemented over time by PHx that are made generally available to PHx customers.
1.19 "PHx RESOURCES". PHx employees and consultants, WebCat and any
other PHx owned, leased or licensed hardware, equipment, software, facilities
and other assets used by PHx in providing the Services.
1.20 "PHx TRANSACTION FEES". The transaction fees charged by PHx in
connection with the use of the PHx e-Commerce System for the purchase, sale
and/or distribution of Non-Contracted Products and Services.
1.21 "PRIVACY POLICY". The online policy that describes PHx's position
regarding privacy and information security issues. The form and content of the
Privacy Policy shall be subject to the mutual agreement of PHx and Purchasing
Partners and shall not be modified without the prior written consent of both
parties. In the event of a conflict between the Privacy Policy and any of the
terms and conditions of this Agreement, the terms and conditions of this
Agreement shall control.
1.22 "PURCHASING PARTNERS ADMINISTRATIVE FEES". The administrative fees
paid by Vendors to Purchasing Partners pursuant to Purchasing Partners Standard
Group Purchasing Agreements based on the volume of purchases by Participating
Members of Contracted Products and Services.
<PAGE> 4
1.23 "PURCHASING PARTNERS RESOURCES". Purchasing Partners employees and
consultants and all computer hardware, equipment, software (including software
license rights), facilities and other assets owned, leased or licensed by
Purchasing Partners which are reasonably necessary for PHx to provide the
Services.
1.24 "SERVICES". PHx's provision of the PHx e-Commerce System for use by
Participating Members, Purchasing Partners, Vendors and Distributors and the
integration of the PHx e-Commerce System with the information systems utilized
by Purchasing Partners, Participating Members, Vendors and Distributors.
1.25 "STANDARD GROUP PURCHASING AGREEMENT". An agreement with a supplier
of products and/or services to make such products and/or services available for
purchase by a designated group of purchasers that exists for the purposes of
negotiating pricing and/or other terms and conditions, which has a term of [***}
or more (including all extensions and renewals).
1.26 "SYSTEM ADMINISTRATIVE FEES". Fees paid pursuant to an agreement
with Purchasing Partners by Vendors directly to Participating Members that
qualify to receive such fees under such agreement, subject to compliance with
applicable Medicare/Medicaid Fraud and Abuse Safe Harbors.
1.27 "TERMS OF USE". The online terms and conditions under which
Purchasing Partners, Group Purchasing Organizations, Participating Members,
Vendors and Distributors may access and use the PHx e-Commerce System. The form
and content of the Terms of Use shall be subject to the mutual agreement of PHx
and Purchasing Partners and shall not be modified without the prior written
consent of both parties. In the event of a conflict between the Terms of Use and
any of the terms and conditions of this Agreement, the terms and conditions of
this Agreement shall control.
1.28 "TOTAL PREMIER PURCHASE VOLUME". The [***] of Contracted Products
and Services (including e-Commerce Contracted Purchase Volume) and
Non-Contracted Products and Services (including e-Commerce Non-Contracted
Purchase Volume) purchased by Participating Members.
1.29 "VENDORS". Manufacturers and suppliers of medical, pharmaceutical
and other products and services.
1.30 "WEBCAT". The version of PHx's electronic cataloging technology
which is utilized in connection with Purchasing Partners.
2.0 TERM OF AGREEMENT. This Agreement shall commence on March 4, 2000 (the
"Effective Date"), and shall remain in effect for ten (10) years, expiring on
March 3, 2010. Upon the expiration of the initial term hereof, this Agreement
shall automatically renew for successive five (5) year terms unless either party
provides written notice to the other of its intent not to renew, at least ninety
(90) days prior to the expiration of the initial term or any renewal term.
* Confidential Treatment Requested
<PAGE> 5
3.0 PHx OBLIGATIONS.
3.1 SERVICES IN GENERAL. Subject to the terms of this Agreement, PHx
shall provide such professional and technical personnel and other PHx Resources
as shall be required to perform the Services in accordance with the Performance
Standards and Service Levels.
3.2 PROVISION OF THE PHx e-COMMERCE SYSTEM. In connection with its
performance of the Services hereunder, and subject to compliance with the Terms
of Use, PHx shall provide Purchasing Partners, Participating Members, Vendors
and Distributors access to and customary use of the any and all components of
the PHx e-Commerce System. The level of access shall be appropriate for the type
of organization making such access (i.e., a Participating Member, Vendor or
Distributor, as the case may be) and consistent with PHx's standard access
levels for such business types. The PHx e-Commerce System shall, without
limitation, provide for: (i) accurate electronic catalog information; (ii)
online access by Participating Members to detailed product information that is
available on Vendors' information systems, including without limitation,
detailed product descriptions, product photographs or pictures, clinical
specifications, recall notices, and Material Safety Data Sheets (MSDS)
information; (iii) web-based ordering capabilities whereby Participating Members
have the ability to order products and services directly from Vendors and
Distributors; (iv) cataloging of the non-price value elements of Purchasing
Partners' Standard Group Purchasing Agreements; (v) integration of certain
Vendor technologies into the PHx e-Commerce System; and (vi) cataloging of the
field and customer services resources of Vendors and Distributors.
3.3 INTEGRATION OF THE PHx e-COMMERCE SYSTEM WITH OLM FACILITIES'
INFORMATION SYSTEMS. PHx shall make available [***] sufficient PHx Resources in
order to cause the timely integration of the PHx e-Commerce System with the
Materials Management System and enterprise resource planning ("ERP") system of
any and all OLM Facilities in accordance with a mutually acceptable integration
plan (the "OLM Facilities Integration Plan"). PHx agrees to install connector
technology that is relevant to each facilities' Materials Management System or
ERP that processes procurement transactions and manages electronic catalog
information. "Connector Technology" is defined as published subscribed
translation technology that is specific to transaction management and that
enables electronic transfer processes automatically. PHx will install a
pre-configured connector or develop and install a custom connector at each OLM
Facility requesting integration services. The parties shall use best efforts to
finalize the OLM Facilities Integration Plan within [***] after the Effective
Date. Further, PHx shall perform [***} with respect to the PHx components of the
resulting integrated systems. In connection with such activities, PHx shall use
commercially reasonable efforts to integrate the PHx e-Commerce System using its
Connector Technology with the leading Materials Management Systems and ERP
systems utilized by Participating Members. Notwithstanding the foregoing, the
value of [***] that PHx shall make available under this Section 3.3 [***] shall
not exceed [***] per facility, unless otherwise expressly agreed by the
applicable facility and PHx. Further, the value of [***] which PHx shall make
available under this Section 3.3 [***] shall not exceed [***] per facility per
year, unless otherwise agreed by the applicable facility and PHx. The terms and
conditions under which PHx shall perform the
* Confidential Treatment Requested
<PAGE> 6
integration and maintenance services described in this Section 3.3 shall be set
forth in separate written agreements between PHx and the applicable facilities.
The form of any such agreements shall be subject to Purchasing Partners' prior
approval, which approval shall not be unreasonably withheld. Further, the terms
of any such separate agreement shall be consistent with the terms and conditions
of this Agreement.
3.4 INTEGRATION OF THE PHx e-COMMERCE SYSTEM WITH THE INFORMATION
SYSTEMS OF OTHER PARTICIPATING MEMBERS. PHx shall use commercially reasonable
efforts to cause the timely integration of the PHx e-Commerce System with the
information systems of other Participating Members (in addition to OLM
Facilities) in accordance with a mutually acceptable integration plan (the
"General Integration Plan"). The parties shall use best efforts to finalize the
General Integration Plan within a reasonable period of time after the Effective
Date. The terms and conditions under which PHx shall perform the integration
services described in this Section 3.4 shall be set forth in separate written
agreements between PHx and the applicable facilities. The form of any such
agreements shall be subject to Purchasing Partners' prior approval, which
approval shall not be unreasonably withheld. Further, the terms of any such
separate agreement shall be consistent with the terms and conditions of this
Agreement.
3.5 INTEGRATION OF THE PHx e-COMMERCE SYSTEM WITH PURCHASING PARTNERS'
INFORMATION SYSTEM. PHx shall make available [***] sufficient PHx Resources in
order to cause the timely integration of the PHx e-Commerce System with the
following components of the Purchasing Partners' information system (provided
that the maximum amount required to be incurred by PHx for such integration
shall not exceed [***]): (i) [***]; (ii) [***]; (iii) [***]; and (iv) [***]. A
more detailed description of the applicable integration requirements is set
forth in Exhibit C hereto. PHx shall perform all such integration activities in
accordance with the Performance Standards and Service Levels. The PHx
integration solution for Purchasing Partners' information system shall include
without limitation provision for two-way transfer of contract and member
information and detailed purchasing transaction and inquiry data.
3.6 INTEGRATION OF THE PHx e-COMMERCE SYSTEM WITH THE INFORMATION
SYSTEMS OF VENDORS AND Distributors. PHx shall use commercially reasonable
efforts to cause the timely integration of the PHx e-Commerce System with the
information systems of Vendors and Distributors. Integration with Vendors and
Distributors is defined as making the Vendors' and/or Distributors' catalog
available for on-line searching on the PHx e-Commerce System and, to the extent
reasonably possible, enabling on-line order management (including without
limitation, inventory query, order creation, order submission and order
confirmation) and on-line settlement with such Vendor and/or Distributor. The
terms under which PHx shall perform such services shall be set forth in separate
written agreements between PHx and the applicable Vendors or Distributors and
shall be commercially reasonable.
3.7 PHx PRODUCT OFFERINGS TO PARTICIPATING MEMBERS.
A. PROHIBITED USES. PHx represents, warrants and covenants that
it prohibits the use of the PHx e-Commerce System (to the extent accessible by
Participating Members) for anything other than a lawful and
* Confidential Treatment Requested
<PAGE> 7
legitimate business purpose. Examples of other than lawful and legitimate
business uses include, but are not limited to, the following: (i) selling or
offering (x) stolen property, counterfeit items, contraband, controlled
substances (other than in accordance with applicable law), firearms; tobacco;
pornography, (y) products or services that violate any state or federal statute
or regulation regarding the display, promotion, advertising, recommending or
sale of medical supplies, (z) products or services or any other material which
it is unlawful to sell or for a Participating Member to acquire (subsections
(x)-(z) cumulatively the "Illicit Items"); (ii) placement on the PHx e-Commerce
System of any untrue, malicious, fraudulent, harassing, offensive or defamatory
material, or any material that is irrelevant to a legitimate use of the site;
(iii) introduction of viruses, worms or other programming routines that are
intended to disrupt or interfere with the intended operation of the site; (iv)
unauthorized insertion of links to other sites of whatever character; (v)
promotion of any unlawful activity or purpose, including any activity that could
give rise to criminal or civil liability; (vi) manipulation of pricing on
transactions by any means, including the placement of bad faith bids, use of
shills in the auction process or collusion between a buyer and seller to cause
harm to a competitor;(vii) unauthorized alteration of any data or information
supplied by another user of the site: or (viii) any activity that infringes on
the copyright, patent, trademark or other rights of any person or entity.
B. RIGHT OF PURCHASING PARTNERS TO REQUIRE THAT PHx PREVENT THE
OFFERING OF CERTAIN PRODUCTS OR SERVICES TO PARTICIPATING MEMBERS. If Purchasing
Partners reasonably believes that the offering for sale of any product or
service through the PHx e-Commerce System accessible by Participating Members
may harm or cause injury to third parties, or harm the reputation or goodwill of
Purchasing Partners, or is reasonably deemed by Purchasing Partners as failing
to meet reasonable safety and quality standards established from time to time by
Purchasing Partners through its customary product selection and committee review
process involving Participating Members (the "Harmful Items"), PHx shall not
offer, and shall prevent Vendors, Distributors and Participating Members from
offering, the product or service to Participating Members through the PHx
e-Commerce System following the procedure of Section 3.7(c) below.
C. REMOVAL OF ILLICIT AND HARMFUL ITEMS. If (i) PHx should
reasonably know or (ii) PHx is notified by Purchasing Partners or a third party
that a Vendor, Distributor or Participating Member is offering to Participating
Members through the PHx e-Commerce System any Illicit or Harmful Item, then PHx
shall use its best efforts to remove the Illicit or Harmful Item from being
offered to Participating Members on the PHx e-Commerce System within seventy-two
(72) hours of PHx reasonably knowing or being notified of any Illicit or Harmful
Item on the PHx e-Commerce System (the "Removal Period"). Such best efforts may
include (i) instructing and having the Vendor, Distributor or Participating
Member (as the case may be) remove the Illicit or Harmful Item from the PHx
e-Commerce System to the extent accessible by Participating Members, (ii) PHx
removing the Illicit or Harmful Item from the PHx e-Commerce System to the
extent accessible by Participating Members, or (iii) preventing access by
Participating Members to the Illicit or Harmful Item. PHx shall promptly notify
Purchasing Partners of all communications between and actions taken by PHx and a
Vendor, Distributor or Participating Member concerning any Illicit or Harmful
Item during the Removal Period and thereafter until Participating Members'
access to the Illicit or Harmful Item through the PHx e-Commerce System is
eliminated.
<PAGE> 8
3.8 COMMITMENT PROGRAM ISSUES; AUTHORIZATION TO RELEASE INFORMATION TO
PURCHASING PARTNERS. PHx will electronically notify any Participating Member
which requests a price quotation or other product information concerning
Contracted Products and Services and/or Non-Contracted Products and Services
that such Participating Member's consummation of a purchase based on such
request could affect such Participating Member's obligations under the
Commitment Program. The parties shall mutually agree upon the form, content and
mechanism for such notification. In the event a Participating Member consummates
any such purchase, PHx shall provide Purchasing Partners written or electronic
notice thereof as part of PHx's standard monthly report described in Section
3.12. Further, PHx shall provide Purchasing Partners any other information in
its possession that is reasonably requested by Purchasing Partners that relates
to Participating Members' obligations under the Commitment Program. Subject to
Section 3.7 above, PHx shall have no obligation to stop any transaction
requested by a Participating Member. The Terms of Use applicable to
Participating Members shall grant PHx express authorization to provide
Purchasing Partners the notice required under this Section 3.8 and any other
information relevant to the Commitment Program which is reasonably requested by
Purchasing Partners.
3.9 e-COMMERCE OUTSOURCING AGREEMENTS WITH AFFILIATED GROUP PURCHASING
ORGANIZATIONS; PROVIDER SELECT, INC. Upon Purchasing Partners' written request,
PHx shall enter into a separate e-Commerce Outsourcing Agreement with any Group
Purchasing Organization designated by Purchasing Partners which is owned or
controlled by or under common control with Purchasing Partners and/or Premier.
The form and content of such e-Commerce Outsourcing Agreement shall be
substantially similar to this Agreement. Notwithstanding the foregoing, PHx
shall refrain from encouraging or directing customers to choose one Group
Purchasing Organization over another or to switch their affiliation from one
Group Purchasing Organization to another. PHx shall have the right to require
Purchasing Partners, upon providing written notice, to cause Provider Select,
Inc. ("Provider Select") to enter into an e-Commerce Outsourcing Agreement with
PHx (the "Provider Select e-Commerce Outsourcing Agreement") whereby PHx shall
provide the PHx e-Commerce System to support all of the electronic commerce
services provided by Provider Select to physicians and physician groups (the
"Provider Select e-Commerce Services"). The terms and conditions of the Provider
Select e-Commerce Outsourcing Agreement shall be substantially similar to the
terms of this Agreement, including the Covenant Not to Promote. In no event,
however, shall Purchasing Partners and/or Provider Select be obligated to take
any action under the preceding two sentences unless: (i) PHx is able to provide
the same level of functionality as is provided by the Provider Select e-Commerce
Services; and (ii) PHx will provide such services through websites which are
owned or controlled exclusively by PHx, PHx affiliates or Provider Select unless
otherwise agreed by Provider Select. In the event Provider Select in good faith
intends to offer electronic commerce services to any group of Provider Select
members other than physicians and physician groups, Provider Select shall
provide PHx with written notice of such intention and PHx shall, for a period of
120 days, have the right to enter into an e-Commerce Outsourcing Agreement with
Provider Select to provide such services to such group of Provider Select
members upon terms and conditions which are substantially similar to the terms
and conditions of this Agreement, including the Covenant Not to Promote;
provided, however that PHx must provide such services through websites which are
owned or controlled exclusively by PHx, PHx affiliates or Provider Select unless
otherwise agreed by Provider Select. Further, in no event shall Provider Select
sell or allow the sale of products,
<PAGE> 9
supplies or services for use by an acute care facility. For purposes of this
Section 3.9, a "PHx affiliate" shall mean any entity that is owned by,
controlled by or under common control with PHx.
3.10 NOTICE OF UPGRADES AND ENHANCEMENTS. PHx shall provide Purchasing
Partners with reasonable advance notice (the "Notice") of any Upgrades and
Enhancements (as defined below). Purchasing Partners and Participating Members
and, if applicable, Vendors and Distributors with respect to Contracted Products
and Services only, shall have access to such Upgrades and Enhancements [***].
New Services (as defined below) will be available to Purchasing Partners,
Participating Members, Vendors and Distributors upon terms which are no less
favorable than the terms generally available to other users of PHx's services.
"Upgrades and Enhancements" shall mean bug fixes and functional improvements to
PHx's systems used for purposes of effecting the online purchase and/or sale of
medical, pharmaceutical, surgical, dietary, dental, or veterinarian supplies or
services. "New Services" shall mean services or products offered and/or
developed by PHx other than Upgrades and Enhancements. Purchasing Partners shall
have the right to participate as a beta test site for the testing and evaluation
of such Upgrades and Enhancements and New Services. Notwithstanding the
foregoing, in the event PHx introduces a New Service which substantially
replaces the PHx e-Commerce System as it then exists (the "Legacy PHx e-Commerce
System"), to the extent PHx imposes additional charges for use of such New
Service, PHx shall continue to operate and provide support (consistent with
PHx's prior practices) for the Legacy PHx e-Commerce System for the benefit of
Participating Members and Distributors and Vendors (to the extent use of the
Legacy PHx e-Commerce System by such Distributors and Vendors relates to
Participating Members) at no additional charge throughout the initial term and
any renewal term of this Agreement.
3.11 MARKETING SUPPORT. PHx shall make available sufficient PHx
Resources reasonably necessary to market and promote the PHx e-Commerce System
to Participating Members and to market and promote such other strategic
initiatives related to this Agreement as are designated by Purchasing Partners.
PHx will modify the "Buyer's Center" page of the PHx website to include
prominently placed links to the websites of Purchasing Partners and Premier
(other than the website of Provider Select). Such link(s) shall be designed to
be visible on a standard computer screen set to a resolution of 800 pixels by
600 pixels without requiring the user to scroll horizontally or vertically
through the web page and shall be in a size and form reasonably agreed upon by
the parties.
3.12 REQUIRED REPORTS. PHx shall provide Purchasing Partners with a
monthly written or electronic report of e-Commerce Contracted Purchase Volume
and e-Commerce Non-Contracted Purchase Volume. During the first twelve (12)
months after the Effective Date, PHx shall provide such report to Purchasing
Partners within thirty (30) days of the end of each month. Thereafter, PHx shall
provide such report to Purchasing Partners within fifteen (15) days of the end
of each month. The parties shall mutually agree upon the form and content of
such report. Subject to Section 5.1 below, PHx shall provide Purchasing Partners
such other reports related to the Services as Purchasing Partners may reasonably
request.
3.13 PHx USER GROUP. PHx shall establish an advisory group of users of
the PHx e-Commerce System for the purpose of providing input and direction
regarding the operation,
* Confidential Treatment Requested
<PAGE> 10
functionality, processes, and capabilities of the system (the "PHx User Group").
The PHx User Group will advise PHx on the customer satisfaction, usage,
application, functionality and quality of the PHx e-Commerce System. Such
involvement will include, but not be limited to, the ability to recommend
upgrades and/or enhancements directed at issues including, but not limited to,
quality and/or cost improvements in the supply chain. PHx shall follow-up
appropriately on any such recommendations and prioritize its activities in this
regard with the primary goal of delivering benefit to customers using the PHx
e-Commerce System. PHx agrees that Purchasing Partners shall have the right to
designate up to two (2) individuals to participate in the PHx User Group. PHx
also agrees that Premier Owners and Participating Members shall be given
consideration for participation. PHx covenants that Purchasing Partners, Premier
Owners and Participating Members shall represent a percentage of the membership
of the User Group that is proportional to the Total Premier Purchase Volume
divided by the total purchase volume processed through the PHx e-Commerce System
for all customers of PHx.
3.14 PAYMENT BY PHx OF COMMISSIONS TO PURCHASING PARTNERS. In
consideration of Purchasing Partners' on-going support of Participating Members'
use of the PHx e-Commerce System for the purchase of Non-Contracted Products and
Services, PHx shall pay Purchasing Partners a commission equal to [***] PHx
Transaction Fees collected by PHx as a result of the use of the PHx e-Commerce
System by Participating Members for the purchase of Non-Contracted Products and
Services (the "Transaction Fee Commission"). PHx shall pay Purchasing Partners
the Transaction Fee Commission on a quarterly basis, without demand or notice,
within [***] of the [***]. PHx shall pay to Purchasing Partners interest on any
undisputed past due amount owing Purchasing Partners hereunder at the rate of
[***] per annum.
3.15 ADVERTISING. PHx shall not include on the PHx e-Commerce
System any advertisement, promotional placement or other promotional media
accessible by Participating Members (and Vendors and Distributors to the extent
such access by Vendors and Distributors relates to Participating Members)
without the prior written or electronic consent of Purchasing Partners.
4.0 PURCHASING PARTNERS' OBLIGATIONS.
4.1 SUPPORT AGREEMENT. Concurrent with the execution of this Agreement,
Purchasing Partners shall cause Premier to enter into the Support Agreement in
the form attached hereto as Exhibit D whereby Premier shall provide back-office,
administrative support in connection with PHx's dynamic pricing functions as
well as certain relationship management and marketing services in connection
with Participating Members' introduction to and use of the PHx e-Commerce
System.
4.2 ORIENTATION. Purchasing Partners will provide orientation to its
information systems department standards, appropriate technical manuals, and
other support reasonably necessary for PHx's performance of the Services.
Purchasing Partners will also provide to PHx relevant documentation of
procedures, system instruction manuals and internal documentation to the extent
available.
* Confidential Treatment Requested
<PAGE> 11
4.3 SPACE AND FACILITIES. When Services are performed by PHx at
Purchasing Partners' sites, Purchasing Partners will provide a reasonable work
environment to the extent reasonably necessary for PHx personnel to perform
Services under this Agreement. Purchasing Partners will also provide adequate
storage space for spare parts and test equipment, if required by PHx, and
adequate working space, heat, light, ventilation, electric current and outlets
for use by PHx's maintenance personnel, which facilities shall be provided at no
charge to PHx and shall be within a reasonable distance to the network
configuration. Any additional space required to meet Purchasing Partners'
information systems function needs during the term of this Agreement shall be
provided by PHx at its sole cost and expense at locations of PHx's choice and
the parties agree that Purchasing Partners shall not be required to provide
space to PHx other than as herein expressly provided.
4.4 ACCESS TO COMPUTER FACILITIES. Purchasing Partners will provide
PHx's personnel access to Purchasing Partners' computer facilities reasonably
required to perform Services under this Agreement on a twenty-four (24) hour per
day, seven (7) day per week basis. Access may be via physical entry to the
facility or via telecommunications, as needs dictate. Purchasing Partners shall
conform to PHx's reasonable security policies and procedures for physical and
on-line access to PHx computer facilities.
4.5 ACCESS TO INFORMATION NETWORK. Purchasing Partners, subject to
appropriate mutually agreed upon security measures consistent with Purchasing
Partners' network security policies and protocol, will permit PHx to connect the
PHx e-Commerce System to Purchasing Partners' local area network and to equip
existing PC Workstations owned by Purchasing Partners with the necessary
software for Purchasing Partners' personnel using such PC Workstations to have
access to the PHx e-Commerce System. PHx will be responsible for all costs
related to such connectivity including software, hardware and telecommunications
costs.
4.6 COMPATIBLE SPECIFICATIONS. Purchasing Partners will maintain, or
allow PHx to maintain, Purchasing Partners' network servers at specifications
compatible with the PHx e-Commerce System.
4.7 TIMELY ACTION. Purchasing Partners will make decisions and
communicate information in a timely manner to enable PHx to provide the Services
in accordance with this Agreement.
4.8 MARKETING SUPPORT. Purchasing Partners shall make available
sufficient Purchasing Partners Resources reasonably necessary to market and
promote the PHx e-Commerce System to Participating Members in accordance with
Exhibit E hereto.
5.0 LICENSES.
5.1 PURCHASING PARTNERS LICENSES TO USE PHx SOFTWARE AND OTHER
PROPRIETARY MATERIAL. PHx has developed or will develop Confidential Information
(as defined in Section 11.1 below) and trade secrets relating to its services
using proprietary business processes. Purchasing Partners acknowledges that PHx
and its affiliates have invested substantial money in the development and
maintenance of such processes. Purchasing Partners will have a position of
<PAGE> 12
special trust and confidence for the use of such Confidential Information.
Accordingly, only for the term of this Agreement, PHx hereby grants to
Purchasing Partners and Participating Members a non-exclusive license to use
such Confidential Information and such trade secrets (including without
limitation, PHx logos and trade names and WebCat and any other software included
in the PHx Resources) solely in connection with the Services. Title to WebCat
and all software included in the PHx Resources shall remain in PHx. Purchasing
Partners and Participating Members shall not have the right to assign,
sublicense or otherwise transfer or distribute the license described in this
Section 5.1 to any other person or entity. PHx also hereby grants Purchasing
Partners a non-exclusive license during the term of this Agreement to access and
use (for internal purposes only, including without limitation, dissemination to
Participating Members) transaction data with respect to customers of PHx which
are not Participating Members provided that such data is aggregated (as opposed
to customer or vendor specific) and presented in a form that is mutually agreed
upon by the parties.
5.2 PHx LICENSES TO USE PURCHASING PARTNERS PROPRIETARY INFORMATION.
Purchasing Partners has developed Confidential Information (as defined in
Section 11.1 below) and trade secrets relating to the sale of goods to a large
number of customers in the healthcare industry using proprietary business
processes. PHx acknowledges that Purchasing Partners and its affiliates have
invested substantial money in the development and maintenance of such processes
and in the sourcing and sales of products and services. PHx will have a position
of special trust and confidence for the use of such Confidential Information
(including without limitation the roster of Participating Members set forth in
Exhibit A hereto, pricing and related information with respect to Contracted
Products and Services, Purchasing Partners and Premier logos and trade names,
and Purchasing Partners newsletters and marketing materials) solely to support
the purposes of this Agreement. Accordingly, only for the term of this
Agreement, Purchasing Partners hereby grants to PHx a non-exclusive license to
use such Confidential Information and such trade secrets for the limited purpose
of providing the Services under this Agreement. Purchasing Partners also hereby
grants PHx a non-exclusive license during the term of this Agreement to access
and use (i) supplier-specific transaction data relating to Contracted Products
and Services for the sole purpose of providing information to Vendors (with
respect to purchases of such vendor's products only); and (ii) general
transaction data relating to Contracted Products and Services for the sole
purpose of providing such data to suppliers provided that such data is
aggregated (as opposed to customer, vendor or product specific) and presented in
a form that is mutually agreed upon by the parties.
6. COMPENSATION.
6.1 TRANSACTION PROCESSING FEE. In consideration of the Services
provided hereunder by PHx in connection with the processing of transactions by
Participating Members through the PHx e-Commerce System, throughout the initial
term of this Agreement and any renewal term, Purchasing Partners shall pay PHx
an amount equal to [***] of the Purchasing Partners Administrative Fees
collected by Purchasing Partners as a result of purchases of Contracted Products
and Services by Participating Members through use of the PHx e-Commerce System
(the "Transaction Processing Fee"). Notwithstanding the foregoing, for purposes
of determining the Transaction Processing Fee hereunder, in no event shall the
Purchasing Partners Administrative Fees for any Standard Group Purchasing
Agreement be
* Confidential Treatment Requested
<PAGE> 13
deemed to [***] or be [***] under such agreement.
6.2 SOFTWARE/HARDWARE ROYALTY AND MAINTENANCE FEE. In consideration of
PHx's provision of electronic catalog information to Participating Members,
maintenance of Purchasing Partners' electronic catalog functionality, and PHx's
provision to Purchasing Partners of other electronic tools to effect contracting
in a timely, more efficient manner, as well as the beneficial access by
Participating Members to the PHx e-Commerce System, Purchasing Partners agrees
to pay PHx [***] Software/Hardware Royalty and Maintenance Fee equal to [***]
(the "Royalty and Maintenance Fee"). Notwithstanding the foregoing, the Royalty
and Maintenance Fee [***].
Upon the expiration of the Covenant Not to Promote described in Section
7.1 below, in the event the Royalty and Maintenance Fee [***] of the actual
[***] during [***] multiplied by [***], the Royalty and Maintenance Fee for
such [***] shall be [***] for purposes of this Section 6.2. The amount of [***]
for the applicable [***] in the event the Covenant Not to Promote expires prior
to the end of a [***].
Notwithstanding the foregoing, Purchasing Partners shall receive a [***]
due hereunder [***] for the applicable Calendar Year multiplied by [***]. The
amount of any Royalty and Maintenance Fee due hereunder shall be determined by
Purchasing Partners within [***] of each December 31 during the term and upon
the expiration of the term of this Agreement (with respect to the Royalty and
Maintenance Fee attributable to the portion of the [***] prior to such
expiration). The Royalty and Maintenance Fee due hereunder shall be prorated for
[***].
6.3 EXCLUSION OF SYSTEM ADMINISTRATIVE FEES AND REVENUE RELATED TO
[***]; ADMINISTRATIVE FEES PAID IN THE FORM OF SECURITIES. [***]. In the event a
Vendor pays Purchasing Partners Administrative Fees in the form of securities,
any gain realized on the sale of such securities by Purchasing Partners shall be
taken into account at the time of such sale in determining the Transaction
Processing Fee due PHx hereunder to the extent the original value underlying
such securities was generated by purchases of Contracted Products and Services
through use of the PHx e-Commerce System. Any such amount shall be paid along
with the [***] Transaction Processing Fee payment due under Section 6.1 above.
6.4 MANNER OF PAYMENT. Purchasing Partners shall pay the Transaction
Processing Fee and an estimated, prorated Royalty and Maintenance Fee on a
quarterly basis, without demand or notice, within [***] of its receipt of the
e-Commerce Contracted Purchase Volume and e-Commerce Non-Contracted Purchase
Volume report required to be provided by PHx pursuant
* Confidential Treatment Requested
<PAGE> 14
to Section 3.12 above with respect to the [***]. The estimated Royalty and
Maintenance Fee shall be based on the information contained in such reports.
Purchasing Partners shall determine the actual Royalty and Maintenance Fee due
in accordance with Section 6.2. In the event Purchasing Partners determines that
the total of estimated Royalty and Maintenance Fee payments for the applicable
[***] is less than the actual Royalty and Maintenance Fee due in accordance with
Section 6.2, Purchasing Partners shall pay PHx the amount of such shortfall
within [***] of the determination of the actual Royalty and Maintenance Fee due
in accordance with Section 6.2. In the event Purchasing Partners determines that
the total of any estimated Royalty and Maintenance Fee payments for the
applicable [***] is more than the actual Royalty and Maintenance Fee due in
accordance with Section 6.2, Purchasing Partners shall apply the amount of such
overpayment as a credit toward the [***] Transaction Processing Fee payment due
in accordance with Section 6.1. Notwithstanding the foregoing, Purchasing
Partners shall have the right to require Vendors to pay PHx the Transaction
Processing Fee applicable to such Vendors' Standard Group Purchasing Agreements
in lieu of Purchasing Partners making such payment, provided such Vendors make
any such payment within the time period set forth in the first sentence of this
Section 6.4. Purchasing Partners shall pay to PHx interest on any undisputed
past due amount owing PHx hereunder at the rate of [***] per annum.
6.5 PHx TRANSACTION FEES FOR NON-CONTRACTED PRODUCTS AND SERVICES;
e-COMMERCE INFORMATION FEES. PHx shall have the right to charge Vendors and
Distributors reasonable PHx Transaction Fees for the use of the PHx e-Commerce
System in connection with the purchase, sale and distribution of Non-Contracted
Products and Services. PHx shall have the right to charge Participating Members
reasonable PHx Transaction Fees only in connection with their purchases of
Non-Contracted Products and Services from Vendors which have been expressly
requested by the applicable Participating Member (i.e., the offer of such
products and services was placed on the PHx e-Commerce System as result of the
request of the Participating Member that is charged the PHx Transaction Fees).
The PHx Transaction Fees shall be no less favorable than rates charged to other
PHx customers for comparable services. PHx shall have the right to charge
Vendors and Distributors reasonable e-Commerce Information Fees in exchange for
providing such Vendors and Distributors the information subject to such fees.
6.6 PHx COMPENSATION FOR INTEGRATION SERVICES. PHx shall have the right
to charge Vendors, Distributors and/or Participating Members (once the
applicable dollar limits described in Section 3.3 above have been reached)
reasonable service fees in connection with any integration services provided by
PHx in response to a specific request for such services. Such service fees shall
be consistent with market rates for comparable services. Further, any such
services shall be documented in a separate statement of work signed by PHx and
the party responsible for payment of such service fees.
6.7 FULL COMPENSATION; SERVICES UNDERLYING TRANSACTION PROCESSING AND
ROYALTY AND MAINTENANCE FEE. Except as otherwise provided in this Article 6, the
amount received by PHx under this Article 6 shall be compensation in full for
the Services and PHx shall not charge Purchasing Partners or Participating
Members any additional amounts or fees for the Services.
* Confidential Treatment Requested
<PAGE> 15
7.0 ADDITIONAL COVENANTS OF THE PARTIES.
7.1 COVENANT NOT TO PROMOTE. Subject to Section 7.2 below, each of
Premier and Purchasing Partners agrees that, for a period of six (6) years after
the Effective Date and except in connection with Provider Select (provided that
Provider Select does not sell or allow the sale of products, supplies or
services for use by an acute care facility), it will not, and that it will
prevent any entity owned by, controlled by, or under common control with it
(collectively, "Affiliates"), from doing any of the following: (i) advertising
or promoting, directly or indirectly, access to or use of any on-line commerce
web site of a PHx Competitor for the procurement of medical, pharmaceutical,
surgical, dietary, dental, or veterinarian supplies or services, whether on-line
or in off-line media, or in any other communication made by or on behalf of
Purchasing Partners or such Affiliate, including, without limitation, e-mail,
links, direct mail, press releases or advertising, (ii) offering, operating
and/or marketing an on-line marketplace for the sale or on-line sales of
medical, pharmaceutical, surgical, dietary, dental, or veterinarian supplies or
services directly to hospitals and health care organizations; (iii) integrating
their information systems with the information systems of any PHx Competitor;
(iv) providing integration services for any Participating Member, Vendor or
Distributor with respect to any PHx Competitor's electronic commerce system; or
(v) providing direct access by PHx Competitors to pricing information through
Purchasing Partners related to Contracted Products and Services. Such agreement
not to promote and the covenants in the preceding sentence are referred to
herein as the "Covenant Not to Promote." "PHx Competitor" means a third party
having a principal business of providing an on-line marketplace for the sale or
on-line sales of medical, pharmaceutical, surgical, dietary, dental, or
veterinarian supplies or services to hospitals and health care organizations,
but excluding: (i) Provider Select (provided that Provider Select does not sell
or allow the sale of products, supplies or services for use by an acute care
facility); and (ii) Distributors and Vendors with which Purchasing Partners has
or will enter into a formal agreement in the ordinary course of business
(provided Purchasing Partners shall refrain from promoting any electronic
commerce capabilities of such Distributors or Vendors to the extent such
capabilities are competitive with the PHx e-Commerce System). Upon the
expiration of the Covenant Not to Promote (or earlier waiver thereof by PHx in
accordance with Section 12.4 below), Purchasing Partners shall have the right to
promote to Participating Members up to two (2) additional providers of
electronic commerce solutions for medical, pharmaceutical, surgical, dietary,
dental, or veterinarian supplies or services (in addition to PHx).
7.2 REVIEW OF PHx SERVICES. Within [***] prior to the end of the [***],
Purchasing Partners shall conduct a review of PHx's provision of the Services to
determine if PHx is meeting the standards set forth in Exhibit F hereto.
Notwithstanding Section 7.1 above, in the event Purchasing Partners reasonably
determines that PHx has failed to meet one or more of such standards, Purchasing
Partners shall provide PHx written notice thereof not later than [***] prior to
the end of the [***], as the case may be, and the Covenant Not to Promote shall
expire effective as of the last day of the [***], as the case may be.
7.3 PHx AGREEMENT NOT TO ENTER INTO STANDARD GROUP PURCHASING
AGREEMENTS. Throughout the term of this Agreement, PHx agrees that it will
refrain from entering into any Standard Group Purchasing Agreements. Breach of
this Section 7.3 shall be deemed a material breach of this Agreement.
* Confidential Treatment Requested
<PAGE> 16
7.4 AUCTIONS OF CONTRACTED PRODUCTS AND SERVICES. PHx shall provide
Purchasing Partners reasonable advance notice of any auction accessible to
Participating Members relating to Contracted Products and Services. Further,
prior to commencing any auction accessible to Participating Members with respect
to any Contracted Products and Services which are also included in the
Commitment Program (other than used equipment), PHx shall obtain Purchasing
Partners' consent to allow access by Participating Members to such auction,
which shall not be unreasonably withheld. Such consent shall be deemed to have
been given in the event Purchasing Partners fails to respond to a PHx request
for consent within one (1) business day after Purchasing Partners' receipt of
such request.
7.5 PERFORMANCE OF INFORMATION TECHNOLOGY OUTSOURCING SERVICES BY PHx;
RIGHT OF FIRST OPPORTUNITY. During the period of time that the Covenant Not to
Promote remains in effect, PHx shall refrain from performing any information
technology outsourcing services except for services that are related to
Materials Management Systems, capital equipment asset management systems and
related electronic commerce solutions. Purchasing Partners shall have the right
of first opportunity to provide (or arrange for the provision through Premier)
any supply chain consulting services requested by a Participating Member. Prior
to performing any such supply chain consulting services itself or directing a
Participating Member to a provider of such services other than Purchasing
Partners or Premier, PHx shall first provide Purchasing Partners with written
notice of any request for such services received from a Participating Member.
Thereafter, Purchasing Partners or Premier shall have sixty (60) days in which
to finalize a contract for the provision of such services. If a contract is not
finalized within such time or the Participating Member, Purchasing Partners or
Premier otherwise elects not to pursue such a contract, PHx shall have the right
to perform the supply chain consulting services on its own or refer the
applicable Participating Member to another provider of such services. In the
event Purchasing Partners elects to engage the services of a third party
consultant or consulting firm other than Premier or an Affiliate (as defined in
Section 7.1) to provide supply chain consulting services to any Participating
Member, then PHx shall have a right of first opportunity to offer and provide
such services. Upon any such election to engage the consulting services of a
third party other than Premier or an Affiliate, Purchasing Partners shall
provide to PHx in writing all of the relevant terms related to the provision of
such services, including the performance requirements and proposed timeframe for
delivery of, and compensation for, such services. PHx shall have the right for
five (5) business days from the date of receipt of such notice to propose terms
for its provision of such services, including staffing, costs and timeframe for
delivery of the services. Purchasing Partners shall in good faith consider PHx's
proposal and confer with PHx regarding its consideration of the proposal.
Purchasing Partners' determination of whether to accept such proposal shall be
based upon commercially reasonable factors, including, without limitation, the
relevant capabilities and level of expertise of PHx's staff. If Purchasing
Partners elects not to accept PHx's proposal, it shall notify PHx of its
determination and provide a summary of its rationale for its determination.
Thereafter, Purchasing Partners shall be free to engage the services of a third
party consultant.
7.6 OWNERSHIP OF DATA. Purchasing Partners shall be the exclusive owner
of all pricing data related to Contracted Products and Services. All purchasing
transaction data (other than pricing data related to Contracted Products and
Services) generated by Participating Members through the use of the PHx
e-Commerce System shall be co-owned by PHx and Purchasing Partners. Each party
may freely use and disclose any information (both individual and aggregated,
<PAGE> 17
but, in the case of PHx, excluding pricing information related to Contracted
Products and Services) it collects in connection with its performance under this
Agreement, except that use and disclosure of a party's Confidential Information
shall be governed by Section 11 of this Agreement.
7.7 COMPLIANCE WITH APPLICABLE LAWS. PHx and Purchasing Partners
represent, warrant and covenant that throughout the term of this Agreement and
any extension hereof, each shall be and shall remain in compliance with all
applicable federal, state and local laws and regulations, including without
limitation all applicable "safe harbor" regulations relating to Group Purchasing
Organizations and fees, discounts and incentives paid and/or granted to Group
Purchasing Organizations. PHx and Purchasing Partners each represent and warrant
to the other that as of the date of this Agreement, it has not: (i) been listed
by any federal or state agency as excluded, debarred, suspended or otherwise
ineligible to participate in federal and/or state programs; or (ii) been
convicted of any crime relating to any federal and/or state program. Each party
further agrees to immediately notify the other party in writing in the event the
notifying party is listed by a federal or state agency as excluded, debarred,
suspended or otherwise ineligible to participate in any federal and/or state
programs or if the notifying party is convicted of any crime relating to any
such program.
7.8 PURCHASING PARTNERS CO-BRANDED URL OPTION. Subject to the provisions
of this Agreement, Purchasing Partners shall have the option and the right, upon
reasonable written notice to PHx (the "New Site Notice), to create a new
co-branded PHx/Purchasing Partners Internet web site at a URL to be selected,
owned and controlled by Purchasing Partners, having the attributes set forth in,
and for the purposes of offering services as specified in, this Section 7.8 (the
"New Site").
a. DEVELOPMENT AND CREATION OF THE NEW SITE. In the event
Purchasing Partners exercises its right under this Section 7.8 above, the
parties agree that within sixty (60) days following the receipt by PHx of the
New Site Notice, the parties will use commercially reasonable efforts to
complete a plan for the development, creation, and implementation of the New
Site subject to the following requirements: (i) all of the intellectual property
related to the New Site will be owned and controlled by Purchasing Partners
(except for information contained in the PHx Frame, which shall be governed by
other sections of this Agreement including without limitation Section 7.6); (ii)
except as set forth in Section 7.8(b)(2) below, the New Site will be created and
hosted by Purchasing Partners on its servers or the servers of its affiliates or
contractors; (iii) the New Site will be accessible to Participating Members
directly or through links from other sites owned or operated by, or for the
benefit of, Purchasing Partners, Participating Members, Vendors, Distributors,
affiliates of Purchasing Partners, or other entities under contract with
Purchasing Partners, provided that PHx shall establish and maintain on the
"Buyer's Center" page of the PHx website a prominently placed link to the New
Site which shall be designed to be visible on a standard computer screen set to
a resolution of 800 pixels by 600 pixels without requiring the user to scroll
horizontally or vertically through the web page and shall be in a size and form
reasonably agreed upon by the parties (provided that such link will not
reference or link directly to the website of Provider Select); (iv) the New Site
will be primarily identified and branded as a Purchasing Partners and/or Premier
site but the PHx Frame (as defined in Section 7.8(b)(2) below) will have
prominent reference to the relationship to PHx described in this Agreement
(e.g., "Powered by PHx") in a location and size and style to be mutually agreed
upon between the parties.
<PAGE> 18
b. SCOPE OF THE NEW SITE; RESTRICTIONS.
(1) Subject to Purchasing Partners' obligations under this
Agreement, including, without limitation, the Covenant Not to Promote,
Purchasing Partners will be entitled to provide through the New Site content to
its users including, for example, content related to quality, clinical, safety,
and other informational offerings of Purchasing Partners or others, data
products and data product offerings, and supply chain consulting, IT consulting
and other consulting services and information.
(2) The New Site will include a prominently placed link to
the PHx e-Commerce System to be hosted on the New Site and served within a frame
(the "PHx Frame"). Purchasing Partners will not offer or provide any links to
any other electronic commerce services providers that are PHx Competitors (as
defined in Section 7.1). All users of the New Site that utilize the PHx
e-Commerce System shall be deemed to be Participating Members for purposes of
Sections 6.1, 6.2 and 6.6 of this Agreement.
(3) Other than transaction information relating to
electronic commerce transactions (the rights of which are governed under Section
7.6 of this Agreement), Purchasing Partners shall own all data collected at the
New Site, provided that PHx may use such data to the extent necessary to provide
the Services and facilitate usage by Participating Members.
(4) The parties shall enter into a license agreement
containing customary mutually acceptable terms with respect to any intellectual
property, including without limitation, any object code, that is necessary or
desired to be used in connection with the development and operation of the New
Site.
c. DEVELOPMENT COSTS. Each of Purchasing Partners and PHx shall
bear its own costs related to the development of the New Site. Notwithstanding
the foregoing, Purchasing Partners' election to exercise the option for the
creation of the New Site described in this Section 7.8 and the parties'
obligations and rights under this Section 7.8(c) are not intended to impact the
obligations and/or financial responsibilities of either party as set forth in
Articles 3 and 4 of this Agreement.
8.0 INSURANCE AND INDEMNIFICATION.
8.1 INSURANCE. Each party shall maintain adequate general public
liability, property damage and workers compensation insurance against any claim
or claims which might or could arise as a result of this Agreement. When
requested by either party, an insurance certificate indicating the foregoing
coverage, issued by an insurance company licensed to do business in the relevant
state or states and signed by an authorized agent, shall be furnished by the
other party to the requesting party. Each party shall provide the other with at
least thirty (30) days prior written notice of any cancellation or material
modification of such insurance.
8.2 INDEMNIFICATION. Subject to Section 8.3 below, each party hereby
agrees to indemnify, defend and hold harmless the other party and the other
party's respective directors, officers, managers, employees, partners,
affiliates and agents from and against any and all claims, demands, actions,
losses, expenses, damages, liabilities, costs (including, without limitation,
interest,
<PAGE> 19
penalties and reasonable attorneys' fees) and judgments arising out of the
negligent acts or omissions of the indemnifying party and its employees and
agents acting under its control or supervision. Purchasing Partners hereby
agrees to indemnify, defend and hold harmless PHx and PHx's directors, officers,
managers, employees, partners, affiliates and agents from and against any and
all claims, demands, actions, losses, expenses, damages, liabilities, costs
(including, without limitation, interest, penalties and reasonable attorneys'
fees) and judgments arising out of the application of laws or regulations to PHx
to the extent relating to the business of Purchasing Partners and except to the
extent arising out of PHx's negligence or willful misconduct. PHx hereby agrees
to indemnify, defend and hold harmless Purchasing Partners and Purchasing
Partners' directors, officers, managers, employees, partners, affiliates and
agents from and against any and all claims, demands, actions, losses, expenses,
damages, liabilities, costs (including, without limitation, interest, penalties
and reasonable attorneys' fees) and judgments arising out of the application of
laws or regulations to Purchasing Partners to the extent relating to the
business of PHx and except to the extent arising out of Purchasing Partners'
negligence or willful misconduct.
8.3 LIMITATION OF LIABILITY. PHx HEREBY DISCLAIMS AND EXCLUDES ALL
WARRANTIES OF ANY KIND (EXCEPT FOR THE WARRANTIES CONTAINED IN SECTIONS 7.7 AND
12.16), EXPRESS OR IMPLIED (WHETHER ARISING UNDER LAW OR EQUITY OR CUSTOM OR
USAGE), INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, AND PURCHASING PARTNERS HEREBY EXPRESSLY
WAIVES RELIANCE UPON ANY SUCH WARRANTIES. PHx MAKES NO WARRANTY, EXPRESS OR
IMPLIED, WITH RESPECT TO THE DATA ACCESSED OR GENERATED BY THE PHx e-COMMERCE
SYSTEM, OR THE SUITABILITY OR COMPATIBILITY OF THE PHx e-COMMERCE SYSTEM WITH
THE HARDWARE OR OTHER SOFTWARE OF PURCHASING PARTNERS, PARTICIPATING MEMBERS,
VENDORS OR DISTRIBUTORS.
IN NO EVENT SHALL EITHER PARTY BE LIABLE IN CONTRACT (INCLUDING
BREACH OF WARRANTY), TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR OTHERWISE
TO THE OTHER PARTY, PARTICIPATING MEMBERS, VENDORS OR DISTRIBUTORS FOR ANY LOST,
DELAYED OR DIMINISHED PROFITS, REVENUES OR OPPORTUNITIES, LOST DATA OR
APPLICATION SOFTWARE, DOWNTIME OR ANY INCIDENTAL, SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR RELATED
TO THIS AGREEMENT.
NEITHER PARTY SHALL BE LIABLE FOR ANY FAILURE TO PERFORM WHICH IS DUE TO
CAUSES BEYOND ITS REASONABLE CONTROL, INCLUDING WITHOUT LIMITATION FORCE MAJEURE
EVENTS AS DEFINED IN SECTION 12.10. PHx'S MAXIMUM LIABILITY ON ANY CLAIM ARISING
OUT OF THIS AGREEMENT SHALL IN NO EVENT EXCEED THE EQUIVALENT OF THE SUM OF THE
TRANSACTION PROCESSING FEE AND ROYALTY AND MAINTENANCE FEE PAID HEREUNDER FOR
THE CALENDAR YEAR ENDING IMMEDIATELY PRIOR TO THE DATE OF THE CLAIM.
<PAGE> 20
9.0 TERMINATION.
9.1 TERMINATION FOR BREACH. In the event of a breach of a material
provision of this Agreement, the non-breaching party shall give the other party
written notice of such breach and such other party shall have a period of ninety
(90) days in which to cure the breach. In the event the breaching party fails to
cure the breach within the cure period, in addition to whatever other remedies
may be available at law or equity, the non-breaching party shall have the right
to terminate this Agreement upon providing the other party written notice of
termination. Notwithstanding the foregoing, however, the 90-day cure period
described above shall not apply and Purchasing Partners may terminate this
Agreement upon providing at least ten (10) days prior written notice to PHx in
the event of a Substantial Breach as defined in Sections 9.3(b)(2) or 9.3(b)(3)
below.
9.2 INSOLVENCY. If either party becomes or is declared insolvent,
becomes subject to a voluntary or involuntary bankruptcy or similar proceeding,
or makes an assignment for the benefit of all or substantially of all of its
creditors (all such events are referred to herein as "Bankruptcy Events"), then
in such event the other party to this Agreement may terminate this Agreement
immediately upon providing written notice of termination to the other party.
9.3 RIGHTS UPON TERMINATION.
a. TRANSITION ISSUES.
In the event Purchasing Partners terminates this Agreement
pursuant to Sections 9.1 or 9.2 above as a result of an uncured Substantial
Breach (as defined below) by PHx, Purchasing Partners and Participating Members
shall be deemed to have a fully paid license to continue their use of the PHx
e-Commerce System for a period of time equal to [***]. Such license
shall be non-assignable and non-sublicenseable and shall be limited to the right
to use the PHx e-Commerce System to support the reasonable electronic commerce
requirements of Participating Members with at least the same level of
connectivity by and among Participating Members, Vendors and Distributors that
existed immediately prior to the effective date of termination. Further, in the
event of any such termination by Purchasing Partners: (i) PHx shall provide at
no charge transition and maintenance support of the PHx e-Commerce System for a
period of [***] from the date of termination; and (ii) Purchasing
Partners shall be deemed to have a fully paid, perpetual, non-assignable,
non-sublicenseable license to use the PHx database of purchasing activity
information relating to Participating Members existing as of the date of
termination for the limited purpose of supporting Participating Members'
reasonable electronic commerce requirements. In no event shall Purchasing
Partners use the licenses described in this Section 9.3 in a manner other than
is necessary to support the reasonable electronic commerce requirements of
Participating Members and Purchasing Partners may not use any aspect of the PHx
e-Commerce System to provide services to any person that is not a Participating
Member or a Vendor or Distributor (provided, however, that any such services to
a Vendor or Distributor must relate solely to Participating Members). This
Section 9.3 shall survive the termination of this Agreement.
* Confidential Treatment Requested
<PAGE> 21
b. SUBSTANTIAL BREACH. A "Substantial Breach" shall only be
deemed to occur if:
(1) At any time following the first anniversary of the
Effective Date, PHx shall have failed to integrate more than [***] of the OLM
Facilities as required under the OLM Facilities Integration Plan;
(2) The PHx e-Commerce System becomes unavailable to
Participating Members generally for any single period of [***] other than as a
result of hacker attacks, natural disasters, war, or other events outside of
PHx's control;
(3) The PHx e-Commerce System becomes unavailable to
Participating Members generally for a total of [***] not including reasonable
scheduled downtime for maintenance and repair (which in no event shall occur
during the hours of 7 AM through 12:01 AM EST), and other than as a result of
hacker attacks, natural disasters, war, or other events outside of PHx's
control; or
(4) PHx becomes subject to, or takes any action
constituting a Bankruptcy Event.
10.0 TRADEMARKS. Each party hereby grants to the other party a non-exclusive,
non-sublicenseable, worldwide license to use the party's trademarks and logos
only as necessary to perform in accordance with the Agreement. The trademark
owner may terminate the foregoing trademark license if, in its reasonable
discretion, the licensee's use of the marks tarnishes, blurs or dilutes the
quality associated with the trademark or the associated goodwill and such
problem is not cured within 10 days of notice of breach; alternatively, instead
of terminating the license in total, the owner may specify that certain licensee
uses may not contain such trademarks. Title to and ownership of the owner's
trademarks will remain with the trademark owner. The licensee will use the
owner's trademarks exactly in the form provided and in conformance with any
trademark usage policies. The licensee will not take any action inconsistent
with the owner's ownership of its trademarks, and any benefits accruing from use
of such trademarks will automatically vest in the trademark owner. The licensee
will not form any combination marks with the other party's trademarks.
11.0 CONFIDENTIALITY.
11.1 CONFIDENTIAL INFORMATION. For the purposes of this Agreement,
confidential information ("Confidential Information") shall mean all
proprietary, secret or confidential information, manuals, systems, processes or
data relating to PHx , Purchasing Partners and Participating Members and their
respective operations, employees, services, patients or customers, including
without limitation any trade secret as defined in Section 3426.1 of the
California Civil Code.
11.2 PROTECTION OF CONFIDENTIAL INFORMATION. PHx and Purchasing Partners
acknowledge that Purchasing Partners and PHx may disclose Confidential
Information to each other in connection with this Agreement. If Purchasing
Partners and/or PHx receives Confidential Information, it shall: (a) maintain
the Confidential Information in strict confidence; (b) use at least the same
degree of care in maintaining the secrecy of the Confidential Information
* Confidential Treatment Requested
<PAGE> 22
as it uses in maintaining the secrecy of its own proprietary, secret, or
confidential information, but in no event less than a reasonable degree of care;
(c) use Confidential Information only to fulfill its obligations under this
Agreement; and (d) return or destroy all documents, copies, notes, or other
materials containing any portion of the Confidential Information upon request by
PHx or Purchasing Partners and upon termination or expiration of this Agreement.
The receiving party shall not disclose any portion of the Confidential
Information to any person except those of its employees and affiliates having a
need to know such portion to accomplish the purposes contemplated by this
Agreement.
11.3 AGREEMENT CONFIDENTIALITY. Except as required by law (including
disclosures necessary or appropriate in filings with the Securities Exchange
Commission or any other governmental body) or generally accepted accounting
principles, and except to assert its rights hereunder or for disclosures on a
"need-to-know" basis to its own officers, directors, employees and professional
advisers, neither PHx nor Purchasing Partners, nor any of their Affiliates,
shall disclose the terms of this Agreement to any other person or entity without
the prior written approval of the other party. Neither party shall make any
public announcement concerning the existence of this Agreement or its terms
unless such disclosure is required by applicable law or such party receives
prior written approval by the other party. Each party consents to the filing of
this Agreement with the U.S. Securities and Exchange Commission by the other
party and to reference such party's name and a description of this Agreement in
any such filings. In connection with any public disclosure or filing with any
governmental agency, including the Securities and Exchange Commission, each
party agrees to seek confidential treatment of certain agreed upon terms and
conditions of this Agreement. In addition, any description of this Agreement, or
any redacted version of this Agreement, intended to be filed or attached to any
publicly filed document by a party shall be submitted to the other party for
review and input prior to filing.
11.4 LIMITATION ON OBLIGATION. PHx and Purchasing Partners shall have no
obligation concerning any portion of the Confidential Information which: (a) was
known to it before receipt, directly or indirectly, from the disclosing party;
(b) is lawfully obtained, directly or indirectly, by it from a non-party which
was under no obligation of confidentiality; (c) is or becomes publicly available
other than as a result of an act or failure to act by the receiving party; (d)
is required to be disclosed by the receiving party by applicable law or legal
process; or (e) is developed by the receiving party independent of the
Confidential Information disclosed by the disclosing party.
12.0 MISCELLANEOUS.
12.1 GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the state of California.
12.2 MODIFICATION AND WAIVER. No modification of this Agreement shall be
deemed effective unless in writing and signed by each of the Parties hereto. Any
waiver of a breach of any provision(s) of this Agreement shall not be deemed
effective unless in writing and signed by the party against whom enforcement of
the waiver is sought.
<PAGE> 23
12.3 HEADINGS. The descriptive headings of the sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any provision hereof.
12.4 ASSIGNMENT. Neither party may assign, subcontract, delegate or
otherwise transfer this Agreement or any of its rights or obligations hereunder,
nor may it contract with third parties to perform any of its obligations
hereunder except as contemplated in this Agreement, without the other party's
prior written consent; provided, however, that either party may assign this
Agreement to its parent entity provided that such assignment shall not release
the assigning party from its obligations hereunder. Without limiting the
foregoing, during the period of time that the Covenant Not to Promote is in
effect, the following shall be deemed to be an assignment for purposes of this
section and shall require advance written approval by the non-assigning party in
order for this Agreement to remain in effect: the assignment by way of merger,
consolidation, reorganization or Change in Control (as defined below) or the
acquisition of substantially all of the business and assets of a party relating
to this Agreement. Upon the expiration of the Covenant Not to Promote or in the
event PHx elects to permanently waive in writing the effectiveness of the
Covenant Not to Promote (which thereafter shall be of no further force or
effect), the following shall be deemed to be an assignment for purposes of this
section and shall require advance written approval of the non-assigning party in
order for this Agreement to remain in effect: the assignment by way of merger,
consolidation, reorganization or Change in Control or the acquisition of
substantially all of the business and assets of the party relating to this
Agreement by a Competitor of the other party. If Purchasing Partners is the
assigning party, "Competitor" for purposes of this Section 12.4 shall mean a PHx
Competitor as defined in Section 7.1. If PHx is the assigning party,
"Competitor" for purposes of this Section 12.4 shall mean: (i) any entity which
enters into agreements with suppliers of products and/or services to make such
products and/or services available for purchase by a designated group of
purchasers that exists for the purposes of negotiating pricing and/or other
terms and conditions; and/or (ii) any entity or person which owns, leases,
manages or operates, or is owned by, controls or is under common control with an
entity which owns, leases, manages or operates hospitals and/or other health
care providers. For purposes of this Section 12.4, "Change in Control" of an
entity shall mean a merger or consolidation (other than with a subsidiary of
such entity) in which such entity is not the surviving entity, or the sale of
substantially all the assets of such entity, or a sale or other transaction or
series of related transactions in which more than forty percent (40%) of the
outstanding common stock or general voting securities (other than the sale of
securities in any public offering) of such entity (or the common stock or
general voting securities of the new parent entity of such entity) immediately
after such sale or other transaction or series of related transactions is not
owned by the persons or entities who, immediately prior to such sale or other
transaction or series of related transactions, owned more than forty percent
(40%) of the common stock or general voting securities of such entity.
12.5 SEVERABILITY. If any part of this Agreement shall be determined to
be invalid, illegal or unenforceable by any valid Act of Congress or act of any
legislature or by any regulation duly promulgated by the United States or a
state acting in accordance with the law, or declared null and void by any court
of competent jurisdiction, then such part shall be reformed, if possible, to
conform to the law and, in any event, the remaining parts of this Agreement
shall be fully effective and operative insofar as reasonably possible.
<PAGE> 24
12.6 NOTICES. Any notice required to be given pursuant to the terms and
provisions hereof shall be in writing, postage and delivery charges pre-paid,
and shall be sent by telecopier, hand delivery, overnight mail service,
first-class mail or certified mail, return receipt requested, to PHx or
Purchasing Partners at the following addresses:
To PHx: To Purchasing Partners:
Premier Health Exchange, L.L.C. Premier Purchasing Partners, L.P.
12225 El Camino Real 12225 El Camino Real
San Diego, CA 92130-2099 San Diego, CA 92130-2099
Attention: President Attention: Chief Financial Officer
858.481.2727 Fax: 858.481.8919 858.481.2727 Fax: 858.481.8919
Any party may change the address to which notices are to be sent by notice given
in accordance with the provisions of this section. Notices hereunder shall be
deemed to have been given, and shall be effective upon actual receipt by the
other party, or, if mailed, upon the earlier of the fifth (5th) day after
mailing or actual receipt by the other party.
12.7 INDEPENDENT CONTRACTORS. The parties' relationship hereunder is
that of independent contractors. This Agreement does not create any employment,
agency, franchise, joint venture, partnership or other similar legal
relationship between PHx and Purchasing Partners. Neither party has the
authority to bind or act on behalf of the other party except as otherwise
specifically stated herein.
12.8 ATTORNEYS' FEES. Should any party engage an attorney for the
purpose of enforcing this Agreement or any judgment based hereon in any court,
including bankruptcy court, courts of appeal or arbitration proceedings, the
prevailing party shall be entitled to receive its reasonable attorneys' fees and
costs in addition to any other relief granted.
12.9 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective permitted
successors and permitted assigns.
12.10 FORCE MAJEURE. The obligations of either party to perform under
this Agreement will be excused during each period of delay caused by acts of
God, by shortages of power or materials, by government orders or by other events
which are beyond the reasonable control of the party obligated to perform
("Force Majeure Event"). In the event that either party ceases to perform its
obligations under this Agreement due to the occurrence of a Force Majeure Event,
such party shall: (1) immediately notify the other party in writing of such
Force Majeure Event and its expected duration; (2) take all reasonable steps to
recommence performance of its obligations under this Agreement as soon as
possible. In the event that any Force Majeure Event delays a party's performance
for more than thirty (30) days following notice by such party pursuant to this
Agreement, the other party may terminate this agreement immediately upon written
notice to such party.
12.11 RIGHT TO AUDIT. Each party shall permit the other or its agent to
conduct periodic audits of relevant records relating to the parties' performance
under this Agreement. The audits
<PAGE> 25
shall be conducted upon reasonable advance notice during regular business hours
at the applicable party's principal office and in such a manner as not to unduly
interfere with operations. Any such audits shall be conducted at the auditing
party's sole expense.
12.12 ACCESS TO RECORDS. Until the expiration of four (4) years after
the furnishing of any services under this Agreement, PHx shall make available
upon written request of the Secretary of the Department of Health and Human
Services or upon the written request of the Comptroller General or any of their
duly authorized representatives, this Agreement and the books, documents and
records of PHx that are necessary to certify the nature and extent of costs
incurred under this Agreement. This clause shall apply if, and solely to the
extent that Section 1861 (v)(1)(I) of the Social Security Act applies to this
Agreement.
12.13 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules hereto, constitutes the entire understanding and agreement between
Purchasing Partners and PHx concerning the subject matter hereof, and supersedes
all prior negotiations, agreements and understandings between Purchasing
Partners and PHx, whether oral or in writing, concerning the subject matter
hereof.
12.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same agreement.
12.15 CONTROLLING DOCUMENT. In the event of any conflict between this
Agreement and any document, instrument or agreement prepared by either party
(including without limitation, the Terms of Use, the Privacy Policy or any
agreement between PHx and a Participating Member), the terms of this Agreement
shall control.
12.16 YEAR 2000 COMPLIANCE. PHx and Purchasing Partners each represent
and warrant that any software and hardware included in their respective
information systems (and with respect to PHx, the PHx e-Commerce System) shall
operate properly prior to, during and after the year 2000 and shall not cause
any business interruptions or response time delays (i.e., such software and
hardware is "Year 2000 Compliant"). In this regard, the parties agrees that such
software and hardware shall contain, at a minimum: (i) date formats that have
century recognition; (ii) calculations that accommodate same-century and multi
century formulas and date values; (iii) date interface values that reflect the
century; and (iv) calculations that accommodate the occurrence of leap years.
Upon any party's request, the other party agrees to provide reasonable
documentation demonstrating that its systems are Year 2000 Compliant.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 26
IN WITNESS WHEREOF, the parties' authorized representatives have
executed this Agreement effective as of the Effective Date.
Purchasing Partners: PHx:
Premier Purchasing Partners, L.P. Premier Health Exchange, L.L.C.
By: Premier Plans, L.L.C.
Its General Partner
By: /s/ BARY BAILEY By: /s/ DAVID MAWHINNEY
----------------------------- -----------------------------
Printed Name: Bary G. Bailey Printed Name: David Mawhinney
----------------------------- ------------------
Title: Treasurer Title: President
----------------------------- ------------------
Solely for purposes of acknowledging that it is bound by certain obligations
under Section 7.1 hereof.
Premier
Premier, Inc.
By: /s/ RICHARD NORLING
--------------------------
Printed Name: Richard A. Norling
--------------------------
Title: Chief Executive Officer
--------------------------
<PAGE> 1
EXHIBIT 10.39
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 230.406
PREMIER SUPPORT AGREEMENT
This Premier Support Agreement (the "Agreement"), is entered into
effective March 4, 2000 by and between Premier Health Exchange, LLC ("PHx"), and
Premier, Inc. ("Premier"), with reference to the following facts:
A. Premier, Inc. ("Premier"), is the nation's largest alliance of
hospitals and health care organizations.
B. Premier's affiliate Premier Purchasing Partners, L.P.("Purchasing
Partners") operates Premier's group purchasing organization.
C. PHx is a provider of e-commerce systems and solutions to enable the
use of the Internet in streamlining the supply chain management process with
particular focus on more efficient ordering, tracking and processing of medical
product purchases.
D. PHx and Purchasing Partners have entered into an e-Commerce
Outsourcing Agreement concurrent with the execution of this Agreement.
E. PHx desires to retain the services of Premier to provide support for
certain PHx activities to benefit Purchasing Partners' member hospitals and
related facilities and other customers of PHx.
F. Premier desires to provide such services to PHx, subject to the terms
and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and sufficient consideration, the receipt and adequacy of which
is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "DEFINITIONS INCORPORATED BY REFERENCE". Any terms not defined
herein shall have the same meaning as set forth in the e-Commerce Outsourcing
Agreement between Purchasing Partners and PHx.
1.2 "DYNAMIC PRICING". For the purposes of this Agreement, Dynamic
Pricing is intended to include both the electronic quote and auction
capabilities and vehicles that exist as of the Effective Date.
1.3 "RELATIONSHIP MANAGEMENT". The customer service philosophy that is
driven by data, based upon a team approach, defined by owner segmentation into
groups of similar organizations, and focussed on owner value. This philosophy
streamlines contact with owner executives and includes a plan for building
awareness of programs and services according to individual owner needs.
1
<PAGE> 2
ARTICLE 2
TERM AND TERMINATION
2.1 TERM OF AGREEMENT. This Agreement shall commence on March 4, 2000
(the "Effective Date"), and shall remain in effect for ten (10) years, expiring
on March 3, 2010. Notwithstanding the foregoing, this Agreement shall terminate
earlier upon the termination of the e-Commerce Outsourcing Agreement. Upon the
expiration of the initial term hereof, this Agreement shall automatically renew
for successive five (5) year terms unless either party provides written notice
to the other of its intent not to renew, at least ninety (90) days prior to the
expiration of the initial term or any renewal term.
2.2 TERMINATION OF DYNAMIC PRICING SUPPORT. Either party may terminate
the services provided under Articles 4 for any reason, or no reason, upon
providing ninety (90) days advanced written notice to the other party. The
services provided under Article 4 may be terminated without effect on the
services provided under Article 5 or the transition support under Article 7. In
the event of a termination under this section, any payment shall be prorated to
coincide with the termination date.
2.3 TERMINATION OF RELATIONSHIP MANAGEMENT SUPPORT. Following the
termination of the covenant not to promote in Section 7 of the e-Commerce
Outsourcing Agreement, either party may terminate the services provided under
Article 5 for any reason, or no reason, upon providing ninety (90) days advanced
written notice to the other party. The services provided under Article 4 may be
terminated without effect on the services provided under Article 5 or the
transition support under Article 7. In the event of a termination under this
section, any payment shall be prorated to coincide with the termination date.
2.4 TERMINATION FOR BREACH. In the event of a breach of a material
provision of this Agreement, the non-breaching party shall give the other party
written notice of such breach (the "Breach Notice") and such other party shall
have a period of thirty (30) days in which to cure the breach. In the event the
breaching party fails to cure the breach within the cure period, the
non-breaching party shall have the right to terminate this Agreement upon
providing the other party written notice of termination.
2.5 INSOLVENCY. If either party becomes or is declared insolvent, becomes
subject to a voluntary or involuntary bankruptcy or similar proceeding, or makes
an assignment for the benefit of all or substantially of all of its creditors,
then in such event the other party to this Agreement may terminate this
Agreement by giving at least thirty (30) days prior written notice of
termination to the other party.
2
<PAGE> 3
ARTICLE 3
PHX OBLIGATIONS
3.1 SERVICES IN GENERAL. Subject to the terms of this Agreement, PHx
shall provide such professional and technical personnel and other PHx Resources
as shall be reasonably required to interact with Premier in the delivery of the
services in Articles 4 and 5 hereunder.
3.2 PROVISION OF THE PHX E-COMMERCE SYSTEM. In connection with its
performance of the services under Articles 4 and 5, and subject to compliance
with the Terms of Use, PHx shall provide Premier, Participating Members,
Contracted Vendors and Non-Contracted Vendors access to and use of the any and
all components of the PHx e-Commerce System reasonably necessary to accomplish
the purposes of this Agreement.
3.3 DESIGNATED CONTACT. PHx shall designate in writing a key contact for
interaction and management of the support and services to be provided under this
Agreement.
ARTICLE 4
DYNAMIC PRICING SUPPORT
4.1 SUPPORT OF DYNAMIC PRICING FUNCTIONS. Premier shall provide support
to PHx of PHx's Dynamic Pricing functions. The services to be provided by
Premier are in the following areas:
(a) Opportunity Identification: Premier's Services will include working
with PHx in identifying dynamic pricing opportunities. It is
understood that Premier's focus in this regard is on building
programs that respond to member needs. Premier shall be responsible
for identifying dynamic pricing opportunities and developing member
engagement processes that identify dynamic pricing opportunities.
These Premier activities would include staff/member education and
the creation of an opportunity pipeline as well as facilitating
knowledge transfer between various opportunity channels and dynamic
pricing. Dynamic pricing opportunities will be prioritized by real
member need and scale of opportunity. It is understood and expected
that PHx will also be identifying Dynamic Pricing opportunities and
communicating those to Premier for analysis and development.
Opportunities identified by Premier Members will be considered to
possess adequate value and will be developed for consideration.
(b) Opportunity Analysis, Development and Maintenance: Once
opportunities are identified and agreed upon by Premier and PHx,
Premier's Services will include undertaking an analysis of such
opportunities and a determination of the value potential. Once it
has been determined by Premier and PHx that an opportunity
possesses adequate value potential, the opportunity will be further
developed by
3
<PAGE> 4
Premier. These Premier activities include identifying various
manufacturers, negotiating vendor participation (and agreements as
necessary to support participation) and supporting a network
database of qualified suppliers relative to the supported
opportunities.
(c) Market Development: Premier's services shall also include market
development activities which are intended to maximize participation
within dynamic pricing by creating "markets" for events such as
reverse auctions. The Premier Resources focussed on market
development will be responsible for a calendar of events and
maximizing membership participation by utilizing a variety of
Premier Resources, PHx Resources and other appropriate marketing
vehicles. Premier will work with PHx in including and maximizing
participation by non-Premier customers of PHx.
(d) Process Management: Premier's Services shall also include process
management that includes the dynamic pricing back office function.
The process management services include engaging buyers and sellers
through various events meant to maximize the value dynamic pricing
delivers to participants. This service also includes activities
such as receiving incoming requests, identifying buyers,
communicating requests to buyers, returning quotes to participants
and members, facilitating transactions and all follow-up between
events.
(e) Revenue Management: Premier Services shall also include revenue
management activities that include tracking transactions,
maximizing qualified supplier remittance of transaction fees,
billing qualified suppliers for owed transaction fees and other
accounts receivable management.
4.2 SERVICES IN GENERAL. Subject to the terms of this Agreement, Premier
shall provide such professional and technical personnel and other Premier
Resources as shall be required to perform the services.
4.3 SPACE AND FACILITIES. When Services are performed by Premier at PHx
sites, PHx will provide a reasonable work environment to the extent reasonably
necessary for Premier personnel to perform services under this Agreement.
4.4 TIMELY ACTION. PHx will make decisions and communicate information
in a timely manner to enable Premier to provide the services in accordance with
this Agreement.
4.5 DESIGNATED CONTACT. PHx shall designate in writing a key contact for
interaction and management of the services to be provided under this Article.
4.6 PREFERRED PROVIDER. PHx agrees that Premier shall be the preferred
provider of Dynamic Pricing support for PHx. Notwithstanding the foregoing,
nothing herein shall be deemed to prevent other non-Premier affiliated customers
of PHx from providing similar support or services.
4
<PAGE> 5
4.7. APPLICATION DEVELOPMENT PHx shall provide the applications and
systems required to minimize the manual intervention and oversight of the
Dynamic Pricing processes. Within sixty (60) days of the Effective Date of this
Agreement, Premier and PHx shall develop a mutually agreeable plan for Dynamic
Pricing applications development.
ARTICLE 5
RELATIONSHIP MANAGEMENT
5.1 RELATIONSHIP MANAGEMENT SUPPORT OF PHX. Premier and Premier's
Relationship Management organization shall provide services and support to PHx
in the following areas: (i) when appropriate, facilitate access for PHx [***] of
Premier Owners; (ii) provide introductions and facilitate access of PHx to [***]
of Premier Owners and Participating Members; (iii) facilitating involvement of
PHx in meetings and activities of Premier Owners and Participating Members where
such participation is appropriate. Within [***] of the Effective Date, Premier
shall prepare and provide to PHx a Relationship Management Plan that identifies
in detail the activities [***] of the Relationship Management organization.
5.2 REPORTING. Premier shall provide to PHx on a quarterly basis a
detailed report that sets forth activities undertaken pursuant to this Article
as well as a schedule of planned events and activities for the upcoming quarter.
The form and content of such report shall be mutually agreed to by the parties.
ARTICLE 6
COMPENSATION
6.1 DYNAMIC PRICING SUPPORT FEE AND CAP. In consideration of the Dynamic
Pricing Support activities undertaken pursuant to Article 4 by Premier, PHx
shall pay Premier on a quarterly basis an amount equal to the lesser of: (i)
[***} of the [***] with respect to [***] to the extent such purchases were
supported by Premier hereunder and on a which a transaction fee was collected;
or (ii) the actual costs (including salary, bonus, benefits and other direct
expenses) of the Premier Resources providing the support excluding allocations
for indirect overhead. Premier agrees that the cost of such resources shall be
consistent with the costs of other Premier resources of a substantially similar
nature. Premier shall provide a quarterly report of the costs incurred under
this section. PHx shall pay the amounts on a quarterly basis, without demand or
notice, within thirty (30) days of the end of the quarter subject to timely
receipt of such report from Premier. PHx shall pay to Premier interest on any
undisputed past due amount owing Premier hereunder at a rate of ten percent
(10%) per annum.
* Confidential Treatment Requested
5
<PAGE> 6
6.2 RELATIONSHIP MANAGEMENT. In consideration of the Relationship
Management activities undertaken pursuant to Article 5 by Premier, PHx agrees to
pay Premier a base amount equal to [***] per year. In addition, PHx agrees to
pay Premier up to an additional [***] per year upon meeting certain milestones
and objectives relative to the introduction and integration of PHx. Such
milestones and objectives shall be mutually agreed to by the parties on an
annual basis. PHx shall pay such amounts on an annual basis within 30 days of
receipt of a report from Premier detailing such compensation. PHx shall pay to
Premier interest on any undisputed past due amount owing Premier hereunder at a
rate of ten percent (10 %) per annum.
ARTICLE 7
TRANSITION SUPPORT
7.1 TRANSITION SUPPORT. During the transition to full operational
status, Premier agrees to provide administrative and operational support to PHx
in the following areas: recruiting, benefits, benefits management, payroll,
accounting services, IT services, legal support and any other services
reasonably requested by PHx. The support services shall be made available to PHx
for a period not to exceed one year from the Effective Date of this Agreement.
Premier shall charge PHx quarterly for such services at Premier's actual costs
(including salary, bonus, benefits and other direct expenses) excluding
allocations for indirect overhead.
ARTICLE 8
INSURANCE & INDEMNIFICATION
8.1 INSURANCE. Each party shall maintain adequate general public
liability, property damage and workers compensation insurance against any claim
or claims which might or could arise as a result of this Agreement. When
requested by either party, an insurance certificate indicating the foregoing
coverage, issued by an insurance company licensed to do business in the relevant
state or states and signed by an authorized agent, shall be furnished by the
other party to the requesting party. Each party shall provide the other with at
least thirty (30) days prior written notice of any cancellation or material
modification of such insurance.
8.2 INDEMNIFICATION. Subject to Section 8.3 below, each party hereby
agrees to indemnify, defend and hold harmless the other party and the other
party's respective directors, officers, managers, employees, partners,
affiliates and agents from and against any and all claims, demands, actions,
losses, expenses, damages, liabilities, costs (including, without limitation,
interest, penalties and reasonable attorneys' fees) and judgments arising out of
the negligent acts or omissions of the indemnifying party and its employees and
agents acting under its control or supervision. Premier hereby agrees to
indemnify, defend and hold harmless PHx and PHx's directors, officers, managers,
employees, partners, affiliates and agents from and against any and all claims,
demands, actions, losses, expenses, damages, liabilities, costs (including,
without limitation, interest, penalties and reasonable attorneys' fees) and
judgments arising out of the application of
* Confidential Treatment Requested
6
<PAGE> 7
laws or regulations to PHx to the extent relating to the business of Premier and
except to the extent arising out of PHx's negligence or willful misconduct. PHx
hereby agrees to indemnify, defend and hold harmless Premier and Premier'
directors, officers, managers, employees, partners, affiliates and agents from
and against any and all claims, demands, actions, losses, expenses, damages,
liabilities, costs (including, without limitation, interest, penalties and
reasonable attorneys' fees) and judgments arising out of the application of laws
or regulations to Premier to the extent relating to the business of PHx and
except to the extent arising out of Premier negligence or willful misconduct.
8.3 LIMITATION OF LIABILITY. PREMIER HEREBY DISCLAIMS AND EXCLUDES ALL
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED (WHETHER ARISING UNDER LAW OR EQUITY
OR CUSTOM OR USAGE), INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND PHX HEREBY EXPRESSLY
WAIVES RELIANCE UPON ANY SUCH WARRANTIES. PHX MAKES NO WARRANTY, EXPRESS OR
IMPLIED, WITH RESPECT TO THE DATA ACCESSED OR GENERATED BY THE PHX E-COMMERCE
SYSTEM, OR THE SUITABILITY OR COMPATIBILITY OF THE PHX E-COMMERCE SYSTEM WITH
THE HARDWARE OR OTHER SOFTWARE OF PREMIER, PARTICIPATING MEMBERS, VENDORS OR
DISTRIBUTORS.
IN NO EVENT SHALL EITHER PARTY BE LIABLE IN CONTRACT (INCLUDING BREACH
OF WARRANTY), TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR OTHERWISE TO THE
OTHER PARTY, PARTICIPATING MEMBERS, VENDORS OR DISTRIBUTORS FOR ANY LOST,
DELAYED OR DIMINISHED PROFITS, REVENUES OR OPPORTUNITIES, LOST DATA OR
APPLICATION SOFTWARE, DOWNTIME OR ANY INCIDENTAL, SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR RELATED
TO THIS AGREEMENT.
NEITHER PARTY SHALL BE LIABLE FOR ANY FAILURE TO PERFORM WHICH IS DUE TO
CAUSES BEYOND ITS REASONABLE CONTROL, INCLUDING WITHOUT LIMITATION FORCE MAJEURE
EVENTS AS DEFINED IN SECTION 10.10. PREMIER'S MAXIMUM LIABILITY ON ANY CLAIM
ARISING OUT OF THIS AGREEMENT SHALL IN NO EVENT EXCEED THE EQUIVALENT OF THE
ANNUAL FEES PAID HEREUNDER FOR THE CALENDAR YEAR ENDING IMMEDIATELY PRIOR TO THE
DATE OF THE CLAIM.
7
<PAGE> 8
ARTICLE 9
CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION. For the purposes of this Agreement,
confidential information ("Confidential Information") shall mean all
proprietary, secret or confidential information, manuals, systems, processes or
data relating to PHx and Premier and their respective operations, employees,
services, patients or customers, including without limitation any trade secret
as defined in Section 3426.1 of the California Civil Code.
9.2 PROTECTION OF CONFIDENTIAL INFORMATION. PHx and Premier acknowledge
that Premier and PHx may disclose Confidential Information to each other in
connection with this Agreement. If Premier and/or PHx receives Confidential
Information, it shall: (a) maintain the Confidential Information in strict
confidence; (b) use at least the same degree of care in maintaining the secrecy
of the Confidential Information as it uses in maintaining the secrecy of its own
proprietary, secret, or confidential information, but in no event less than a
reasonable degree of care; (c) use Confidential Information only to fulfill its
obligations under this Agreement; and (d) return or destroy all documents,
copies, notes, or other materials containing any portion of the Confidential
Information upon request by PHx or Premier and upon termination or expiration of
this Agreement. The receiving party shall not disclose any portion of the
Confidential Information to any person except those of its employees and
affiliates having a need to know such portion to accomplish the purposes
contemplated by this Agreement.
9.3 AGREEMENT CONFIDENTIALITY. Except as required by law (including
disclosures necessary or appropriate in filings with the Securities Exchange
Commission or any other governmental body) or generally accepted accounting
principles, and except to assert its rights hereunder or for disclosures on a
"need-to-know" basis to its own officers, directors, employees and professional
advisers, neither PHx nor Premier, nor any of their Affiliates, shall disclose
the terms of this Agreement to any other person or entity without the prior
written approval of the other party. Neither party shall make any public
announcement concerning the existence of this Agreement or its terms unless such
disclosure is required by applicable law or such party receives prior written
approval by the other party. Each party consents to the filing of this Agreement
with the U.S. Securities and Exchange Commission by the other party and to
reference such party's name and a description of this Agreement in any such
filings. In connection with any public disclosure or filing with any
governmental agency, including the Securities and Exchange Commission, each
party agrees to seek confidential treatment of certain agreed upon terms and
conditions of this Agreement. In addition, any description of this Agreement, or
any redacted version of this Agreement, intended to be filed or attached to any
publicly filed document by a party shall be submitted to the other party for
review and input prior to filing.
9.4 LIMITATION ON OBLIGATION. PHx and Premier shall have no obligation
concerning any portion of the Confidential Information which: (a) was known to
it before receipt, directly or indirectly, from the disclosing party; (b) is
lawfully obtained, directly or indirectly, by it from a non-party which was
under no obligation of confidentiality; (c) is or becomes publicly available
other than as a result of an act or failure to act by the receiving party; (d)
is required to be
8
<PAGE> 9
disclosed by the receiving party by applicable law or legal process; or (e) is
developed by the receiving party independent of the Confidential Information
disclosed by the disclosing party.
ARTICLE 10
MISCELLANEOUS
10.1 GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the state of California.
10.2 MODIFICATION AND WAIVER. No modification of this Agreement shall be
deemed effective unless in writing and signed by each of the Parties hereto. Any
waiver of a breach of any provision(s) of this Agreement shall not be deemed
effective unless in writing and signed by the party against whom enforcement of
the waiver is sought.
10.3 HEADINGS. The descriptive headings of the sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any provision hereof.
10.4 ASSIGNMENT. Neither party may assign, subcontract, delegate or
otherwise transfer this Agreement or any of its rights or obligations hereunder,
nor may it contract with third parties to perform any of its obligations
hereunder except as contemplated in this Agreement, without the other party's
prior written consent.
10.5 SEVERABILITY. If any part of this Agreement shall be determined to
be invalid, illegal or unenforceable by any valid Act of Congress or act of any
legislature or by any regulation duly promulgated by the United States or a
state acting in accordance with the law, or declared null and void by any court
of competent jurisdiction, then such part shall be reformed, if possible, to
conform to the law and, in any event, the remaining parts of this Agreement
shall be fully effective and operative insofar as reasonably possible.
10.6 NOTICES. Any notice required to be given pursuant to the terms and
provisions hereof shall be in writing, postage and delivery charges pre-paid,
and shall be sent by telecopier, hand delivery, overnight mail service,
first-class mail or certified mail, return receipt requested, to PHx or Premier
at the following addresses:
To PHx: To Premier:
Premier Health Exchange, Inc. Premier, Inc.
12225 El Camino Real 12225 El Camino Real
San Diego, CA 92130-2099 San Diego, CA 92130-2099
Attention: President Attention: Chief Financial Officer
Tel: 858.418.2727 Tel: 858.418.2727
Fax: 858.481.8919 Fax: 858.481.8919
9
<PAGE> 10
Any party may change the address to which notices are to be sent by notice given
in accordance with the provisions of this section. Notices hereunder shall be
deemed to have been given, and shall be effective upon actual receipt by the
other party, or, if mailed, upon the earlier of the fifth (5th) day after
mailing or actual receipt by the other party.
10.7 INDEPENDENT CONTRACTORS. The parties' relationship hereunder is
that of independent contractors. This Agreement does not create any employment,
agency, franchise, joint venture, partnership or other similar legal
relationship between PHx and Premier. Neither party has the authority to bind or
act on behalf of the other party except as otherwise specifically stated herein.
10.8 ATTORNEYS' FEES. Should any party engage an attorney for the
purpose of enforcing this Agreement or any judgment based hereon in any court,
including bankruptcy court, courts of appeal or arbitration proceedings, the
prevailing party shall be entitled to receive its reasonable attorneys' fees and
costs in addition to any other relief granted.
10.9 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the Parties hereto and their respective successors and
permitted assigns.
10.10 FORCE MAJEURE. The obligations of either party to perform under
this Agreement will be excused during each period of delay caused by acts of
God, by shortages of power or materials, by government orders or by other events
which are beyond the reasonable control of the party obligated to perform
("Force Majeure Event"). In the event that either party ceases to perform its
obligations under this Agreement due to the occurrence of a Force Majeure Event,
such party shall: (1) immediately notify the other party in writing of such
Force Majeure Event and its expected duration; (2) take all reasonable steps to
recommence performance of its obligations under this Agreement as soon as
possible. In the event that any Force Majeure Event delays a party's performance
for more than thirty (30) days following notice by such party pursuant to this
Agreement, the other party may terminate this agreement immediately upon written
notice to such party.
10.11 RIGHT TO AUDIT. Each party shall permit the other or its agent to
conduct periodic audits of relevant records relating to the parties' performance
under this Agreement. The audits shall be conducted upon reasonable advance
notice during regular business hours at the applicable party's principal office
and in such a manner as not to unduly interfere with operations. Any such audits
shall be conducted at the auditing party's sole expense.
10.12 ACCESS TO RECORDS. Until the expiration of four (4) years after
the furnishing of any services under this Agreement, PHx shall make available
upon written request of the Secretary of the Department of Health and Human
Services or upon the written request of the Comptroller General or any of their
duly authorized representatives, this Agreement and the books, documents and
records of PHx that are necessary to certify the nature and extent of costs
10
<PAGE> 11
incurred under this Agreement. This clause shall apply if, and solely to the
extent that Section 1861 (v)(1)(I) of the Social Security Act applies to this
Agreement.
10.13 ENTIRE AGREEMENT. This Agreement, including the Exhibits hereto,
constitutes the entire understanding and agreement between Premier and PHx
concerning the subject matter hereof, and supersedes all prior negotiations,
agreements and understandings between Premier and PHx, whether oral or in
writing, concerning the subject matter hereof.
10.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same agreement.
10.15 CONTROLLING DOCUMENT. In the event of any conflict between this
Agreement and any document, instrument or agreement prepared by either party
(including without limitation, the Terms of Use, the Privacy Policy or any
agreement between PHx and a Participating Member), the terms of this Agreement
shall control.
SIGNATURE PAGE TO FOLLOW
11
<PAGE> 12
IN WITNESS WHEREOF, the parties authorized representatives have executed
this Agreement effective as of the Effective Date.
Premier:
PHx:
Premier, Inc.
Premier Health Exchange, LLC
By: /s/ RICHARD NORLING By: /s/ DAVID MAWHINNEY
---------------------------------- ----------------------------------
Printed Name: Richard Norling Printed Name: David Mawhinney
------------------------ ------------------------
Title: President and Title: President
------------------------------- -------------------------------
Chief Executive Officer
-------------------------------
12
<PAGE> 1
EXHIBIT 10.40
AGREEMENT AND PLAN OF MERGER
among:
MEDIBUY.COM, INC.,
a Delaware corporation;
SAPPHIRE ACQUISITION CORP.
a Delaware corporation;
PREMIER HEALTH EXCHANGE LLC,
a Delaware limited liability company;
PREMIER PURCHASING PARTNERS, L.P.
a California limited partnership;
and
(for the limited purpose of Section 4.19)
PREMIER, INC.
a Delaware corporation.
---------------------------
Dated as of March 6, 2000
---------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. THE MERGER....................................................................1
1.1 Merger of Merger Sub into the Company.........................................1
1.2 Effect of the Merger..........................................................1
1.3 Closing; Effective Time.......................................................1
1.4 Certificate of Formation; Directors and Officers of Parent....................2
1.5 Conversion of Shares..........................................................2
1.6 Company Options and Company Warrants..........................................3
1.7 Closing of the Company's Transfer Books.......................................4
1.8 Exchange of Company Membership Certificates...................................4
1.9 Sales Taxes...................................................................5
1.10 Further Action................................................................5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJOR MEMBER............6
2.1 Due Organization..............................................................6
2.2 Charter Documents; Records....................................................6
2.3 Capitalization, Etc...........................................................7
2.4 Financial Statements; Other Information.......................................7
2.5 Absence of Changes............................................................8
2.6 Title to Assets..............................................................10
2.7 Equipment; Leasehold.........................................................10
2.8 Company Proprietary Assets...................................................10
2.9 Contracts....................................................................12
2.10 Liabilities..................................................................14
2.11 Compliance with Legal Requirements...........................................14
2.12 Governmental Authorizations..................................................14
2.13 Tax Matters..................................................................14
2.14 Employee and Labor Matters; Benefit Plans....................................15
2.15 Environmental Matters........................................................16
2.16 Legal Proceedings; Orders....................................................17
2.17 Authority; Binding Nature of Agreement.......................................17
</TABLE>
i.
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
2.18 Non-Contravention; Consents..................................................17
2.19 Full Disclosure..............................................................18
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......................18
3.1 Due Organization.............................................................18
3.2 Certificate of Incorporation and Bylaws; Records.............................19
3.3 Capitalization, Etc..........................................................19
3.4 Financial Statements; Form S-1 Registration Statement........................20
3.5 Absence of Changes...........................................................21
3.6 Title to Assets..............................................................23
3.7 Equipment; Leasehold.........................................................23
3.8 Parent Proprietary Assets....................................................23
3.9 Contracts....................................................................24
3.10 Liabilities..................................................................25
3.11 Compliance with Legal Requirements...........................................25
3.12 Governmental Authorizations..................................................25
3.13 Tax Matters..................................................................26
3.14 Employee and Labor Matters; Benefit Plans....................................26
3.15 Environmental Matters........................................................27
3.16 Legal Proceedings; Orders....................................................28
3.17 Authority; Binding Nature of Agreement.......................................28
3.18 Non-Contravention; Consents..................................................28
3.19 Full Disclosure..............................................................29
SECTION 4. CERTAIN COVENANTS OF THE PARTIES.............................................29
4.1 Access and Investigation.....................................................29
4.2 Operation of the Company's Business..........................................30
4.3 Operation of Parent's Business...............................................31
4.4 Notification; Updates to Disclosure Schedules................................33
4.5 Company No-Shop..............................................................34
4.6 Parent No-Shop...............................................................35
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
4.7 Registration Statement; Prospectus/Consent Solicitation......................35
4.8 Company Member Approval......................................................36
4.9 Filings and Consents; Regulatory Approvals...................................36
4.10 Public Announcements.........................................................37
4.11 Best Efforts.................................................................37
4.12 Ancillary Merger Documents...................................................37
4.13 Termination of Employee Plans; Other Employee Matters........................38
4.14 FIRPTA Matters...............................................................38
4.15 Indemnification of Company Officers and Directors............................38
4.16 Board Observation Rights.....................................................39
4.17 Parent Board Composition.....................................................39
4.18 Assignment of Outsourcing Agreement..........................................39
4.19 Covenant Not to Promote......................................................39
4.20 Legal Opinion of Paul, Hastings, Janofsky & Walker LLP.......................40
4.21 Legal Opinion of Cooley Godward LLP..........................................40
4.22 Consulting Services..........................................................40
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.................41
5.1 No Restraints................................................................41
5.2 Listing......................................................................41
5.3 Effectiveness of Registration Statement......................................41
5.4 HSR Act......................................................................41
5.5 Company Status at Closing....................................................41
5.6 Audited Financial Statements.................................................42
5.7 e-Commerce Outsourcing Agreement.............................................42
5.8 Company Capitalization.......................................................42
5.9 Amendment to Parent Certificate of Incorporation.............................42
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY...........................42
6.1 No Restraints................................................................42
6.2 Listing......................................................................42
</TABLE>
iii.
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
6.3 Effectiveness of Registration Statement......................................42
6.4 HSR Act......................................................................43
6.5 Amendment to Investor Rights Agreement.......................................43
6.6 Capitalization of Parent.....................................................43
6.7 Parent Substituted Option....................................................43
6.8 Amendment to Parent Certificate of Incorporation.............................43
SECTION 7. TERMINATION..................................................................43
7.1 Termination Events...........................................................43
7.2 Termination Procedures.......................................................44
7.3 Effect of Termination........................................................44
SECTION 8. INDEMNIFICATION, ETC.........................................................44
8.1 Survival of Representations, Etc.............................................44
8.2 Indemnification by the Major Member..........................................45
8.3 Indemnification by Parent....................................................46
8.4 No Contribution..............................................................46
8.5 Threshold....................................................................46
8.6 Defense of Third Party Claims Brought Against Parent, etc....................47
8.7 Defense of Third Party Claims Brought Against the Major Member, etc..........48
8.8 Exercise of Remedies by Indemnitees Other Than Parent or Major Member........49
SECTION 9. MISCELLANEOUS PROVISIONS.....................................................49
9.1 Further Assurances...........................................................49
9.2 Fees and Expenses............................................................49
9.3 Attorneys' Fees..............................................................49
9.4 Notices......................................................................50
9.5 Confidentiality..............................................................51
9.6 Time of the Essence..........................................................51
9.7 Headings.....................................................................51
9.8 Counterparts.................................................................51
9.9 Governing Law................................................................51
</TABLE>
iv.
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
9.10 Successors and Assigns.......................................................51
9.11 Remedies Cumulative; Specific Performance....................................52
9.12 Waiver.......................................................................52
9.13 Amendments...................................................................52
9.14 Severability.................................................................52
9.15 Parties in Interest..........................................................52
9.16 Entire Agreement.............................................................52
9.17 Construction.................................................................53
</TABLE>
Exhibit A Definitions
Exhibit B Managing Members of the Surviving Entity; Directors and Officers
of Parent
Exhibit C Form of Parent Substituted Option
Exhibit D Form of Lock-Up and Registration Rights Agreement
Exhibit E Form of Indemnification Agreement
Exhibit F Form of Paul, Hastings, Janofsky & Walker LLP Legal Opinion
Exhibit G [Reserved]
Exhibit H Form of Cooley Godward LLP Legal Opinion
Exhibit I Parent Capitalization at Closing
Exhibit J Company Capitalization at Closing
v.
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into
as of March 6, 2000, by and among: MEDIBUY.COM, INC., a Delaware corporation
("Parent"); SAPPHIRE ACQUISITION CORP., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"); PREMIER HEALTH EXCHANGE LLC, a
Delaware limited liability company (the "Company"); PREMIER PURCHASING PARTNERS,
L.P., a California limited partnership (the "Major Member"); and, for the
limited purpose of Section 4.19, PREMIER, INC., a Delaware corporation
("Premier"). Certain capitalized terms used in this Agreement have the meanings
set forth in EXHIBIT A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of Merger Sub into the Company in accordance with this Agreement and
the Delaware General Corporation Law (the "DGCL"). Upon consummation of the
Merger, Merger Sub will cease to exist, and the Company will be a wholly owned
subsidiary of Parent.
B. This Agreement has been approved by the respective boards of
directors of Parent and Merger Sub, the stockholder of Merger Sub and the
members of the management committee of the Company.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. THE MERGER
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with the DGCL, at
the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with
and into the Company, and the separate existence of Merger Sub shall cease.
Following the Effective Time, the Company will continue as the surviving entity
in the Merger (the "Surviving Entity") and shall succeed to and assume all the
rights and obligations of Merger Sub in accordance with the DGCL.
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California
92121-2128 at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date") which shall be after the satisfaction or waiver of all of the conditions
set forth in Sections 5 and 6, but in any event, concurrently with the closing
of Parent's IPO (as defined in Section 3.4(c)). Contemporaneously with the
Closing, the parties shall file with the Secretary of State of the State of
Delaware a certificate of merger (the "Certificate of Merger") conforming to,
and executed in accordance with, the DGCL. The Merger shall become effective at
the time the Certificate of Merger is duly filed with the
1.
<PAGE> 8
Secretary of State of the State of Delaware, which time shall be concurrent with
the Closing (or at such subsequent date or time as the parties shall mutually
agree and specify in the Certificate of Merger). The time the Merger becomes
effective is hereinafter referred to as the "Effective Time."
1.4 CERTIFICATE OF FORMATION; DIRECTORS AND OFFICERS OF PARENT. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) the Certificate of Formation of the Surviving Entity shall be
the Certificate of Formation of the Company as in effect immediately prior to
the Effective Time;
(b) the Operating Agreement of the Surviving Entity shall be the
Operating Agreement of the Company as in effect immediately prior to the
Effective Time; and
(c) the directors of Parent, the members of Parent's Board of
Directors' audit and compensation committees and the members of the management
committee of the Surviving Entity immediately after the Effective Time shall be
the individuals identified on EXHIBIT B.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.8(c), at the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub, the
Company or any member of the Company:
(i) each Company Common Membership Unit outstanding
immediately prior to the Effective Time shall be converted into the right to
receive that fraction of a share of Parent Common Stock equal to the Exchange
Ratio (as defined in Section 1.5(b)); and
(ii) each share of the common stock, $.001 par value per share,
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one Company Common Membership Unit of the Surviving Entity.
(b) As used in this Agreement, the term "Exchange Ratio" shall mean
0.299065421736.
(c) If, between the date of this Agreement and the Effective Time,
the outstanding shares of Parent Common Stock or Company Common Membership Units
are changed into a different number or class of shares or membership units by
reason of any stock or other split, stock or other dividend, reverse stock or
other split, reclassification, recapitalization or similar transaction, then the
Exchange Ratio shall be appropriately adjusted.
(d) If any Company Common Membership Units outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable purchase agreement or
other agreement with the Company or under which the Company has any rights, then
the shares of Parent Common Stock issued in exchange for such Company Common
Membership Units will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
2.
<PAGE> 9
such shares of Parent Common Stock may accordingly be marked with appropriate
legends. The Company shall take all action that may be necessary to ensure that,
from and after the Effective Time, Parent is entitled to exercise any such
repurchase option or other right set forth in any such purchase agreement or
other agreement.
1.6 COMPANY OPTIONS AND COMPANY WARRANTS.
(a) At the Effective Time, each option to purchase Company Common
Membership Units (a "Company Option") outstanding immediately prior to the
Effective Time, shall be substituted by Parent with an option to purchase Parent
Common Stock granted under Parent's 1999 Omnibus Equity Plan (the "Parent Plan")
substantially in the form attached as EXHIBIT C hereto (a "Parent Substituted
Option"). From and after the Effective Time, (a) each Parent Substituted Option
may be exercised solely for shares of Parent Common Stock, (b) the number of
shares of Parent Common Stock subject to each Parent Substituted Option shall be
equal to the number of Company Common Membership Units that were subject to the
substituted Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common Stock, (c) the per share exercise price for the Parent Common Stock
issuable upon exercise of each Parent Substituted Option shall be determined by
dividing the exercise price per Company Common Membership Unit subject to the
substituted Company Option, as in effect immediately prior to the Effective
Time, by the Exchange Ratio, and rounding the resulting exercise price up to the
nearest whole cent, and (d) the Parent Substituted Option shall contain all, but
only, the restrictions on exercise that were contained in the substituted
Company Option; provided, however, that each such Parent Substituted Option
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization, reclassification or other similar transaction effected by
Parent after the Effective Time. The Company and Parent shall take all action
that may be necessary (under the option agreements and otherwise) to effectuate
the provisions of this Section 1.6. Following the Closing, Parent will send to
each holder of a substituted Company Option a stock option grant notice and
Stock Option Agreement containing the terms of the Parent Substituted Option for
execution by such holder. Parent shall take all actions necessary to ensure that
it has reserved sufficient shares of Parent Common Stock available for issuance
upon the exercise of Company Options and Company Warrants.
(b) At the Effective Time, each then outstanding warrant to purchase
Company Common Membership Units (a "Company Warrant") whether vested or
unvested, shall be assumed by Parent in accordance with the terms (as in effect
as of the date of this Agreement) of the warrant agreement by which such Company
Warrant is evidenced. All rights with respect to Company Common Membership Units
under outstanding Company Warrants shall thereupon be converted into rights with
respect to Parent Common Stock. Accordingly, from and after the Effective Time,
(a) each Company Warrant assumed by Parent may be exercised solely for shares of
Parent Common Stock, (b) subject to any adjustments contemplated by this Section
1.6, the number of shares of Parent Common Stock subject to each such assumed
Company Warrant shall be equal to the number of shares of Company Common
Membership Units that were subject to such Company Warrant immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded to the nearest
whole number of shares of Parent Common Stock, (c) the per share exercise price
for the Parent Common Stock issuable
3.
<PAGE> 10
upon exercise of each such assumed Company Warrant shall be determined by
dividing the exercise price per Company Common Membership Unit subject to such
Company Warrant, as in effect immediately prior to the Effective Time, by the
Exchange Ratio, and rounding the resulting exercise price to the nearest whole
cent, and (d) all restrictions on the exercise of each such assumed Company
Warrant shall continue in full force and effect, and the term, exercisability,
vesting schedule and other provisions of such Company Warrant shall otherwise
remain unchanged; provided, however, that each such assumed Company Warrant
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected by Parent after the
Effective Time.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, all
Company Common Membership Units outstanding immediately prior to the Effective
Time shall automatically be canceled and shall cease to exist, and all holders
of certificates representing Company Common Membership Units that were
outstanding immediately prior to the Effective Time shall cease to have any
rights as members of the Company, and the Company Common Membership Units
transfer books of the Company shall be closed with respect to all Company Common
Membership Units outstanding immediately prior to the Effective Time. No further
transfer of any such Company Common Membership Units shall be made on such
transfer books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any Company Common Membership Units (a
"Company Membership Certificate") is presented to the Surviving Entity or
Parent, such Company Membership Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 EXCHANGE OF COMPANY MEMBERSHIP CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent
will cause to be sent to the holders of Company Membership Certificates (i) a
letter of transmittal in customary form and containing such provisions as Parent
may reasonably specify, and (ii) instructions for use in effecting the surrender
of Company Membership Certificates in exchange for certificates representing
Parent Common Stock. Upon surrender of a Company Membership Certificate to
Parent or to Parent's exchange agent (as specified in the letter of transmittal)
for exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by Parent, the holder of such Company
Membership Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock that
such holder has the right to receive pursuant to Section 1.5 (and cash in lieu
of any fractional share of Parent Common Stock in accordance with Section
1.8(c)), and the Company Membership Certificate so surrendered shall be
canceled. Until surrendered as contemplated by this Section 1.8, each Company
Membership Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive upon such surrender a certificate
representing shares of Parent Common Stock (and cash in lieu of any fractional
share of Parent Common Stock in accordance with Section 1.8(c)) as contemplated
by this Section 1.8. If any Company Membership Certificate shall have been lost,
stolen or destroyed, Parent may, in its discretion and as a condition precedent
to the issuance of any certificate representing Parent Common Stock, require the
owner of such lost, stolen or destroyed Company Membership Certificate to
provide an appropriate affidavit and to deliver an appropriate indemnity
agreement (reasonably satisfactory to Parent) against any claim that may
4.
<PAGE> 11
be made against Parent or the Surviving Entity with respect to such Company
Membership Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Membership Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Membership Certificate in accordance with
this Section 1.8 (at which time such holder shall be entitled to receive all
such dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, a holder of Company Common
Membership Units who would otherwise be entitled to receive a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock issuable to such holder) shall, upon surrender of such holder's
Company Membership Certificate(s), be paid in cash the dollar amount (rounded to
the nearest whole cent), without interest, determined by multiplying such
fraction by the fair market value per share of the Parent Common Stock as of the
Effective Time, as determined in good faith by Parent's board of directors.
(d) Neither Parent nor the Surviving Entity shall be liable to any
holder or former holder of Company Common Membership Units or other securities
of or ownership interests in the Company for any shares of Parent Common Stock
(or dividends or distributions with respect thereto), or for any cash amounts,
delivered to any public official pursuant to any applicable abandoned property,
escheat or similar law.
1.9 SALES TAXES. Parent and the Major Member shall each bear and pay for
fifty percent (50%) of any sales taxes, use taxes, transfer taxes, documentary
charges, recording fees or similar taxes, charges, fees or expenses that may
become payable in connection with the Merger or in connection with any of the
other transaction contemplated thereby.
1.10 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Entity or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Entity and Parent
shall be fully authorized (in the name of Merger Sub, in the name of the Company
and otherwise) to take such action.
5.
<PAGE> 12
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJOR MEMBER
The Company and the Major Member, jointly and severally,
represent and warrant, to and for the benefit of the Parent Indemnitees, as
follows:
2.1 DUE ORGANIZATION.
(a) The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware,
the Major Member is a limited partnership organized and existing under the laws
of the State of California, and the Company has all necessary limited liability
company power and authority and the Major Member has all necessary limited
partnership power and authority, in each case: (i) to conduct their respective
businesses in the manner in which their businesses are currently being
conducted, (ii) to own and use their assets in the manner in which their assets
are currently owned and used, and (iii) to perform their obligations under all
Company Material Contracts (as defined in Section 2.9).
(b) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1(b) of the
Company Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Company
Material Adverse Effect. The Company is in good standing as a foreign
corporation in each of the jurisdictions identified in Part 2.1(b) of the
Company Disclosure Schedule, except where the failure to be in good standing
would not have a Company Material Adverse Effect.
(c) The Company has not agreed and is not obligated to make any
investment in or capital contribution to any Entity.
2.2 CHARTER DOCUMENTS; RECORDS. The Company has delivered to Parent
accurate and complete copies of: (1) the Company's charter documents (including
its Certificate of Formation and Operating Agreement), including all amendments
thereto; (2) the records of the Company reflecting the ownership of the Company
Common Membership Units and the holders of the Company Options and the Company
Warrants; and (3) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the members of the Company, the management committee of the
Company and all committees of the management committee of the Company since the
Company's inception. There have been no formal meetings or other proceedings of
the members of the Company, the management committee of the Company or any
committee of the management committee of the Company that are not reflected in
such minutes or other records. There has not been any violation of any of the
provisions of the Company's charter documents (including its operating
agreement), and the Company has not taken any action that is inconsistent in any
material respect with any resolution adopted by the Company's members, the
Company's management committee or any committee of the Company's management
committee. The books of account, membership unit records, minute books and other
records of the Company are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with prudent business
practices.
6.
<PAGE> 13
2.3 CAPITALIZATION, ETC.
(a) The authorized capital of the Company consists of 100,000,000
units of Company Common Membership Units, of which 63,375,000 Company Common
Membership Units have been issued and are outstanding as of the date of this
Agreement. Part 2.3(a) of the Company Disclosure Schedule sets forth the name of
each member of the Company and the number of Company Common Membership Units
held by such member as of the date of this Agreement. All of the outstanding
Company Common Membership Units have been duly authorized and validly issued,
and are fully paid and nonassessable.
(b) Part 2.3(b) of the Company Disclosure Schedule accurately sets
forth, with respect to each Company Option and Company Warrant that is
outstanding as of the date of this Agreement: (i) the name of the holder of such
Company Option or Company Warrant; (ii) the total number of Company Common
Membership Units that are subject to such Company Option or Company Warrant and
the number of Company Common Membership Units with respect to which such Company
Option or Company Warrant is immediately exercisable; (iii) the date on which
such Company Option or Company Warrant was granted and the term of such Company
Option or Warrant Company; (iv) the vesting schedule for such Company Option or
Company Warrant; and (v) the exercise price per Company Common Membership Unit
purchasable under such Company Option or Company Warrant. Except as set forth in
Part 2.3(b) of the Company Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant or other right (whether or not currently
exercisable) to acquire any membership interest (including any interest in the
profits or losses of the Company) or other ownership interest or other
securities of the Company; (ii) outstanding membership interest, security,
instrument, obligation that is or may become convertible into or exchangeable
for any interest in the profits or losses of the Company or other interest in
the Company; (iii) Contract under which the Company is or may become obligated
to sell or otherwise issue any membership or other ownership or any other
securities; or (iv) to the knowledge of the Company or the Major Member,
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any membership interest (including any interest in the
profits or losses of the Company) or other securities of the Company. As of
immediately prior to the Closing, the outstanding Company Common Membership
Units, Company Options and Company Warrants shall be as set forth on EXHIBIT J.
(c) All outstanding Company Common Membership Units, Company Options
and Company Warrants have been issued and granted in compliance with (i) all
applicable securities laws and other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
2.4 FINANCIAL STATEMENTS; OTHER INFORMATION.
(a) The Company has delivered to Parent the unaudited balance sheet
of the Company as of February 29, 2000 (the "Company Unaudited Balance Sheet")
and the related unaudited income statement and statement of cash flows of the
Company for the two (2) months then ended. (collectively, the "Company Financial
Statements"). The Company Financial Statements are accurate in all material
respects and present fairly the financial position of the Company as of the
respective dates thereof and the results of operations and cash flows of the
7.
<PAGE> 14
Company for the periods covered thereby. The Company Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except that the
financial statements are subject to normal and recurring year-end audit
adjustments, which will not, individually or in the aggregate, be material in
magnitude).
(b) None of the information provided or to be provided to Parent by
or on behalf of the Company to be included in Parent's Form S-4 Registration
Statement (as defined in Section 4.7) shall contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since February 29, 2000:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the knowledge of the Company or the Major Member, no event
has occurred that will, or could reasonably be expected to, have a Company
Material Adverse Effect;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's material assets
(whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any Company Common
Membership Units, and has not repurchased, redeemed or otherwise reacquired any
Company Common Membership Units or other securities of the Company;
(d) the Company has not sold, issued or authorized the issuance of
(i) any Company Common Membership Units or other security of or ownership
interest in the Company, (ii) any option or right to acquire any Company Common
Membership Units or other security of or ownership interest in the Company, or
(iii) any instrument convertible into or exchangeable for any Company Common
Membership Units or other security of or ownership interest in the Company;
(e) the Company has not amended or waived any of its rights under,
or permitted the acceleration of vesting under any provision of any agreement
evidencing any outstanding Company Option;
(f) there has been no amendment to the Company's certificate of
incorporation or bylaws, and the Company has not effected or been a party to any
Company Acquisition Transaction, recapitalization, reclassification of Company
Common Membership Units or other ownership interests in the Company, split or
reverse split of the Company Common Membership Units or any other ownership
interest in the Company or similar transaction;
8.
<PAGE> 15
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company, exceeds
Twenty-Five Thousand Dollars ($25,000.00);
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Company Material Contract, or (ii) amended or prematurely
terminated, or waived any material right or remedy under, any such Company
Material Contract;
(j) the Company has not (i) acquired, leased or licensed any right
or other asset from any other Person, or (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, except, in
each case, for immaterial rights or immaterial assets acquired, leased,
licensed, sold or otherwise disposed of in the ordinary course of business and
consistent with the Company's past practices;
(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(l) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(m) the Company has not (i) established or adopted any employee
benefit plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees other than in accordance with the Company's past practices, or
(iii) hired any new employee;
(n) the Company has not changed any of its methods of accounting or
accounting practices in any material respect;
(o) the Company has not made any material Tax election;
(p) the Company has not commenced or settled any material Legal
Proceeding;
(q) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(q)" above.
9.
<PAGE> 16
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to, all assets
purported to be owned by it (other than Company Proprietary Assets, as to which
representations and warranties are set forth in Section 2.8), including: (i) all
assets reflected on the Company Unaudited Balance Sheet (other than assets
disposed of in the ordinary course of business consistent with past practice);
(ii) all of the Company's rights under the Contracts identified in Part 2.9 of
the Company Disclosure Schedule; and (iii) all other assets reflected in the
Company's books and records as being owned by the Company. Except as set forth
in Part 2.6 of the Company Disclosure Schedule, all of said assets are owned by
the Company free and clear of any liens or other Encumbrances, except for (x)
any lien for current taxes not yet due and payable, and (y) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(b) Part 2.6 of the Company Disclosure Schedule identifies all
assets that are material to the business of the Company (other than Company
Proprietary Assets) and that are being leased or licensed to the Company.
2.7 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.9 of the Company Disclosure Schedule.
2.8 COMPANY PROPRIETARY ASSETS.
(a) Part 2.8(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each Company Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a statement identifying such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.8(a)(ii) of the Company Disclosure Schedule provides a statement identifying
all other Company Proprietary Assets (including the Company's Webcat system).
Part 2.8(a)(iii) of the Company Disclosure Schedule identifies each Proprietary
Asset licensed to the Company by any Person (except for any Proprietary Asset
that is licensed to the Company under any third party software license generally
available to the public at a cost of less than Ten Thousand Dollars
($10,000.00)), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. Except as set forth in Part 2.8(a)(iv)
of the Company Disclosure Schedule, the Company has good and valid title to all
of the Company Proprietary Assets identified in Parts 2.8(a)(i) and 2.8(a)(ii)
of the Company Disclosure Schedule, free and clear of all liens and other
Encumbrances, and has a valid right to use all Proprietary Assets identified in
Part 2.8(a)(iii) of the Company Disclosure Schedule. Except as set forth in Part
2.8(a)(v) of the Company Disclosure Schedule, the Company is not obligated to
make any payment to any Person for the use of any Company Proprietary Asset.
Except as
10.
<PAGE> 17
set forth in Part 2.8(a)(vi) of the Company Disclosure Schedule, the Company
has not developed jointly with any other Person any Company Proprietary Asset
with respect to which such other Person has any rights.
(b) The Company has taken reasonable measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Part 2.8(b) of the
Company Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.9 of the Company Disclosure Schedule) delivered
to any Person, or permitted the disclosure or delivery to any Person of, the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset. The Company has not delivered to any Person any object code
of any Company Proprietary Asset unless such Person entered into a license or
other similar agreement with the Company which restricts the use of such object
code and retains all ownership rights of such object code in the Company.
(c) To the knowledge of the Company or the Major Member, none of the
Company Proprietary Assets infringes or conflicts with any Proprietary Asset
owned or used by any other Person. To the knowledge of the Company or the Major
Member, the Company is not infringing, misappropriating or making any unlawful
use of, and the Company has not at any time infringed, misappropriated or made
any unlawful use of, or received any notice or other communication (in writing
or orally) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. To the knowledge of the Company or the Major Member, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes with, any Company
Proprietary Asset.
(d) Except as set forth in Part 2.8(d) of the Company Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any written specification, documentation, performance standard,
representation or statement made or provided with respect thereto by the
Company, and (ii) there has not been any claim by any customer or other Person
alleging that any Company Proprietary Asset (including each version thereof that
has ever been licensed or otherwise made available by the Company to any Person)
does not conform in all material respects with any written specification,
documentation, performance standard, representation or statement made or
provided by the Company, and, to the knowledge of the Company or the Major
Member, there is no valid basis for any such claim.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in Part
2.8(e) of the Company Disclosure Schedule, (i) the Company has not licensed any
of the Company Proprietary Assets to any Person, and (ii) the Company has not
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
11.
<PAGE> 18
(f) Except as set forth in Part 2.8(f) of the Company Disclosure
Schedule, (i) all current and former employees of the Company have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage) that is substantially identical to the form of
Proprietary and Confidential Information Agreement previously delivered to
Parent, and (ii) all current and former consultants and independent contractors
to the Company have executed and delivered to the Company an agreement
(containing no exceptions to or exclusions from the scope of its coverage) that
is substantially identical to the form of Consultant Confidential Information
and Invention Assignment Agreement previously delivered to Parent.
2.9 CONTRACTS.
(a) Part 2.9 of the Company Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent contractor
in excess of Twenty-Five Thousand Dollars ($25,000.00) annually;
(ii) each Company Contract relating to the acquisition, transfer,
use, development, sharing or license of any material technology or any material
Company Proprietary Asset;
(iii) each Company Contract imposing any material restriction on
the Company's right or ability to (a) compete with any other Person, (b) acquire
any product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (c)
develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship that is not
cancelable according to its terms on thirty (30) days notice or less;
(v) each Company Contract relating to the acquisition, issuance
or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any material asset of the Company;
(vii) each Company Contract involving or incorporating any
material guaranty, any pledge, any performance or completion bond, any indemnity
or any surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Company Contract relating to the provision or receipt
of e-commerce services or products to or from any Person;
12.
<PAGE> 19
(x) any other Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices or is subject to audit by any Governmental Body;
(xi) any other Company Contract that has a term of more than
thirty (30) days and that may not be terminated by the Company (without penalty)
within thirty (30) days after the delivery of a termination notice by the
Company; and
(xii) any other Company Contract that contemplates or involves
(a) the payment or delivery of cash or other consideration in an amount or
having a value in excess of Twenty-Five Thousand Dollars ($25,000.00) in the
aggregate, or (b) the performance of services having a value in excess of
Twenty-Five Thousand Dollars ($25,000.00) in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xii)" above are referred to in this Agreement as "Company Material
Contracts.")
(b) The Company has delivered to Parent accurate and complete copies
of all written Company Material Contracts, including all amendments thereto.
Part 2.9(b) of the Company Disclosure Schedule provides an accurate description
of the terms of each Company Material Contract that is not in written form. Each
Company Material Contract is valid and in full force and effect, and, to the
knowledge of the Company or the Major Member, is enforceable by the Company in
accordance with its terms.
(c) Except as set forth in Part 2.9(c) of the Company Disclosure
Schedule:
(i) the Company has not violated or breached, or committed any
default under, any Company Material Contract, and, to the knowledge of the
Company or the Major Member, no other Person has violated or breached, or
committed any default under, any Company Material Contract;
(ii) to the knowledge of the Company or the Major Member, no
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to, (a)
result in a violation or breach of any of the provisions of any Company Material
Contract, (b) give any Person the right to declare a default or exercise any
remedy under any Company Material Contract, (c) give any Person the right to
accelerate the maturity or performance of any Company Material Contract, or (d)
give any Person the right to cancel, terminate or modify any Company Material
Contract;
(iii) since its inception, the Company has not received any
notice (or to the knowledge of the Company or the Major Member, any other
communication) regarding any actual or possible violation or breach of, or
default under, any Company Material Contract; and
(iv) the Company has not waived any of its material rights under
any Company Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Company Material Contract to renegotiate, any amount paid or payable to
the Company under
13.
<PAGE> 20
any Company Material Contract or any other material term or provision of any
Company Material Contract.
(e) Part 2.9(e) of the Company Disclosure Schedule identifies
each currently effective proposed Company Material Contract as to which any bid,
offer, award, written proposal, term sheet or similar document has been
submitted or received by the Company.
2.10 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Company
Unaudited Balance Sheet; (b) liabilities that have been incurred by the Company
since the date of the Company Unaudited Balance Sheet in the ordinary course of
business and consistent with the Company's past practices which (i) if the
Closing occurs on or prior to May 1, 2000, in the aggregate do not exceed Eight
Million Dollars ($8,000,000.00), and (ii) if the Closing occurs after May 1,
2000 but on or prior to June 30, 2000, in the aggregate do not exceed Sixteen
Million Dollars ($16,000,000.00); (c) liabilities under the Company Material
Contracts, to the extent the nature and magnitude of such liabilities can be
specifically ascertained by reference to the text of such Company Material
Contracts; and (d) the liabilities identified in Part 2.10 of the Company
Disclosure Schedule.
2.11 COMPLIANCE WITH LEGAL REQUIREMENTS. To the Company's knowledge, the
Company is, and has at all times since its inception been, in compliance with
all applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and could not reasonably be expected to have a
Company Material Adverse Effect. The Company has not received any notice or
other communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
2.12 GOVERNMENTAL AUTHORIZATIONS. The Company holds all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted and all such
Governmental Authorizations are in full force and effect. To the knowledge of
the Company or the Major Member, the Company is, and at all times since its
inception has been, in substantial compliance with the terms and requirements of
all of its Governmental Authorizations. Since its inception, the Company has not
received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.13 TAX MATTERS.
(a) The Company has not been required to file any Tax Returns
since its inception. The Company Financial Statements fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with generally accepted accounting principles. The
Company will establish, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all Taxes for the
period from its inception through the Closing Date.
14.
<PAGE> 21
(b) No claim or Legal Proceeding is pending or, to the knowledge of
the Company or the Major Member, has been threatened against or with respect to
the Company, in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code.
(c) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
2.14 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.14(a) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Company Plans")
sponsored, maintained, contributed to or required to be contributed to by the
Company for the benefit of any employee of the Company ("Company Employee"),
except for Company Plans which would not require the Company to make payments or
provide benefits having a value in excess of Twenty-Five Thousand Dollars
($25,000.00) in the aggregate. The Company has delivered to Parent an accurate
and complete copy of each Company Plan.
(b) The Company is not required to be, and, to the knowledge of the
Company or the Major Member, has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. The Company has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code. The
Company does not maintain, sponsor or contribute to any pension benefit plan (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Company Employees or
former Company Employees (a "Pension Plan"). The Company does not maintain,
sponsor or contribute to any welfare benefit plan (as defined in Section 3(1) of
ERISA, whether or not excluded from coverage under specific Titles or Merger
Subtitles of ERISA) for the benefit of Company Employees or former Company
Employees (a "Welfare Plan").
15.
<PAGE> 22
(c) To the knowledge of the Company or the Major Member, each of
the Company Plans has been operated and administered in all material respects in
accordance with applicable Legal Requirements, including but not limited to
ERISA and the Code.
(d) Except as set forth in Part 2.14(d) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Company Employee or
director of the Company (whether or not under any Company Plan), or materially
increase the benefits payable under any Company Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(e) Part 2.14(e) of the Company Disclosure Schedule contains a list
of all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of the Company
Employees. All Company Employees are "at will" employees.
(f) Part 2.14(f) of the Company Disclosure Schedule identifies each
Company Employee who is not fully available to perform work because of
disability or other leave and sets forth the basis of such leave and the
anticipated date of return to full service.
(g) To the knowledge of the Company or the Major Member, the
Company is in compliance in all material respects with all applicable Legal
Requirements and Contracts relating to employment, employment practices, wages,
bonuses and terms and conditions of employment, including employee compensation
matters.
(h) Except as set forth in Part 2.14(h) of the Company Disclosure
Schedule, the Company has good labor relations, and the Company no reason to
believe that (i) the consummation of the Merger or any of the other transactions
contemplated by this Agreement will have a material adverse effect on the
Company's labor relations, or (ii) any of the Company's employees intends to
terminate his or her employment with the Company.
2.15 ENVIRONMENTAL MATTERS. To the knowledge of the Company or the Major
Member, the Company is in compliance in all material respects with all
applicable Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. The Company has not received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance with
any Environmental Law, and, to the knowledge of the Company or the Major Member,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. To the knowledge of the
Company or the Major Member, no current or prior owner of any property leased or
controlled by the Company has received any notice or other communication (in
writing or otherwise), whether from a Governmental Body,
16.
<PAGE> 23
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company is not in compliance with any Environmental Law.
2.16 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding to which the Company is a
party and, to the knowledge of the Company or the Major Member, no Person has
threatened to commence any Legal Proceeding: (i) that involves the Company or
any of the assets owned or used by the Company or any Person whose liability the
Company has or may have retained or assumed, either contractually or by
operation of law, or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
knowledge of the Company or the Major Member, except as set forth in Part 2.16
of the Company Disclosure Schedule, no event has occurred, and no claim, dispute
or other condition or circumstance exists, that will, or that could reasonably
be expected to, give rise to or serve as a basis for the commencement of any
such Legal Proceeding.
(b) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the knowledge of the Company or the Major Member, no officer or
other employee of the Company is subject to any order, writ, injunction,
judgment or decree that prohibits such officer or other employee from engaging
in or continuing any conduct, activity or practice relating to the Company's
business.
2.17 AUTHORITY; BINDING NATURE OF AGREEMENT. Each of the Company and the
Major Member has the absolute and unrestricted right, power and authority to
enter into and to perform its obligations under this Agreement; and the
execution, delivery and performance by each of the Company and the Major Member
of this Agreement have been duly authorized by all limited liability company
action or limited partnership action, as the case may be, on the part of the
Company and the Major Member, their respective members, partners or other
governing body, as the case may be. The affirmative vote of the holders of a
majority of the Company Common Membership Units is the only vote of the members
of the Company required to approve this Agreement and the Merger. This Agreement
constitutes the legal, valid and binding obligation of the Company and the Major
Member, enforceable against the Company and the Major Member in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
2.18 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.18 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's charter documents (including its operating
agreement), or (ii) any resolution adopted by the Company's members, the
Company's management committee or any committee of the Company's management
committee;
17.
<PAGE> 24
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Company Contract that is
or would constitute a Company Material Contract, or give any Person the right to
(i) declare a default or exercise any remedy under any such Company Contract,
(ii) accelerate the maturity or performance of any such Company Contract, or
(iii) cancel, terminate or modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company);
except, in the case of subparagraphs (b), (c), (d) and (e), such that would not
have a Company Material Adverse Effect.
Except as set forth in Part 2.18 of the Company Disclosure Schedule, the Company
is not and will not be required to make any filing with or give any notice to,
or to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, except for Consents which
the failure to obtain would not have a Company Material Adverse Effect or
prevent or delay the Merger or the other transactions contemplated hereby.
2.19 FULL DISCLOSURE. This Agreement (including the Company Disclosure
Schedule) does not (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact or necessary in order to make the representations, warranties
and information contained and to be contained herein and therein (in the light
of the circumstances under which such representations, warranties and
information were or will be made or provided) not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant
to the Company Indemnitees as follows:
3.1 DUE ORGANIZATION.
18.
<PAGE> 25
(a) Each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary corporate power and authority: (i) to conduct its business
in the manner in which its business is currently being conducted, (ii) to own
and use its assets in the manner in which its assets are currently owned and
used and (iii) to perform its obligations under all Parent Material Contracts
(as defined in Section 3.9).
(b) Parent is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 3.1(b) of the
Parent Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Parent
Material Adverse Effect. Parent is in good standing as a foreign corporation in
each of the jurisdictions identified in Part 3.1(b) of the Parent Disclosure
Schedule, except where the failure to be in good standing would not have a
Parent Material Adverse Effect.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. Parent has made
available to the Company accurate and complete copies of: (1) Parent's
certificate of incorporation and bylaws, including all amendments thereto; (2)
the stock records of Parent; and (3) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the stockholders of Parent, the board of
directors of Parent and all committees of the board of directors of Parent.
There have been no formal meetings or other proceedings of the stockholders of
Parent, the board of directors of Parent or any committee of the board of
directors of Parent that are not fully reflected in such minutes or other
records. There has not been any violation of any of the provisions of Parent's
certificate of incorporation or bylaws, and Parent has not taken any action that
is inconsistent in any material respect with any resolution adopted by Parent's
stockholders, Parent's board of directors or any committee of Parent's board of
directors. The books of account, stock records, minute books and other records
of Parent are accurate, up-to-date and complete in all material respects, and
have been maintained in accordance with prudent business practices.
3.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of Parent consists of fifty-five
million (55,000,000) shares of stock, forty million (40,000,000) shares are
designated Common Stock, $.001 par value, of which six million three hundred
seventy thousand nine hundred forty-nine (6,370,949) shares were issued and are
outstanding as of the date of this Agreement and fifteen million (15,000,000)
shares are designated Preferred Stock, $.001 par value, ("Parent Preferred
Stock") of which sixty-eight thousand one hundred (68,100) shares are designated
Series A Preferred Stock, all of which were issued and outstanding as of the
date of this Agreement, three hundred thirty-four thousand nine hundred seven
(334,907) shares are designated Series B Preferred Stock, all of which are
issued and outstanding as of the date of this Agreement, five million
(5,000,000) shares are designated Series C Preferred Stock, of which four
million four hundred fifty-eight thousand three hundred thirty-two (4,458,332)
shares are issued and outstanding as of the date of this Agreement, two million
eight hundred thousand (2,800,000) shares are designated Series D Preferred
Stock, of which two million four hundred twenty-three thousand six hundred
fifty-six (2,423,656) shares are issued and outstanding as of the date of this
Agreement, and four million nine hundred thousand (4,900,000) shares are
designated Series E
19.
<PAGE> 26
Preferred Stock, of which three million two hundred eighty-one thousand five
hundred fifteen (3,281,515) shares are issued and outstanding as of the date of
this Agreement. Part 3.3(a) of the Parent Disclosure Schedule sets forth the
name of each stockholder of Parent and the number of shares of Parent Common
Stock held by such stockholder as of the date of this Agreement. All of the
outstanding shares of Parent Common Stock and Parent Preferred Stock have been
duly authorized and validly issued, and are fully paid and non-assessable and
have been issued in compliance with applicable federal and state securities
laws. The authorized capital stock of Merger Sub consists of one thousand
(1,000) shares of common stock, all of which shares are issued and outstanding
as of the date of this Agreement. All of the outstanding shares of Merger Sub
common stock have been duly authorized and are validly issued, and are
fully-paid and non-assessable and are owned of record and beneficially by
Parent. As of immediately prior to the Closing (assuming the conversion of all
outstanding shares of Parent Preferred Stock into shares of Parent Common Stock
which will occur upon the closing of Parent's IPO), the outstanding shares of
Parent Common Stock, Parent Options and warrants to purchase Parent Common Stock
shall be as set forth on EXHIBIT I.
(b) Except as contemplated in the Merger or as set forth in Part
3.3(b) of the Parent Disclosure Schedule as of the date hereof, there is no: (i)
outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of Parent or Merger Sub; (ii) outstanding security, instrument or
obligation that is or may become convertible into or exchangeable for any shares
of the capital stock or other securities of Parent or Merger Sub; (iii) Contract
under which Parent or Merger Sub is or may become obligated to sell or otherwise
issue any shares of its capital stock or any other securities; or (iv) to the
knowledge of Parent, condition or circumstance that may give rise to or provide
a basis for the assertion of a claim by any Person to the effect that such
Person is entitled to acquire or receive any shares of capital stock or other
securities of Parent.
(c) All outstanding shares of Parent capital stock have been issued
and granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
Contracts. The consummation of the Merger and the transactions contemplated
thereby will not trigger or cause to become effective any antidilution rights
held by the holders of Parent Preferred Stock.
3.4 FINANCIAL STATEMENTS; FORM S-1 REGISTRATION STATEMENT.
(a) Parent has made available to the Company the following financial
statements and notes (collectively, the "Parent Financial Statements"):
(i) The audited balance sheet of Parent as of December 31, 1998,
and the related audited statement of operations, statement of stockholders'
equity and statement of cash flows of Parent for the period from August 18, 1998
to December 31, 1998, together with the notes thereto and the unqualified report
and opinion of PricewaterhouseCoopers LLP relating thereto; and
(ii) the unaudited balance sheet of Parent as of September 30,
1999 (the "Parent Unaudited Balance Sheet"), and the related unaudited statement
of operations for the nine (9) months then ended.
20.
<PAGE> 27
(b) The Parent Financial Statements are accurate in all material
respects and present fairly the financial position of Parent as of the
respective dates thereof and the results of operations and cash flows of Parent
for the periods covered thereby. The Parent Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except that the financial
statements referred to in Section 3.4(a)(ii) do not contain footnotes and are
subject to normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude).
(c) As of the time Parent's Form S-1 Registration Statement with
respect to Parent's underwritten initial public offering of Parent Common Stock
for a per share price of at least Twenty-Five Dollars ($25.00) (as adjusted for
stock splits, dividends, recapitalizations and the like effected after the date
of this Agreement) and yielding gross cash proceeds to Parent (before
underwriting discounts, commissions and fees) of at least Forty Million Dollars
($40,000,000.00) (such initial public offering being referred to herein as
"Parent's IPO," and such registration statement filed in connection therewith
being referred to herein as the "Form S-1 Registration Statement") is declared
effective, it will (i) comply in all material respects with the applicable
requirements of the Securities Act, and (ii) not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3.5 ABSENCE OF CHANGES. Except as set forth in Part 3.5 of the Parent
Disclosure Schedule, since September 30, 1999:
(a) there has not been any material adverse change in Parent's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the knowledge of Parent, no event has occurred that will, or
could reasonably be expected to, have a Parent Material Adverse Effect;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of Parent's material assets
(whether or not covered by insurance);
(c) Parent has not declared, accrued, set aside or paid any dividend
or made any other distribution in respect of any shares of capital stock, and
has not repurchased, redeemed or otherwise reacquired any shares of capital
stock or other securities;
(d) Parent has not sold, issued or authorized the issuance of (i)
any capital stock (except for Parent Common Stock issued upon the exercise of
outstanding shares of Preferred Stock of Parent, stock options, warrants and
other rights to acquire capital stock of Parent); (ii) any option (except for
Parent Options issued in the ordinary course of business and consistent with
past practice) or right to acquire any capital stock or any other security;
(iii) any instrument convertible into or exchangeable for any capital stock or
other security;
21.
<PAGE> 28
(e) Parent has not amended or waived any of its rights under, or
permitted the acceleration of vesting under any provision of any agreement
evidencing any outstanding Parent Option;
(f) Except as set forth on Part 3.5(f) of the Parent Disclosure
Schedule, there has been no amendment to Parent's certificate of incorporation
or bylaws, and Parent has not effected or been a party to any Parent Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(g) Parent has not formed any subsidiary, other than Merger Sub, or
acquired any equity interest or other interest in any other Entity;
(h) Parent has not made any capital expenditure which, when added to
all other capital expenditures made on behalf of Parent, exceeds Twelve Million
Dollars ($12,000,000.00);
(i) Parent has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Contract that is or would constitute
a material Contract, or (ii) amended or prematurely terminated, or waived any
material right or remedy under, any Parent Material Contract;
(j) Parent has not (i) acquired, leased or licensed any right or
other asset from any other Person, or (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, except in each
case, for any immaterial rights or immaterial assets acquired, leased, licensed,
sold or otherwise disposed of in the ordinary course of business and consistent
with Parent's past practices;
(k) Parent has not made any pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Encumbrance, except for
pledges of immaterial assets made in the ordinary course of business and
consistent with Parent's past practices;
(l) Parent has not (i) lent money to any Person (other than pursuant
to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money in
excess of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) in the
aggregate;
(m) Parent has not changed any of its methods of accounting or
accounting practices in any material respect;
(n) Parent has not made any material Tax election;
(o) Parent has not commenced or settled any material Legal
Proceeding;
(p) Parent has not entered into any material transaction or taken
any other
material action outside the ordinary course of business or inconsistent with its
past practices; and
(q) Parent has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(p)" above.
22.
<PAGE> 29
3.6 TITLE TO ASSETS.
(a) Parent owns, and has good and valid title to, all assets
purported to be owned by it (other than Parent Proprietary Assets, as to which
representations and warranties are set forth in Section 3.8), including: (i) all
assets reflected on the Parent Unaudited Balance Sheet (other than assets
disposed of in the ordinary course of business consistent with past practices);
and (ii) all other assets reflected in Parent's books and records as being owned
by Parent. Except as set forth in Part 3.6 of the Parent Disclosure Schedule,
all of said assets are owned by Parent free and clear of any liens or other
Encumbrances, except for (x) any lien for current taxes not yet due and payable,
and (y) minor liens that have arisen in the ordinary course of business and that
do not (in any case or in the aggregate) materially detract from the value of
the assets subject thereto or materially impair the operations of Parent.
(b) Part 3.6 of the Parent Disclosure Schedule identifies all assets
that are material to the business of Parent (other than Parent Proprietary
Assets) and that are being leased or licensed to Parent.
3.7 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets owned
by or leased to Parent are adequate for the uses to which they are being put,
are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of Parent's business in the manner in which such
business is currently being conducted.
(b) Parent does not own any real property or any interest in real
property, except for the leasehold created under the real property leases.
3.8 PARENT PROPRIETARY ASSETS.
(a) Except as set forth in Part 3.8(a)(i) of the Parent Disclosure
Schedule, Parent has good and valid title to all of its Parent Proprietary
Assets, free and clear of all liens and other Encumbrances, and has a valid
right to use all Proprietary Assets. Except as set forth in Part 3.8(a)(ii) of
the Parent Disclosure Schedule, Parent is not obligated to make any payment to
any Person for the use of any Parent Proprietary Asset. Parent has not developed
jointly with any other Person any Parent Proprietary Asset with respect to which
such other Person has rights.
(b) Parent has taken reasonable measures and precautions necessary
to protect and maintain the confidentiality and secrecy of all Parent
Proprietary Assets (except Parent Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Parent Proprietary Assets. Except as set forth in Part 3.8(b) of the
Parent Disclosure Schedule, Parent has not delivered to any Person, or permitted
the disclosure or delivery to any Person of, the source code, or any portion or
aspect of the source code, of any Parent Proprietary Asset. Parent has not
delivered to any Person any object code of any Parent Proprietary Asset unless
such Person entered into a license or other similar agreement with Parent which
restricts the use of such object code and retains all ownership rights of such
object code in Parent.
23.
<PAGE> 30
(c) To the knowledge of Parent, none of the Parent Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the knowledge of Parent, Parent is not infringing,
misappropriating or making any unlawful use of, and Parent has not at any time
infringed, misappropriated or made any unlawful use of, or received any notice
or other communication (in writing or orally) of any actual, alleged, possible
or potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the knowledge of Parent, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any Parent Proprietary Asset.
(d) Except as set forth in Part 3.8(d) of the Parent Disclosure
Schedule: (i) each Parent Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by Parent; and (ii) there has
not been any claim by any customer or other Person alleging that any Parent
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by Parent to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by Parent, and, to the knowledge of
Parent, there is no basis for any such claim.
(e) The Parent Proprietary Assets constitute all the Proprietary
Assets necessary to enable Parent to conduct its business in the manner in which
such business has been and is being conducted. Except as set forth in Part
3.8(e) of the Parent Disclosure Schedule, (i) Parent has not licensed any of the
Parent Proprietary Assets to any Person, and (ii) Parent has not entered into
any covenant not to compete or Contract limiting its ability to exploit fully
any of its Proprietary Assets or to transact business in any market or
geographical area or with any Person.
3.9 CONTRACTS.
(a) The following Contracts shall be deemed to be "Parent Material
Contracts": (i) the Contracts filed as exhibits to Parent's Form S-1
Registration Statement filed in connection with Parent's initial public offering
of Parent Common Stock (the "Form S-1 Registration Statement"), and (ii) each
Parent Contract of the type described in Section 2.9(a) that involve obligations
on behalf of Parent in excess of One Hundred Thousand Dollars ($100,000.00) and
set forth on Part 3.9(a) of the Parent Disclosure Schedule.
(b) Each Parent Material Contract is valid and in full force and
effect, and, to the knowledge of Parent, is enforceable by Parent in accordance
with its terms. Each Parent Material Contract filed as exhibits to Parent's Form
S-1 Registration Statement are all of the Parent Contracts required under the
Securities Act and the rules promulgated thereunder to be filed by Parent in
connection therewith.
(c) Except as set forth in Part 3.9(c) of the Parent Disclosure
Schedule:
(i) Parent has not violated or breached, or committed any
default under, any Parent Material Contract, and, to the knowledge of Parent, no
other Person has violated or breached, or committed any default under, any
Parent Material Contract;
24.
<PAGE> 31
(ii) to the knowledge of Parent, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (a) result in a violation or breach of
any of the provisions of any Parent Material Contract, (b) give any Person the
right to declare a default or exercise any remedy under any Parent Material
Contract, (c) give any Person the right to accelerate the maturity or
performance of any Parent Material Contract, or (d) give any Person the right to
cancel, terminate or modify any Parent Material Contract;
(iii) since August 18, 1998, Parent has not received any notice
(or to the knowledge of Parent, any other communication) regarding any actual or
possible violation or breach of, or default under, any Parent Material Contract;
and
(iv) Parent has not waived any of its material rights under any
Parent Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Parent Material Contract to renegotiate, any amount paid or payable to
Parent under any Parent Material Contract or any other material term or
provision of any Parent Material Contract.
(e) Part 3.9(e) of the Company Disclosure Schedule identifies each
currently effective proposed Parent Material Contract as to which any bid,
offer, award, written proposal, term sheet or similar document has been
submitted or received by Parent.
3.10 LIABILITIES. Parent has no accrued, contingent or other liabilities
of any nature, either matured or unmatured (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Parent
Unaudited Balance Sheet; (b) liabilities that have been incurred by Parent since
the Parent Balance Sheet Date in the ordinary course of business and consistent
with Parent's past practices which in the aggregate do not exceed Thirty Million
Dollars ($30,000,000.00); (c) liabilities under Parent Contracts to the extent
the nature and magnitude of such liabilities can be specifically ascertained by
reference to the text of such Parent Contracts; and (d) the liabilities
identified in Part 3.10 of the Parent Disclosure Schedule.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS. To Parent's knowledge, Parent
is, and has at all times since its inception been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and could not reasonably be expected to have a
Parent Material Adverse Effect. Parent has not received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
3.12 GOVERNMENTAL AUTHORIZATIONS. Parent holds all material Governmental
Authorizations necessary to enable Parent to conduct its business in the manner
in which its business is currently being conducted and such Governmental
Authorizations are valid and in full force and effect. To Parent's knowledge,
Parent is, and at all times since its inception has been, in substantial
compliance with the terms and requirements of the respective Governmental
Authorizations. Since its inception, Parent has not received any notice or other
communication
25.
<PAGE> 32
from any Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
3.13 TAX MATTERS.
(a) All Tax Returns (other than sales Tax Returns) required to be
filed by or on behalf of Parent with any Governmental Body with respect to any
taxable period ending on or before the Closing Date (the "Parent Returns") (i)
have been or will be filed on or before the applicable due date (including any
extensions of such due date), and (ii) have been, or will be when filed,
accurately and completely prepared in all material respects in compliance with
all applicable Legal Requirements.
(b) The Parent Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. Parent will
establish in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
the filing of its last Tax return through the Closing Date.
(c) No claim or Legal Proceeding is pending or, to the knowledge of
Parent, has been threatened against or with respect to Parent in respect of any
Tax. There are no unsatisfied liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by Parent with
respect to any Tax (other than liabilities for Taxes asserted under any such
notice of deficiency or similar document which are being contested in good faith
by Parent and with respect to which adequate reserves for payment have been
established). There are no liens for Taxes upon any of the assets of Parent
except liens for current Taxes not yet due and payable. Parent has not entered
into or become bound by any agreement or consent pursuant to Section 341(f) of
the Code.
(d) Parent is not, and has never been, a party to or bound by any
tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
3.14 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 3.14(a) of the Parent Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Parent Plans")
sponsored, maintained, contributed to or required to be contributed to by Parent
for the benefit of any employee of Parent ("Parent Employee"), except for Parent
Plans which would not require Parent to make payments or provide benefits having
a value in excess of Twenty-Five Thousand Dollars ($25,000.00) in the aggregate.
Parent has made available to the Company an accurate and complete copy of each
Parent Plan.
(b) Parent is not required to be, and, to the knowledge of Parent,
has never been required to be, treated as a single employer with any other
Person under
26.
<PAGE> 33
Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code.
Parent has never been a member of an "affiliated service group" within the
meaning of Section 414(m) of the Code. Parent does not maintain, sponsor or
contribute to any Pension Plan. Parent does not maintain, sponsor or contribute
to any Welfare Plan.
(c) To the knowledge of Parent, each of the Parent Plans has been
operated and administered in all material respects in accordance with applicable
Legal Requirements, including but not limited to ERISA and the Code.
(d) Except as set forth in Part 3.14(d) of the Parent Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Parent Employee or
director of Parent (whether or not under any Parent Plan), or materially
increase the benefits payable under any Parent Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(e) Part 3.14(e) of the Parent Disclosure Schedule contains a list
of all salaried employees of Parent as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. Parent is not a party to any collective bargaining contract or
other Contract with a labor union involving any of the Parent Employees. All
Parent Employees are "at will" employees.
(f) Part 3.14(f) of the Parent Disclosure Schedule identifies each
Parent Employee who is not fully available to perform work because of disability
or other leave and sets forth the basis of such leave and the anticipated date
of return to full service.
(g) To the knowledge of Parent, Parent is in compliance in all
material respects with all applicable Legal Requirements and Contracts relating
to employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.
(h) Except as set forth in Part 3.14(h) of the Parent Disclosure
Schedule, Parent has good labor relations, and Parent no reason to believe that
(i) the consummation of the Merger or any of the other transactions contemplated
by this Agreement will have a material adverse effect on Parent's labor
relations, or (ii) any of Parent's employees intends to terminate his or her
employment with Parent.
3.15 ENVIRONMENTAL MATTERS. To the knowledge of Parent, Parent is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by Parent of all permits and other
Governmental Authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof. Parent has not received any
notice or other communication (in writing or otherwise), whether from a
Governmental Body, citizens group, employee or otherwise, that alleges that
Parent is not in compliance with any Environmental Law, and, to the knowledge of
Parent, there are no
27.
<PAGE> 34
circumstances that may prevent or interfere with Parent's compliance with any
Environmental Law in the future. To the knowledge of Parent, no current or prior
owner of any property leased or controlled by Parent has received any notice or
other communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or Parent is not in compliance with any Environmental Law.
3.16 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding to which Parent is a party
and, to the knowledge of Parent, no Person has threatened to commence any Legal
Proceeding: (i) that involves Parent or any of the assets owned or used by
Parent or any Person whose liability Parent has or may have retained or assumed,
either contractually or by operation of law, or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger or any of the other transactions contemplated by
this Agreement. To the knowledge of Parent, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding.
(b) There is no order, writ, injunction, judgment or decree to which
Parent, or any of the assets owned or used by Parent, is subject. To the
knowledge of Parent, no officer or other employee of Parent is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to Parent's business.
3.17 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent has the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
Parent of this Agreement have been duly authorized by all necessary action on
the part of Parent and its board of directors. This Agreement constitutes the
legal, valid and binding obligation of Parent, enforceable against Parent in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.18 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 3.18 of
the Parent Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Parent's certificate of incorporation or bylaws, or (ii) any
resolution adopted by Parent's stockholders, Parent's board of directors or any
committee of Parent's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement
28.
<PAGE> 35
or any order, writ, injunction, judgment or decree to which Parent, or any of
the assets owned or used by Parent, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Parent or that otherwise relates to Parent's business or to any
of the assets owned or used by Parent;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Parent Contract that is or
would constitute a material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Parent Contract, (ii)
accelerate the maturity or performance of any such Parent Contract, or (iii)
cancel, terminate or modify any such Parent Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Parent (except
for minor liens that will not, in any case or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of Parent).
Except as set forth in Part 3.18 of the Parent Disclosure Schedule, Parent is
not and will not be required to make any filing with or give any notice to, or
to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
3.19 FULL DISCLOSURE. This Agreement (including the Parent Disclosure
Schedule) does not (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact or necessary in order to make the representations, warranties
and information contained and to be contained herein and therein (in the light
of the circumstances under which such representations, warranties and
information were or will be made or provided) not false or misleading.
SECTION 4. CERTAIN COVENANTS OF THE PARTIES
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the earlier of the Effective Time or the termination of this
Agreement pursuant to Section 7.1 (the "Pre-Closing Period"), each of Parent and
the Company shall, and shall cause its respective Representatives to: (a)
provide to the other party and to the other party's Representatives reasonable
access to such party's Representatives, personnel and assets and to all existing
books, records, Tax Returns, work papers and other documents and information
relating to such party; and (b) provide to the other party and to the other
party's Representatives copies of such existing books, records, Tax Returns,
work papers and other documents and information relating to such party, and with
such additional financial, operating and other data and information regarding
such party as the other party may reasonably request.
29.
<PAGE> 36
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use commercially reasonable efforts to
preserve intact its current business organization, keep available the services
of its current officers and employees and maintain its relations and goodwill
with all material suppliers, customers, landlords, creditors, employees and
other Persons having business relationships with the Company;
(c) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any Company Common
Membership Units or other security or ownership interest in the Company, and
shall not repurchase, redeem or otherwise reacquire any Company Common
Membership Units or other security or ownership interest in the Company;
(d) the Company shall not sell, issue or authorize the issuance of
(i) any Company Common Membership Units or other security or ownership interest
in the Company, (ii) any option or right to acquire any Company Common
Membership Units or other security or ownership interest in the Company, or
(iii) any instrument convertible into or exchangeable for any Company Common
Membership Units or other security or ownership interest in the Company (except
that the Company shall be permitted to issue those Company Common Membership
Units and other securities specifically set forth on Part 4.2(d) of the Company
Disclosure Schedule);
(e) the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under any provision of any agreement
evidencing any outstanding Company Option;
(f) the Company shall not amend or permit the adoption of any
amendment to the Company's certificate of formation, operating agreement, or
effect or permit the Company to become a party to any recapitalization or
reclassification of Company Common Membership Units or other ownership interests
in the Company, split or reverse split of the Company Common Membership Units or
any other ownership interest in the Company or similar transaction;
(g) the Company shall not form any subsidiary or acquire any equity
interest in any other Entity;
(h) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of the Company during the Pre-Closing Period, do not exceed Twenty-Five
Thousand Dollars ($25,000.00) in the aggregate;
(i) the Company shall not (i) enter into, or permit any of the
assets owned or used by it to become bound by, any Contract that is or would
constitute a Company Material
30.
<PAGE> 37
Contract, or (ii) amend or prematurely terminate, or waive any material right or
remedy under, any such material Contract;
(j) the Company shall not (i) acquire, lease or license any right or
other asset from any other Person, (ii) sell or otherwise dispose of, or lease
or license, any right or other asset to any other Person, or (iii) waive or
relinquish any right, except for assets acquired, leased, licensed or disposed
of by the Company pursuant to Contracts that are not Company Material Contracts;
(k) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary course
of business), or (ii) incur or guarantee any indebtedness for borrowed money;
(l) the Company shall not (i) establish, adopt or amend any Company
Plan, (ii) pay any bonus or make any profit-sharing payment, cash incentive
payment or similar payment to, or increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees, or (iii) hire any new employee;
(m) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(n) the Company shall not make any Tax election;
(o) the Company shall not commence or settle any Legal Proceeding;
(p) the Company shall not agree or commit to take any of the actions
described in clauses "(c)" through "(o)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(c)" through "(p)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld.
4.3 OPERATION OF PARENT'S BUSINESS. During the Pre-Closing Period:
(a) Parent shall conduct its business and operations in the ordinary
course and in substantially the same manner as such business and operations have
been conducted prior to the date of this Agreement;
(b) Parent shall use commercially reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and maintain its relations and goodwill with all
material suppliers, customers, landlords, creditors, employees and other Persons
having business relationships with Parent;
(c) except as contemplated in Parent's Form S-1 Registration
Statement, Parent shall not declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, and shall
not repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities (except that Parent may repurchase Parent
31.
<PAGE> 38
Common Stock from former employees pursuant to the terms of existing restricted
stock purchase agreements);
(d) Parent shall not sell, issue or authorize the issuance of (i)
any capital stock or other security, (ii) any option or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that Parent shall
be permitted to (x) grant options to purchase up to five hundred thousand
(500,000) shares of Parent Common Stock to employees of Parent who are employees
as of the date of this Agreement and otherwise grant options to purchase Common
Stock of Parent to employees in accordance with its past practices, (y) issue
Parent Common Stock to employees upon the exercise of outstanding Parent Options
and (z) issue Parent Common Stock and/or warrants to purchase Parent Common
Stock that do not exceed ten percent (10%) of Parent's capital stock outstanding
as of the date of this Agreement) pursuant to strategic arrangements agreed upon
by Parent; provided that Parent shall provide to the Company not less than two
(2) business days' notice, and shall consult with the Company and in good faith
consider and discuss with the Company the views of the Company with respect to
such strategic arrangements, prior to entering into such strategic arrangements;
(e) Parent shall not amend or waive any of its rights under, or
permit the acceleration of vesting under, any provision of any agreement
evidencing any outstanding Parent Option;
(f) Parent shall not amend or permit the adoption of any amendment
to Parent's certificate of incorporation or bylaws, or effect or permit Parent
to become a party to any recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction, except as described in Part
4.2(f) of the Parent Disclosure Schedule and except as contemplated in Parent's
Form S-1 Registration Statement;
(g) Parent shall not form any subsidiary or acquire any equity
interest in any other Entity;
(h) Parent shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of Parent during the Pre-Closing Period, do not exceed Two Million Five
Hundred Thousand Dollars ($2,500,000.00) per month;
(i) Parent shall not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any material Contract, or (ii) amend or
prematurely terminate, or waive any material right or remedy under, any Parent
Material Contract;
(j) Parent shall not (i) acquire, lease or license any right or
other asset from any other Person, (ii) sell or otherwise dispose of, or lease
or license, any right or other asset to any other Person, or (iii) waive or
relinquish any right, except for assets acquired, leased, licensed or disposed
of by Parent pursuant to Contracts that are not Parent Material Contracts;
(k) Parent shall not (i) lend money to any Person (except that
Parent may make routine travel advances to employees in the ordinary course of
business and may, consistent with its past practices, allow employees to acquire
Parent Common Stock in exchange
32.
<PAGE> 39
for promissory notes upon exercise of Parent Options), or (ii) incur or
guarantee any indebtedness for borrowed money in excess of Seven Million Five
Hundred Thousand Dollars ($7,500,000.00);
(l) Parent shall not (i) establish, adopt or amend any Parent Plan,
(ii) pay any bonus or make any profit-sharing payment, cash incentive payment or
similar payment to, or increase the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees unless in the ordinary course of business and
consistent with past practices, or (iii) hire any new employee whose aggregate
annual base compensation is expected to exceed Two Hundred Fifty Thousand
Dollars ($250,000.00);
(m) Parent shall not change any of its methods of accounting or
accounting practices in any material respect;
(n) Parent shall not make any material Tax election;
(o) Parent shall not commence or settle any Legal Proceeding;
(p) Parent shall not agree or commit to take any of the actions
described in clauses "(c)" through "(o)" above.
Notwithstanding the foregoing, Parent may take any action described in clauses
"(c)" through "(p)" above if the Company gives its prior written consent to the
taking of such action by Parent, which consent will not be unreasonably
withheld.
4.4 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULES.
(a) During the Pre-Closing Period, the Company and the Major Member
shall promptly notify Parent in writing of:
(i) the discovery by the Company or the Major Member of any
event, condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes an inaccuracy in or
breach of any representation or warranty made by the Company or the Major Member
in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company or the Major Member in this Agreement if (a) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (b) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any breach of any covenant or obligation of the Company or
the Major Member; and
33.
<PAGE> 40
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 5 or
Section 6 impossible or unlikely.
(b) During the Pre-Closing Period, Parent shall promptly notify the
Company in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by Parent or Merger Sub in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
Parent or Merger Sub in this Agreement if (a) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (b) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of Parent or
Merger Sub; and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(c) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Sections 4.4(a) or 4.4(b) requires any change in the
Company's or Parent's Disclosure Schedule, as the case may be, or if any such
event, condition, fact or circumstance would require such a change assuming the
Company Disclosure Schedule or Parent Disclosure Schedule, as applicable, were
dated as of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company or Parent, as applicable,
shall promptly deliver to Parent or the Company, as applicable, an update to the
Company Disclosure Schedule or Parent Disclosure Schedule specifying such
change. No such update shall be deemed to supplement or amend the Company
Disclosure Schedule or Parent Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
the Company or the Major Member or Parent or Merger Sub in this Agreement, or
(ii) determining whether any of the conditions set forth in Sections 5 or 6 have
been satisfied.
4.5 COMPANY NO-SHOP.
(a) During the Pre-Closing Period, the Company shall not, and shall
not permit any of its Representatives to, directly or indirectly:
(i) solicit or encourage the initiation or submission of any
expression of interest, inquiry, proposal or offer from any Person (other than
Parent) relating to a possible Company Acquisition Transaction;
34.
<PAGE> 41
(ii) participate in any discussions or negotiations or enter
into any agreement with, or provide any non-public information to, any Person
(other than Parent) relating to or in connection with a possible Company
Acquisition Transaction;
(iii) entertain, consider, or accept any proposal or offer from
any Person (other than Parent) relating to a possible Company Acquisition
Transaction; or (IV) enter into any agreement or arrangement with any Person
(other than Parent) to provide electronic commerce services to the Major Member,
Premier, Inc. or any of their respective affiliates or members.
(b) The Company shall promptly notify Parent in writing of any
inquiry, proposal or offer relating to a possible Company Acquisition
Transaction that is received by the Company or any of the Company's
Representatives during the Pre-Closing Period.
4.6 PARENT NO-SHOP.
(a) During the Pre-Closing Period, Parent shall not, and shall not
permit any of its Representatives to, directly or indirectly:
(i) solicit or encourage the initiation or submission of any
expression of interest, inquiry, proposal or offer from any Person (other than
the Company or the Major Member) relating to a possible Parent Acquisition
Transaction;
(ii) participate in any discussions or negotiations or enter
into any agreement with, or provide any non-public information to, any Person
(other than the Company or the Major Member) relating to or in connection with a
possible Parent Acquisition Transaction; or
(iii) entertain, consider, or accept any proposal or offer from
any Person (other than the Company or the Major Member) relating to a possible
Parent Acquisition Transaction.
(b) Parent shall promptly notify the Company in writing of any
inquiry, proposal or offer relating to a possible Parent Acquisition Transaction
that is received by Parent during the Pre-Closing Period.
4.7 REGISTRATION STATEMENT; PROSPECTUS/CONSENT SOLICITATION.
(a) As promptly as practicable after the date of this Agreement, the
Company and Parent shall prepare and cause to be filed with the SEC a
Prospectus/Consent Solicitation and Parent shall prepare and cause to be filed
with the SEC a Form S-4 Registration Statement in which the Prospectus/Consent
Solicitation will be included as a prospectus (the "Form S-4 Registration
Statement" and collectively with the Form S-1 Registration Statement, the
"Registration Statements") and any other documents required by the Securities
Act or Exchange Act to be filed in connection with the Merger. The Company shall
promptly furnish to Parent all information concerning the Company, its
subsidiaries and its members as may be required or reasonably requested in
connection with any action contemplated by this Section 4.7(a). Each of
35.
<PAGE> 42
Parent and the Company shall (1) notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the S-4 Registration Statement or the
Prospectus/Consent Solicitation or for additional information and (2) shall
supply the other with copies of all correspondence with the SEC or its staff
with respect to the Form S-4 Registration Statement or the Prospectus/Consent
Solicitation. Neither Parent nor the Company shall file any amendment or
supplement to the Form S-4 Registration Statement or the Prospectus/Consent
Solicitation to which the other shall have reasonably objected. Whenever any
event occurs that should be set forth in an amendment or supplement to the Form
S-4 Registration Statement or the Prospectus/Consent Solicitation, Parent or the
Company, as the case may be, shall promptly inform the other of such occurrence
and shall cooperate in filing with the SEC or its staff, and, if appropriate,
mailing to the members of the Company, such amendment or supplement.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock to
be issued in the Merger will be registered or qualified under the securities
laws of every jurisdiction of the United States in which any registered holder
of Company Common Membership Units has an address of record on the record date
for determining the members entitled to notice of and to vote on the Merger;
provided, however, that Parent shall not be required (i) to qualify to do
business as a foreign corporation in any jurisdiction in which it is not now
qualified, or (ii) to file a general consent to service of process in any
jurisdiction.
4.8 COMPANY MEMBER APPROVAL. As promptly as practicable after the Form
S-4 Registration Statement is declared effective by the SEC under the Securities
Act, the Company shall mail or otherwise deliver to the Company's members the
Prospectus/Consent Solicitation (and Parent shall make available to the Company
such number of copies of the Prospectus/Consent Solicitation as the Company
shall reasonably request), along with a written consent of the Company's members
requesting that they approve this Agreement, the Merger and the transactions
contemplated thereby. In accordance with the Company's Certificate of Formation
and Operating Agreement and in accordance with the DGCL, the Company shall use
its best efforts to cause the Company's members to execute and return all such
written consents to the Company as soon as possible (and in any event within
three (3) days of the date of the mailing or delivery of the Prospectus/Consent
Solicitation to the Company members).
4.9 FILINGS AND CONSENTS; REGULATORY APPROVALS. As promptly as
practicable after the execution of this Agreement, each party to this Agreement
(a) shall make all filings (if any) and give all notices (if any) required to be
made and given by such party in connection with the Merger and the other
transactions contemplated by this Agreement, and (b) shall use all commercially
reasonable efforts to obtain all Consents (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Contract, or otherwise) by such
party in connection with the Merger and the other transactions contemplated by
this Agreement. Each party shall (upon request) promptly deliver to the other
parties a copy of each such filing made, each such notice given and each such
Consent obtained by such party during the Pre-Closing Period. The Company and
Parent shall use all reasonable efforts to file, as soon as practicable after
the date of this Agreement, all notices, reports and other documents required to
be filed with any Governmental Body with respect to the Merger and the other
transactions contemplated by this Agreement, and to submit promptly any
additional information requested by any such
36.
<PAGE> 43
Governmental Body. Without limiting the generality of the foregoing, the Company
and Parent shall, promptly after the date of this Agreement, prepare and file
the notifications required under the HSR Act and any applicable foreign
antitrust laws or regulations in connection with the Merger. The Company and
Parent shall respond as promptly as practicable to (i) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for
additional information or documentation, and (ii) any inquiries or requests
received from any state attorney general, foreign antitrust authority or other
Governmental Body in connection with antitrust or related matters. Each of the
Company and Parent shall (1) give the other party prompt notice of the
commencement or threat of commencement of any Legal Proceeding by or before any
Governmental Body with respect to the Merger or any of the other transactions
contemplated by this Agreement, (2) keep the other party informed as to the
status of any such Legal Proceeding or threat, and (3) promptly inform the other
party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger.
Except as may be prohibited by any Governmental Body or by any Legal
Requirement, the Company and Parent will consult and cooperate with one another,
and will consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the HSR Act or any other foreign, federal or state antitrust or fair
trade law. In addition, except as may be prohibited by any Governmental Body or
by any Legal Requirement, in connection with any Legal Proceeding under or
relating to the HSR Act or any other foreign, federal or state antitrust or fair
trade law or any other similar Legal Proceeding, each of the Company and Parent
will permit authorized Representatives of the other party to be present at each
meeting or conference relating to any such Legal Proceeding and to have access
to and be consulted in connection with any document, opinion or proposal made or
submitted to any Governmental Body in connection with any such Legal Proceeding.
4.10 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, no party to
this Agreement shall (and no party shall permit any of its Representatives to)
issue any press release or make any public statement regarding this Agreement or
the Merger, or regarding any of the other transactions contemplated by this
Agreement, without the other party's prior written consent, except as required
by law and except that Parent may disclose this Agreement in the
Prospectus/Consent Solicitation and file it as an exhibit to the Form S-4
Registration Statement (and the Form S-1 Registration Statement) in accordance
with applicable federal securities laws.
4.11 BEST EFFORTS. During the Pre-Closing Period, (a) the Company and
the Major Member shall use their best efforts to cause the conditions set forth
in Section 5 to be satisfied on a timely basis, and (b) Parent and Merger Sub
shall use their best efforts to cause the conditions set forth in Section 6 to
be satisfied on a timely basis.
4.12 ANCILLARY MERGER DOCUMENTS.
(a) At or prior to the date on which the Form S-4 Registration
Statement and the Form S-1 Registration Statement is declared effective by the
SEC (such date of effectiveness being referred to herein as the "Registration
Statements' Effectiveness Date"), each of the Company and the Major Member shall
use their best efforts to provide Parent with the following documents and other
instruments:
37.
<PAGE> 44
(i) a confidential invention and assignment agreements,
reasonably satisfactory in form and content to Parent, executed by all employees
of the Company and by all consultants and independent contractors to the Company
who have not already signed such agreements;
(ii) a stock option agreement in the form of EXHIBIT C duly
executed by each holder of a Company Option who will receive a Parent
Substituted Option in connection with the Merger, which option will become
effective as of the Effective Time;
(iii) written resignations of all management committee members
and officers of the Company (other than those management committee members and
officers listed on EXHIBIT B, which shall have been duly appointed), effective
as of the Effective Time; and
(iv) all Consents set forth on Part 4.12(a)(iv) of the Company
Disclosure Schedule.
(b) At or prior to the Registration Statements' Effectiveness Date,
Parent shall use its best efforts to provide the Company with the following
documents and other instruments:
(i) an Indemnification Agreement in the form of EXHIBIT E duly
executed by Parent in favor of those management committee members and officers
of the Company whom will become directors and/or officers of Parent as of the
Effective Time, which Indemnification Agreement will become effective as of the
Effective Time; and
(ii) all Consents set forth on Part 4.12(c)(ii) of the Parent
Disclosure Schedule.
4.13 TERMINATION OF EMPLOYEE PLANS; OTHER EMPLOYEE MATTERS. At or prior
to the Closing, the Company shall terminate its Company Plan, and shall ensure
that no employee or former employee of the Company has any rights under such
plan and that any liabilities of the Company under such plan (including any such
liabilities relating to services performed prior to the Closing) are fully
extinguished at no cost to the Company or Parent. Parent agrees that all
employees of the Company shall be eligible to participate in Parent's health,
vacation and other employee benefit plans, to the same extent as employees of
Parent in similar positions and at similar grade levels. As soon as
administratively feasible following the Closing, Parent shall take whatever
action is necessary to transition Company employees into Parent's employee
benefit plans as contemplated by the immediately preceding sentence.
4.14 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
4.15 INDEMNIFICATION OF COMPANY OFFICERS AND DIRECTORS. All rights to
indemnification and exculpation existing in favor of those Persons who are
members of the Company's management committee or who are officers of the Company
as of the date of this Agreement and the Effective Time for acts and omissions
occurring prior to the Effective Time,
38.
<PAGE> 45
as provided in the Company's charter documents (as in effect as of the date of
this Agreement) shall survive the Merger and shall be observed by the Surviving
Entity to the fullest extent available under Delaware law for a period of six
(6) years from the Effective Time.
4.16 BOARD OBSERVATION RIGHTS. Except as otherwise set forth in this
Section 4.16, during the Pre-Closing Period, Parent shall provide the Major
Member with notice of, and with Board packages related to, meetings of the board
of directors of Parent that occur (or are scheduled to occur) during the
Pre-Closing Period. Parent shall provide such notice to the Major Member on
substantially the same basis, and the Board packages provided to the Major
Member will contain substantially the same information, as provided to Board
members in connection with such meetings. The Major Member shall have the right
to have Richard Norling and William Mayer (the "Major Member Representatives")
attend the meetings of Parent's board of directors that occur during the
Pre-Closing Period in a non-voting, observer capacity at the Major Member's own
expense. The Major Member shall have the right to have Richard Norling (and no
other Person) attend meetings of the audit committee or compensation committee
of Parent's board of directors. Notwithstanding the foregoing, the Major Member
shall not be entitled to receive information sent to the Parent's board of
directors and shall not be entitled to have the Major Member Representatives
attend any meeting of Parent's board of directors or any committee of Parent's
board of directors (including any audit or compensation committee meeting) to
the extent that either Parent's Chief Executive Officer or Parent's Chairman of
the Board determines, upon advice of counsel that there may exist a conflict of
interest or a potential compromise of the attorney-client privilege. The Major
Member shall promptly inform Parent of any potential conflicts of interest of
which the Major Member is aware that could be reasonably expected to be relevant
to Parent's decision to allow the Major Member Representatives to attend any
meeting of Parent's board of directors. The Major Member shall, and the Major
Member shall cause the Major Member Representatives to, keep all information
received by them in connection with the rights granted to the Major Member and
the Major Member Representatives under this Section 4.16 confidential and will
not disclose such information to any other Person (other than Premier, Inc.).
4.17 PARENT BOARD COMPOSITION. At or prior to the Closing, the Board of
Directors of Parent shall take all action necessary to reconstitute the Board of
Directors and the Audit and Compensation Committees of the Board of Directors of
Parent as contemplated by Section 1.4(c).
4.18 ASSIGNMENT OF OUTSOURCING AGREEMENT. Immediately after the
Effective Time, Parent shall cause the Surviving Entity to assign and otherwise
transfer the Outsourcing Agreement to Parent and Parent shall assume the
obligations of the Surviving Entity thereunder.
4.19 COVENANT NOT TO PROMOTE. Subject to Section 7.2 of the Outsourcing
Agreement, each of Major Member and Premier agree that, for a period of six (6)
years after March 6, 2000 and except in connection with Provider Select, Inc.
(provided that Provider Select, Inc. does not sell or allow the sale of
products, supplies or services for use by an acute care facility), it will not,
and that it will prevent any entity owned by, controlled by, or under common
control with it (collectively, the "Sellers' Affiliates"), from doing any of the
following: (i) advertising or promoting, directly or indirectly, access to or
use of any on-line commerce web site of a PHx Competitor for the procurement of
medical, pharmaceutical, surgical, dietary,
39.
<PAGE> 46
dental, or veterinarian supplies or services, whether on-line or in off-line
media, or in any other communication made by or on behalf of Major Member or
Premier or such Sellers' Affiliates, including, without limitation, e-mail,
links, direct mail, press releases or advertising, (ii) offering, operating
and/or marketing an on-line marketplace for the sale or on-line sales of
medical, pharmaceutical, surgical, dietary, dental, or veterinarian supplies or
services directly to hospitals and health care organizations; (iii) integrating
their information systems with the information systems of any PHx Competitor;
(iv) providing integration services for any Participating Member (as defined in
the Outsourcing Agreement), Vendor (as defined in the Outsourcing Agreement) or
Distributor (as defined in the Outsourcing Agreement) with respect to any PHx
Competitor's electronic commerce system; or (v) providing direct access by PHx
Competitors to pricing information through Major Member or Premier related to
Contracted Products (as defined in the Outsourcing Agreement) and Services (as
defined in the Outsourcing Agreement). Such agreement not to promote and the
covenants in the preceding sentence are referred to herein as the "Covenant Not
to Promote." "PHx Competitor" means a third party having a principal business of
providing an on-line marketplace for the sale or on-line sales of medical,
pharmaceutical, surgical, dietary, dental, or veterinarian supplies or services
to hospitals and health care organizations, but excluding: (i) Provider Select,
Inc. (provided that Provider Select, Inc. does not sell or allow the sale of
products, supplies or services for use by an acute care facility); and (ii)
Distributors and Vendors with which Major Member or Premier has or will enter
into a formal agreement in the ordinary course of business (provided Major
Member and Premier shall refrain from promoting any electronic commerce
capabilities of such Distributors or Vendors to the extent such capabilities are
competitive with the PHx e-Commerce System). Upon the expiration of the Covenant
Not to Promote (or earlier waiver thereof by PHx in accordance with Section 12.4
of the Outsourcing Agreement), Major Member and Premier shall have the right to
promote to Participating Members up to two (2) additional providers of
electronic commerce solutions for medical, pharmaceutical, surgical, dietary,
dental, or veterinarian supplies or services (in addition to PHx).
Notwithstanding any other provision of this Agreement, the Covenant Not to
Promote shall cease to be enforceable against Major Member and Premier (i) when
the Covenant Not to Promote set forth in Section 7.2 of the Outsourcing
Agreement is no longer enforceable against Major Member or Premier pursuant to
the Outsourcing Agreement (including without limitation Section 7.2 thereof),
and (ii) if this Agreement is terminated pursuant to Section 7.
4.20 LEGAL OPINION OF PAUL, HASTINGS, JANOFSKY & WALKER LLP The Company
shall use its best efforts to cause Paul, Hastings, Janofsky & Walker LLP to
deliver to Parent on the Closing Date the legal opinion of Paul, Hastings,
Janofsky & Walker LLP, dated as of the Closing Date, in the form of EXHIBIT F.
4.21 LEGAL OPINION OF COOLEY GODWARD LLP. Parent shall use its best
efforts to cause Cooley Godward LLP to deliver to the Company on the Closing
Date the legal opinion of Cooley Godward LLP dated as of the Closing Date in the
form of EXHIBIT H.
4.22 CONSULTING SERVICES. The Major Member agrees that, to the extent
that David Mawhinney ("Mawhinney") ceases to provide employment or consulting
services on a full-time basis to the Company or Parent at any time during the
six (6) month period immediately following the Closing Date (the "Consulting
Period"), then (i) if Mawhinney becomes employed by the Major Member or any of
its affiliates during the Consulting Period, the Major Member
40.
<PAGE> 47
shall, and shall cause its affiliates to, make Mawhinney available to Parent and
the Company on a full-time basis throughout the remaining term of the Consulting
Period in order to assist Parent and the Company with the integration of the PHx
e-commerce system (the "Consulting Services"), or (ii) if Mawhinney is not so
employed by the Major Member or any of its affiliates during any portion of the
Consulting Period, the Major Member shall, and shall cause its affiliates to,
make available to Parent and the Company on a full-time basis such Persons as
are reasonably acceptable to Parent to perform the Consulting Services
throughout the remaining term of the Consulting Period which Mawhinney otherwise
would have performed. The costs of the Consulting Services charged by the Major
Member to Parent in the event that the Major Member is required to make Persons
other than Mawhinney available to provide the Consulting Services as
contemplated by clause (ii) above, will, in no event, exceed that amount equal
to the monetary compensation to which Mawhinney would otherwise have been
entitled had he provided the Consulting Services to Parent or the Company.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
5.1 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
5.2 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
5.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective concurrently with the S-1 Registration
Statement in accordance with the provisions of the Securities Act, and no stop
order shall have been issued, and no proceeding for that purpose shall have been
initiated or be threatened, by the SEC with respect to the Form S-4 Registration
Statement or the Form S-1 Registration Statement and the Closing shall be
consummated concurrently with the consummation of Parent's IPO.
5.4 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and any similar
waiting period under any applicable foreign antitrust law or regulation shall
have expired or been terminated; and any Consent required under any applicable
foreign antitrust law or regulation shall have been obtained.
5.5 COMPANY STATUS AT CLOSING. As of the Closing, (a) the Company shall
have (i) cash and cash equivalents equal to at least (1) Thirty-Three Million
Dollars ($33,000,000.00) if the Closing occurs on or prior to May 1, 2000, and
(2) Twenty-Five Million Dollars ($25,000,000.00) if the Closing occurs after May
1, 2000 and on or prior to June 30,
41.
<PAGE> 48
2000, and (ii) total liabilities (whether on or off balance sheet) not to exceed
Eight Million Five Hundred Dollars ($8,500,000.00) (regardless of the date of
the Closing), and (b) there will be no surviving intercompany debt remaining
between the Company and the Major Member or any of the Company's affiliates.
5.6 AUDITED FINANCIAL STATEMENTS The Company shall deliver to Parent
audited balance sheets as of February 29, 2000 and as of December 31, 1999 and
the related statements of income and cash flows for the two (2) month period
then ended and the twelve (12) month period then ended, respectively (as well as
the notes related thereto) and a copy of the unqualified opinion of Ernst &
Young LLP related thereto.
5.7 E-COMMERCE OUTSOURCING AGREEMENT. No modifications, amendments or
other changes shall have been made to that certain e-Commerce Outsourcing
Agreement dated as of March 4, 2000 between Premier Health Exchange, Inc. and
Premier Purchasing Partners, L.P. (the "Outsourcing Agreement") without the
prior written consent of Parent and such agreement shall be in full force and
effect
5.8 COMPANY CAPITALIZATION. The capitalization of the Company shall be
as set forth in EXHIBIT J.
5.9 AMENDMENT TO PARENT CERTIFICATE OF INCORPORATION. Parent's Amended
and Restated Certificate of Incorporation shall have been amended to the extent
necessary to authorize a sufficient number of shares of Parent Common Stock to
enable Parent to consummate the Merger.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
6.1 NO RESTRAINTS. No temporary restraining order preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.2 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective concurrently with the Form S-1
Registration Statement in accordance with the provisions of the Securities Act,
and no stop order shall have been issued, and no proceeding for that purpose
shall have been initiated or be threatened, by the SEC with respect to the Form
S-4 Registration Statement or the Form S-1 Registration Statement and the
Closing shall be consummated concurrently with the consummation of Parent's IPO.
42.
<PAGE> 49
6.4 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and any similar
waiting period under any applicable foreign antitrust law or regulation shall
have expired or been terminated; and any Consent required under any applicable
foreign antitrust law or regulation shall have been obtained.
6.5 AMENDMENT TO INVESTOR RIGHTS AGREEMENT. That Second Amended and
Restated Investor Rights Agreement dated January 7, 2000 between Parent and
certain of its stockholders shall have been amended, or appropriate consents
shall have been obtained, in order to allow for the registration rights
contemplated by the Lock-Up Agreement.
6.6 CAPITALIZATION OF PARENT The capitalization of Parent shall be as
set forth on EXHIBIT I.
6.7 PARENT SUBSTITUTED OPTION Parent shall have delivered to the Company
a stock option agreement in the form of EXHIBIT C duly executed by Parent in
favor of each holder of a Company Option who will receive a Parent Substituted
Option in connection with the Merger.
6.8 AMENDMENT TO PARENT CERTIFICATE OF INCORPORATION. Parent's Amended
and Restated Certificate of Incorporation shall have been amended to the extent
necessary to authorize a sufficient number of shares of Parent Common Stock to
enable Parent to consummate the Merger.
SECTION 7. TERMINATION
7.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Registration Statements' Effectiveness Date:
(a) by mutual written consent of Parent and the Company;
(b) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 5 has become impossible
(other than as a result of any failure on the part of Parent or Merger Sub to
comply with or perform any covenant or obligation of Parent or Merger Sub set
forth in this Agreement);
(c) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 6 has become
impossible (other than as a result of any failure on the part of the Company or
the Major Member to comply with or perform any covenant or obligation of the
Company or the Major Member set forth in this Agreement);
(d) by Parent or the Company if the Merger shall not have been
consummated by June 30, 2000 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate this
Agreement to comply with or perform any covenant or obligation of such party set
forth in this Agreement);
(e) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or
43.
<PAGE> 50
shall have taken any other action, having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger;
(f) by the Company, if Parent shall have failed to deliver to the
Company, not later than one (1) day prior to the Registration Statements'
Effectiveness Date, a Lock-Up and Registration Rights Agreement in the form of
EXHIBIT D (the "Lock-Up Agreement) executed by Parent with respect to each
Person to receive Parent Common Stock in the Merger pursuant to Section 1.5 or
who will be entitled to acquire Parent Common Stock upon the exercise of a
Parent Substituted Option or Company Warrant assumed by Parent pursuant to
Section 1.6(b);
(g) by Parent, if Parent shall have failed to receive, not later
than one (1) day prior to the Registration Statements' Effectiveness Date, a
Lock-Up Agreement duly executed by each Person to receive Parent Common Stock in
the Merger pursuant to Section 1.5 or who will be entitled to acquire Parent
Common Stock upon the exercise of a Parent Substituted Option or Company Warrant
assumed by Parent pursuant to Section 1.6(b); or
(h) by either Parent or the Company if there shall be pending any
Legal Proceeding brought by a Governmental Body against any of the parties to
this Agreement challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the transactions contemplated by this Agreement.
7.2 TERMINATION PROCEDURES. If Parent wishes to terminate this Agreement
pursuant to Section 7.1(b), Section 7.1(d), Section 7.1(e), Section 7.1(g) or
Section 7.1(h), Parent shall deliver to the Company a written notice stating
that Parent is terminating this Agreement and setting forth a brief description
of the basis on which Parent is terminating this Agreement. If the Company
wishes to terminate this Agreement pursuant to Section 7.1(c), Section 7.1(d),
Section 7.1(e), Section 7.1(f) or Section 7.1(h), the Company shall deliver to
Parent a written notice stating that the Company is terminating this Agreement
and setting forth a brief description of the basis on which the Company is
terminating this Agreement.
7.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 7.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) none of the Company, the Major Member,
Parent or Merger Sub shall be relieved of any obligation or liability arising
from any prior breach by such party of any provision of this Agreement; (b) the
parties shall, in all events, remain bound by and continue to be subject to the
provisions set forth in Section 9; and (c) the parties shall, in all events,
remain bound by and continue to be subject to Section 4.10.
SECTION 8. INDEMNIFICATION, ETC.
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company and the
Major Member in this Agreement (including the representations and warranties set
forth in Section 2) shall survive the Closing and shall expire on the first
anniversary of the Closing Date (the "Expiration Date"); provided, however, that
if, at any time prior to the Expiration Date, any Parent Indemnitee (acting in
good faith) delivers to the Major Member a written notice alleging the existence
of an inaccuracy in or a breach of any of the representations or warranties made
44.
<PAGE> 51
by the Company or the Major Member (and setting forth in reasonable detail the
basis for such Parent Indemnitee's belief that such an inaccuracy or breach may
exist) and asserting a claim for recovery under Section 8.3 based on such
alleged inaccuracy or breach, then the claim asserted in such notice shall
survive the Expiration Date until such time as such claim is fully and finally
resolved.
(b) The representations and warranties made by Parent and Merger Sub
in this Agreement (including the representations and warranties made in Section
3) shall survive the Closing and shall expire on the Expiration Date; provided,
however, that if at any time prior to the Expiration Date, any Company
Indemnitee (acting in good faith) delivers to Parent a written notice alleging
the existence of an inaccuracy in or a breach of any of the representations or
warranties made by Parent or Merger Sub (and setting forth in reasonable detail
the basis for such Company Indemnitee's belief that such an inaccuracy or breach
may exist) and asserting a claim for recovery under Section 8.3 based on such
alleged inaccuracy or breach, then the claim asserted in such notice shall
survive the Expiration Date until such time as such claim is fully and finally
resolved.
(c) The representations, warranties, covenants and obligations of
the Company and the Major Member, and the rights and remedies that may be
exercised by the Parent Indemnitees, shall not be limited or otherwise affected
by or as a result of any information furnished to, or any investigation made by
or knowledge of, any of the Parent Indemnitees or any of their Representatives.
The representations, warranties, covenants and obligations of Parent and Merger
Sub, and the rights and remedies that may be exercised by the Company
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Company Indemnitees or any of their Representatives.
8.2 INDEMNIFICATION BY THE MAJOR MEMBER.
(a) From and after the Effective Time (but subject to Section 8.1(a)
and Section 8.4), the Major Member shall hold harmless and indemnify each of the
Parent Indemnitees from and against, and shall compensate and reimburse each of
the Parent Indemnitees for, any Damages which are directly or indirectly
suffered or incurred by any of the Parent Indemnitees or to which any of the
Parent Indemnitees may otherwise become subject (regardless of whether or not
such Damages relate to any third party claim) and which arise from or as a
result of, or are directly or indirectly connected with: (i) any inaccuracy in
or breach of any representation or warranty made by the Company or the Major
Member in this Agreement (without giving effect to any "Material Adverse Effect"
or other materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty); (ii)
any inaccuracy in or breach of any representation or warranty made by the
Company or the Major Member in this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualification or any similar
qualification contained or incorporated directly or indirectly in such
representation or warranty, and without giving effect to any update to the
Company Disclosure Schedule delivered by the Company to Parent prior to the
Closing) as if such representation or warranty were made on and as of the
Closing Date; (iii) any breach of any covenant or obligation of the Company or
the Major Member (including the covenants of the Company and the Major Member
set forth in Section 4); or (iv) any Legal
45.
<PAGE> 52
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)," "(ii)" or "(iii)" above (including any Legal Proceeding commenced
by any Parent Indemnitee for the purpose of enforcing any of its rights under
this Section 8).
(b) The Major Member acknowledges and agrees that, if the Surviving
Entity suffers, incurs or otherwise becomes subject to any Damages as a result
of or in connection with any inaccuracy in or breach of any representation,
warranty, covenant or obligation of the Company or the Major Member, then
(without limiting any of the rights of the Surviving Entity as a Parent
Indemnitee) Parent shall also be deemed, by virtue of its ownership of the stock
of the Surviving Entity, to have incurred Damages as a result of and in
connection with such inaccuracy or breach.
8.3 INDEMNIFICATION BY PARENT. From and after the Effective Time (but
subject to Section 8.1(a) and Section 8.4), Parent shall hold harmless and
indemnify each of the Company Indemnitees from and against, and shall compensate
and reimburse each of the Company Indemnitees for, any Damages which are
directly or indirectly suffered or incurred by any of the Company Indemnitees or
to which any of the Company Indemnitees may otherwise become subject (regardless
of whether or not such Damages relate to any third party claim) and which arise
from or as a result of, or are directly or indirectly connected with: (i) any
inaccuracy in or breach of any representation or warranty made by Parent or
Merger Sub in this Agreement (without giving effect to any "Material Adverse
Effect" or other materiality qualification or any similar qualification
contained or incorporated directly or indirectly in such representation or
warranty); (ii) any inaccuracy in or breach of any representation or warranty
made by Parent or Merger Sub in this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualification or any similar
qualification contained or incorporated directly or indirectly in such
representation or warranty, and without giving effect to any update to the
Parent Disclosure Schedule delivered by Parent to the Company prior to the
Closing) as if such representation or warranty were made on and as of the
Closing Date; (iii) any breach of any covenant or obligation of Parent or Merger
Sub (including the covenants of Parent or Merger Sub set forth in Section 4); or
(iv) any Legal Proceeding relating to any inaccuracy or breach of the type
referred to in clause "(i)," "(ii)" or "(iii)" above (including any Legal
Proceeding commenced by any Parent Indemnitee for the purpose of enforcing any
of its rights under this Section 8).
8.4 NO CONTRIBUTION. The Major Member waives, and acknowledges and
agrees that it shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Entity in connection with any
indemnification obligation or any other liability to which the Major Member may
become subject under or in connection with this Agreement.
8.5 THRESHOLD. Neither Parent nor the Major Member shall be required to
make any indemnification payment pursuant to Section 8.2(a) or Section 8.3, as
applicable, for any inaccuracy in or breach of any of the Company's or the Major
Member's or Parent's or Merger Sub's representations or warranties set forth in
Section 2 or Section 3, as the case may be, or the noncompliance by Parent or
Merger Sub or by the Company or the Major Member of their respective covenants
until such time as the total amount of all Damages (including the Damages
arising from such inaccuracy, breach or noncompliance and all other Damages
arising from any
46.
<PAGE> 53
other inaccuracies in or breaches of any representations or warranties or other
acts of noncompliance with covenants) that have been directly or indirectly
suffered or incurred by any one or more of the Parent Indemnitees or Company
Indemnitees, as the case may be, or to which any one or more of the Parent
Indemnitees or Company Indemnitees, as the case may be, has or have otherwise
become subject, exceeds Two Hundred Fifty Thousand Dollars ($250,000.00) in the
aggregate (the "Threshold Amount"). If the total amount of such Damages exceeds
the Threshold Amount, then the Parent Indemnitees or Company Indemnitees, as the
case may be, shall be entitled to be indemnified against and compensated and
reimbursed only for the portion of such Damages that exceed the Threshold
Amount.
8.6 DEFENSE OF THIRD PARTY CLAIMS BROUGHT AGAINST PARENT, ETC.
(a) In the event of the assertion or commencement by any Person of
any claim or Legal Proceeding (whether against the Surviving Entity, against
Parent or against any other Person) with respect to which the Major Member may
become obligated to hold harmless, indemnify, compensate or reimburse any Parent
Indemnitee pursuant to this Section 8, Major Member shall have the right, at its
election, to assume the defense of such claim or Legal Proceeding. All expenses
incurred by the Major Member in defending such claim or Legal Proceeding shall
be borne by the Major Member. If the Major Member so elects to assume the
defense of any such claim or Legal Proceeding:
(i) the Major Member shall proceed to defend such claim or Legal
Proceeding in a diligent manner with counsel reasonably satisfactory to Parent;
(ii) the Major Member shall keep Parent informed of all material
developments and events relating to such claim or Legal Proceeding;
(iii) Parent shall have the right to participate in the defense
of such claim or Legal Proceeding, at its own expense; and
(iv) the Major Member shall not settle, adjust or compromise
such claim or Legal Proceeding without the prior written consent of Parent,
which will not be unreasonably withheld.
(b) If the Major Member does not elect to assume the defense of any
such claim or Legal Proceeding, Parent may proceed with the defense of such
claim or Legal Proceeding on its own, with counsel selected by Parent and
reasonably satisfactory to the Major Member. If Parent so proceeds with the
defense of any such claim or Legal Proceeding:
(i) all reasonable expenses relating to the defense of such claim
or Legal Proceeding shall be borne by the Major Member;
(ii) the Major Member shall make available to Parent any
documents and materials in its possession or control that may be necessary to
the defense of such claim or Legal Proceeding; and
47.
<PAGE> 54
(iii) Parent shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of the Major Member; provided,
however, that such consent shall not be unreasonably withheld.
(c) Parent shall give the Major Member prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Entity; provided, however, that any failure on the part of Parent to so notify
the Major Member shall not limit any of the obligations of the Major Member
under this Section 8 (except to the extent such failure materially prejudices
the defense of such Legal Proceeding).
8.7 DEFENSE OF THIRD PARTY CLAIMS BROUGHT AGAINST THE MAJOR MEMBER, ETC.
(a) In the event of the assertion or commencement by any Person of
any claim or Legal Proceeding (whether against the Major Member or against any
other Person) with respect to which Parent may become obligated to hold
harmless, indemnify, compensate or reimburse any Company Indemnitee pursuant to
this Section 8, Parent shall have the right, at its election, to assume the
defense of such claim or Legal Proceeding. All expenses incurred by Parent in
defending such claim or Legal Proceeding shall be borne by Parent. If Parent so
elects to assume the defense of any such claim or Legal Proceeding:
(i) Parent shall proceed to defend such claim or Legal
Proceeding in a diligent manner with counsel reasonably satisfactory to the
Major Member;
(ii) Parent shall keep the Major Member informed of all material
developments and events relating to such claim or Legal Proceeding;
(iii) the Major Member shall have the right to participate in
the defense of such claim or Legal Proceeding, at its own expense; and
(iv) Parent shall not settle, adjust or compromise such claim or
Legal Proceeding without the prior written consent of the Major Member, which
consent will not be unreasonably withheld.
(b) If Parent does not elect to assume the defense of any such claim
or Legal Proceeding, the Major Member may proceed with the defense of such claim
or Legal Proceeding on its own, with counsel selected by the Major Member and
reasonably satisfactory to Parent. If the Major Member so proceeds with the
defense of any such claim or Legal Proceeding:
(i) all reasonable expenses relating to the defense of such
claim or Legal Proceeding shall be borne by Parent;
(ii) Parent shall make available to the Major Member any
documents and materials in its possession or control that may be necessary to
the defense of such claim or Legal Proceeding; and
(iii) the Major Member shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of Parent; provided,
however, that such consent shall not be unreasonably withheld.
48.
<PAGE> 55
(c) The Major Member shall give Parent prompt notice of the
commencement of any such Legal Proceeding against the Major Member or any other
Company Indemnitee; provided, however, that any failure on the part of the Major
Member to so notify Parent shall not limit any of the obligations of Parent
under this Section 8 (except to the extent such failure materially prejudices
the defense of such Legal Proceeding).
8.8 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT OR MAJOR
MEMBER. No Parent Indemnitee (other than Parent or any successor thereto or
assign thereof) shall be permitted to assert any indemnification claim or
exercise any other remedy under this Agreement unless Parent (or any successor
thereto or assign thereof), shall have consented to the assertion of such
indemnification claim or the exercise of such other remedy. No Company
Indemnitee (other than the Major Member or any successor thereto or assign
thereof) shall be permitted to assert any indemnification claim or exercise any
other remedy under this Agreement unless the Major Member (or any successor
thereto or assign thereof), shall have consented to the assertion of such
indemnification claim or the exercise of such other remedy.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
9.2 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedules) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
Consent required to be obtained in connection with any of such transactions, and
(d) the consummation of the Merger; provided, however, that, to the extent the
total amount of all such fees, costs and expenses incurred by or for the benefit
of the Company (including all such fees, costs and expenses incurred prior to
the date of this Agreement) exceeds Six Million Dollars ($6,000,000.00) in the
aggregate, such fees, costs and expenses shall be borne and paid by the Major
Member and not by the Company.
9.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
49.
<PAGE> 56
9.4 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
IF TO PARENT:
medibuy.com, Inc.
Attn: Chief Financial Officer
10120 Pacific Heights Boulevard, Suite 100
San Diego, CA 92121
Telephone Number: (858) 587-7200
Facsimile: (858) 587-7217
WITH A COPY TO (WHICH SHALL NOT CONSTITUTE NOTICE):
Cooley Godward LLP
Attn: Jeremy D. Glaser, Esq.
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Telephone Number: (858) 550-6000
Facsimile: (858) 453-3555
IF TO THE COMPANY:
Premier Health Exchange, LLC
Attn: Chief Executive Officer
12225 El Camino Real
San Diego, CA 92130
Telephone Number: (858) 481-2727
Facsimile: (858) 481-8919
WITH A COPY TO (WHICH SHALL NOT CONSTITUTE NOTICE):
Paul, Hastings, Janofsky & Walker LLP
Attn: Robert A. Miller, Esq.
555 South Flower Street, 23rd Floor
Los Angeles, CA 90071
Telephone Number: (213) 683-6000
Facsimile: (213) 627-0705
50.
<PAGE> 57
IF TO THE MAJOR MEMBER:
Premier Purchasing Partners, L.P.
C/O Premier Plans, Inc.
Attn: General Counsel
12225 El Camino Real
San Diego, CA 92130
Telephone Number: (858) 481-2727
Facsimile: (858) 481-8919
9.5 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 4.10, on and at all times after the Closing Date, the each
party hereto shall keep confidential, and shall not use or disclose to any other
Person, any nonpublic document or other non-public information in such party's
possession that relates to the business of the Company or Parent; provided,
however, that the Company and the Major Member consent to the filing by Parent
of this Agreement and the Outsourcing Agreement with the SEC in connection with
the filing of Parent's Form S-4 Registration Statement and/or Form S-1
Registration Statement so long as Parent seeks confidential treatment of certain
agreed upon terms and conditions of the e-Commerce Agreement; and provided
further that any description of the e-Commerce Agreement, or any redacted
version of the e-Commerce Agreement, intended to be filed or attached to any
publicly filed document by Parent shall be submitted to the Company for review
and input prior to filing.
9.6 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
9.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
9.9 GOVERNING LAW. Except with respect to the effect of the Merger,
which shall be governed by Delaware law, this Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of California (without giving effect to principles of conflicts of laws).
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Major Member and its
successors and assigns (if any); Parent and its successors and assigns (if any);
and Merger Sub and its successors and assigns (if any). This Agreement shall
inure to the benefit of: the Company; the Major Member; Parent; Merger Sub; the
other Parent Indemnitees and Company Indemnitee (subject to Section 8.7); and
the respective successors and assigns (if any) of the foregoing. Notwithstanding
anything herein to the contrary, the provisions of Section 4.19 shall only be
assignable to the extent Section 7.1 of the Outsourcing Agreement is assignable.
51.
<PAGE> 58
9.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
9.12 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.13 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
9.14 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
9.15 PARTIES IN INTEREST. Except for the provisions of Sections 1.6,
4.13, 4.15 and 8, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto and
their respective successors and permitted assigns (if any).
9.16 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof.
52.
<PAGE> 59
9.17 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
53.
<PAGE> 60
The parties hereto have caused this Agreement to be executed and
delivered as of the date first set forth above.
MEDIBUY.COM, INC.,
a Delaware corporation.
By: /s/ DENNIS MURPHY
----------------------------------------
Name: Dennis Murphy
Title: CEO
SAPPHIRE ACQUISITION CORP.,
a Delaware corporation.
By: /s/ DENNIS MURPHY
----------------------------------------
Name: Dennis Murphy
Title: CEO
PREMIER HEALTH EXCHANGE LLC,
a Delaware limited liability
company.
By: /s/ DAVID MAWHINNEY
----------------------------------------
Name: David Mawhinney
Title: President
PREMIER PURCHASING PARTNERS, L.P.
BY: PREMIER PLANS, INC.
Its General Partner
By: /s/ RICHARD A. NORLINO
----------------------------------------
Name: Richard A. Norlino
Title: President & CEO
Solely for the Purposes of Section 4.19:
PREMIER, INC.
By: /s/ BARRY BAILEY
----------------------------------------
Name: Barry Bailey
Title: Chief Financial Officer
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
<PAGE> 61
EXHIBIT A
DEFINITIONS
For purposes of the Agreement the following terms shall have the
meanings specified below:
AGREEMENT. "Agreement" shall mean this Agreement and Plan of Merger
(including the Company Disclosure Schedule and the Parent Disclosure Schedule),
as it may be amended from time to time.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" shall
mean any transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the business or assets of the Company or any direct or
indirect subsidiary or division of the Company;
(b) except for the issuance of the Company Common Membership
Units set forth on Part 4.2(d) of the Company Disclosure Schedule, the issuance,
grant, disposition or acquisition of (A) any Company Common Membership Units or
other security of the Company or other ownership interest in the Company, (B)
any option, call, warrant or right (whether or not immediately exercisable) to
acquire any Company Common Membership Units or other security of the Company or
other ownership interest in the Company; or (C) any security, instrument or
obligation that is or may become convertible into or exchangeable for any
Company Common Membership Units or other security of the Company or other
ownership interest in the Company; or
(c) any merger, consolidation, business combination, share or
other security exchange, reorganization or similar transaction involving the
Company;
COMPANY COMMON MEMBERSHIP UNITS. "Company Common Membership Units" shall
mean the certificated membership units of the Company representing a Person's
interest in the profits or losses of the Company.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the schedule (dated as of the date of the Agreement) delivered to Parent on
behalf of the Company.
COMPANY INDEMNITEES. "Company Indemnitees" shall mean the following
Persons: (i) the Company, (ii) the Company's current and future affiliates,
(iii) the respective Representatives of the Persons referred to in clauses (i)
and "(ii)", and (iv) the respective successors and assigns of the Persons
referred to in clauses "(i)", "(ii)", and "(iii)".
A-1.
<PAGE> 62
COMPANY MATERIAL ADVERSE EFFECT. A matter will be deemed to have a
"Company Material Adverse Effect" if such matter would have a material adverse
effect on the Company's business, condition, assets, liabilities, operations,
financial performance or prospects, taken as a whole.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written or oral agreement, contract,
subcontract, lease, understanding, instrument, note, warranty, insurance policy,
benefit plan or legally binding commitment.
DAMAGES. "Damages" shall include any loss, damage, liability, claim,
demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement, option,
right of first refusal, preemptive right, community property interest or
restriction of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any restriction
on the use of any asset and any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
A-2.
<PAGE> 63
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or Entity and any court or other tribunal).
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum
and petroleum products and any other substance that is now or hereafter
regulated by any Environmental Law or that is otherwise a danger to health,
reproduction or the environment.
PARENT ACQUISITION TRANSACTION. "Parent Acquisition Transaction" shall
mean any transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the business or assets of Parent or any direct or indirect
subsidiary or division of Parent;
(b) except as set forth below, the issuance, grant, disposition
or acquisition of (A) any capital stock or other equity security of Parent or
any direct or indirect subsidiary of Parent, (B) any option, call, warrant or
right (whether or not immediately exercisable) to acquire any capital stock or
other equity security of Parent or any direct or indirect subsidiary of Parent,
or (C) any security, instrument or obligation that is or may become convertible
into or exchangeable for any capital stock or other equity security of Parent or
any direct or indirect subsidiary of Parent; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving Parent or any direct
or indirect subsidiary of Parent;
provided, however, that (A) the grant of stock options by Parent to its
officers, directors, employees and consultants in the ordinary course of
business will not be deemed to be a "Parent Acquisition Transaction" if such
grant is made pursuant to Parent's existing stock option plans and is consistent
with Parent's past practices, (B) the issuance of stock and/or warrants
(provided
A-3.
<PAGE> 64
that such stock and/or warrants do not exceed ten percent (10%) of Parent's
outstanding capital stock) pursuant to strategic arrangements with third parties
will not be deemed to be a "Parent Acquisition Transaction," provided that
Parent provides to the Company not less than two (2) business days notice prior
to entering into such strategic arrangements, and (C) Parent's initial public
offering of Parent Common Stock will not be deemed to be a "Parent Acquisition
Transaction".
PARENT COMMON STOCK. "Parent Common Stock" shall mean the common stock,
$.001 par value per share, of Parent.
PARENT CONTRACT: "Parent Contract" shall mean any Contract: (a) to which
Parent is a party; (b) by which Parent or any of its assets is or may become
bound or under Parent has, or may become subject to, any obligation; or (c)
under which Parent has or may acquire any right or interest.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to the Company on
behalf of Parent and Merger Sub.
PARENT INDEMNITEES. "Parent Indemnitees" shall mean the following
Persons: (i) Parent, (ii) Parent's current and future affiliates, (iii) the
respective Representatives of the Persons referred to in clauses (i) and "(ii)",
and (iv) the respective successors and assigns of the Persons referred to in
clauses "(i)", "(ii)", and "(iii)"; provided, however, that no members of the
Company shall be deemed to be a Parent Indemnitee.
PARENT MATERIAL ADVERSE EFFECT. A matter will be deemed to have a
"Parent Material Adverse Effect" if such matter would have a material adverse
effect on Parent's business, condition, assets, liabilities, operations,
financial performance or prospects, taken as a whole.
PARENT PROPRIETARY ASSET: "Parent Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to Parent or otherwise used by Parent.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" of any specified Person shall mean
the officers, directors, employees, agents, attorneys, accountants, advisors and
representatives of such Person.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
A-4.
<PAGE> 65
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
A-5.
<PAGE> 66
EXHIBIT B
MANAGEMENT OF THE SURVIVING ENTITY
AND PARENT POST-CLOSING
Directors of Parent Post-Closing:
Dennis Murphy
Annie Lamont
Mark Stevens
Doug Allred
John Stevens
Richard Norling
Bill Mayer
Three additional persons to be designated by the Company prior to Closing
One additional person to be designated by Consorta
Members of the Audit Committee of the Board of Directors of Parent:
To be determined by mutual agreement of the parties prior to closing, but will
be constituted of an equal number of designees of Parent and designees of the
Company
Members of the Compensation Committee of the Board of Directors of Parent:
To be determined by mutual agreement of the parties prior to closing, but will
be constituted of an equal number of designees of Parent and designees of the
Company
Members of the Management Committee of the Surviving Entity:
Dennis Murphy
Norman Farquhar
<PAGE> 67
EXHIBIT C
FORM OF PARENT SUBSTITUTED OPTION
<PAGE> 68
EXHIBIT D
FORM OF LOCK-UP AND REGISTRATION RIGHTS AGREEMENT
<PAGE> 69
EXHIBIT E
FORM OF INDEMNIFICATION AGREEMENT
<PAGE> 70
EXHIBIT F
FORM OF PAUL, HASTINGS, JANOFSKY & WALKER LLP
LEGAL OPINION
<PAGE> 71
EXHIBIT G
IDENTIFIED COMPANY EMPLOYEES
[Reserved]
<PAGE> 72
EXHIBIT H
FORM OF COOLEY GODWARD LLP LEGAL OPINION
<PAGE> 73
EXHIBIT I
PARENT CAPITALIZATION AT CLOSING
As of immediately prior to the Closing, the outstanding capital stock and other
outstanding securities of Parent shall be as follows(1):
<TABLE>
<CAPTION>
<S> <C>
Common Stock 20,564,522
Stock Options 4,910,935
Warrants 689,984
TOTAL 26,165,441(2)
</TABLE>
- ----------
(1) To the extent that options or warrants to purchase shares of Parent Common
Stock are exercised during the Pre-Closing Period, the number of shares of
Common Stock will increase and the number or stock options and/or warrants will
decrease on a one-for-one basis; provided that the "Total" shall in any event
remain 26,165,441.
(2) In addition to the foregoing, Parent and the Company have agreed that, prior
to the Closing, Parent shall issue warrants to purchase up to one hundred fifty
thousand (150,000) shares of Parent Common Stock (as calculated prior to the
stock split of Parent's Common Stock contemplated in connection with Parent's
IPO and determined prior to the consummation of Parent's IPO) and up to two
hundred thousand (200,000) shares of Parent Common Stock (as calculated after
the stock split of Parent's Common Stock contemplated in connection with
Parent's IPO and determined after the consummation of Parent's IPO). The
Exchange Ratio set forth in Section 1.5(b) of the Merger Agreement shall remain
unchanged and shall not be affected by the issuance of the warrants contemplated
by this footnote (2).
<PAGE> 74
EXHIBIT J
COMPANY CAPITALIZATION AT CLOSING
As of immediately prior to the Closing, the outstanding capitalization of the
Company shall be as follows:
<TABLE>
<CAPTION>
<S> <C>
Company Common Membership Units 66,875,000
Company Options 4,180,625
Company Warrants 16,435,068
TOTAL 87,490,693
</TABLE>
<PAGE> 75
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
is dated as of March 15, 2000 (the "Amendment Date"), and is entered into by and
among medibuy.com, Inc., a Delaware corporation ("Parent"), Sapphire Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of Parent ("Merger
Sub"), Premier Health Exchange LLC, a Delaware limited liability company (the
"Company"), Premier Purchasing Partners, L.P., a California limited partnership
("Major Member") and Premier, Inc., a Delaware corporation ("Premier").
RECITALS
WHEREAS, Parent, Merger Sub, the Company, Major Member and Premier are
parties to that certain Agreement and Plan of Merger dated as of March 6, 2000
(the "Merger Agreement") whereby, among other things, Merger Sub shall be merged
with and into the Company.
WHEREAS, Parent, Merger Sub, the Company, Major Member and Premier wish
to amend certain exhibits to the Merger Agreement and certain of the related
Disclosure Schedules
AGREEMENTS
NOW THEREFORE, in consideration of the premises and mutual agreements
and covenants set forth herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Merger
Agreement.
SECTION 2. AMENDMENT TO EXHIBIT B - MANAGEMENT OF THE SURVIVING ENTITY
AND PARENT POST-CLOSING. Exhibit B to the Merger Agreement is hereby amended by
deleting the last line under the heading of "Directors of Parent Post-Closing"
which reads "One additional person to be designated by Consorta" and adding the
sentence "One additional person to be designated by mutual agreement of Parent
and the Company."
SECTION 3. AMENDMENT TO EXHIBIT I - PARENT CAPITALIZATION AT CLOSING.
Exhibit I to the Merger Agreement is hereby amended by deleting it in its
entirety and substituting in its place the following:
"EXHIBIT I
PARENT CAPITALIZATION AT CLOSING
As of immediately prior to the Closing, the outstanding capital stock and other
outstanding securities of Parent shall be as follows(1):
<TABLE>
<S> <C>
Common Stock 20,564,522
Stock Options 4,910,935
</TABLE>
1.
<PAGE> 76
<TABLE>
<S> <C>
Warrants 239,984
TOTAL 25,715,441(2)
</TABLE>
(1) To the extent that options or warrants to purchase shares of Parent Common
Stock are exercised during the Pre-Closing Period, the number of shares of
Common Stock will increase and the number or stock options and/or warrants will
decrease on a one-for-one basis; provided that the "Total" shall in any event
remain 25,715,441.
(2) In addition to the foregoing, Parent and the Company have agreed that, prior
to the Closing, Parent shall issue warrants to purchase up to one hundred fifty
thousand (150,000) shares of Parent Common Stock (as calculated prior to the
stock split of Parent's Common Stock contemplated in connection with Parent's
IPO and determined prior to the consummation of Parent's IPO) and up to two
hundred thousand (200,000) shares of Parent Common Stock (as calculated after
the stock split of Parent's Common Stock contemplated in connection with
Parent's IPO and determined after the consummation of Parent's IPO). The
Exchange Ratio set forth in Section 1.5(b) of the Merger Agreement shall remain
unchanged and shall not be affected by the issuance of the warrants contemplated
by this footnote (2)."
SECTION 4. AMENDMENT TO EXHIBIT J - COMPANY CAPITALIZATION AT CLOSING.
Exhibit J to the Merger Agreement is hereby amended by deleting it in its
entirety and substituting in its place the following:
"EXHIBIT J
COMPANY CAPITALIZATION AT CLOSING
As of immediately prior to the Closing, the outstanding capitalization of the
Company shall be as follows:
<TABLE>
<S> <C>
Company Common Membership Units 66,875,000
Company Options 4,180,625
Company Warrants 14,930,381
TOTAL 85,986,006"
</TABLE>
SECTION 5. AMENDMENTS TO COMPANY DISCLOSURE SCHEDULES. The Company
Disclosure Schedules shall be amended as follows:
(a) The first sentence of Schedule 2.3(b)(ii) shall be amended to
read in its entirety as follows: "The Company issued a warrant (the "Warrant"),
dated March 1, 2000, to the Major Member to purchase up to an aggregate of
14,930,381 of Company Common Membership Units at an exercise price of $.01 per
Common Membership Unit."
(b) The second sentence of Schedule 2.9(a)(v) shall be amended to
read in its entirety as follows: "The Company issued a warrant (the "Warrant"),
dated March 1, 2000, to the Major Member to purchase up to an aggregate of
14,930,381 of Company Common Membership Units at an exercise price of $.01 per
Common Membership Unit."
2.
<PAGE> 77
(c) The second sentence of Schedule 4.2(d) shall be amended to
read in its entirety as follows: "The Company issued a warrant (the "Warrant"),
dated March 1, 2000, to the Major Member to purchase up to an aggregate of
14,930,381 of Company Common Membership Units at an exercise price of $.01 per
Common Membership Unit."
SECTION 6. EFFECT OF AMENDMENT. Except as and to the extent expressly
modified by this Amendment, the Merger Agreement, the Exhibits thereto, the
Company Disclosure Schedules and the Parent Disclosure Schedules shall remain in
full force and effect in all respects. The terms of this Amendment shall be
applied retroactively for purposes of Sections 5, 6 and 8 of the Merger
Agreement, such that the Exhibits, the Company Disclosure Schedules and the
Parent Disclosure Schedules shall be deemed to have read, as of March 6, 2000,
as amended herein. In the event of a conflict between this Amendment and the
Merger Agreement, the Exhibits thereto, the Company Disclosure Schedules or the
Parent Disclosure Schedules, this Amendment shall govern.
SECTION 7. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
SECTION 8. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of California (without giving effect to principles of conflicts of laws).
[Remainder of this page intentionally left blank]
3.
<PAGE> 78
The parties hereto have caused this Amendment to be executed and
delivered as of the date set forth above.
MEDIBUY.COM, INC.,
a Delaware corporation.
By: /s/ NORMAN R. FARQUHAR
---------------------------------------------
Name: Norman R. Farquhar
Title: Chief Financial Officer, Executive
Vice President and Secretary
SAPPHIRE ACQUISITION CORP.,
a Delaware corporation.
By: /s/ NORMAN R. FARQUHAR
---------------------------------------------
Name: NORMAN R. FARQUHAR
Title: Chief Financial Officer, Executive
Vice President and Secretary
PREMIER HEALTH EXCHANGE LLC,
a Delaware limited liability
company.
By: /s/ ANN D. RHOADS
----------------------------------------
Name: Ann D. Rhoads
Title:
PREMIER PURCHASING PARTNERS, L.P.
BY: PREMIER PLANS, INC.
Its General Partner
By: /s/ CRAIG MCKASSON
----------------------------------------
Name: Craig McKasson
Title: Assistant Treasurer
PREMIER, INC.
By: /s/ JEFFREY W. MAYSENT
----------------------------------------
Name: Jeffrey W. Maysent
Title: Secretary
4.
<PAGE> 1
EXHIBIT 10.41
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is entered into as of March 6,
2000, by and between MEDIBUY.COM, INC., a Delaware corporation ("Parent"), and
PREMIER PURCHASING PARTNERS, L.P., a California limited partnership ("Major
Member"). Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Merger Agreement (as defined below).
RECITALS
A. Parent, Sapphire Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), Premier Health Exchange, LLC,
a Delaware limited liability company (the "Company") and Major Member are
entering into an Agreement and Plan of Merger dated of even date herewith (the
"Merger Agreement") which provides (subject to the conditions set forth therein)
for the merger of Merger Sub into the Company (the "Merger").
B. In order to induce Parent and Merger Sub to enter into the Merger
Agreement, Major Member, in its capacity as such, is entering into this Voting
Agreement.
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound,
agree as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Voting Agreement:
(a) "COMPANY COMMON MEMBERSHIP UNITS" shall mean the common
membership units of the Company, constituting all of the outstanding memberships
interests of the Company.
(b) "EXPIRATION DATE" shall mean the earlier of (i) the date upon
which the Merger Agreement is validly terminated, or (ii) the date upon which
the Merger becomes effective.
(c) Major Member shall be deemed to "OWN" or to have acquired
"OWNERSHIP" of a Company Common Membership Unit or other security if Major
Member: (i) is the record owner of such security; or (ii) is the "beneficial
owner" (within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of such security.
(d) "SUBJECT SECURITIES" shall mean: (i) all securities of the
Company (including all Company Common Membership Units, Company Options, Company
Warrants and other rights to acquire Company Common Membership Units or other
rights of ownership of the Company) Owned by Major Member as of the date of this
Agreement; and (ii) all additional securities of the Company (including all
additional Company Common Membership Units and all additional options, warrants
and other rights to acquire Company Common Membership Units
1.
<PAGE> 2
or other rights of ownership of the Company) of which Major Member acquires
Ownership during the period from the date of this Agreement through the
Expiration Date.
(e) A Person shall be deemed to have effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security; (ii) enters into an agreement or commitment
contemplating the possible sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein, or (iii) reduces such Person's beneficial ownership of,
interest in or risk relating to any such security.
SECTION 2. TRANSFER OF SUBJECT SECURITIES
2.1 TRANSFEREE OF SUBJECT SECURITIES TO BE BOUND BY THIS AGREEMENT.
Major Member agrees that, during the period from the date of this Voting
Agreement through the Expiration Date, Major Member shall not (i) cause or
permit any Transfer of any of the Subject Securities (or announce any proposed
Transfer) to any Person other than to a Person who agrees to be bound by the
terms and conditions of this Agreement and executes a Voting Agreement and Proxy
identical to this Agreement and Proxy with respect to all Subject Securities
transferred to such Person; provided however, that in no event shall Major
Member be permitted to Transfer any Subject Securities if such Transfer (taken
together with all previous Transfers of Subject Securities by the Major Member)
would reduce Major Member's Ownership of Subject Securities below that which
would be required under the Company's charter documents and applicable law to
approve the Merger Agreement and the Merger, (ii) create or permit to exist any
Encumbrance with respect to any of the Subject Securities (other than
Encumbrances which do not affect the right to vote such securities that may
exist with respect to such Subject Securities as of the date of this Agreement),
or (iii) commit or agree to do any of the foregoing.
2.2 TRANSFER OF VOTING RIGHTS. Major Member agrees that, during the
period from the date of this Voting Agreement through the Expiration Date, Major
Member shall ensure that: (a) none of the Subject Securities is deposited into a
voting trust; and (b) no proxy is granted to any Person (other than to Parent),
and no voting agreement or similar agreement is entered into, with respect to
any of the Subject Securities.
SECTION 3. VOTING OF UNITS
3.1 VOTING AGREEMENT. Major Member agrees that, during the period from
the date of this Voting Agreement through the Expiration Date at any meeting of
members of the Company, however called, and in any written action by consent of
the members of the Company, unless otherwise directed in writing by Parent,
Major Member shall vote the Subject Securities or cause the Subject Securities
to be voted:
(a) in favor of the approval of the Merger and the approval and
adoption of the Merger Agreement and in favor of each of the other actions
contemplated by the Merger Agreement;
2.
<PAGE> 3
(b) against any action or agreement that would result in a breach
of any representation, warranty, covenant or obligation of the Company in the
Merger Agreement; and
(c) against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement and to the extent any of such
actions are required to be approved by the members of the Company under
applicable law or are otherwise put to the members of the Company for approval):
(i) any extraordinary transaction, such as a merger, consolidation or other
business combination involving the Company or any subsidiary of the Company;
(ii) any sale, lease or transfer of a material amount of assets of the Company
or any subsidiary of the Company (other than in the ordinary course of
business); (iii) any reorganization, recapitalization, dissolution or
liquidation of the Company or any subsidiary of the Company; (iv) any change in
a majority of the members of the Management Committee of the Company; or (v) any
other action which is intended, or could reasonably be expected to, impede,
interfere with, delay, postpone, discourage or adversely affect the Merger or
any of the other transactions contemplated by the Merger Agreement or this
Voting Agreement.
3.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Voting
Agreement: (i) Major Member shall deliver to Parent a proxy in the form attached
to this Voting Agreement as Exhibit A, which shall be irrevocable to the fullest
extent permitted by law, with respect to the Company Common Membership Units
referred to therein (the "Proxy"); and (ii) Major Member shall cause to be
delivered to Parent an additional proxy (in the form attached hereto as Exhibit
A) executed on behalf of the record owner of any outstanding Company Common
Membership Units and any other voting security of the Company that Major Member
owned beneficially (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934), but not of record, by Major Member.
(b) Major Member shall, at its own expense, perform such further
acts and execute such further documents and instruments as may reasonably be
required to vest in Parent the power to carry out and give effect to the
provisions of this Voting Agreement.
SECTION 4. WAIVER OF DISSENTERS' RIGHTS
Major Member hereby irrevocably and unconditionally waives, and agrees
to cause to be waived and to prevent the exercise of, any rights of appraisal,
any dissenters' rights and any similar rights relating to the Merger or any
related transaction that Major Member or any other Person may have by virtue of
the ownership of any outstanding Company Common Membership Units and any other
voting securities of the Company which Major Member Owns.
SECTION 5. NO SOLICITATION
Major Member agrees that, during the period from the date of this Voting
Agreement through the Expiration Date, Major Member shall not, and shall not
permit any of its Representatives to, directly or indirectly: (i) solicit or
encourage the initiation or submission of any expression of interest, inquiry,
proposal or offer from any Person (other than Parent) relating
3.
<PAGE> 4
to a possible Company Acquisition Transaction, (ii) participate in any
discussions or negotiations or enter into any agreement with, or provide any
non-public information to, any Person (other than Parent) relating to or in
connection with a possible Company Acquisition Transaction, (iii) entertain,
consider or accept any proposal or offer from any Person (other than Parent)
relating to a possible Company Acquisition Transaction, or (iv) enter into any
agreement or arrangement with any Person (other than Parent) to provide
electronic commerce services to the Major Member, the Company or any of their
respective affiliates. Major Member shall immediately cease and discontinue, and
Major Member shall ensure that its Representatives immediately cease and
discontinue, any existing discussions with any Person that relate to any
possible Company Acquisition Transaction. Major Member shall promptly notify
Parent in writing of any inquiry, proposal or offer relating to a possible
Company Acquisition Transaction that is received after the date hereof by Major
Member or any of Major Member's Representatives prior to the Expiration Date.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF MAJOR MEMBER
Major Member hereby represents and warrants to Parent as follows:
6.1 AUTHORIZATION, ETC. Major Member has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Voting
Agreement and the Proxy and to perform its obligations hereunder and thereunder.
This Voting Agreement and the Proxy have been duly executed and delivered by
Major Member and constitute legal, valid and binding obligations of Major
Member, enforceable against Major Member in accordance with their terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
6.2 NO CONFLICTS OR CONSENTS
(a) The execution and delivery of this Voting Agreement and the
Proxy by Major Member do not, and the performance of this Voting Agreement and
the Proxy by Major Member will not: (i) conflict with or violate any law, rule,
regulation, order, decree or judgment applicable to Major Member or by which it
or any of its properties is or may be bound or affected; or (ii) result in or
constitute (with or without notice or lapse of time) any breach of or default
under, or give to any other Person (with or without notice or lapse of time) any
right of termination, amendment, acceleration or cancellation of, or result
(with or without notice or lapse of time) in the creation of any encumbrance or
restriction on any of the Subject Securities pursuant to, any contract to which
Major Member is a party or by which Major Member or any of its affiliates or
properties is or may be bound or affected.
(b) The execution and delivery of this Voting Agreement and the
Proxy by Major Member do not, and the performance of this Voting Agreement and
the Proxy by Major Member will not, require any consent or approval of any
Person.
6.3 TITLE TO SECURITIES. As of the date of this Voting Agreement: (a)
Major Member holds of record (free and clear of any Encumbrances or
restrictions) the number of outstanding
4.
<PAGE> 5
Company Common Membership Units set forth under the heading "Units Held of
Record" on the signature page hereof; (b) Major Member holds (free and clear of
any Encumbrances or restrictions) the Company Options, Company Warrants and
other rights to acquire Company Common Membership Units forth under the heading
"Options, Warrants and Other Rights" on the signature page hereof; (c) Major
Member Owns the additional securities of the Company set forth under the heading
"Additional Securities Beneficially Owned" on the signature page hereof; and (d)
Major Member does not directly or indirectly Own any Company Common Membership
Units or other securities of the Company, or any option, warrant or other right
to acquire (by purchase, conversion or otherwise) any Company Common Membership
Units or other securities of the Company, other than the units and options,
warrants and other rights set forth on the signature page hereof.
6.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in Sections 6.1 and 6.2 of this Voting Agreement are accurate in all
respects as of the date of this Voting Agreement, will be accurate in all
respects at all times through the Expiration Date and will be accurate in all
respects as of the date of the consummation of the Merger as if made on that
date. The representations and warranties contained in Section 6.3 of this Voting
Agreement are accurate in all respects as of the date of this Voting Agreement.
SECTION 7. ADDITIONAL COVENANTS OF MAJOR MEMBER
7.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Major Member shall execute and deliver, or cause to be executed
and delivered, such additional transfers, assignments, endorsements, proxies,
consents and other instruments, and shall take such further actions, as Parent
may reasonably request for the purpose of carrying out and furthering the intent
of this Voting Agreement.
7.2 LEGEND. Immediately after the execution of this Voting Agreement
(and from time to time upon the acquisition by Major Member of Ownership of any
Company Common Membership Units or other ownership interest in the Company prior
to the Expiration Date), at the written request of Parent, Major Member shall
ensure that each certificate evidencing any outstanding Company Common
Membership Units or other securities of the Company Owned by Major Member bears
a legend in the following form:
THE SECURITY OR SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE VOTING AGREEMENT DATED
AS OF MARCH 6, 2000, BETWEEN THE ISSUER AND MEDIBUY.COM, INC. AS IT MAY
BE AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE ISSUER.
SECTION 8. MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, covenants and agreements made by Major Member in
this Voting Agreement shall survive until the Expiration Date.
5.
<PAGE> 6
8.2 INDEMNIFICATION. Major Member shall hold harmless and indemnify
Parent and Parent's affiliates from and against, and shall compensate and
reimburse Parent and Parent's affiliates for, any loss, damage, claim,
liability, fee (including attorneys' fees), demand, cost or expense (regardless
of whether or not such loss, damage, claim, liability, fee, demand, cost or
expense relates to a third-party claim) that is directly or indirectly suffered
or incurred by Parent or any of Parent's affiliates, or to which Parent or any
of Parent's affiliates otherwise becomes subject, and that arises directly or
indirectly from (a) any inaccuracy in or breach of any representation or
warranty contained in this Voting Agreement, or (b) any failure on the part of
Major Member to observe, perform or abide by, or any other breach of, any
restriction, covenant, obligation or other provision contained in this Voting
Agreement or in the Proxy.
8.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
8.4 NOTICES. Any notice or other communication required or permitted to
be delivered to either party under this Voting Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by facsimile) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other party):
IF TO MAJOR MEMBER:
Premier Purchasing Partners, L.P.
C/O Premier Plans, Inc.
Attn: General Counsel
12225 El Camino Real
San Diego, CA 92130
Telephone Number: (858) 481-2727
Facsimile: (858) 481-8919
IF TO PARENT:
medibuy.com, Inc.
Attn: Chief Financial Officer
10120 Pacific Heights Boulevard, Suite 100
San Diego, CA 92121
Telephone Number: (858) 587-7200
Fax: (858) 587-7217
6.
<PAGE> 7
WITH A COPY TO:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: Jeremy D. Glaser, Esq.
Telephone Number: (858) 550-6000
Fax: (858) 453-3555
8.5 SEVERABILITY. If any provision of this Voting Agreement or any part
of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) the
invalidity or unenforceability of such provision or part thereof shall not
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Voting Agreement. Each
provision of this Voting Agreement is separable from every other provision of
this Voting Agreement, and each part of each provision of this Voting Agreement
is separable from every other part of such provision.
8.6 ENTIRE AGREEMENT. This Voting Agreement, the Proxy and any other
documents delivered by the parties in connection herewith constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto. No addition to or modification of any provision of
this Voting Agreement shall be binding upon either party unless made in writing
and signed by both parties.
8.7 ASSIGNMENT; BINDING EFFECT. Except as provided herein, neither this
Voting Agreement nor any of the interests or obligations hereunder may be
assigned or delegated by Major Member and any attempted or purported assignment
or delegation of any of such interests or obligations shall be void. Subject to
the preceding sentence, this Voting Agreement shall be binding upon Major Member
and its successors and assigns, and shall inure to the benefit of Parent and its
successors and assigns. Without limiting any of the restrictions set forth in
Section 2 or elsewhere in this Voting Agreement, this Voting Agreement shall be
binding upon any Person to whom any Subject Securities are transferred. Nothing
in this Voting Agreement is intended to confer on any Person (other than Parent
and its successors and assigns) any rights or remedies of any nature.
8.8 SPECIFIC PERFORMANCE. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Voting Agreement or
the Proxy was not performed in accordance with its specific terms or was
otherwise breached. Major Member agrees that, in the event of any breach or
threatened breach by Major Member of any covenant or obligation contained in
this Voting Agreement or in the Proxy, Parent shall be entitled (in addition to
any
7.
<PAGE> 8
other remedy that may be available to it, including monetary damages) to
seek and obtain (a) a decree or order of specific performance to enforce the
observance and performance of such covenant or obligation, and (b) an injunction
restraining such breach or threatened breach. Major Member further agrees that
neither Parent nor any other Person shall be required to obtain, furnish or post
any bond or similar instrument in connection with or as a condition to obtaining
any remedy referred to in this Section 8.8, and Major Member irrevocably waives
any right it may have to require the obtaining, furnishing or posting of any
such bond or similar instrument.
8.9 NON-EXCLUSIVITY. The rights and remedies of Parent under this Voting
Agreement are not exclusive of or limited by any other rights or remedies which
it may have, whether at law, in equity, by contract or otherwise, all of which
shall be cumulative (and not alternative). Without limiting the generality of
the foregoing, the rights and remedies of Parent under this Voting Agreement,
and the obligations and liabilities of Major Member under this Voting Agreement,
are in addition to their respective rights, remedies, obligations and
liabilities under common law requirements and under all applicable statutes,
rules and regulations.
8.10 GOVERNING LAW; VENUE.
(a) This Voting Agreement and the Proxy shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of laws). Any legal
action or legal proceeding relating to this Voting Agreement or the Proxy or the
enforcement of any provision of this Voting Agreement or the Proxy may be
brought or otherwise commenced in any state or federal court located in the
County of San Diego, California.
(b) MAJOR MEMBER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS VOTING AGREEMENT OR THE
PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS VOTING AGREEMENT OR THE PROXY.
8.11 COUNTERPARTS. This Voting Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
8.12 CAPTIONS. The captions contained in this Voting Agreement are for
convenience of reference only, shall not be deemed to be a part of this Voting
Agreement and shall not be referred to in connection with the construction or
interpretation of this Voting Agreement.
8.13 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to this Voting Agreement or the enforcement of any provision of this
Voting Agreement is brought against Major Member, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
8.14 WAIVER. No failure on the part of Parent to exercise any power,
right, privilege or remedy under this Voting Agreement, and no delay on the part
of Parent in exercising any power,
8.
<PAGE> 9
right, privilege or remedy under this Voting Agreement, shall operate as a
waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
Parent shall not be deemed to have waived any claim available to Parent arising
out of this Voting Agreement, or any power, right, privilege or remedy of Parent
under this Voting Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of Parent; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
8.15 CONSTRUCTION.
(a) For purposes of this Voting Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(b) The parties agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Voting Agreement.
(c) As used in this Voting Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this Voting
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Voting Agreement and Exhibits to this Voting Agreement.
9.
<PAGE> 10
IN WITNESS WHEREOF, Parent and Major Member have caused this Voting
Agreement to be executed as of the date first written above.
PARENT:
MEDIBUY.COM, INC.,
a Delaware corporation.
By: /s/ DENNIS MURPHY
------------------------------------
Name: Dennis Murphy
Title: CEO
MAJOR MEMBER:
PREMIER PURCHASING PARTNERS, L.P.
BY: PREMIER PLANS, INC.
Its General Partner
By: /s/ RICHARD NORLING
------------------------------------
Name: Richard Norling
Title: President & CEO
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
COMPANY OPTIONS,
COMPANY WARRANTS ADDITIONAL SECURITIES
UNITS HELD OF RECORD AND OTHER RIGHTS BENEFICIALLY OWNED
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company Common 63,375,000
Membership Units:
- ---------------------------------------------------------------------------------------------
</TABLE>
[VOTING AGREEMENT SIGNATURE PAGE]
10.
<PAGE> 11
EXHIBIT A
FORM OF IRREVOCABLE PROXY
The undersigned member of Premier Health Exchange, LLC, a Delaware
limited liability company (the "Company"), hereby irrevocably (to the fullest
extent permitted by law) appoints and constitutes medibuy.com, Inc., a Delaware
corporation ("Parent"), Norm Farquhar and any other individual who shall
hereafter be designated by Parent, and each of them, the attorneys and proxies
of the undersigned with full power of substitution and resubstitution, to the
full extent of the undersigned's rights with respect to (i) the outstanding
Company Common Membership Units owned of record by the undersigned as of the
date of this proxy, which units are specified on the final page of this proxy,
and (ii) any and all other Company Common Membership Units or other securities
of the Company which the undersigned may acquire on or after the date hereof.
(The Company Common Membership Units and other securities of the Company
referred to in clauses "(i)" and "(ii)" of the immediately preceding sentence
are collectively referred to in this proxy as the "Units.") Upon the execution
hereof, all prior proxies given by the undersigned with respect to any of the
units are hereby revoked, and the undersigned agrees that no subsequent proxies
will be given with respect to any of the Units.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between
Parent and the undersigned (the "Voting Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger and
Reorganization, dated as of the date hereof, among Parent, Sapphire Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Parent, the
Company and Premier Purchasing Partners, L.P., a California limited partnership
(the "Merger Agreement"). Capitalized terms used herein and not otherwise
defined shall have the meanings given to such terms used in the Merger
Agreement.
The attorneys and proxies named above will be empowered, and, in the
event the undersigned fails to vote the Units as required by the Voting
Agreement, may exercise this proxy, to vote the Units at any time until the
earlier to occur of the valid termination of the Merger Agreement or the
Effective Time at any meeting of members of the Company, however called, and in
any written action by consent of the members of the Company:
(i) in favor of the approval of the Merger and the approval and
adoption of the Merger Agreement and in favor of each of the other actions
contemplated by the Merger Agreement;
(ii) against any action or agreement that would result in a
breach of any representation, warranty, covenant or obligation of the Company in
the Merger Agreement; and
(iii) against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement and to the extent any of
such actions are required to be approved by the Major Members of the Company
under applicable law or are otherwise put to the Major Members of the Company
for approval): (A) any extraordinary transaction, such as a
11.
<PAGE> 12
merger, consolidation or other business combination involving the Company or any
subsidiary of the Company; (B) any sale, lease or transfer of a material amount
of assets of the Company or any subsidiary of the Company (other than in the
ordinary course of business); (C) any reorganization, recapitalization,
dissolution or liquidation of the Company or any subsidiary of the Company; (D)
any change in a majority of the members of the Management Committee of the
Company; or (E) any other action which is intended, or could reasonably be
expected to, impede, interfere with, delay, postpone, discourage or adversely
affect the Merger or any of the other transactions contemplated by the Merger
Agreement or this Voting Agreement.
The undersigned may vote the Units on all other matters.
This proxy shall be binding upon the successors and assigns of the
undersigned (including any transferee of any of the Units).
If any provision of this proxy or any part of any such provision is held
under any circumstances to be invalid or unenforceable in any jurisdiction, then
(a) such provision or part thereof shall, with respect to such circumstances and
in such jurisdiction, be deemed amended to conform to applicable laws so as to
be valid and enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or enforceability of any other provision of this
proxy. Each provision of this proxy is separable from every other provision of
this proxy, and each part of each provision of this proxy is separable from
every other part of such provision.
<PAGE> 13
This proxy shall terminate upon the earlier of the valid termination of
the Merger Agreement or the effective time of the Merger.
Dated: March 6, 2000.
PREMIER PURCHASING PARTNERS, L.P.
BY: PREMIER PLANS, INC.
Its General Partner
By: /s/ RICHARD NORLING
--------------------------------------
Name: /s/ Richard Norling
Title: President & CEO
Number of Units owned of record or
beneficially as of the date of this proxy:
63,375,000
<PAGE> 1
EXHIBIT 10.42
LOCK-UP AND REGISTRATION RIGHTS AGREEMENT
THIS LOCK-UP AND REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
entered into as of _______, 2000 (the "Effective Date") by and between
MEDIBUY.COM, INC., a Delaware corporation (the "Company") and ____________
("Stockholder").
WHEREAS, the Company, Sapphire Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of the Company, Premier Health Exchange, LLC, a
Delaware limited liability company ("Premier") and Premier Purchasing Partners,
L.P., a California limited partnership (the "Major Member") are parties to that
certain Agreement and Plan of Merger dated as of March 6, 2000 (the "Merger
Agreement"); and
WHEREAS, in connection with the Merger Agreement, the Company shall
issue to the Stockholder, and the Stockholder shall acquire from the Company,
shares of the Company's common stock, $.001 par value ("Common Stock"), on the
terms and subject to the conditions set forth in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:
1. LOCK-UP
Except as permitted by the last sentence of this Section 1 or as
consented to by the Company, but notwithstanding any other provision of this
Agreement or the Investor Rights Agreement (as defined in Section 2), the
Stockholder hereby agrees that the Stockholder will not, directly or indirectly,
for a period of one year after the consummation of the Company's Initial Public
Offering (as defined in the Investor Rights Agreement), (1) sell, transfer or
otherwise dispose of, or offer, contract or grant an option to sell, transfer or
otherwise dispose of, or make any short sales of, or require the Company to file
with the Commission a registration statement under the Securities Act of 1933,
as amended, to register, any shares of Common Stock of the Company or securities
convertible into or exchangeble for Common Stock of the Company or warrants or
other rights to acquire shares of Common Stock of the Company of which the
undersigned is now, or may in the future become, the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than pursuant to employee stock option plans of the
Company or in connection with other employee incentive compensation arrangements
with the Company), or (2) enter into any swap or similar agreement that
transfers, in whole or in part, any of the economic consequences of the
ownership of the Common Stock of the Company, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock of the Company or such other securities, in cash or otherwise, otherwise
than (i) as a bona fide gift or gifts, (ii) by will or intestacy or to a trust
the beneficiaries of which are the undersigned or members of his or her family,
or (iii) as a distribution to limited partners, members or shareholders of the
Stockholder or the affiliates of Stockholder, provided that such gift, transfer
or distribution shall be conditioned upon the donee's, transferee's or
distributee's execution and delivery to the Company of a Lock-Up and
Registration Rights Agreement containing terms identical to the terms contained
herein. Notwithstanding anything contained herein to the contrary, in the event
<PAGE> 2
Stockholder requests, in accordance with the provisions of Sections 2.3 or 2.5
of the Investor Rights Agreement (as defined in Section 2(a) of this Agreement),
that the Company register shares of common stock of the Company held by the
Stockholder on either a Company-initiated registration statement filed pursuant
to Section 2.3 of the Investor Rights Agreement or a Form S-3 registration
statement filed pursuant to Section 2.5 of the Investor Rights Agreement, then
in such event the restrictions set forth in the immediately preceding sentence
shall lapse and shall not be applicable with respect to those shares of Common
Stock of the Company included on such Company-initiated registration statement
or Form S-3 registration statement. Additionally, to the extent Stockholder is
the holder of options to purchase shares of Common Stock of the Company which
are subject to the terms of this Section 1, and Stockholder is required to
exercise such options prior to the first anniversary of the consummation of the
Company's Initial Public Offering or otherwise lose the right to exercise such
options, then, in such event, the restrictions set forth in the first sentence
of this Section 1 shall lapse and shall not be applicable with respect to, and
only with respect to, that number of shares of Common Stock of the Company
having an aggregate fair market value on the date of the exercise of such option
equal to the aggregate amount of the federal, state and local tax liability
arising out of such exercise.
2. REGISTRATION RIGHTS
(a) Subject to the terms and provisions of this Agreement, the
Company agrees that the Stockholder shall be entitled to the registration rights
set forth in Section 2 ("Restrictions on Transferability of Securities;
Registration Rights") (collectively, the "Registration Rights") of that certain
Second Amended and Restated Investor Rights Agreement dated as of January 7,
2000, by and among the Company and certain of its stockholders (the "Investor
Rights Agreement"), on a pari passu basis with the other Holders (as defined in
the Investor Rights Agreement). The Stockholder's Registration Rights hereunder
shall be automatically amended to the extent Section 2 (other than Section 2.2)
of the Investor Rights Agreement is amended from time to time in accordance with
Section 5.4 of the Investor Rights Agreement; provided however, that no such
amendment shall be made that materially adversely affects Stockholder's
registration rights under the Investor Rights Agreement without the consent of
Stockholder.
(b) The shares of Common Stock of the Company received by the
Stockholder pursuant to the Merger Agreement (the "Merger Shares") and any
shares acquired upon the exercise of Company Warrants (as defined in the Merger
Agreement) shall be deemed to be "Registrable Securities" (notwithstanding that
any of such securities have been registered) and the Stockholder shall be deemed
to be a "Holder" solely for the purposes of Section 2 (other than Section 2.2)
of the Investor Rights Agreement; provided, however, that (i) the Stockholder
shall not be entitled to a demand registration or any other rights (except as
provided herein) granted under Section 2.2 of the Investor Rights Agreement,
(ii) the Merger Shares shall not be included in the determination of any
threshold requirement for a demand registration (other than on Form S-3) under
Section 2.2(a) of the Investor Rights Agreement, (iii) the Stockholder shall not
be deemed to be a "Significant Holder" under the Investor Rights Agreement, and
(iv) the Stockholder shall not be entitled to any other rights as a Holder or
otherwise under the Investor Rights Agreement for any purpose other than the
Registration Rights. The Merger Shares shall be included in the determination of
any threshold requirement for registration rights on Form S-3
2.
<PAGE> 3
pursuant to Section 2.5 of the Investor Rights Agreement (as provided in Section
2.2(a)(i) thereof).
(c) Stockholder acknowledges that it has previously received a
copy of the Investor Rights Agreement. The Company will notify the Stockholder
of any amendment of the Investor Rights Agreement and deliver to the Stockholder
a copy of any amendment promptly following any such amendment.
(d) The Stockholder acknowledges and agrees that, as a "Holder",
it shall be subject to and bound by the provisions of Section 2 (other than
Section 2.2, except as provided herein) of the Investor Rights Agreement,
including, without limitation, provisions relating to indemnification,
restrictions on transfer and market stand-off provisions.
3. STANDSTILL
(a) During the period beginning on the Effective Date until the
second anniversary of the closing of the initial public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Standstill Period"), the Stockholder
will not, in any manner, directly or indirectly:
(i) make, effect, initiate, cause or participate in (1)
any acquisition of beneficial ownership of any securities of the Company or any
securities of any subsidiary or other affiliate of the Company (other than the
Company's securities which Stockholder has the right to acquire from Dave
Mawhinney pursuant to agreements between Stockholder and Dave Mawhinney in
effect as of the date of this Agreement), (2) any acquisition of any assets of
the Company or any assets of any subsidiary or other affiliate of the Company,
(3) any tender offer, exchange offer, merger, business combination,
recapitalization, restructuring, liquidation, dissolution or extraordinary
transaction involving the Company or any subsidiary or other affiliate of the
Company, or involving any securities or assets of the Company or any securities
or assets of any subsidiary or other affiliate of the Company, or (4) any
"solicitation" of "proxies" (as those terms are used in the proxy rules of the
Securities and Exchange Commission) or consents with respect to any securities
of the Company; or
(ii) form, join or participate in a "group" (as defined in
the Securities Exchange Act of 1934 and the rules promulgated thereunder) with
respect to the beneficial ownership of any securities of the Company.
(b) Notwithstanding any provision of Section 3(a) to the
contrary, the provisions of Section 3(a) shall terminate in the event (i) any
Person or "group" (as defined in the Exchange Act, and the rules promulgated
thereunder) shall have commenced an Acquisition Transaction (as defined below),
or (ii) the board of directors of the Company shall have endorsed, approved,
recommended, or resolved to endorse, approve or recommend an Acquisition
Transaction. All of the provisions of Section 3(a) shall be reinstated and shall
apply in full force according to their terms in the event that: (x) if the
provisions of Section 3(a) shall have terminated as the result of a tender
offer, such tender offer (as originally made or as amended or modified) shall
have terminated (without closing) prior to the commencement of a tender offer by
the Stockholder or any of the Stockholder's Associates that would have
3.
<PAGE> 4
been permitted to be made pursuant to the first sentence of this Section 3(b) as
a result of such third-party tender offer; (y) any tender offer by the
Stockholder or any of the Stockholder's Associates (as originally made or as
extended or modified) that was permitted to be made pursuant to this Section
3(b) shall have terminated (without closing); or (z) if the provisions of
Section 3(a) shall have terminated as a result of any action by the board of
directors of the Company referred to in clause (ii) of this Section 3(b), the
board of directors of the Company shall have determined not to take any of such
actions (and no such transaction considered by the board of directors of the
Company shall have closed) prior to the commencement of a tender offer by the
Stockholder or any of the Stockholder's Associates that would have been
permitted to be made pursuant to this Section 3(b) as a result of the initial
determination of the board of directors of the Company referred to in clause
(ii) of this Section 3(b), unless prior to such determination by the board of
directors of the Company not to take any such actions, any event referred to in
clause (i) of this Section 3(b) shall have occurred. Upon reinstatement of the
provisions of Section 3(a), the provisions of this Section 3(b) shall continue
to govern in the event that any of the events described in clauses (i) and (ii)
of this Section 3(b) shall occur. Upon the closing of any tender offer for or
acquisition of any securities of the Company or rights or options to acquire any
such securities by the Stockholder or any of the Stockholder's Associates that
would have been prohibited by the provisions of Section 3(a) but for the
provisions of this Section 3(b), all provisions of Section 3(a) and 3(b) shall
terminate.
(c) As used in this Section 3, "Acquisition Transaction" shall
mean any transaction not contemplated by this Agreement involving:
(i) any sale, license, lease, exchange, transfer or other
disposition of the assets of the Company or any subsidiary of the Company
constituting more than 50% of the consolidated assets of the Company or
accounting for more than 50% of the consolidated revenues of the Company in any
one transaction or in a series of related transactions;
(ii) any offer to purchase, tender offer, exchange offer
or any similar transaction or series of related transactions made by any Person
involving more than 50% of the outstanding shares of capital stock of the
Company; or
(iii) any merger, consolidation, business combination,
share exchange, reorganization or similar transaction or series of related
transactions involving the Company or any subsidiary of the Company whereby the
holders of voting capital stock of the Company immediately prior to any such
transaction hold less than 50% of the voting capital stock of the Company or the
surviving corporation immediately after the consummation of any such
transaction.
4. MISCELLANEOUS.
4.1 REGISTRATION STATEMENT ON FORM S-8. Within 90 days from the date of
consummation of the Company's Initial Public Offering, the Company shall file a
registration statement on Form S-8 registering the shares of Common Stock of the
Company issuable under the Company's 1999 Omnibus Equity Incentive Plan.
4.
<PAGE> 5
4.2 WAIVER. Except as specifically provided for herein, the waiver from
time to time by either of the parties of any of their rights or their failure to
exercise any remedy shall not operate or be construed as a continuing waiver of
same or of any other of such party's rights or remedies provided in this
Agreement.
4.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements with respect to the
subjects hereof except as specifically set forth herein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the parties hereto unless reduced to writing and signed by the respective
authorized officers of the parties.
4.4 SEVERABILITY. If any term, covenant or condition of this Agreement
or the application thereof to any party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (a) the remainder of this Agreement,
or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (b) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
4.5 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
4.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the introductory paragraph of this
Agreement or at such other address as such party may designate by written notice
(in the manner provided herein) to the other parties hereto.
4.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
4.8 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
5.
<PAGE> 6
4.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
4.10 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, as such laws are applied to contracts entered into and to
be performed within such state.
4.11 ASSIGNMENT. This Agreement shall not be assignable by any party
without the written consent of the other party hereto, which consent will not be
unreasonably withheld; provided, however, that Registration Rights may be freely
assigned by Stockholder to any transferee of its Registrable Securities.
Notwithstanding the foregoing, no assignment shall relieve the assigning party
of its responsibilities for performance of its obligations under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the successors
and permitted assigns of the parties. Any assignment not in accordance with this
Agreement shall be void.
4.12 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.14 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.
MEDIBUY.COM, INC.,
a Delaware corporation.
By:
--------------------------
Name:
Title:
STOCKHOLDER
By:
--------------------------
Name:
-----------------------
Title:
----------------------
LOCK-UP AND REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 3, 2000, except for the portion of Note 11 discussing
drugstore.com to which the date is February 14, 2000, the portion of Note 3
discussing Premier Health Exchange, LLC to which the date is March 6, 2000 and
the portion of Note 1 discussing the two and one-half-for-one Common Stock split
to which the date is __________, 2000; and November 5, 1999 relating to the
financial statements of medibuy.com, Inc. and PartNET, Inc. respectively, which
appear in such Registration Statement. We also consent to the references to us
under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Diego, California
March 15, 2000
<PAGE> 1
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 March 6, 2000, with respect to the financial statements
of Premier Health Exchange, LLC (a development stage company) included in
Amendment No. 1 to the Registration Statement (Form S-1 No. 333-94635) and
related Prospectus of medibuy.com for the registration of 14,950,000 shares of
its common stock.
/s/ Ernst & Young LLP
San Diego, CA
March 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> AUG-18-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 54 63,780
<SECURITIES> 0 0
<RECEIVABLES> 0 216
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 75 65,421
<PP&E> 473 13,122
<DEPRECIATION> (48) (5,341)
<TOTAL-ASSETS> 520 84,682
<CURRENT-LIABILITIES> 546 7,566
<BONDS> 0 0
0 0
0 9
<COMMON> 14 16
<OTHER-SE> (40) 76,213
<TOTAL-LIABILITY-AND-EQUITY> 520 84,682
<SALES> 0 0
<TOTAL-REVENUES> 0 170
<CGS> 0 0
<TOTAL-COSTS> 0 57
<OTHER-EXPENSES> 1,454 40,306
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,452) (39,754)
<INCOME-TAX> 0 (33)
<INCOME-CONTINUING> (1,452) (39,721)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,452) (45,879)
<EPS-BASIC> 0.16 (4.01)
<EPS-DILUTED> 0.16 (4.01)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
AFFIDAVIT
I, Norman R. Farquhar, being duly sworn, hereby depose and state:
(i) I am Executive Vice President, Chief Financial Officer and
Secretary of medibuy.com, Inc. (the "Company");
(ii) The Company intends to effect a proposed underwritten public
offering (the "Proposed Offering") of approximately 13,000,000 shares of the
Company's common stock.
(iii) The Company has executed that certain Agreement and Plan of
Merger dated as of March 6, 2000 (the "Merger Agreement") with Premier Health
Exchange LLC ("PHx") and others, pursuant to which PHx will be merged with a
wholly-owned subsidiary of the Company (the "Merger"), and the principal member
of PHx will become a significant stockholder of the Company. The Merger and the
transactions contemplated thereby will close and become effective simultaneously
with the Proposed Offering.
(iv) Prior to the completion of the Proposed Offering and the
Merger, the Company does not believe it is desirable for persons who are
affiliates of PHx to be members of the Company's Board of Directors. Upon the
concurrent consummation of the Merger and the Proposed Offering, the Company
believes it would be appropriate to include designees of PHx on the Board of
Directors of the Company and, in accordance with the terms of the Merger
Agreement, the Company has agreed that certain designees of PHx will be
appointed to the Board of Directors of the Company.
(v) Mr. Richard A. Norling has agreed to serve as a director of
the Company after completion of the Proposed Offering. Mr. Norling is not
currently a stockholder or employee of the Company or any of its subsidiaries or
affiliates. Mr. Norling has not participated in the Proposed Offering, nor has
he been asked to participate in the preparation of the Registration Statement
relating to the Proposed Offering (the "Registration Statement") to any
significant degree.
(vi) Richard A. Norling has advised me that he is agreeable to
serving as a director of the Company after completion of the Proposed Offering,
but will not consent to being named in the Registration Statement for the
Proposed Offering as a person about to become a director because of his lack of
any significant involvement with the Registration Statement or the Company prior
to the completion of the Proposed Offering. As a result of the foregoing, I
believe that the obtaining of such consent is impracticable.
/s/ NORMAN R. FARQUHAR
-----------------------------
Norman R. Farquhar
<PAGE> 2
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On March 15, 2000, before me, the undersigned, personally appeared
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ DIANA CORTEZ
- ------------------------------
Notary Public in and for said
County and State
(SEAL)
