As filed with the Securities and Exchange Commission on May 6, 1999
Registration No. 333-75071
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CareInsite, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 7374 22-3630930
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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CareInsite, Inc.
669 River Drive, River Drive Center II
Elmwood Park, New Jersey 07407
(201) 703-3400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------
David C. Amburgey
CareInsite, Inc.
Vice President -- General Counsel
669 River Drive, River Drive Center II
Elmwood Park, New Jersey 07407
(201) 703-3400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
Stephen T. Giove Alan J. Jakimo
Shearman & Sterling Brown & Wood LLP
599 Lexington Avenue One World Trade Center
New York, New York 10022 New York, New York 10048
(212) 848-4000 (212) 839-5300
--------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]
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 that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated May 6, 1999
PROSPECTUS
Shares
CareInsite, Inc.
Common Stock
------------------
We are offering to the public shares of our common stock. We are
reserving of these shares for sale to directors, officers and employees of
our company, of Synetic, Inc., which owns 80.1% of our common stock immediately
prior to this offering, and of Cerner Corporation, a strategic shareholder which
owns 19.9% of our common stock immediately prior to this offering. In addition,
Cerner Corporation has agreed to purchase directly from us shares of
our common stock in a separate private transaction concurrently with this
offering.
This is our initial public offering and no public market exists for our
shares. We anticipate that the initial public offering price will be between
$ and $ per share.
We have applied to list our common stock on the Nasdaq National Market
under the symbol " ."
Investing in the shares of our common stock involves risks which are
described in the "Risk Factors" section beginning on page 7 of this prospectus.
------------------
Per Share Total
Public offering price........................... $ $
Underwriting discount........................... $ $
Proceeds, before expenses, to our company....... $ $
The above table does not include estimated net proceeds of $
expected to be received in connection with the private sale of shares of
common stock to Cerner concurrently with this offering.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these shares of common stock or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
We have granted the underwriters the right to purchase up to an
additional shares of common stock to cover over-allotments. The underwriters
expect that the shares of common stock will be ready for delivery in New York,
New York on or about , 1999.
Merrill Lynch & Co. Warburg Dillon Read LLC
The date of this prospectus is , 1999
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TABLE OF CONTENTS
Page
Summary .....................................................................3
Risk Factors..................................................................7
Disclosure Regarding Forward-looking Information.............................15
Use of Proceeds..............................................................16
Dividend Policy..............................................................16
Capitalization...............................................................17
Dilution ....................................................................18
Selected Consolidated Financial and Operating Data...........................19
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................22
Business ....................................................................29
Management...................................................................42
Security Ownership of Management.............................................54
Transactions and Relationships with Principal Stockholders...................56
Description of Capital Stock.................................................60
Shares Eligible for Future Sale..............................................62
Underwriting.................................................................64
Legal Matters................................................................67
Experts ....................................................................67
Additional Information ......................................................67
Index to Consolidated Financial Statements..................................F-1
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You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. Unless otherwise indicated, all
information in this prospectus:
o assumes no exercise of the underwriters' over-allotment option,
o reflects a 20.025 for 1 split of the common stock effected in the
form of a stock dividend to be declared and paid prior to the
closing of this offering, and
o reflects the filing of our amended and restated certificate of
incorporation with the Delaware Secretary of State prior to the
closing of this offering.
------------
Until , 1999 (25 days after the commencement of this offering), all
dealers that buy, sell or trade our common stock, whether or not participating
in this distribution, may be required to deliver a prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
------------
CareInsite(TM) is a pending trademark of our company.
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SUMMARY
This summary highlights information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully, including the "Risk Factors" section and the
consolidated financial statements and the notes to those statements.
The Company
We are developing and intend to provide an Internet-based healthcare
electronic commerce network that links physicians, payers, suppliers and
patients. We intend to market a comprehensive set of transaction, messaging and
content services to these healthcare industry participants. Our network, which
we call the CareInsite system, is being designed to provide physicians with
relevant clinical, administrative and financial information from payers and
suppliers. We believe our integration of payer-specific rules and healthcare
guidelines with patient-specific information at the point of care will improve
the quality of patient care, lead to more appropriate use of healthcare
resources, gain compliance with benefit plan guidelines and control healthcare
costs.
Healthcare expenditures in the United States totaled approximately $1.0
trillion in 1996, representing a 6.7% compound annual increase since 1990. This
trend is expected to continue. Approximately 85% of annual healthcare costs in
the United States are estimated to be represented by patient care costs as
opposed to administrative costs. We believe that the ability of managed
healthcare organizations to reduce this larger 85% component of healthcare costs
is limited today. Control of these costs is dependent upon compliance with
benefit plan guidelines designed to promote the appropriate use of healthcare
resources and adherence to best clinical practices. We believe payers are
unlikely to gain compliance with these guidelines without an efficient channel
of communication to their affiliated physicians. Our objective is to provide a
leading healthcare e-commerce channel that will enable real time communication
of clinical, administrative and financial information at the point of care to
facilitate compliance with benefit plan guidelines and control healthcare costs.
We have entered into two significant relationships that represent the
initial execution of our business strategy. Our strategic relationship with
Cerner Corporation provides us with a perpetual, royalty-free license to several
components of Cerner's technology. These components form the foundation for our
CareInsite system. We have also entered into an agreement with The Health
Information Network Connection LLC, referred to as "THINC", an entity founded by
several major managed care organizations in the New York metropolitan area to
facilitate the confidential exchange of healthcare information. Under this
agreement, we are managing THINC's operations and will make a comprehensive
suite of healthcare e-commerce services available to the New York metropolitan
area's more than 40,000 physicians. We have not derived any revenues from our
healthcare e-commerce services to date.
We are a majority-owned indirect subsidiary of Synetic, Inc., a
publicly traded corporation. Upon completion of the offering, Synetic will own
approximately % of the outstanding common stock of our company. Prior to the
offering, Cerner owned 19.9% of our outstanding common stock, and has agreed to
purchase directly from us shares of our common stock in a separate private
transaction concurrently with this offering. We will also issue to Cerner
approximately 1,001,250 shares of our common stock on or after February 15, 2001
at a price of $.01 per share if we realize a specified level of physician usage
of our services. In addition, THINC and Cerner have warrants exercisable for an
aggregate of 1,946,750 shares of our common stock. These warrants are
exercisable six months after completion of this offering.
---------------
Our principal executive offices are located at 669 River Drive, River
Drive Center II, Elmwood Park, New Jersey 07407 and our telephone number at that
address is (201) 703-3400.
3
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The Offering
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Common stock offered by our company......................... shares
Common stock outstanding immediately prior to the
offering ................................................... 25,000,000 shares
Common stock outstanding after the offering................. shares
Use of proceeds............................................. We intend to use the net proceeds from this offering
for working capital, including financing the cost of
development and deployment of our services,
increased sales and marketing activities, and for
general corporate purposes. We may use a portion of
the net proceeds to fund acquisitions. See "Use of
Proceeds."
Dividend policy............................................. We do not anticipate paying any cash dividends in the
foreseeable future. See "Dividend Policy."
Proposed Nasdaq National Market symbol...................... " "
Risk factors................................................ You should consider the risks involved in an
investment in our common stock. See "Risk Factors."
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The foregoing information excludes:
o shares Cerner has agreed to purchase directly from us in a
separate private transaction concurrently with this offering;
o an aggregate of 1,946,750 shares of common stock representing
approximately % of our common stock outstanding after the
offering which may be issued from time to time upon the exercise of
warrants held by THINC and Cerner;
o approximately 1,001,250 shares of common stock representing
approximately % of our common stock outstanding after the
offering which will be issued on or after February 15, 2001 to
Cerner at a price of $.01 per share if we realize a specified level
of physician usage of our services; and
o shares of common stock which may be issued upon the exercise
of options outstanding on the date of this prospectus granted
pursuant to our employee stock option plan or our officer stock
option plan and an additional shares of common stock reserved
for issuance pursuant to these plans. The weighted average exercise
price of all options outstanding on the date of this prospectus is
the initial public offering price per share.
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<PAGE>
Summary Consolidated Financial Data
(in thousands, except share data)
On December 24, 1996, Synetic acquired Avicenna Systems Corporation.
This acquisition marked the inception of Synetic's healthcare e-commerce
business. The "As Adjusted" consolidated balance sheet data below is based on
25,000,000 shares of common stock outstanding on March 31, 1999, as adjusted to
give effect to (1) the sale of the shares of common stock offered to the
public hereby and the receipt of the estimated net proceeds after deducting
underwriting discounts and commissions and the estimated offering expenses and
(2) the concurrent sale by us of shares of common stock to Cerner in a
separate private transaction. See note (1) to our consolidated financial
statements for an explanation of the determination of the number of shares used
to compute basic and diluted net loss per share. See also "Transactions and
Relationships with Principal Stockholders -- Certain Agreements." The summary
consolidated financial data for our company as of March 31, 1999, for the
nine-month periods ended March 31, 1998 and 1999 and for the cumulative period
from Inception (December 24, 1996) through March 31, 1999 are derived from our
unaudited consolidated financial statements which, in the opinion of our
management, include all normal and recurring adjustments necessary to present
fairly the financial position and the results of operations of our company for
those periods. The operating results for the nine months ended March 31, 1999
are not necessarily indicative of the operating results to be expected for the
full year. The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our consolidated financial statements and notes
thereto and other financial information included elsewhere in this prospectus.
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Cumulative
Period from from
inception Nine months ended inception
(12/24/96) Year March 31, (12/24/96)
through Ended ----------------------- through
06/30/97 06/30/98 1998 1999 03/31/99
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(unaudited) (unaudited)
Statement of Operations Data:
Service revenue (related party)........ $-- $-- $-- $213 $213
Cost of services (related party)....... -- -- -- 213 213
Costs and expenses
Research & development.............. 7,652 4,762 3,976 8,720(1) 21,134(1)
Sales & marketing................... 1,150 1,733 1,232 1,427 4,310
General & administrative............ 1,379 3,887 2,589 2,944 8,210
Litigation costs.................... - - - 2,500(2) 2,500(2)
Other income, net................... (9) (47) (7) (110) (166)
Acquired in-process research &
development....................... 32,185(3) -- -- -- 32,185(3)
-------- -------- ------- -------- -----------
Total costs & expenses........... 42,357 10,335 7,790 15,694 68,386
-------- -------- ------- -------- -----------
Net loss............................... $(42,357) $(10,335) $(7,790) $(15,481) $(68,173)
======== ======== ======= ======== ===========
Net loss per share - basic &
diluted............................ $(2.12) $(0.52) $(0.39) $(0.71) ($3.31)
Weighted average shares 20,025 20,025 20,025 21,683 20,577
outstanding - basic & diluted......
(footnotes on following page)
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03/31/99
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06/30/97 06/30/98 Actual As Adjusted
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(unaudited)
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Balance Sheet Data:
Working capital (deficit)................ $(1,592) $775 $4,342
Total assets............................. 3,476 10,833 43,935
Stockholders' equity .................... 1,566 7,798 41,250
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- ---------------------------
(1) As a result of obtaining a license to the Cerner technology, certain
software that we previously capitalized was deemed duplicative and
rendered obsolete and had no alternative future use. Consequently,
approximately $2,381,000 of capitalized software costs were written off
and included in expenses.
(2) Represents charges relating to expenses incurred in conjunction with the
Merck litigation in the quarter ended March 31, 1999. See "Risk Factors
-- Litigation by Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C.
against our company."
(3) Represents a non-recurring charge related to the write-off of acquired
in-process research and development costs in conjunction with the
purchase of Avicenna Systems Corporation and CareAgents, Inc.
6
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in our common stock. Some of the following factors relate
principally to our business and the industry in which we operate. Other factors
relate to our company's relationship with Synetic and our strategic partners.
Finally, other factors relate principally to your investment in our common
stock. The risks and uncertainties described below are not the only ones facing
our company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business and operations.
If any of the matters included in the following risks were to occur,
our business, financial condition, results of operations, cash flows or
prospects could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you could lose all or part of your
investment.
Evaluating our business is difficult because our business model is unproven; we
only recently began to generate revenues and we have incurred net losses since
inception
Our company began operations in December 1996 and we have not yet
delivered any of our healthcare e-commerce services. Therefore, our historical
financial information is of limited value in projecting our future operating
results. We did not generate our first revenues, which were related to the
provision of management services to THINC, until the quarter ended March 31,
1999. As of March 31, 1999, we had an accumulated deficit of $68.2 million. We
expect to continue to incur significant development, deployment and sales and
marketing expenses in connection with our business. We may also incur expenses
in connection with acquisitions or other strategic relationships which we may
enter into. As a result, we expect that we will continue to incur operating
losses for at least the next two fiscal years and we caution that we may never
achieve or sustain profitability. In addition, it is difficult to value our
business and evaluate our prospects because our revenue and income potential is
unproven and our business model is still emerging. The provision of services
using Internet technology in the healthcare e-commerce industry is a developing
business that is inherently riskier than businesses in industries where
companies have established operating histories.
We will not become profitable unless we achieve sufficient levels of physician
penetration and market acceptance of our services
Our business model depends on our ability to generate usage by a large
number of physicians with a high volume of healthcare transactions and to sell
healthcare e-commerce services to payers and other healthcare constituents. The
acceptance by physicians of our transaction, messaging and content services will
require adoption of new methods of conducting business and exchanging
information. We cannot assure you that physicians will integrate our services
into their office workflow, or that the healthcare market will accept our
services as a replacement for traditional methods of conducting healthcare
transactions. The healthcare industry uses existing computer systems that may be
unable to access our Internet-based solutions. Customers using existing systems
may refuse to adopt new systems when they have made extensive investment in
hardware, software and training for existing systems or if they perceive that
our CareInsite system will not adequately protect proprietary information.
Failure to achieve broad physician penetration or successfully contract with
healthcare participants would have a material adverse effect on our business,
financial condition and results of operations.
Achieving market acceptance for our services will require substantial
marketing efforts and expenditure of significant funds to create awareness and
demand by participants in the healthcare industry. We believe that we must gain
significant market share with our services before our competitors introduce
alternative services with features similar to ours. We cannot assure you that we
will be able to succeed in positioning our services as a preferred method for
healthcare e-commerce, or that any pricing strategy that we develop will be
economically viable or acceptable to the market. Failure to successfully market
our services would have a material adverse affect on our business, financial
condition and results of operations.
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Our business prospects will suffer if we are not able to quickly and
successfully deploy our CareInsite system
We believe that our business prospects will suffer if we do not deploy
our services quickly. We have not deployed our architecture or processed any
transactions over our CareInsite system. We currently intend to deploy access to
our services by the end of 1999, although we cannot assure you that we will be
able to do so at that time, or at all. In order to deploy our services, we must
integrate our architecture with physicians', payers' and suppliers' systems. We
will need to expend substantial resources to integrate our CareInsite system
with the existing computer systems of large healthcare organizations. We have
limited experience in doing so, and we may experience delays in the integration
process. These delays would, in turn, delay our ability to generate revenue from
our services and may have a material adverse effect on our business, financial
condition and results of operations. Once we have deployed our CareInsite
system, we may need to expand and adapt it to accommodate additional users,
increased transaction volumes and changing customer requirements. This expansion
and adaptation could be expensive. We may be unable to expand or adapt our
network infrastructure to meet additional demand or our customers' changing
needs on a timely basis and at a commercially reasonable cost, or at all. Any
failure to deploy, expand or adapt our CareInsite system quickly could have a
material adverse effect on our business, financial condition and results of
operations.
We rely on strategic relationships that may not provide anticipated benefits
To date, we have entered into strategic relationships with Cerner and
THINC. These relationships are in the early stages of development. We may enter
into additional strategic relationships in the future. We cannot assure you that
any of these relationships will provide us with the ability to successfully
develop or sell our services. In addition, we may not be able to establish
relationships with or provide our services to key participants in the healthcare
industry if we have established relationships with their competitors.
Consequently, it is important that we are perceived as independent of any
particular customer or partner. Also, some of our current and potential partners
may decide to compete with us. If any of our current or future strategic
relationships are disrupted, or if we do not realize the expected benefits from
these relationships, our business, financial condition and results of operations
may be materially adversely affected.
We may make acquisitions and integrating them into our business could be
expensive, time consuming and may strain our resources
We may make acquisitions of companies which we believe have attractive
technologies or distribution channels. Integrating newly acquired organizations
and technologies into our company could be expensive, time consuming and may
strain our resources. The healthcare industry is consolidating and we expect
that we will face intensified competition for acquisitions. We cannot assure you
that we will succeed in consummating any such strategic relationships or
acquisitions, that such transactions will ultimately provide us with the ability
to offer the services described or that we will be able to successfully manage
or integrate any resulting business. Consequently, we may not achieve
anticipated revenue and cost benefits.
We do not currently have a substantial customer base and our revenues will
initially come from a few payers in one geographic market
We do not currently have a substantial customer base. In addition, we
expect that initially we will generate a significant portion of our revenue from
providing our products and services in the New York metropolitan area and from a
small number of payers. If we do not generate as much revenue in this market or
from these payers as we expect, our revenue will be significantly reduced which
would have a material adverse effect on our business, financial condition and
results of operations.
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We may face significant competition in providing healthcare e-commerce products
and services
The market for healthcare e-commerce services is rapidly developing and
is becoming increasingly competitive. Several service companies, some of which
may have greater financial, technological and marketing resources than we do,
have announced that they are developing a combination of one or more healthcare
e-commerce services that may be competitive with ours. We expect to compete with
various industry participants, including software vendors, emerging e-commerce
companies and electronic data interchange providers, who operate networks used
for electronic communication of business transactions such as orders,
confirmations and invoices between organizations. These networks are often
referred to as EDI networks. Some of our competitors have services that are
currently in operation.
Traditional healthcare software vendors such as Medical Manager, Medic,
and IDX primarily focus on the administrative functions in the healthcare
setting. Electronic data interchange network providers and claims clearinghouses
like Envoy, which was recently acquired by Quintiles Transnational, and NDC
provide connectivity to edit and transmit data on medical and pharmacy claims.
These companies are beginning to offer services which may be competitive with
our clinical e-commerce services. Companies like Healtheon and other emerging
e-commerce companies may offer a range of services which may compete with ours.
Any organizations that create stand-alone healthcare software products may
migrate into the healthcare e-commerce business. Our competitors may be first to
market new services or may also independently develop services and/or technology
that is substantially equivalent to or superior to ours. There can be no
assurance that such companies will not develop and successfully market
healthcare e-commerce products and services in a manner which would have a
material adverse effect on our business, financial condition and results of
operations.
We may experience significant delays in generating revenues from our services
because potential customers could take a long time to evaluate the purchase of
our services
A key element of our strategy is to market our services directly to
large healthcare organizations. We do not control many of the factors that will
influence physicians', payers' and suppliers' buying decisions. We expect that
the sales and implementation process will be lengthy and will involve a
significant technical evaluation and commitment of capital and other resources
by physicians, payers and suppliers. The sale and implementation of our services
are subject to delays due to physicians', payers' and suppliers' internal
budgets and procedures for approving large capital expenditures and deploying
new technologies within their networks.
Rapidly changing technology may impair our ability to develop and market our
services
All businesses which rely on Internet technology, including the
healthcare e-commerce business that we are developing, are subject to, among
other risks and uncertainties:
o rapid technological change;
o changing customer needs;
o frequent new product introductions; and
o evolving industry standards.
Internet technologies are evolving rapidly, and the technology used by
any e-commerce business is subject to rapid change and obsolescence. These
market characteristics are exacerbated by the emerging 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
alternative protocols 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 must be able to
quickly and successfully modify our services so that they adapt to such changes.
We cannot assure you that we will not experience difficulties that could delay
or prevent the
9
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successful development and introduction of our healthcare e-commerce services or
that we will be able to respond to technological changes in a timely and
cost-effective manner. Moreover, technologically superior products and services
could be developed by competitors. These factors could have a material adverse
effect upon our business, financial condition and results of operations.
We currently have no patents and may be unable to adequately protect our
proprietary rights
Our future success and ability to compete in the healthcare e-commerce
business may be dependent in part upon our proprietary rights to products and
services which we develop. We expect to rely on a combination of patent,
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and to rely on similar proprietary rights of
any of our content and technology providers. We currently have no patents
covering any of our technology, whereas some of our competitors have patents
which may cover some aspects of their technology. We intend to file patent
applications to protect certain of our proprietary technology. We cannot assure
you that such applications will be approved or, if approved, will be effective
in protecting our proprietary technology. We enter into confidentiality
agreements with all of our employees, as well as with our clients and potential
clients seeking proprietary information, and limit access to and distribution of
our software, documentation and other proprietary information. There can be no
assurance that the steps we take or the steps such providers take would be
adequate to prevent misappropriation of our respective proprietary rights.
We may be subject to substantial claims if we infringe upon the proprietary
rights of third parties
We expect that we could be subject to intellectual property
infringement claims as the number of our competitors grows and the functionality
of our applications overlaps with competitive offerings. Although we intend to
take steps to minimize the likelihood that we are infringing the proprietary
rights of any third parties, we cannot assure you that patent infringement or
other similar claims will not be asserted against us or one of our content or
technology providers or that such claims will not be successful. We could incur
substantial costs and diversion of management resources with respect to the
defense of any such claims. Furthermore, parties making such claims against us
or a content or technology provider could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief which could effectively
block our ability to provide products or services in certain of our markets.
Such a judgment could have a material adverse effect on our business, financial
condition and results of operations. In addition, we cannot assure you that
licenses for any intellectual property of third parties that might be required
for our products or services will be available on commercially reasonable terms,
or at all.
Litigation by Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C. against our
company
On February 18, 1999, Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. filed a complaint in the Superior Court of New Jersey against our
company, Synetic, Martin J. Wygod, Chairman of our company and Synetic, and
three officers and/or directors of our company and Synetic, Paul C. Suthern,
Roger C. Holstein and Charles A. Mele. The plaintiffs assert that our company,
Synetic and the individual defendants are in violation of certain
non-competition, non-solicitation and other agreements with Merck and
Merck-Medco, and seek to enjoin us and them from conducting our healthcare
e-commerce business and from soliciting Merck-Medco's customers. The Synetic and
Wygod agreements provide an expiration date of May 24, 1999. The other
individuals' agreements provide for expiration in December 1999, in the case of
Mr. Suthern, March 2000, in the case of Mr. Mele, and September 2002, in the
case of Mr. Holstein.
A hearing was held on March 22, 1999 on an application for a
preliminary injunction filed by Merck and Merck-Medco. On April 15, 1999, the
Superior Court denied this application. We believe that Merck's and Merck-
Medco's positions in relation to us and the individual defendants are without
merit and we intend to vigorously defend the litigation. However, the outcome
of complex litigation is uncertain and cannot be predicted at this time. Any
unanticipated adverse result could have a material adverse effect on our
company's financial condition and results of operations.
10
<PAGE>
Our business will suffer if we fail to deal effectively with Year 2000
technology risks
We are not currently aware of any Year 2000 compliance problems
relating to our information technology or non-information technology systems
that we believe would have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance that we will not
discover Year 2000 compliance problems that will require substantial revisions
to our systems, products or services. In addition, there can be no assurance
that third-party software, hardware or services incorporated into our material
information technology and non-information technology systems will not need to
be revised or replaced, all of which could be time consuming and expensive. Any
failure to fix our information technology systems or to replace third-party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition.
In addition, there can be no assurance that physicians, payers,
suppliers, Internet access companies, third-party service providers, vendors,
business partners and others outside our control will be Year 2000 compliant.
The failure by such entities to be Year 2000 compliant could result in a
systemic failure beyond our control, such as a prolonged Internet or
communications failure, which could also prevent us from delivering our services
to customers, decrease the use of the Internet or prevent users from accessing
our service. Such a failure could have a material adverse effect on our
business, results of operations and financial condition. Also, a general Year
2000 systemic failure could require healthcare companies to spend large amounts
of money to correct any such failures, reducing the amount of money that might
otherwise be available to be spent on services such as ours.
As the Year 2000 issue has many elements and potential consequences,
some of which are not reasonably foreseeable, the ultimate impact of the Year
2000 on our operations could differ materially from our expectations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
Our business will suffer if the integrity and security of our systems is
inadequate
We believe that once we begin to deliver our healthcare e-commerce
services, our business could be harmed if we or our present or future customers
were to experience any system delays, failures or loss of data. We currently
intend to initially process substantially all our customer transactions and data
at our facilities in Cambridge, Massachusetts. Although we intend to have
safeguards for emergencies, the occurrence of a catastrophic event or other
system failure at our facilities could interrupt our operations or result in the
loss of stored data. In addition, we will depend on the efficient operation of
Internet connections from customers to our systems. These connections, in turn,
depend on the efficient operation of Web browsers, Internet service providers
and Internet backbone service providers. In the past, Internet users have
occasionally experienced difficulties with Internet and online services due to
system failures. Any disruption in Internet access provided by third parties
could have a material adverse effect on our business, results of operations and
financial condition. Furthermore, we will be dependent on hardware suppliers for
prompt delivery, installation and service of equipment used to deliver our
services.
Despite the implementation of security measures, our infrastructure may
be vulnerable to damage from physical break-ins, computer viruses, programming
errors, attacks by hackers or similar disruptive problems. A material security
breach could damage our reputation or result in liability to us. We will retain
confidential customer and patient information in our processing center. An
experienced computer user who is able to access our computer systems could gain
access to confidential patient and company information. Furthermore, we may not
have a timely remedy to secure our system against any hacker who has been able
to penetrate our system. Therefore, it is critical that our facilities and
infrastructure remain and are perceived by the marketplace to be secure. The
occurrence of any of these events could result in the interruption, delay or
cessation of service, which could have a material adverse effect on our
business, results of operations and financial condition.
11
<PAGE>
A significant barrier to electronic commerce and communications are the
issues presented by the secure transmission of confidential information over
public networks. We will rely on encryption and authentication technology
licensed from third parties to secure Internet transmission of and access to
confidential information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods we will
use to protect customer transaction data. A party who is able to circumvent our
security measures could misappropriate or alter proprietary information or cause
interruptions in our operations. If any such compromise of our security or
misappropriation of proprietary information were to occur, it could have a
material adverse effect on our business, financial condition, and results of
operations. We may be required to expend significant capital and other resources
to protect against such security breaches or to alleviate problems caused by
security breaches. We may also be required to spend significant resources and
encounter significant delays in upgrading our systems to incorporate more
advanced encryption and authentication technology as it becomes available.
Concerns over the security of the Internet and other online transactions and the
privacy of users may also inhibit the growth of the Internet and other online
services generally, and our services in particular, especially as a means of
conducting commercial and/or healthcare-related transactions. There can be no
assurance that our security measures will prevent security breaches or that
failure to prevent such security breaches will not have a material adverse
effect on our business, prospects, financial condition, and results of
operations.
Our operations will also be dependent on the development and
maintenance of software. Although we intend to use all necessary means to ensure
the efficient and effective development and maintenance of software, both
activities are extremely complex and thus frequently characterized by unexpected
problems and delays.
We will need to expand our management information systems and personnel to meet
the increased demands of our business
Although our existing management information systems are sufficient to
meet our current needs, we intend to acquire new systems to meet the
requirements of our expanded operations. These systems need, among other
requirements, to capture complex information. There can be no assurance that
these new management information systems, when installed, will be sufficient to
meet our needs. In addition, we may experience interruptions of service when we
transition from our existing systems to new ones. Our ability to achieve our
financial and operational objectives also depends on our ability to continue to
hire, retain and motivate highly qualified technical and customer support
personnel. A competitive environment exists for qualified personnel and we
cannot assure you that we will be able to expand our personnel to meet any
increased demands of our business.
Government regulation of the Internet or healthcare e-commerce services could
adversely affect 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 methods of healthcare
e-commerce we are developing. We believe, however, that these laws and
regulations may nonetheless be applied to our healthcare e-commerce business.
Accordingly, our healthcare e-commerce business may be affected by current
regulations as well as future regulations specifically targeted to this new
segment of the healthcare industry.
We expect to conduct our healthcare e-commerce business in substantial
compliance with all material federal, state and local laws and regulations
governing our operations. However, the impact of regulatory developments in the
healthcare industry is complex and difficult to predict, and there can be no
assurance that we will not be materially adversely affected by existing or new
regulatory requirements or interpretations. It is also possible that such
requirements or interpretations could limit the effectiveness of the use of the
Internet for the methods of healthcare e-commerce we are developing or even
prohibit the sale of one or more of our services. Application of any such
regulations or requirements to our business could have a material adverse effect
on our business, financial condition or results of operations. See "Business --
Government Regulation."
12
<PAGE>
Changes in the regulatory and economic environment and consolidation in the
healthcare industry could adversely affect our business
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could cause us to make
unplanned enhancements of applications or services, or result in delays or
cancellations of orders or in the revocation of endorsement of our services by
healthcare participants. Federal and state legislatures have periodically
considered programs to reform or amend the U.S. healthcare system at both the
federal and state level. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Healthcare industry participants may respond by reducing their investments or
postponing investment decisions, including investments in our services. We do
not know what effect any of these proposals would have on our business.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense and the importance of
establishing a relationship with each industry participant will become greater.
These industry participants may try to use their market power to negotiate price
reductions for our products and services. If we were forced to reduce our
prices, our operating results could suffer if we cannot achieve corresponding
reductions in our expenses.
Our company will be controlled by Synetic and Synetic will be able to elect all
directors and approve all corporate transactions; this relationship may give
rise to conflicts of interest
Immediately prior to the offering, Synetic was the indirect owner of
80.1% of our outstanding common stock. Upon completion of the offering, Synetic
will own approximately % of our outstanding common stock and will therefore
retain effective control of our company and will be able to control the vote on
matters submitted to our stockholders and will also be able to elect all of our
directors. In addition, the majority of our directors and officers are also
directors or officers of Synetic and may have conflicts of interest with respect
to certain transactions that may affect our company, such as transactions
involving business dealings between our company and Synetic, acquisition
opportunities, the issuance of additional shares of our common stock and other
matters involving conflicts which cannot now be foreseen. Officers and directors
of our company also beneficially own and have been granted options to purchase
shares of Synetic common stock.
The level of ownership of our outstanding common stock by Synetic may
have the effect of discouraging or making more difficult, absent the support of
Synetic, a proxy contest, a merger involving our company, a tender offer, an
open-market purchase program or other purchases of our common stock that could
give our stockholders the opportunity to realize a premium over the
then-prevailing market price of their shares of common stock. See "Transactions
and Relationships with Principal Stockholders."
We may need to obtain future capital
We expect that the money generated from this offering, combined with
our current cash resources, will be sufficient to meet our requirements for
approximately 18 months. However, we may need to raise additional financing to
support expansion, develop new or enhanced applications and services, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of unanticipated opportunities. We may need to raise additional funds
by selling debt or equity securities, by entering into strategic relationships
or through other arrangements. However, there can be no assurance that we will
be able to raise any additional amounts on reasonable terms, or at all, when
they are needed.
13
<PAGE>
Future sales of shares of our common stock could affect our stock price
Prior to this offering, there has been no public market for our common
stock. No information is currently available and no prediction can be made as to
the timing or amount of future sales of shares, or the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of our common stock, including shares issuable upon exercise of stock
options or warrants, in the public market after the lapse of the legal and
contractual restrictions, including lock-up agreements, described below, or the
perception that such sales may occur, could materially and adversely affect the
prevailing market prices for our common stock and our ability to raise equity
capital in the future. See "Shares Eligible for Future Sale."
As a result of legal and contractual restrictions as described under the
caption "Shares Eligible for Future Sale," additional shares will be available
for sale in the public market as follows:
o no shares of common stock, other than those sold hereby and not held
by affiliates, will be available for immediate sale in the public
market on the date of this prospectus,
o any shares of common stock sold hereby and purchased by affiliates
will be eligible for sale 90 days after the date of this prospectus,
subject to the volume, manner of sale and reporting requirements of
Rule 144,
o approximately shares of common stock, all of which are held by
Synetic, will be eligible for sale upon expiration of the lock-up
agreements days after the date of this prospectus, subject to
the volume, manner of sale and reporting requirements of Rule 144,
o approximately shares of common stock acquired by Cerner prior to
this offering will be eligible for sale, subject to the volume,
manner of sale and reporting requirements of Rule 144, after January
2, 2000. These shares may also be sold pusuant to Cerner's
registration rights after January 2, 2001, if not previously sold
pursuant to Rule 144 or another exemption from registration under
the Securities Act, and
o the shares of our common stock purchased by Cerner in the
private transaction concurrent with this offering will be eligible
for sale days after the date of this prospectus, upon expiration
of certain contractual restrictions, subject to the volume, manner
of sale and reporting requirements of Rule 144.
In addition, THINC and Cerner own warrants exercisable for an aggregate of
1,946,750 shares of our common stock, which warrants cannot be exercised until
180 days after the completion of this offering. We will also issue to Cerner
approximately 1,001,250 shares of our common stock on or after February 15, 2001
at a price of $.01 per share if we realize specified levels of physician usage
of our services.
We plan to file a registration statement to register shares of common
stock reserved for issuance under our stock option plans. See "Management --
Compensation Pursuant to Plans and Arrangements of the Company -- Stock Option
Plans." Once registered, persons acquiring such shares upon exercise of their
options, whether or not they are affiliates, will be permitted to resell their
shares in the public market without regard to the Rule 144 holding period.
There has been no public market for our common stock
Prior to this offering, there has been no public market for our common
stock. We have filed an application to list the common stock for trading on the
Nasdaq National Market System. We do not know the extent to which investor
interest in our company will lead to the development of a trading market for the
common stock or how the common stock will trade in the future. Our company and
the underwriters will negotiate to determine the initial public offering price.
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
o actual or anticipated quarterly variations in our operating
results;
o changes in expectations as to our future financial
performance or changes in financial estimates, if any, of
securities analysts;
14
<PAGE>
o announcements of new products or services or technological
innovations;
o announcements relating to strategic relationships;
o customer relationship developments;
o conditions generally affecting the Internet or healthcare
industries;
o success of our operating strategy;
o competition from healthcare information software vendors,
healthcare electronic data interchange network companies,
nationwide and regional providers of information technology
consulting services and new technology; and
o the operating and stock price performance of other comparable
companies.
The price for our common stock may be volatile
The stock market recently has experienced significant volatility that
often has been unrelated or disproportionate to the operating performance of
particular companies. These broad market and industry fluctuations may adversely
affect the trading price of our common stock, regardless of our actual operating
performance.
You will suffer substantial dilution and our current stockholders will benefit
from this offering
New investors in this offering will experience an immediate and
substantial dilution of $ per share, assuming an initial public offering
price of $ per share. This offering will also create a public market for the
resale of shares held by existing investors, and substantially increase the
market value of those shares. In addition, the issuance by our company of
additional securities, including common stock or securities convertible into
common stock, the exercise of warrants currently held by Cerner and THINC, or
the exercise of employee stock options or officer stock options, could result in
substantial dilution of the percentage ownership of our stockholders at the time
of any such issuance and substantial dilution of our company's earnings per
share. See "Dilution."
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements relating to our
operations that are based on management's current expectations, estimates and
projections about our company, and the healthcare e-commerce industry. Words
such as "expects," "intends," "plans," "projects," "believes," "estimates,"
"anticipates" and variations of these words and similar expressions are used to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. Further, certain forward-looking statements are based
upon assumptions as to future events that may not prove to be accurate.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecast in such forward-looking statements. We undertake no
obligation, and do not intend, to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
A number of important factors could cause actual results to differ materially
from those indicated by such forward-looking statements. Such factors include
those set forth in this prospectus under the heading "Risk Factors."
15
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the sale of shares of common
stock in connection with this offering will be approximately $ million based
on an assumed initial public offering price of $ per share. We estimate the
net proceeds will be approximately $ million if the underwriters'
over-allotment option is exercised in full. In addition, we estimate the net
proceeds from the sale of shares of common stock to Cerner in a separate,
concurrent private transaction will be approximately $ million. We
currently intend to use the net proceeds from this offering and the private sale
to Cerner for working capital, including financing the cost of product
development and deployment, increased sales and marketing activities, and for
general corporate purposes. We may use a portion of the net proceeds to fund,
acquire or invest in complementary businesses or technologies, although we have
no present commitments with respect to any acquisition or investment.
Pending use of the net proceeds of the offering, we intend to invest
such proceeds in U.S. government or investment-grade marketable securities.
DIVIDEND POLICY
We currently intend to retain any earnings to finance the development
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Any declaration and payment of dividends would be
subject to the discretion of our board of directors. Any future determination to
pay dividends will depend on our results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant
at the time by the board of directors.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999 the actual
capitalization of our company and the as adjusted capitalization of our company
after giving effect to the receipt of the estimated net proceeds from the sale
of the shares of common stock offered to the public hereby at the assumed
initial public offering price of $ per share, after deducting underwriting
discounts and commissions and the estimated offering expenses, and the
concurrent sale by us of shares of common stock Cerner has agreed to
purchase directly from us in a separate, concurrent private transaction.
<TABLE>
<CAPTION>
March 31, 1999
(in thousands)
(unaudited)
----------------------
As
Actual Adjusted
------- -------
<S> <C> <C>
Cash and cash equivalents $5,058 $
======= =======
Stockholders' equity:
Preferred Stock, $.01 par value, 20,000,000 shares authorized;
none issued and outstanding....................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized;
25,000,000 shares issued and outstanding; issued and
outstanding as adjusted (1)....................................... 250
Paid-in capital..................................................... 109,173
Deficit accumulated during the development stage.................... (68,173) (68,173)
------- -------
Total stockholders' equity........................................ 41,250
------- -------
Total capitalization................................. $41,250 $
======= =======
</TABLE>
- --------------------
(1) Excludes shares of common stock which may be issued upon the
exercise of options outstanding on the date of this prospectus granted
pursuant to our employee stock option plan or our officer stock option
plan and an additional shares of common stock reserved for
issuance pursuant to these plans. The weighted average exercise price
of all options outstanding on the date of this prospectus is the
initial public offering price per share. Also excludes an aggregate of
1,946,750 shares of common stock which may be issued from time to time
upon the exercise of the THINC and Cerner warrants and 1,001,250 shares
of common stock which will be issued on or after February 15, 2001 to
Cerner at a price of $.01 per share if we realize a specified level of
physician usage of our services. See "Management," "Security Ownership
of Management," and "Transactions and Relationships with Principal
Stockholders."
17
<PAGE>
DILUTION
As of March 31, 1999, our net tangible book value was $9,920,000 or
$.40 per share. After giving effect to the sale of shares offered to the
public hereby at an assumed initial public offering price of $ per share,
after deducting the underwriting discount and estimated offering expenses, and
after giving effect to the concurrent, private sale by us of shares of
common stock to Cerner, our pro forma as adjusted net tangible book value as of
March 31, 1999 would have been approximately $ or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to the existing stockholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution.
Per Share
---------
Initial public offering price per share................... $
Net tangible book value before the offering(1)...... $
Increase attributable to new investors.............. $
Pro forma net tangible book value after the offering...... $
Dilution per share to new investors(2).................... $
- ---------------------------
(1) Net tangible book value, which consists of tangible assets less total
liabilities, of our company divided by the number of shares of common
stock outstanding as of March 31, 1999.
(2) If the underwriters' over-allotment option is exercised in full, the
dilution per share to new investors will be $ per share.
The following table summarizes, on the pro forma basis set forth above,
as of March 31, 1999, the relative investment of the existing stockholders, new
investors and Cerner.
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration
----------------------------- --------------------------- Average Price
Number Percent Amount Percent per Share
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C>
Existing Stockholders..................... $
New Investors in this offering............
Cerner in a concurrent private
transaction...........................
-------------- -------------- ------------- -------------
Total............................ 100.0% 100.0% $
</TABLE>
The above computations do not include shares of common stock
which may be issued upon the exercise of options outstanding on the date of this
prospectus granted pursuant to our employee stock option plan or our officer
stock option plan and an additional shares of common stock reserved for
issuance pursuant to these plans. We expect to grant to certain of our officers
and employees, effective as of the date of this prospectus, options to purchase
an aggregate of approximately of these shares at an exercise price equal
to the initial public offering price per share. See "Management." These
computations also do not include 1,946,750 shares of common stock that may be
issued from time to time upon the exercise of the warrants held by THINC and
Cerner and 1,001,250 shares of common stock which may be issued on or after
February 15, 2001 to Cerner at a price of $.01 per share if our business
realizes certain performance levels.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except share data)
The selected financial data for our company set forth below as of June 30,
1997 and June 30, 1998 and for the period from Inception (December 24, 1996)
through June 30, 1997 and for the year ended June 30, 1998 have been derived
from our audited consolidated financial statements included elsewhere in this
prospectus. The selected financial data related to the statement of operations
for the predecessor business of Avicenna Systems Corporation set forth below for
the year ended December 31, 1995, for the period January 1, 1996 through
December 23, 1996 and for the cumulative period from Inception (September 20,
1994) through December 23, 1996 data of Avicenna Systems Corporation have been
derived from the audited financial statements of Avicenna Systems Corporation
included elsewhere in this prospectus. The selected financial data for the
predecessor business of Avicenna Systems Corporation set forth below for the
period from Inception (September 20, 1994) through December 31, 1994 and all the
balance sheet data of Avicenna Systems Corporation have been derived from the
audited financial statements of Avicenna Systems Corporation not included in
this prospectus. The selected financial data for our company as of March 31,
1999, for the nine-month periods ended March 31, 1998 and 1999 and for the
cumulative period from Inception (December 24, 1996) through March 31, 1999 are
derived from our unaudited consolidated financial statements which, in the
opinion of our management, include all normal and recurring adjustments
necessary to present fairly the financial position and the results of operations
of our company for those periods. The operating results for the nine months
ended March 31, 1999 are not necessarily indicative of the operating results to
be expected for the full year. The selected financial data presented below
should be read in conjunction with the financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for both our company and the predecessor business of Avicenna
Systems Corporation included elsewhere in this prospectus.
19
<PAGE>
<TABLE>
<CAPTION>
Avicenna Systems Corporation
Predecessor Business
-------------------------------------------
Period Cumulative
from Period from
inception from inception
(9/20/94) Year 01/01/96 (09/20/94)
through ended through through
12/31/94 12/31/95 12/23/96 12/23/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Service revenue (related party) .... $ -- $ -- $ 20 $ 20
Cost of services (related party) ... -- -- -- --
Costs & expenses
Research & development ........... 16 86 1,161 1,263
Sales & marketing ................ 9 12 1,297 1,318
General & administrative ......... 7 69 860 936
Litigation costs ................. -- -- -- --
Other income, net ................ -- -- -- --
Acquired in-process research &
development ................... -- -- -- --
-------- -------- -------- --------
Total costs & expenses ....... 32 167 3,318 3,517
-------- -------- -------- --------
Net loss ........................... $ (32) $ (167) $ (3,298) $ (3,497)
Preferred stock dividends .......... -- -- (241) (241)
Net loss applicable to common
stockholders ................... $ (32) $ (167) $ (3,539) $ (3,738)
======== ======== ======== ========
Basic and diluted net loss per share
applicable to common
stockholders ................... $ (0.08) $ (0.44) $ (9.34) $ (9.86)
Weighted average shares outstanding
(basic & diluted) .............. 379 379 379 379
</TABLE>
<TABLE>
<CAPTION>
CareInsite, Inc.
-----------------------------------------------------------------------
Period Nine Cumulative
from months from
inception ended Inception
(12/24/96) Year March 31, (12/24/96)
through Ended -------------------- through
06/30/97 06/30/98 1998 1999 03/31/99
-------- -------- -------------------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service revenue (related party) .... $ -- $ -- $ -- $ 213 $ 213
Cost of services (related party) ... -- -- -- 213 213
Costs & expenses
Research & development ........... 7,652 4,762 3,976 8,720(1) 21,134(1)
Sales & marketing ................ 1,150 1,733 1,232 1,427 4,310
General & administrative ......... 1,379 3,887 2,589 2,944 8,210
Litigation costs ................. -- -- -- 2,500(2) 2,500(2)
Other income, net ................ (9) (47) (7) (110) (166)
Acquired in-process research &
development ................... 32,185(3) -- -- -- 32,185(3)
-------- -------- -------- -------- --------
Total costs & expenses ....... 42,357 10,335 7,790 15,694 68,386
-------- -------- -------- -------- --------
Net loss ........................... $(42,357) $(10,335) $ (7,790) $(15,481) $(68,173)
Preferred stock dividends .......... -- -- -- -- --
Net loss applicable to common
stockholders ................... $(42,357) $(10,335) $ (7,790) $(15,481) $(68,173)
======== ======== ======== ======== ========
Basic and diluted net loss per share
applicable to common
stockholders ................... $ (2.12) $ (0.52) $ (0.39) $ (0.71) $ (3.31)
Weighted average shares outstanding
(basic & diluted) .............. 20,025 20,025 20,025 21,683 20,577
(footnotes on following page)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Avicenna Systems Corporation
Predecessor Business CareInsite, Inc.
------------------------------------ ------------------------------------
12/31/94 12/31/95 12/23/96 06/30/97 06/30/98 03/31/99
-------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) .................. (32) 998 $(1,257) $(1,592) $ 775 $ 4,342
Total assets ............................... -- 1,201 1,263 3,476 10,833 43,935
Stockholders' equity (deficit) ............. (32) (206) (3,744) 1,566 7,798 41,250
</TABLE>
- -------------
(1) As a result of obtaining a license to the Cerner technology, certain
software that we previously capitalized was deemed duplicative and
obsolete and had no alternative future use. Consequently, approximately
$2,381,000 of capitalized software costs were written off and included
in expenses.
(2) Represents charges relating to expenses incurred in conjunction with
the Merck litigation in the quarter ended March 31, 1999. See "Risk
Factors -- Litigation by Merck & Co., Inc. and Merck-Medco Managed
Care, L.L.C. against our company."
(3) Represents a non-recurring charge related to the write-off of acquired
in-process research and development costs in conjunction with the
purchase of Avicenna Systems Corporation and CareAgents, Inc.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and notes thereto. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in forward-looking
statements. See "Risk Factors."
Overview
Our healthcare e-commerce services are still under development and no
revenues have been generated from the sale of these services. Additionally, the
market for our products and services is unproven. These factors make it
difficult to evaluate our business and prospects. We have incurred substantial
operating losses since our inception and there can be no assurance that we will
generate significant revenues or profitability in the future. We intend to
significantly increase our expenditures primarily in the areas of development,
sales and marketing, data center operations and customer support. As a result,
we expect to incur substantial operating losses for at least the next two fiscal
years.
We expect to generate a significant portion of our revenue from payers
and suppliers who are expected to pay initial set-up and ongoing maintenance
fees associated with organizing, loading and maintaining their content,
transaction fees for the transmission of payer content to physicians and
transaction fees for lab orders/results and prescription routing. We also expect
to generate revenue from physicians who are expected to pay a monthly fee for
access to a range of our services.
We believe that management has a unique understanding of the economic
leverage inherent in facilitating the automation of certain clinical,
administrative and financial processes. Accordingly, our company also intends to
contract with payers and suppliers to guarantee them incremental cost savings
from the use of certain of our services. In some cases, we intend to share in
any cost savings in excess of the guaranteed cost savings. The amount and timing
of transaction revenue generated under these arrangements may be impacted by our
guarantee of cost savings.
On December 24, 1996, Synetic acquired Avicenna Systems Corporation, a
privately held company that marketed and built Intranets for managed healthcare
plans, integrated healthcare delivery systems and hospitals. The acquisition of
Avicenna marked the inception of Synetic's healthcare electronic commerce
business. On January 23, 1997 Synetic acquired CareAgents, Inc., a privately
held company engaged in developing Internet-based clinical commerce
applications. On November 24, 1998, Synetic formed CareInsite, Inc. (formerly
Synetic Healthcare Communications, Inc.). On January 2, 1999, Synetic
contributed the stock of CareAgents to Avicenna. Concurrently, Avicenna
contributed the stock of CareAgents and substantially all of Avicenna's other
assets and liabilities to our company. Synetic continues to hold its interest in
our company through Avicenna. Synetic has also contributed $10,000,000 in cash
to our company. The transactions resulting in our formation have been accounted
for using the carryover basis of accounting and our company's financial
statements include the accounts and operations of Avicenna and CareAgents for
all periods presented from the date each entity was acquired. In October, 1998,
we entered into agreements in principle with THINC and Cerner. Definitive
agreements with THINC and Cerner were entered into in January 1999.
Results of Operations -- CareInsite
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31, 1998
Service revenue (related party) of $213,000 consisted of management
services which we provided to THINC pursuant to the CareInsite/THINC operating
agreement effective in January 1999.
Cost of services (related party) of $213,000 consisted primarily of
employee compensation and benefits expense for those employees directly
supporting the THINC business.
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Research and development expenses consist primarily of employee
compensation, the cost of consultants and other direct expenses incurred in the
development of our product. These expenses were $8,720,000 for the nine months
ended March 31, 1999 and $3,976,000 for the nine months ended March 31, 1998.
Research and development expenses for the nine months ended March 31, 1999
include a $2,381,000 write-off of capitalized software costs relating to
components of our existing software which were deemed duplicative and obsolete
and has no alternative future use with the functionality obtained through the
license of several components of Cerner's technology. Excluding this write-off
of capitalized software, total expenditures for research and development,
including amounts capitalized, were $14,108,000 for the nine months ended March
31, 1999 and $6,516,000 for the nine months ended March 31, 1998. The increase
in total expenditures was related to the purchase of third party licenses, as
well as increases in development personnel and outside consultants. Of the total
expenditures, $7,769,000 was capitalized during the nine months ended March 31,
1999 and $2,540,000 was capitalized during the nine months ended March 31, 1998.
Our policy is to capitalize software development costs once technological
feasibility has been established.
Sales and marketing expenses consist primarily of salaries and
benefits, travel for sales, marketing and business development personnel, and
promotion related expenses such as advertising, marketing materials, and
tradeshows. Sales and marketing expenses were $1,427,000 for the nine months
ended March 31, 1999 and $1,232,000 for the nine months ended March 31, 1998.
The increase reflects the addition of payer oriented marketing staff partially
offset by the elimination of the remaining advertising and Intranet sales and
marketing personnel. Included in sales and marketing expenses are charges from
Synetic of $494,000 for the nine months ended March 31, 1999 and $422,000 for
the nine months ended March 31, 1998. These charges represent an allocation of
compensation costs for Synetic's personnel who devote a majority of their time
to our company, and primarily relate to business development and marketing
support services.
General and administrative expenses consist primarily of compensation
for legal, finance, management and administrative personnel. General and
administrative expenses were $2,944,000 for the nine months ended March 31, 1999
and $2,589,000 for the nine months ended March 31, 1998. The increase in general
and administrative expenses of $355,000 resulted primarily from increased costs
associated with supporting the growth in our research and development efforts.
Included in general and administrative expenses are charges from Synetic of
$253,000 for the nine months ended March 31, 1999 and $141,000 for the nine
months ended March 31, 1998. These charges represent an allocation of
compensation costs for Synetic's personnel who devote a majority of their time
to our company, and primarily relate to administrative and legal services. The
increase in these allocated expenses is due to increased staffing to support our
business. We expect to hire additional personnel and incur additional costs
related to becoming a public company. Accordingly, we intend to increase the
absolute dollar level of general and administrative expenses in future periods.
We recorded $2,500,000 in litigation charges for the nine months ended
March 31, 1999, related to our ongoing defense against assertions that we
violated certain agreements with Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. See "Risk Factors -- Litigation by Merck & Co., Inc., and Merck-Medco
Managed Care, L.L.C. against our company."
Year Ended June 30, 1998 Compared to Period from Inception (December 24, 1996)
Through June 30, 1997
Research and development expenses were $4,762,000 for the year ended
June 30, 1998 and $7,652,000 and for the period from inception (December 24,
1996) through June 30, 1997. Total expenditures for research and development,
including amounts capitalized, were $9,386,000 for the year ended June 30, 1998
and $8,000,000 and for the period from inception (December 24, 1996) through
June 30, 1997. The increase in total expenditures was primarily due to the
longer fiscal period and a significant increase in research and development
personnel. This increase was partially offset by the write-off of $5,228,000 in
costs associated with the acquisitions of rights to certain intellectual
property and software technologies in the period from Inception (December 24,
1996) through June 30, 1997 for which there was no comparable write-off for the
year ended June 30, 1998. This write-off primarily related to payments for a
royalty-free perpetual license for pharmacy - and prescription - related
software applications, together with the supporting documentation. We licensed
these assets for use in developing certain
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components of our computer applications. As we had not established the
technological feasibility of our applications prior to the date the license was
acquired, and there was no alternative future use of the licensed technology,
the entire cost was charged to research and development expense. Research and
development costs capitalized for the year ended June 30, 1998 and for the
period from inception (December 24, 1996) through June 30, 1997 were $4,624,000
and $348,000, respectively.
Sales and marketing expenses were $1,733,000 for the year ended June
30, 1998 and $1,150,000 for the period from inception (December 24, 1996)
through June 30, 1997. The increase reflects the impact of the longer fiscal
period partially offset by a reduction in advertising and Intranet sales and
marketing personnel. This reduction is reflective of our change in the business
model from the development of Intranets and the generation of advertising
revenue from pharmaceutical and medical device manufacturers who advertise on
these Intranets to our focus on clinical e-commerce. Included in sales and
marketing expenses are charges from Synetic of $575,000 for the year ended June
30, 1998 and $206,000 for the period from inception (December 24, 1996) through
June 30, 1997. These charges represent an allocation of compensation costs for
personnel who devote a majority of their time to our company, and primarily
relate to business development and marketing support services. The increase in
these allocated expenses is primarily due to the longer fiscal period and to a
lesser extent, increased staffing to support our business.
General and administrative expenses were $3,887,000 for the year ended
June 30, 1998 and $1,379,000 for the period from inception (December 24, 1996)
through June 30, 1997, respectively. The increase in general and administrative
expenses of $2,508,000 resulted primarily from the longer fiscal period and
increased occupancy costs. Included in general and administrative expenses are
charges from Synetic of $261,000 for the year ended June 30, 1998 and $24,000
for the period from inception (December 24, 1996) through June 30, 1997.
These charges represent an allocation of compensation costs for personnel who
devote a majority of their time to our company, and primarily relate to
administrative and legal services. The increase in these allocated expenses is
primarily due to the longer fiscal period and, to a lesser extent, increased
staffing to support our business.
Purchased research and development for the period from inception
(December 24, 1996) through June 30, 1997 was $32,185,000. This relates to the
write-off of the portion of the purchase price allocated to acquired in-process
research and development for the Avicenna and Care Agents acquisitions.
Results of Operations -- Avicenna (predecessor business)
Period from January 1, 1996 through December 23, 1996 Compared to Year Ended
December 31, 1995
Research and development expenses were $1,161,000 for the period from
January 1, 1996 through December 23, 1996 and $86,000 for the year ended
December 31, 1995. The increase in total expenditures was primarily due to a
significant increase in the number of research and development personnel
resulting in increased compensation, benefits, recruitment and other personnel
related expenses.
Sales and marketing expenses were $1,297,000 for the period from
January 1, 1996 through December 23, 1996 and $12,000 for the year ended
December 31, 1995. The increase is due to the increase in staffing along with
deploying marketing programs, advertising and travel relating to the Intranet
sales business.
General and administrative expenses were $860,000 for the period from
January 1, 1996 through December 23, 1996 and $69,000 for the year ended
December 31, 1995. Most of the increase in expenditures was due to additional
general and administrative personnel working in legal, finance and
administrative functions. Additional cost increases include consulting, public
relations, rent, and depreciation.
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Acquired In-Process Research and Development -- CareInsite
In connection with the acquisitions of Avicenna and CareAgents, we
allocated a portion of each purchase price to acquired in-process research and
development. The amount allocated to acquired in-process research and
development for each of these acquisitions was determined based on an income
approach valuation methodology. For both Avicenna and CareAgents a nine year
forecast of revenues and costs attributable to the acquired technology was
prepared. The nine year projection period was consistent with the expected
useful lives of the technology under development. The resulting operating cash
flows were then reduced by working capital and capital expenditures and
discounted to present value based on a discount rate of 30% for Avicenna and 50%
for CareAgents. These different discount rates were used because, at the time of
acquisition, Avicenna had commenced operations, had more than 30 employees and
had received financing. In contrast, CareAgents, at the time of acquisition, had
not commenced operations, had no employees other than its stockholders, and had
not received any financing. These amounts have been expensed on the respective
acquisition dates as the in-process research and development had not reached
technological feasibility and had no alternative future use. A description of
the acquired in-process research and development and the estimates made by us is
set forth below.
Avicenna. Avicenna's business plan was to design and market Intranets
to provider organizations to provide communication and reference capabilities to
these organizations. Doctors in these organizations would communicate via e-mail
and forum groups with centralized medical reference information with the
objective of reducing costs in a managed care environment. The fundamental
technology plan was to develop a client/server based application to allow
hospital affiliated doctors to access a local Intranet that housed medical
reference information, in-house policies and procedures, and communication among
the various parties. This required development of electronic search, medical
reference material storage and communication capabilities such as forums and
e-mail. The revenue model had been, prior to acquisition, primarily one based on
pharmaceutical and medical device manufacturer's advertising fees on these
Intranets. Avicenna also envisioned creating a search capability that would
allow doctors to quickly access relevant reference information on a variety of
medical topics from databases that were licensed to Avicenna. These databases
would be customized in format by Avicenna.
As of the acquisition date, Avicenna was in the early stages of its
development and the systems under development had not yet reached technological
feasibility. There was a working public Intranet site and they had begun to
implement the search techniques. Their primary mechanism to allow users to
search their Intranet sites and access content provided by hospitals,
advertisers, and others was to develop a method of customizing that content via
a software utility known as "Framework." Framework was in the initial stage of
development with the substantive system design, coding, and testing work
remaining incomplete. Framework was the fundamental piece of code that would
enable users to be able to both search and reference the content contained on an
Avicenna Intranet and thereby realize their business model.
As of the December 24, 1996 acquisition date, Avicenna had incurred
approximately $1,263,000 in research and development costs to develop the
technology to its status described above. It was estimated that over $3,000,000
of costs remained to complete the projects described above in the following
calendar year and that additional significant costs remained in subsequent years
to further enhance and maintain the capabilities of the Avicenna system.
Subsequent to the date of acquisition, we have modified the acquired technology
from both Avicenna and CareAgents and incorporated them into a broader system,
the CareInsite system.
CareAgents. CareAgents' business plan was to design and market Internet
based clinical commerce applications that allowed the various healthcare
participants to exchange information and conduct basic medical transactions with
each other. Participants included patients, providers, and suppliers. The
fundamental technology
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plan was to create an Internet and standards based connection between the
participants and then provide specific transaction capabilities using both
internally and externally developed application software.
CareAgents' technology was in the very early stages of development with
basic user requirements, a business plan, preliminary system architecture with
process flow diagrams and prototyping efforts comprising the work completed to
date. In excess of $8,000,000 in costs remained over the next two years to
mature the technology to the point of technological feasibility and then
complete for first product deployment. No work had been completed on a detailed
engineering design or on building or testing any substantive code.
Liquidity and Capital Resources -- CareInsite
Our operations since Inception (December 24, 1996) have been funded
through capital contributions from Synetic. As of March 31, 1999, we had
$5,058,000 of cash and cash equivalents.
Cash used in operating activities was $12,447,000 for the nine months
ended March 31, 1999, $9,052,000 for the year ended June 30, 1998 and $5,011,000
for the period from Inception (December 24, 1996) through June 30, 1997. The
cash used during this period was primarily attributable to the losses associated
with the development of our business activities.
Cash used in investing activities was $9,243,000 for the nine months
ended March 31, 1999, $6,721,000 for the year ended June 30, 1998 and $1,371,000
for the period from Inception (December 24, 1996) through June 30, 1997 and
related primarily to capital expenditures.
Cash provided by financing activities was $26,433,000 for the nine
months ended March 31, 1999, $15,842,000 for the year ended June 30, 1998 and
$6,628,000 for the period from Inception (December 24, 1996) through June 30,
1997. Such amounts represent capital contributions made by Synetic.
In addition, pursuant to our strategic relationship with THINC, we have
committed to extend up to $2,000,000 and $1,500,000 in senior loans to THINC.
In connection with our strategic relationship with Cerner, Cerner has agreed to
fund $1,000,000 of our $2,000,000 loan to THINC. See "Transactions and
Relationships with Principal Stockholders."
In addition, Cerner has agreed to purchase directly from us shares
of our common stock in a separate private transaction concurrent with this
offering. We estimate the net proceeds from the sale of shares of common stock
to Cerner in such transaction will be approximately $ million. See
"Transactions and Relationships with Principal Stockholders -- Cerner."
We currently anticipate that the net proceeds from the offering and
proceeds from the sale of shares to Cerner in a concurrent private transaction,
together with our available cash resources, will be sufficient to meet our
presently anticipated working capital, capital expenditure and business
expansion requirements for approximately the next 18 months. There can be no
assurance we will not require additional capital prior to the expiration of an
18-month period. Even if such additional funds are not required, we may seek
additional equity or debt financing. We cannot assure you that such financing
will be available on acceptable terms, if at all, or that such financing will
not be dilutive to our stockholders.
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Year 2000 -- CareInsite
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries for the year in the date
code field. These systems and software products will need to accept four digit
year entries to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.
State of Readiness. We have made a preliminary assessment of the Year
2000 readiness of our information technology systems, including the hardware and
software that enable us to develop and deliver our healthcare e-commerce
services as well as our non-information technology systems. Our assessment plan
consists of:
o quality assurance testing of our internally developed
proprietary software;
o contacting third-party vendors and licensors of material
hardware, software and services that are both directly and
indirectly related to developing our healthcare e-commerce
network;
o contacting vendors of material non-IT systems;
o assessment of repair or replacement requirements;
o repair or replacement; and
o implementation.
We have been informed by our vendors of material hardware and software
components of our IT systems that the products used by us are currently Year
2000 compliant. We have also been informed by our non-IT system vendors that the
products used by us are currently Year 2000 compliant.
Costs. To date, we have not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent developing a Year 2000 compliant
healthcare e-commerce channel.
We are not currently aware of any Year 2000 compliance problems
relating to our information technology or non-information technology systems
that we believe would have a material adverse effect on our business, financial
condition and results of operations. There can be no assurance that we will not
discover Year 2000 compliance problems that will require substantial revisions
to our systems, products or services. In addition, there can be no assurance
that third-party software, hardware or services incorporated into our material
information technology and non-information technology systems will not need to
be revised or replaced, all of which could be time consuming and expensive. Any
failure to fix our information technology systems or to replace third-party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition.
In addition, there can be no assurance that physicians, payers,
suppliers, Internet access companies, third-party service providers, vendors,
business partners and others outside our control will be Year 2000 compliant.
The failure by such entities to be Year 2000 compliant could result in a
systemic failure beyond our control, such as a prolonged Internet or
communications failure, which could also prevent us from delivering our services
to customers, decrease the use of the Internet or prevent users from accessing
our service. Such a failure could have a material adverse effect on our
business, results of operations and financial condition. Also, a general Year
2000
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systemic failure could require healthcare companies to spend large amounts of
money to correct any such failures, reducing the amount of money that might
otherwise be available to be spent on services such as ours.
Contingency plan. We are continuing to assess and test our systems for
Year 2000 compliance. We have also developed contingency plans for system
failure, service disruption and data corruption issues due to Year 2000
problems. In the event that there is a system problem due to a Year 2000 date,
we will immediately attempt to diagnose and fix the problems. At the same time,
we will change (a) the system clock back to 1999 while separately logging all
transactions so affected and/or (b) the dates within transactions to 1999 while
separately logging all transactions so affected. In the event that a Year 2000
problem occurs at an external entity, that entity will be informed of the
problem and we will continue to review and repair the dates until the problem is
fixed. We cannot assure you that we will be able to successfully diagnose and/or
fix any Year 2000 problems that occur or that the cost of doing so will not be
material.
As the Year 2000 issue has many elements and potential consequences,
some of which are not reasonably foreseeable, the ultimate impact of the Year
2000 on our operations could differ materially from our expectations.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board, or "FASB,"
issued Statement of Financial Accounting Standards, or "SFAS," No. 131,
"Disclosures about Segments of an Enterprise and Related Information." We are
required to adopt SFAS No. 131 for the year ending June 30, 1999. SFAS No. 131
requires disclosure of certain information regarding operating segments,
products and services, geographic areas of operation and major customers.
Adoption of SFAS No. 131 is expected to have no material impact on our financial
condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." We are required to adopt SFAS No. 133 for
the year ending June 30, 2000. SFAS No. 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we currently hold no
derivative financial instruments and do not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
our financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position, or "SOP," 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. We are required to implement SOP 98-1 for the
year ending June 30, 2000. Adoption of SOP 98-1 is expected to have no material
impact on our financial condition or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position, or "SOP," 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that entities expense start-up costs as
incurred. We are required to implement SOP 98-5 for the year ending June 30,
2000. Adoption of SOP 98-5 is expected to have no material impact on our
financial condition or results of operations.
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BUSINESS
We are developing and intend to provide an Internet-based healthcare
electronic commerce network for interactive use by physicians, payers, suppliers
and patients. We intend to market a comprehensive set of transaction, messaging
and content services to physicians, to payers such as managed care organizations
and pharmacy benefit managers, or PBMs, to suppliers such as pharmacies and
clinical laboratories, and to patients. Physicians will be able to use a web
browser to access relevant clinical, administrative and financial information of
payers and suppliers through our CareInsite system to make more informed
decisions at the point of care. We believe our integration of payer-specific
rules and healthcare guidelines with patient-specific information at the point
of care will improve the quality of patient care, lead to more appropriate use
of healthcare resources, gain compliance with benefit plan guidelines and
control healthcare costs.
We currently provide services to The Health Information Network
Connection LLC, referred to as THINC, an entity founded in 1996 by several major
managed care organizations in the New York metropolitan area to facilitate the
confidential exchange of healthcare information. Under our agreement, we will
manage THINC's operations and make a comprehensive suite of healthcare
e-commerce services available to the New York metropolitan area's more than
40,000 physicians. We believe that our relationship with THINC in New York will
serve as a springboard for launching our services on a national basis. As part
of this relationship, we also acquired a 20% ownership interest in THINC.
We have recently entered into a strategic relationship with Cerner
Corporation, a publicly traded corporation that is a leading supplier of
clinical and management information systems to more than 1,000 healthcare
organizations worldwide. Through this relationship, we have a perpetual,
royalty-free license to certain of Cerner's technology, consisting of the
clinical and administrative information technology contained in Cerner's Health
Network Architecture, including their Millennium Architecture, for use in our
CareInsite system. Cerner has agreed that CareInsite will be its exclusive
vehicle for providing a full suite of healthcare e-commerce services that
connect physicians' offices with managed care organizations, PBMs, clinical
laboratories, pharmacies and other providers. Cerner has also agreed to market
our services to its customers. In addition, Cerner has acquired a 19.9% interest
in our company.
We believe our services have several advantages over the services
offered by our competitors, several of which have services that are currently in
operation. We believe that:
o our integration of payer-specific benefit rules and healthcare
guidelines with patient-specific information at the point of
care provides a unique ability to control the costs and
improve the quality of healthcare;
o our management's experience in clinical process automation,
healthcare transaction processing and benefit management
enables us to design and implement a healthcare e-commerce
network that is responsive to the needs of physicians, payers,
suppliers and patients; and
o our CareInsite system is being built with existing,
well-proven software and system interfaces, including the
licensed Cerner technology, that can be integrated with other
healthcare information systems in an efficient and scalable
manner.
Industry Background
Healthcare expenditures in the United States totaled approximately $1.0
trillion in 1996, representing a 6.7% compound annual increase since 1990.
Increases in healthcare costs have been driven principally by technological
advances in the healthcare industry and by the aging of the population, as older
Americans utilize more healthcare resources on a per capita basis. This
increasing trend in aggregate healthcare costs is expected to continue.
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In the past 15 years, the U.S. healthcare industry has undergone
significant changes. Among the most significant of these changes has been a
shift away from fee-for-service indemnity plans into health maintenance
organizations, or HMOs, and other managed healthcare benefit plans. These payers
have used a variety of managed care techniques to control administrative costs
including, but not limited to, lowering reimbursement rates, shifting costs from
payers to patients, restricting coverage for services, limiting access to a
select group of providers, negotiating discounts with healthcare providers, case
management functions, and shifting the economic risk for the delivery of care to
providers through alternative reimbursement models, such as capitation and risk
pools. While these techniques have been initially helpful in controlling
healthcare costs, we believe that these techniques have over time become less
effective in reducing costs. Managed healthcare organizations today are
experiencing rising healthcare costs and we believe their ability to reduce
patient care costs, which represent approximately 85% of annual healthcare costs
in the United States, is limited.
We believe that future healthcare cost management is increasingly
dependent upon compliance with benefit plan guidelines designed to promote the
appropriate use of healthcare resources and adherence to best clinical practices
to improve the quality of care and control patient care costs. We believe payers
are unlikely to gain compliance with these guidelines and practices without an
efficient channel of communications to their affiliated physicians. Today,
electronic communication among the physician, payer and supplier is typically
limited to administrative transactions. These communications typically occur at
specified times of day, usually several hours after medical care has been given
or treatment has been prescribed. We believe that compliance with benefit
guidelines can be better achieved through Internet-based healthcare e-commerce
systems that enable real time communication at the point of care of clinical
information as well as basic administrative and financial information.
The dramatic growth of the Internet as an important new medium to
collect and distribute information, communicate, interact and engage in commerce
has emerged as a way to overcome the historical technical barriers for
connecting the participants in the fragmented healthcare industry. These
technical barriers are diminishing as:
o universal, low-cost Internet access is replacing private
networks;
o common navigation via browser technology is replacing
proprietary desktop client software; and
o the Internet's open architecture is providing a solution for
integrating existing computer systems.
Factors Influencing Healthcare's Core Constituents
We believe the healthcare industry's core constituents -- physician,
payer, supplier and patient -- will benefit from timely access to
patient-specific information and payer content, such as benefit rules and care
guidelines, in order to reduce the complexity of administration, increase
compliance with benefit plan guidelines, secure appropriate use of healthcare
resources and improve the quality of patient care.
Physicians. Physicians are confronted with a proliferation of health
plans, each of which has complex clinical, administrative and financial rules
and guidelines relating to matters such as eligibility for prescriptions, lab
tests, referrals and follow-up visits, scope of coverage and co-payments. These
complex rules and guidelines require administrative personnel to spend
significant time navigating the cumbersome administrative procedures of a large
number of health plans often after the medical care has been given or
prescriptions or referrals have been written. This complexity has created demand
for real-time information exchange across all patients and all payers to
streamline cumbersome and time-consuming clinical and administrative processes.
Payers. Payers, such as health maintenance organizations and pharmacy
benefit managers, are finding less incremental value in the historical levers of
managed care. In order to stem the unabated growth in healthcare costs, managed
care plans must do more than automate the administrative and financial processes
that govern the provision of services and the payment of claims. While
administrative costs account for approximately 15% of annual healthcare
expenditures, it is the cost of care itself, approximately 85% of annual
healthcare expenditures,
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which primarily drives the growth in healthcare expenditures. We believe that
compliance with benefit plan guidelines that promote more efficient use of
healthcare resources and adherence to best practices will result in cost
reductions and improvements in the quality of care. Payers are seeking an
efficient channel to communicate their benefit plan rules and care guidelines to
physicians at the point of care in order to realize savings.
Suppliers. Pharmacies, clinical laboratories and other suppliers are
being forced to become increasingly efficient in managing their business as
managed care organizations have negotiated significant reductions in price and
demanded measurable improvements in quality. Pharmacies continue to incur
substantial inefficiencies in the process of managing orders with physicians and
patients. We believe that as many as ten percent of the nation's approximately
2.8 billion annual prescriptions require telephone intervention between the
pharmacist and patient or physician. We also believe that fewer than 20% of
laboratory orders and/or results in the ambulatory care environment are
submitted or transmitted through electronic systems. Physicians have been slow
to adopt these systems because they are proprietary in nature and are usually
limited to results reporting. Consequently, clinical laboratories incur
unnecessary administrative costs associated with processing and reporting orders
and also incur significant losses related to tests for which reimbursement is
not authorized.
Patients. As the payer exerts increasing influence over plan design,
service coverage, and provider access, patients are demanding ever more
objective measures of quality and cost. This is evidenced by the unprecedented
demand for healthcare information on the Internet, confirming both the absence
of information from traditional sources, and desire for additional sources of
objective, credible and trustworthy information.
Strategy
Our objective is to provide an Internet-based healthcare e-commerce
network for interactive use by physicians, payers, suppliers and patients in
order to control healthcare costs and improve patient care. Our relationships
with THINC and Cerner represent the initial execution of our strategy and
enhance our ability to continue and expand upon this strategy. Our strategy
includes the following elements.
Provide transaction, messaging and content services responsive to the
needs of physicians
We intend to provide physicians with transaction, messaging and content
services. These services are intended to complement the clinical work flows and
existing computer systems which characterize the physician office environment.
Our prescription, laboratory and managed care communication services respond to
the physician's need to provide patient care consistent with payer guidelines.
Specialized messaging services provide the office staff with alert and advisory
applications which facilitate patient treatment compliance, prescription
renewals and laboratory ordering results and automate time consuming paper and
telephonic processes. Content services, in the form of indexed and searchable
directories and databases, provide physicians with convenient access to
payer-specific information and general medical reference material. Together,
these services provide much needed context for informed decision making.
Our services are designed to work for all payers and suppliers, since
physician adoption requires services which work for virtually all patients. Our
strategy, by definition, is to remain "content-neutral." In other words, we do
not create our own content for physicians -- this is the role of our payers and
suppliers. Rather, we contract with payers and suppliers to transmit their
content in the form of clinical, administrative and financial guidelines over
our network and display these rules, in the form of alerts, advisories and
annotations to the physician at the point of care.
As part of our relationship with THINC, we intend to deploy on behalf
of THINC and offer to the New York Metropolitan area's 40,000 physicians, a
comprehensive suite of transaction, messaging and content services. As a result
of this relationship, physicians will have the ability to conduct nine different
prescription, laboratory and managed care transaction services that we believe
will simplify and automate their interaction with area health plans.
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Contract with key payers and suppliers to make patient-specific rules
available to physicians
Our marketing strategy is to contract with the managed care
organizations, pharmacy benefit managers, pharmacies and clinical laboratories
who benefit from the automation of specific clinical, administrative or
financial processes. Payers define the rules that govern the course of care
available to patients, and contract with physicians and suppliers to meet
specific cost and quality standards. Suppliers respond to physician orders,
dispensing prescriptions and conducting laboratory tests. By integrating
patient-specific information with benefit plan and supplier specific rules
through our CareInsite system at the point of care, we believe these
institutions will realize administrative and medical resource savings, improved
patient care and more appropriate resource utilization.
We have contracted with each of Empire Blue Cross and Blue Shield,
Group Health Incorporated and HIP, the payer participants in THINC, to provide
our prescription and laboratory communication services. We have also contracted
with National Prescription Administrators (NPA), a pharmacy benefit manager, to
provide our prescription communication services. We are engaged in discussions
with other leading payers and suppliers in the New York metropolitan area with
respect to these services. See "Transactions and Relationships with Principal
Stockholders -- Certain Agreements -- THINC."
Build and deploy the CareInsite system
Our technology strategy is focused upon building and deploying the
CareInsite system, which permits the integration of patient-specific information
with payer- and other supplier-specific guidelines. The CareInsite system is
intended to:
o host or connect to multiple payer- or supplier-specific
guidelines, such as procedure level eligibility, benefit plan
coverage, formularies and order sets;
o host or connect to patient-specific profiles, such as lab
results or medication histories;
o analyze an incoming request or order versus payer- or
supplier-specific guidelines;
o transmit payer- or supplier-specific annotations, alerts and
advisories when the orders or requests are at variance with
guidelines; and
o transmit payer- or supplier-specific content and messages to
authorized healthcare participants.
We believe our perpetual, royalty-free license to the Cerner technology
will allow us to accelerate the building and deployment of our CareInsite
system. This technology is central to the CareInsite system's ability to
register and identify patients, house patient-specific information, analyze
requests, and communicate payer rules in the form of alerts, advisories and
annotation messages.
Maximize distribution to physicians with high transaction volumes
Our distribution strategy is to target the high-volume physicians who
account for the majority of transactions. We work closely with payers and
suppliers to identify these physicians. In addition, we work closely with
providers of desktop software to physicians. Our strategy is to complement,
rather than compete with, vendors who market and provide software and network
services to physicians. We intend to contract with these vendors, such as Cerner
and THINC, to gain distribution of our services. We intend also to provide
physicians with direct access to our networks, as well as indirect access via
links from other web portals. Our primary sales vehicle is our direct sales
force, which targets groups of physicians.
As part of the THINC agreement, we are responsible for maximizing
adoption of these services by the New York metropolitan area's 40,000
physicians. Each of THINC's founding payers is responsible for providing us with
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a list of target physicians, and taking appropriate steps to ensure that
physicians understand and use the services. To maximize distribution, we have
entered into a marketing agreement with Greater New York Hospital Association to
market these services to its hospital members. We have entered into a
distribution agreement with Cerner for integrating our services into Cerner's
physician desktop software, and are pursuing discussions with other leading
providers of physician desktop software.
Pursue strategic relationships and acquisitions
We intend to continue to pursue opportunistic strategic relationships,
including customer/vendor agreements, joint ventures and acquisitions. We
believe that making strategic acquisitions and developing strategic industry
relationships will enhance our ability to penetrate additional markets through
new distribution channels and develop and provide additional services.
The THINC and Cerner arrangements evidence our intent to pursue
strategic relationships, joint ventures, and partnerships to accelerate growth
of our network and build substantial value for physicians, payers, and
suppliers.
Company Services
We intend to utilize the Internet to provide a broad array of browser
initiated healthcare e-commerce solutions which facilitate the confidential,
on-line exchange of healthcare information for all constituents in the
healthcare industry. Our healthcare e-commerce services include the transaction,
content and messaging services described below.
Transaction Services. Our transaction services include prescription,
laboratory and managed care communication services. Our prescription and
laboratory communication services are focused upon assisting physicians to more
efficiently support diagnoses and plan, prescribe and follow treatment,
consistent with payer guidelines. Our managed care communication services will
be focused upon automating the telephonic and paper processes physicians and
payers conduct in order to verify coverage and reimbursement, process medical
claims, and manage patient access to procedures and providers. We believe that
significant market opportunities exist for these services given the size of such
markets and the potential for improved efficiencies.
Prescription Communication Services. Our prescription communication
services, called RxInsite, are targeted to physicians, pharmacy benefit
managers, pharmacies and payers. While communication of payer and pharmacy
benefit manager rules to the pharmacy at the point of dispensing through
existing electronic data interchange networks has yielded substantial
administrative savings, payers and pharmacy benefit managers need an efficient
means to communicate their rules to physicians at the point of care in order to
further control drug expenditures and improve the quality of care. We believe
that payers and pharmacy benefit managers may realize significant savings
through greater prescribing of generic drugs, increased use of preferred
formulary drugs, and greater compliance with best clinical practices and
treatment guidelines. Since no single payer or pharmacy benefit manager
typically represents a majority of a physician's patients, these organizations
need a common network to communicate with physicians.
Our RxInsite services will provide physicians the ability to write
prescriptions in the context of patient medication histories and payer clinical
rules. As a result, they can improve patient care, reduce potentially harmful
drug interactions, lessen the number of telephone calls from payers and
pharmacies, and improve patient satisfaction. Payers and pharmacy benefit
managers who use our services may gain the ability to communicate their
patients' dispensed medication histories, drug utilization review results,
formulary and treatment guidelines to the physician through the CareInsite
system. As a result they may realize the savings and improvement in patient care
that accompany compliance with their guidelines. Pharmacies may reduce
administrative costs as prescriptions are clarified and corrected before they
are submitted to the pharmacy for dispensing.
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Laboratory Communication Services. Our laboratory communications
services are targeted to physicians, payers and clinical laboratories. These
services will facilitate the electronic transmission of laboratory orders and
results between the physician and the clinical laboratory. This will enable the
physician to order diagnostic tests online from the clinical laboratory within
the context of a specific patient's lab coverage. In a managed care environment,
payers are seeking to ensure quality of patient care and to minimize overall
healthcare costs by eliminating unnecessary or redundant tests and establishing
testing protocols. Similarly, clinical laboratories, managing deep discount and
capitation contracts, are seeking to provide care as efficiently and
appropriately as possible. These services will provide payers the ability to
communicate payer-specific information and treatment guidelines which should
lead to significant reductions in test costs. Clinical laboratories also are
expected to gain the ability to obtain significant savings through process
automation of the orders and results process. Moreover, they should be able to
more effectively manage payer rules, minimize costs under capitation contracts
and reduce the incidence of overdue payments and bad debt.
Managed Care Communication Services. Our managed care communication
services are comprised of a comprehensive set of administrative and financial
network services as described below, and are designed to gain authorization from
payers for procedures, visits and referrals to network physicians and providers
and to facilitate reimbursements.
Claims services. Healthcare claims are the most commonly communicated
transactions between physicians and payers today. Our claims services are
designed to allow physicians to submit claims to payers for payment, inquire as
to the status of claims previously submitted and receive electronic remittance
advice which provides payment information as well as an explanation of the
settlement of the related claim. Our claims services will reduce administrative
paperwork, resulting in savings for payers, and expedite the reimbursement
process, which are intended to result in lower average number of outstanding
accounts receivable days for physicians.
Eligibility services. Verification as to whether services rendered to a
patient are eligible for reimbursement is the most basic of e-commerce
applications, but one which is largely provided today via telephone and fax.
Given the proliferation of managed care organizations and the increasing
complexity of their rules and guidelines, we believe that there will be an
increasing demand for timely and accurate electronic eligibility determination.
Physicians would benefit by being able to verify the terms of reimbursement
prior to providing services to the patient. Payers would benefit by being able
to eliminate the cost of processing claims and paying for claims from ineligible
patients.
Referral and Pre-Certification Authorization Services. Referral
authorization transactions facilitate physician-to-physician referrals by
providing the physician with the payer's referral rules at the point of care.
Pre-certification authorization transactions involve the determination as to
whether a patient can be pre-certified for hospitalization or in-hospital
procedures. These services will reduce the incidence of referral or
pre-certification errors, which thereby reduce unauthorized treatment.
Content Services. Our content services will provide physicians with
online access to both available medical reference material, and the private
content unique to payers. We continue to license publicly available content
resources, including medical databases and other general reference material. We
intend to contract with payers to re-purpose for publication via the CareInsite
system through the Internet their private-content, benefit plan information,
provider directories, formularies, policies and procedures, treatment guidelines
and other patient education and wellness information, and make it available in
an indexed and easily searchable format. We believe our services will be
differentiated from our competitors in our unique ability to integrate content
into our messaging and transaction applications in order to provide physicians
with the requisite context for informed decision making.
Messaging Services. Our messaging services will provide physicians with
online access to patient and payer specific inquiries, alerts and advisories as
well as e-mail and broadcast message applications. Messaging applications
facilitate communication between physician, payer, supplier and patient. In
particular, messaging applications are intended to simplify time consuming
processes for the physicians' staff. Prescription messaging
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applications include prescription renewal and interchange programs which
automate telephonic processes between patient, physician and pharmacy.
Laboratory messaging programs will provide the ability to not only view results,
but also order subsequent tests as suggested by payer rules and treatment
guidelines. We believe our services will be differentiated from our competitors
in our unique ability to integrate messaging into our transaction applications.
Sales and Marketing
Our sales and marketing efforts will be focused upon four target
audiences:
o payers, including pharmacy benefits managers,
o suppliers, including clinical laboratories,
o physicians, including physician practice management groups, and
o business development partners, including physician software and
network service vendors.
Our key objectives are to maximize the number of physicians registered to use
the service, maximize the number of patient lives covered by participating
payers and PBM's, and maximize the number of participating suppliers. We will
market our services through multiple channels, including building on our model
in the greater New York area, working closely with payer and supplier customers
to maximize physician enrollment, working with physician office management
information systems and hospital information systems vendors and electronic data
interchange networks and through strategic relationships.
Once contracts are in place, our customer service strategies are
essential to our ability to maximize physician use of our services and minimize
payer and supplier attrition. We expect to provide toll free telephone support
to physician and physician office staff members seven days a week, 24 hours per
day. We intend to provide online resources and help functions which should
facilitate solutions to most frequently asked questions. In addition to our
customer service center, we intend to provide account management services to our
payer, supplier and distribution partners. These personnel provide
implementation support to customers, and provide an ongoing channel of
communication between our company and our customers to ensure that our services
consistently meet customer needs.
Physicians. We will market our services to physicians in several ways.
Employing the target data from payer and supplier customers, we intend to employ
a direct sales force to contract with large groups of physicians. In addition,
we intend to adopt a strategy of complementing, rather than competing with
traditional providers of desktop software and network services to physicians, by
pursuing marketing relationships with those vendors.
Payers. We will contract with payers to maximize the number of patient
lives accessible by participating physicians. We also intend to work closely
with payers to maximize physician enrollment. Together, we will seek to identify
groups of high volume physicians that represent the majority of potential
transactions. In addition, we will work closely with payers to maximize
physician adoption of these services.
Suppliers. We will contract with clinical laboratories which represent
the bulk of transaction volume on a local and national basis. We also intend to
work closely with payer customers to identify and contract with the preferred
clinical laboratories that comprise their managed care networks. In turn, we
will work with these suppliers to maximize physician enrollment by identifying
those physicians which represent the majority of their prescription and
laboratory transactions.
Relationship with THINC. We have entered into definitive agreements for
a broad strategic alliance in January 1999 with THINC, and its founding
members, Greater New York Hospital Association, Empire Blue Cross and Blue
Shield, Group Health Incorporated Group Health Incorporated, and HIP Health
Plans. Under this
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arrangement, among other things, we will manage the operations of THINC,
including all aspects of marketing and sales, implementation, customer service
and technical operations. In addition, THINC will provide managed care
transaction services on behalf of Empire, Group Health Incorporated and HIP,
including online medical claims submission, status, remittance advice,
eligibility, referral and pre-certification authorizations. We have also
licensed to THINC our content and messaging services for use over the THINC
network, and have entered into agreements with each of Empire, Group Health
Incorporated and HIP to provide online prescription and laboratory communication
services. See "Transactions and Relationships with Principal Stockholders --
Certain Agreements -- THINC."
As part of our management services agreement with THINC, we are
committed to marketing these services to all other payers and suppliers in the
New York metropolitan area.
Technology Platform
Our system is comprised of a network of computers, related equipment
and application software that uses the Internet to link the key participants in
the healthcare industry. We expect that the CareInsite system will facilitate a
broad range of healthcare transactions, such as enabling a physician to order
prescriptions and lab tests and to verify a particular patient's eligibility for
treatment under his or her health plan, and will facilitate medical claims
processing, compiling medical data and informing physicians of particular
patient histories.
The CareInsite system is a comprehensive online transaction processing
environment focused on the key physician oriented aspects of healthcare
e-commerce. The CareInsite system is being designed to request, receive,
rationalize, and present patients' clinical records, drug and medical reference
content, treatment guidelines, and financial status and payer rules related to
treatment preferences to the physician at the point of care. Underlying these
processes are the capabilities to acquire, validate, and maintain patient- and
plan-specific directories, house, and execute payer- and provider-specific
rules, as well as to analyze and report results.
The magnitude and complexity of the healthcare data model and rules
engines required to establish precise, relevant communication among healthcare
payers, providers, and eventually consumers at various points of care exceeds
the development capability of start-up Internet-focused enterprises. We obtained
a perpetual, royalty-free license to the Cerner technology, which provides the
foundation for our transaction processing environment and which we believe will
enable us to accelerate the roll out of our services. We will also continue to
leverage commercially available software, make acquisitions, create joint
ventures with strategic partners and pursue internal software development.
Our technological innovation is the integration of the licensed Cerner
technology with the capability to deliver patient's health benefit rules at the
point of care. We leverage Cerner's proven person-focused data model, its Master
Patient Index supported by industry-leading patient matching procedures and a
portfolio of Web-enabled clinical applications. These applications are currently
accessed by more than 15,000 physicians who use them to support clinical
workflow in the hospital and integrated delivery network environment. We build
upon the Cerner Health Network Architecture to create the CareInsite system
which provides the ability to communicate our customers' benefit plan rules,
such as prior authorization, treatment guidelines, formularies and plan specific
order sets within physician's workflow at the point of care.
The CareInsite system incorporates industry leading capabilities with
respect to the following attributes:
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Compatibility. Our technology solution is being designed to work with
virtually any physician's desktop system. The CareInsite system is designed to
work from within either Microsoft's or Netscape's browsers. We work with vendors
to integrate our transactions into physicians' workflow. We believe that many of
our competitors will have difficulty interfacing with existing systems of
multiple payers. The industry-wide challenge of building interfaces to integrate
with providers' and payers' existing systems is significantly simplified because
of Cerner's Interface Services, which include an application that supports the
interfacing of computer applications and its library of foreign system
interfaces that have been built, tested and are maintained to interact with over
1,000 healthcare provider and payer-based systems. Our system employs the
licensed Cerner technology to provide access to information from servers it does
not control or own by implementing open interface protocols and providing tools
that simplify interface creation and data integration. Moreover, our platform
exploits Cerner's common data/process model, which uses new standards to
seamlessly integrate functions into the workflow of client applications.
Security. A security database defines the relationship among all
elements in the system and maintains the required information to support all
functions, including login, availability of data, user-privileges, user activity
and inactivity monitoring, access control, transaction routing, billing, and
error messages. The security database is being designed to address unauthorized
disclosure of information, unauthorized modification of information, loss of
data integrity, and denial of service. The CareInsite system employs a variety
of techniques in order to provide a comprehensive and secure system, including
128-bit data encryption technology, firewall technology among all subnetworks
throughout the system, and systems to immediately identify break-in attempts and
automate lock-out if breaches are suspected. In addition, our system builds upon
the proven patient data security services of the Cerner systems.
Scalability. Scalability, the ability of a networked computer system to
support an increasing number of system users without adversely affecting system
performance, is inherent in the design and selection of software components for
the CareInsite system. CareInsite's applications are designed to be used by
thousands of physicians in a particular region of the country simultaneously.
CareInsite's applications and data center are designed to be rapidly scaled to
support all of CareInsite's users with rapid response times. The key software
components of the CareInsite system have been tested and benchmarked to verify
this scalability.
Rapid Application Development. Our development of a single
architecture, common data model, use of industry standards wherever available,
and object-oriented approach to development is designed to maximize the speed
with which thoroughly tested, complex healthcare applications can be brought to
market. We use a method of software development called "time-boxed incremental
delivery life cycle model" for our software development, with certification and
quality assurance processes for each delivery into our service. Under this
method, we provide new releases of our software at regular intervals.
High Availability. We intend to maintain a highly reliable systems
architecture operating in our data center. The reliability is achieved by
duplication of key components, including networking devices, networking and
telecommunications connections and storage devices. In addition, high
availability of these operations will also be assured through the use of:
o uninterrupted power supply equipment;
o building-independent cooling and environmental systems;
o automatic fail-over of critical network services; and
o 24 hour a day monitoring of network connectivity, traffic,
hardware and software status.
Our data center will be in operation seven days a week, 24 hours a day.
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Disaster Recovery. While we believe our facilities and operations will
include redundancy, back-up and security to ensure minimal exposure to systems
failure or unauthorized access, a comprehensive and prudent disaster recovery
plan will also be put in place. Incremental backups of both software and
databases will be performed on a daily basis and a full system backup will be
performed monthly. Backup tapes will be stored at an offsite location along with
copies of schedules/production control procedures, procedures for recovery using
an off-site data center, all off-site documentation, run books, call lists,
critical forms and supplies. We also intend to maintain power backup throughout
the enterprise should a power outage occur within the data center.
Competition
The market for healthcare e-commerce is in its infancy and is
undergoing rapid technological change. Competition will potentially come from
several areas, including traditional healthcare software vendors, electronic
data interchange network providers, emerging e-commerce companies or others.
Traditional healthcare software vendors typically provide some form of physician
office practice management system. These include companies like Medical Manager,
Medic, and IDX. These organizations primarily focus on the administrative
functions in the healthcare setting. Electronic data interchange network
providers and claims clearinghouses like Envoy, which was recently acquired by
Quintiles Transnational, and NDC provide connectivity to edit and transmit data
on medical and pharmacy claims. These companies are beginning to offer services
which may be competitive with our clinical e-commerce services. Companies like
Healtheon and other emerging e-commerce companies offer a range of services
which are competitive to ours. Any organizations that create stand-alone
healthcare software products may migrate into the healthcare e-commerce
business. Due to a high degree of system and application interconnectivity, we
believe that we will share common customers with many of these organizations. We
also believe that in most instances, our services are incremental and
complementary applications to the existing services offered by these companies.
Some of our competitors have services that are currently in operation.
Government Regulation
Participants in the healthcare industry are subject to extensive and
frequently changing regulation at the 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 methods of healthcare e-commerce we are developing. We believe, however,
that these laws and regulations may nonetheless be applied to our healthcare
e-commerce business.
Current laws and regulations which may affect the healthcare e-commerce
industry relate to the following:
o confidential patient medical record information,
o the electronic transmission of information from physicians'
offices to pharmacies, laboratories and other healthcare industry
participants,
o the use of software applications in the diagnosis, cure,
treatment, mitigation or prevention of disease,
o health maintenance organizations, insurers, healthcare service
providers and/or employee health benefit plans, and
o the relationships between or among healthcare providers.
We expect to conduct our healthcare e-commerce business in substantial
compliance with all material federal, state and local laws and regulations
governing our operations. However, the impact of regulatory developments in the
healthcare industry is complex and difficult to predict. We cannot assure you
that we will not be materially adversely affected by existing or new regulatory
requirements or interpretations. These requirements
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or interpretations could also limit the effectiveness of the use of the Internet
for the methods of healthcare e-commerce we are developing or even prohibit the
sale of a subject product or service.
Healthcare service providers, payers, and plans are also subject to a
wide variety of laws and regulations that could affect the nature and scope of
their relationships with us. Laws regulating health insurance, health
maintenance organizations and similar organizations, as well as employee benefit
plans, cover a broad array of subjects, including confidentiality, financial
relationships with vendors, mandated benefits, grievance and appeal procedures,
and others. State and federal laws have also implemented so-called "fraud and
abuse" rules that specifically restrict or prohibit certain types of financial
relationships between us or our customers and healthcare service providers,
including physicians and pharmacies. Laws governing healthcare providers, payers
and plans are often not uniform between states, and could require us to
undertake the expense and difficulty of tailoring our business procedures,
information systems, or financial relationships in order for our customers to be
in compliance with applicable laws and regulations. Compliance with such laws
could also interfere with the scope of our services, or make them less
cost-effective for our customers.
Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming more prevalent. Such laws
and regulations have covered, or may cover in the future, issues such as:
o security, privacy and encryption,
o pricing,
o content,
o copyrights and other intellectual property,
o contracting and selling over the Internet,
o distribution, and
o characteristics and quality of services.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Demand for our applications and services may be affected by additional
regulation of the Internet. For example, until recently current Health Care
Financing Administration guidelines prohibited transmission of Medicare
eligibility information over the Internet. Any new legislation or regulation
regarding the Internet, or the application of existing laws and regulations to
the Internet, could adversely affect our business. Additionally, while we do not
currently operate outside of the United States, the international regulatory
environment relating to the Internet market could have an adverse effect on our
business, especially if we should expand internationally.
The growth of the Internet, coupled with publicity regarding Internet
fraud, may also lead to the enactment of more stringent consumer protection
laws. These laws may impose additional burdens on our business. The enactment of
any additional laws or regulations in this area may impede the growth of the
Internet, which could decrease our potential revenues or otherwise cause our
business to suffer.
We are subject to extensive regulation relating to the confidentiality
and release of patient records. Additional legislation governing the
distribution of medical records has been proposed at both the state and federal
level, and new federal laws or regulations are likely to be enacted within the
next six to nine months, pursuant to the Health Insurance Portability and
Accountability Act of 1996, which requires the Secretary of Health and Human
Services to promulgate rules governing the use and disclosure of individually
identifiable healthcare information no
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later than September, 1999, in the event that Congress does not enact
legislation on the subject. It may be expensive to implement security or other
measures designed to comply with any new legislation. Moreover, regulations
governing use and disclosure of healthcare information may restrict our ability
to deliver patient records under certain circumstances or for certain purposes,
or in a particular format, such as electronically.
Other legislation currently being considered at the federal level could
affect our business. For example, the Health Insurance Portability and
Accountability Act of 1996 also mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000, for
healthcare information that is electronically transmitted, processed, or stored.
We are designing our services to comply with these proposed regulations;
however, these regulations are subject to significant modification prior to
becoming final, which could cause us to use additional resources and lead to
delays in order to revise our services. In addition, our ability to
electronically transmit information in carrying out business activities depends
on other healthcare providers and payers complying with these regulations.
Employees
As of March 15, 1999, we had a total of 109 employees of whom there
were 62 in technical development and engineering, 19 in sales and marketing, 7
in customer service and 21 in finance and administration. Currently 28 of our
employees are involved full-time in providing services to THINC. None of our
employees are represented by labor unions and we have never experienced a work
stoppage. We believe our relationship with our employees to be good. Our ability
to achieve our financial and operational objectives depends on our ability to
continue to attract, integrate, retain and motivate highly qualified technical
and customer support personnel. A competitive environment exists for qualified
personnel in the New Jersey and Boston, Massachusetts area.
Facilities
Our principal executive office is located in Elmwood Park, New Jersey,
in approximately 10,000 square feet of leased office space under a lease
agreement that expires on December 31, 2002. We also maintain approximately
46,000 square feet of leased office space in Cambridge, Massachusetts under a
lease that expires in February 28, 2002. We believe that our facilities are
adequate for our current operations and that additional leased space can be
obtained if needed.
Legal Proceedings
In the normal course of business, we may become involved in various
claims and legal proceedings. In addition, we were named as a defendant in a
complaint filed by Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C. in
February 1999 as described below.
Litigation by Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C. against our
company
On February 18, 1999, Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. filed a complaint in the Superior Court of New Jersey against our
company, Synetic, Martin J. Wygod, Chairman of our company and Synetic, and
three officers and/or directors of our company and Synetic, Paul C. Suthern,
Roger C. Holstein and Charles A. Mele. The plaintiffs assert that our company,
Synetic and the individual defendants are in violation of certain
non-competition, non-solicitation and other agreements with Merck and
Merck-Medco, and seek to enjoin us and them from conducting our healthcare
e-commerce business and from soliciting Merck-Medco's customers. The Synetic and
Wygod agreements provide an expiration date of May 24, 1999. The other
individuals' agreements provide for expiration in December 1999, in the case of
Mr. Suthern, March 2000, in the case of Mr. Mele, and September 2002, in the
case of Mr. Holstein.
A hearing was held on March 22, 1999 on an application for a
preliminary injunction filed by Merck and Merck-Medco. On April 15, 1999, the
Superior Court denied this application. We believe that Merck's and Merck-
40
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Medco's positions in relation to us and the individual defendants are without
merit and we intend to vigorously defend the litigation. However, the outcome of
complex litigation is uncertain and cannot be predicted at this time. Any
unanticipated adverse result could have a material adverse effect on our
company's financial condition and results of operations.
In November 1993, Merck & Co., Inc. acquired 100% of the equity of
Medco Containment Services, Inc., the predecessor to Merck-Medco Managed Care,
L.L.C., for approximately $6.6 billion in a merger transaction. Synetic was a
publicly traded subsidiary of Medco until May 1994, when Medco sold its entire
interest in Synetic to Synetic and SN Investors, L.P., a limited partnership.
The general partner of SN Investors, L.P. is SYNC, Inc., whose sole stockholder
is Mr. Wygod. Prior to May 1994, Mr. Wygod was Chairman of Medco. The other
individual defendants in this litigation are also former officers and/or
directors of Medco.
41
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MANAGEMENT
Directors and Executive Officers
Set forth below is information concerning the current directors and
executive officers of CareInsite. The ages listed below are as of March 18,
1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Paul C. Suthern........................................... 47 President and Chief Executive Officer; Director
Richard S. Cohan.......................................... 46 Executive Vice President-- Operations
Roger C. Holstein......................................... 46 Executive Vice President-- Sales & Marketing;
Director
David M. Margulies........................................ 47 Executive Vice President-- Chief Scientist;
Director
David C. Amburgey......................................... 35 Vice President-- General Counsel and Secretary
Paul M. Bernard........................................... 42 Vice President-- Chief Financial Officer
Martin J. Wygod........................................... 59 Chairman of the Board; Director
James R. Love............................................. 43 Director
Charles A. Mele........................................... 42 Director
</TABLE>
Paul C. Suthern became Chief Executive Officer and President and a
Director of our company in March 1999. Mr. Suthern has been President and Chief
Executive Officer of Synetic since March 1998 and was an executive officer of
Synetic from February 1993 until July 1996, Vice Chairman of Synetic from July
1996 to March 1998 and also Chief Executive Officer from October 1993 until
January 1995. Mr. Suthern was also President and Chief Operating Officer of
Medco Containment Services, Inc. from November 1992 through December 1994 and
Assistant to Medco's Chairman from December 1991 to November 1992. Prior
thereto, he was Executive Vice President -- Operations for more than five years.
Richard S. Cohan became Executive Vice President -- Operations of our
company in March 1999. Mr. Cohan joined Synetic in May 1998 as Senior Vice
President. Prior to joining Synetic, he was Executive Vice President, Health
Network Services of National Data Corporation where he led the practice
management systems and transactional services groups for pharmacy, physician and
dental markets for more than five years.
Roger C. Holstein became Executive Vice President -- Sales & Marketing
and a Director of our company in March 1999. Mr. Holstein has been Executive
Vice President -- Marketing and Sales of Synetic since 1997. He was a Special
Consultant to Medco from 1996 to 1998. Prior to such time, Mr. Holstein acted as
Senior Executive Vice President -- Chief Marketing Officer of Medco from 1994 to
1995 and Senior Executive Vice President -- Marketing and Sales of Medco from
1991 to 1994.
Dr. David M. Margulies became Executive Vice President -- Chief
Scientist and a Director of our company in March 1999. Dr. Margulies has been
Executive Vice President -- Chief Scientist of Synetic since January 1997. He
was founder and President of CareAgents. From 1990 to mid-1996, Dr. Margulies
was Executive Vice President and Chief Scientist of the Cerner Corporation, a
leading supplier of enterprise-level clinical applications. Prior to such time,
he was Vice President and Chief Information Officer at Boston Children's
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Hospital and on the medical faculties of the Harvard Medical School and Columbia
College of Physicians and Surgeons.
David C. Amburgey became Vice President -- General Counsel and
Secretary of our company in March 1999. Mr. Amburgey has been Vice President --
Legal and Assistant General Counsel of Synetic since March 1999 and Assistant
General Counsel and Secretary of Synetic since April 1997. Prior to joining
Synetic, Mr. Amburgey was an attorney with the law firm of Shearman & Sterling
since 1993.
Paul M. Bernard became Vice President -- Chief Financial Officer of our
company in March 1999. Mr. Bernard joined Synetic as Vice President -- Finance
and Chief Financial Officer of Avicenna Systems Inc. in June 1997. Mr. Bernard
was Chief Financial Officer of Brainstorm Technologies from March 1997 to June
1997, and prior to that Corporate Controller of Micro-Touch Systems from
December 1996 to March 1997 and Corporate Controller of Thinking Machine, Inc.
from July 1994 to December 1996.
Martin J. Wygod became the Chairman of the Board of our company in
March 1999. Mr. Wygod has been Chairman of the Board of Synetic since May 1989.
From May 1989 to February 1993, Mr. Wygod also served as Synetic's President and
Chief Executive Officer and until May 1994 was an executive officer of Synetic.
Until May 1994, Mr. Wygod was Chairman of the Board of Medco for more than five
years, and until January 1993 he also served as Chief Executive Officer of
Medco. He is also engaged in the business of racing, boarding and breeding
thoroughbred horses, and is President of River Edge Farm, Inc., which is engaged
in the business of breeding and boarding thoroughbred horses.
James R. Love became a Director of our company in March 1999. Mr. Love
became Executive Vice President -- Finance and Administration of Synetic in
March 1999. Prior to joining Synetic, Mr. Love was a Managing Director, since
1993, in the investment banking group of Merrill Lynch & Co. At Merrill Lynch,
he was most recently responsible for the diversified companies group and the
healthcare products group.
Charles A. Mele became a Director of our company in March 1999. Mr.
Mele has been Executive Vice President -- General Counsel of Synetic since March
1998 and was Vice President-General Counsel from July 1995 to March 1998. Mr.
Mele was an executive officer of Synetic from May 1989 until December 1994 and
was an executive officer of Medco for more than five years, until March 1995.
Mr. Mele is also a director of Comnet Corporation and Group 1 Software, Inc., a
computer software company.
No family relationship exists among any of the directors or executive
officers, except that Martin J. Wygod, Chairman of the Board of our company, and
Paul C. Suthern, Chief Executive Officer and President of our company, are
brothers-in-law. No arrangement or understanding exists between any director or
executive officer and any other person pursuant to which any director or
executive officer was selected as a director or executive officer of our
company. All executive officers are elected annually by the Board and serve at
the discretion of the Board. The individuals above who are employed by Synetic
will continue to hold those positions.
Board Composition
Our Board currently has six members, all of whom are currently
executive officers and/or directors of Synetic. We expect to add two independent
Board members following the offering. Each director holds office until his
successor is duly elected and qualified or until his resignation or removal if
earlier.
Committees of the Board
Our Board has established an audit committee and a compensation
committee.
Audit Committee. The audit committee's primary responsibilities are to
meet with and consider suggestions from members of management and our
independent public accountants concerning the financial operations of our
43
<PAGE>
company. The audit committee also reviews the audited financial statements of
our company and considers and recommends the employment of, and approves the fee
arrangement with, independent public accountants for audit functions and
advisory and other consulting services. The audit committee will be comprised of
two independent directors to be appointed after consummation of the offering.
Compensation Committee. The compensation committee's responsibilities
are to make determinations with respect to salaries and bonuses payable to our
executive officers and to administer our stock option plans. The compensation
committee will be comprised of two independent directors to be appointed after
consummation of the offering.
Compensation of Directors
Our directors who are employees of our company will not receive
additional compensation for serving as directors of the company. Directors who
are not employees of either our company or Synetic will receive cash
compensation.
44
<PAGE>
Executive Compensation
The following table presents information concerning compensation paid
for services to Synetic and our company to our CEO and the next four most highly
compensated executive officers of our company for Fiscal 1998. It is anticipated
that the base salaries following the offering will initially be generally
comparable to present levels of base salary.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
--------------------------
Long Term
Compensation
Securities All Other
Name and Salary Bonus Underlying Compensation
Principal Position Year ($) ($) Options/SARs ($)
- ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Paul C. Suthern 1998 97,692(1) -- 194,000 --
President & CEO............... 1997 -- -- -- --
1996 160,000 -- -- --
David M. Margulies
Executive Vice President-- 1998 175,000 -- 272,728(3) --
Chief Scientist............... 1997 72,019(2) -- 272,728(3) --
Paul M. Bernard
Vice President--Chief
Financial Officer............. 1998 116,827 31,250 50,000 --
David C. Amburgey
Vice President--
General Counsel and Secretary. 1998 103,846 40,000 25,000 --
Roger C. Holstein
Executive Vice
President--Sales and
Marketing....................... 1998 112,404 225,000(4) -- 1,750(5)
</TABLE>
- --------------------
(1) Mr. Suthern became President and CEO of Synetic in March 1998.
(2) Dr. Margulies became an employee of our company after our acquisition of
CareAgents, Inc. on January 23, 1997. As such, only compensation paid
subsequent to January 23, 1997 is reflected above.
(3) These options were originally granted January 23, 1997 and were canceled
and replaced January 7, 1998.
(4) Represents a one time bonus paid to Mr. Holstein upon his execution of his
employment agreement with Synetic. For a description of his employment
agreement, see "Employment Agreements; Holstein Employment Agreement."
(5) Comprised of company matching contributions to the Porex Technologies Corp.
401(k) Savings Plan.
45
<PAGE>
The following table presents information concerning the options to
purchase Synetic common stock granted during the last fiscal year to our CEO and
the next four most highly compensated executive officers of our company for
services rendered to Synetic and our company. We have adopted stock option plans
which contain substantially similar terms and conditions to certain of Synetic's
stock option plans. For a description of such plans, see "Management --
Compensation Pursuant to Plans and Arrangements of the Company -- Stock Option
Plans."
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base Grant Date
SARs in Fiscal Price Expiration Present
Name Granted (#) Year(2) ($/Sh) Date Value ($)(3)
- ------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Paul C. Suthern................ 10,000(1)(4) 0.40% 38.750 7/1/12 145,856
184,000(1) 7.40% 36.875 1/7/08 2,553,898
194,000 7.80% 2,699,754
David M. Margulies............. 272,728(5) 10.97% 36.875 1/7/08 2,818,841
Paul M. Bernard................ 50,000(1) 2.01% 37.000 7/1/07 624,551
David C. Amburgey.............. 25,000(1) 1.01% 36.875 1/7/13 315,242
- --------------------
</TABLE>
(1) These options vest and become exercisable at the rate of 20% per year,
commencing on the first anniversary of the date of grant and were granted
on the following dates: 10,000 on July 1, 1997 and 184,000 on January 7,
1998 for Mr. Suthern, 50,000 on July 1, 1997 for Mr. Bernard and 25,000 on
January 7, 1998 for Mr. Amburgey. The options to purchase Synetic common
stock will continue to vest and remain exercisable, subject to such
officer's continued employment with Synetic or our company and the terms
and conditions of Synetic's stock option plans.
(2) Based upon the total number of stock options granted to all employees of
Synetic.
(3) The estimated grant date present value as of the most recent fiscal year
end reflected in the above table is determined using the Black-Scholes
model. The material assumptions and adjustments incorporated in the
Black-Scholes model in estimating the value of the options reflected in the
above table include the following: (i) the respective option exercise
price, specified above, equal to the fair market value of the underlying
stock on the date of grant; (ii) the exercise of options within one year of
the date that they become exercisable; (iii) a risk-free interest rate of
6.3% per annum; and (iv) volatility of 0.2986 calculated using daily prices
of Synetic common stock during the period from the date of purchase of
shares of common stock from Merck & Co. Inc. by Synetic and SN Investors on
December 14, 1994 to June 30, 1998. The ultimate values of the options will
depend on the future market price of Synetic common stock, which cannot be
forecast with reasonable accuracy. The actual value, if any, an optionee
will realize upon exercise of an option will depend on the excess of the
market value of Synetic common stock over the exercise price on the date
the option is exercised. There is no assurance that the value realized by
an optionee will be at or near the value estimated by the Black-Scholes
model or any other model applied to value the options.
46
<PAGE>
(4) These options were awarded to Mr. Suthern while serving as Vice Chairman of
the Board of Synetic under Synetic's 1991 Director Stock Option Plan.
(5) These options vest and become exercisable at the rate of 40%, commencing on
the second anniversary of the date of grant and 20% on each subsequent
anniversary and were granted on January 7, 1998. This grant represents the
replacement of a grant of an option originally issued on January 23, 1997.
For a description of the consequences of a termination of his employment on
such options, see "Employment Agreements; Margulies Employment Agreement."
47
<PAGE>
The following table presents information concerning the value realized
upon the exercise of options to purchase Synetic common stock and the fiscal
year-end value of options to purchase Synetic common stock held by our CEO and
the next four most highly compensated executive officers of our company for
Fiscal 1998.
No options to purchase Synetic common stock were exercised by our CEO
and the next four most highly compensated executive officers of our company for
Fiscal 1998 during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs at
FY-End (#) FY-End ($)(1)
----------------------------------- ----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Paul C. Suthern.................. 234,000 266,000 8,944,500 6,471,500
David M. Margulies............... -- 272,728 -- 4,670,467
Paul M. Bernard.................. 10,000 90,000 191,250 1,615,000
David C. Amburgey................ 15,000 85,000 277,500 1,538,125
Roger C. Holstein................ 108,000 400,000 2,371,750 8,175,000
</TABLE>
- ------------------
(1) Based upon the Fiscal 1998 closing price of Synetic common stock of $54.00.
Employment Agreements
Margulies Employment Agreement. Synetic entered into an employment
agreement with David M. Margulies, M.D. as of January 23, 1997 in connection
with Synetic's acquisition of CareAgents. Dr. Margulies' employment agreement
provides for an employment period of five years, subject to monthly renewal
thereafter. Dr. Margulies' base salary is $175,000, which may be increased by
the Board of Directors of Synetic in its sole discretion. Dr. Margulies is
entitled to participate in any group insurance, hospitalization, medical, health
and accident, disability, fringe benefit and tax-qualified retirement plans or
programs of Synetic. Dr. Margulies' agreement does not fix Dr. Margulies'
responsibilities or title, other than to provide that he will provide services
to Synetic, CareAgents and their respective affiliates and subsidiaries, as
specified by the Chief Executive Officer or the Board of Directors of Synetic
from time to time.
If his employment is terminated:
o by Synetic for "cause" (as such term is defined in the agreement,
generally consisting of a breach of any material provision of the
agreement, willful misconduct relating to Synetic or its
affiliates, failure to perform his duties in any material
respect, willful violation of laws applicable to the business of
Synetic or its affiliates, commission of a common law fraud or
conviction of a felony or crime involving moral turpitude); or
o due to the resignation of Dr. Margulies for any reason,
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<PAGE>
Synetic will have no obligation to Dr. Margulies other than the payment of his
earned and unpaid compensation to the effective date of termination. Termination
of employment for any of these reasons will constitute a "Termination Event"
under the Escrow Agreement dated as of January 23, 1997, among several employees
of CareAgents including Dr. Margulies and the United States Trust Company of New
York, as escrow agent, pursuant to which shares of Synetic common stock owned
by Dr. Margulies are held in escrow to secure, among other things, his
obligations under the Margulies employment agreement. If his employment is
terminated:
o by Synetic as a result of Dr. Margulies' permanent disability;
o as a result of Dr. Margulies' death; or
o by Synetic without "cause,"
Synetic will have no obligation to Dr. Margulies other than the payment of his
earned and unpaid compensation to the effective date of termination and as
specified in the stock option agreement described below.
Pursuant to a stock option agreement between Synetic and Dr. Margulies,
Dr. Margulies has been granted nonqualified stock options to purchase 272,728
shares of Synetic common stock. The options become exercisable in the following
manner: 40% on January 7, 2000 and an additional 20% on each of January 7, 2001,
January 7, 2002 and January 7, 2003. Upon termination of his employment, the
options will terminate to the extent not vested, unless such termination of
employment is without "cause" or as a result of permanent disability or death,
in which case the options will continue to vest as if he remained in the employ
of Synetic through the earlier of the next date on which additional options
would vest or the occurrence of any circumstance or event that would constitute
"cause."
Dr. Margulies' employment agreement contains confidentiality
obligations that survive indefinitely and non-solicitation and non-competition
obligations which apply for a certain period of time following termination of
employment. All obligations of Synetic may be assigned to any of its affiliates
without the consent of Dr. Margulies.
Bernard Employment Agreement. Avicenna entered into an employment
agreement with Paul M. Bernard as of November 3, 1997. Mr. Bernard's employment
agreement provides for an employment period of two years, subject to monthly
renewal thereafter. Mr. Bernard's base salary is $156,250, which may be
increased by the Board of Directors of Avicenna or Synetic in its sole
discretion. Mr. Bernard is entitled to participate in any group insurance,
hospitalization, medical, health and accident, disability, fringe benefit and
tax-qualified retirement plans or programs of Avicenna. Mr. Bernard's employment
agreement does not fix Mr. Bernard's responsibilities or title, other than to
provide that he will provide services to Avicenna, Synetic and their respective
affiliates and subsidiaries, as specified by the President or Senior Vice
President of Avicenna from time to time.
If his employment is terminated:
o by Avicenna for "cause" (as such term is defined in the
agreement, which is substantially similar to the definition
contained in the Margulies Agreement); or
o due to the resignation of Mr. Bernard for any reason,
Avicenna will have no obligation to Mr. Bernard other than the payment of his
earned and unpaid compensation to the effective date of termination. If
employment is terminated as a result of Mr. Bernard's death, Avicenna will have
no obligation to Mr. Bernard other than a continuation of his base salary in
effect at the time of termination for a period of six months following the date
of termination. If employment is terminated by Avicenna without "cause,"
Avicenna will have no obligation to Mr. Bernard other than a continuation of his
base salary in effect at the
49
<PAGE>
time of termination for a period of six months following the date of
termination, although such obligation will end upon:
o the occurrence of a circumstance or event that would constitute
"cause;" or
o the re-employment of Mr. Bernard with Avicenna or its affiliates
or the employment of Mr. Bernard with any other employer at an
annual gross salary of at least $156,250.
If Mr. Bernard is employed at an annual gross salary of less than $156,250, the
base salary continuation will be reduced by such amount.
Mr. Bernard's employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and non-competition obligations
which apply for a certain period of time following termination of employment.
Holstein Employment Agreement. Synetic entered into an employment
agreement with Roger C. Holstein as of November 6, 1997. Mr. Holstein's
employment agreement provides for an employment period of five years, subject to
monthly renewal thereafter. Mr. Holstein's base salary is $175,000, which may be
increased by the Board of Directors of Synetic in its sole discretion, except
that when revenues from the healthcare communications business exceed
$30,000,000, the Board of Directors will increase Mr. Holstein's compensation to
a level commensurate with his contribution, as determined in its reasonable
judgement. Mr. Holstein's employment agreement provided for a one-time payment
of $225,000 to Mr. Holstein upon the signing of the agreement. Mr. Holstein is
entitled to participate in any group insurance, hospitalization, medical, health
and accident, disability, fringe benefit and tax-qualified retirement plans or
programs or vacation leave of Synetic. Mr. Holstein's employment agreement fixes
Mr. Holstein's title as Executive Vice President of Synetic, and provides that
his responsibilities will be determined by the Chairman of the Board of
Directors and the Chief Executive Officer of Synetic from time to time.
If his employment is terminated:
o by Synetic for "cause" (as such term is defined in the agreement,
which is substantially similar to the definition contained in the
Margulies Agreement); or
o due to the resignation of Mr. Holstein for any reason other than
"cause" (as such term is defined in the agreement, generally
consisting of a breach of any material provision, demotion or
relocation),
Synetic will have no obligation to Mr. Holstein other than the payment of his
earned and unpaid compensation to the effective date of termination.
If his employment is terminated:
o by Synetic as a result of Mr. Holstein's permanent disability; or
o as a result of Mr. Holstein's death,
Synetic will have no obligation to Mr. Holstein other than the payment of his
earned and unpaid compensation to the effective date of termination and with
respect to stock options, as specified in the following paragraph.
50
<PAGE>
If his employment is terminated:
o by Synetic without "cause;" or
o by Mr. Holstein for "cause,"
Synetic will have an obligation:
o to pay Mr. Holstein his earned and unpaid compensation to the
effective date of termination and a monthly severance payment
equal to one twelfth of his then applicable base salary (less
required deductions) for a period ending two years from the date
of such termination or until the occurrence of a circumstance or
event that would constitute "cause;" and
o with respect to stock options, as specified in the next
paragraph.
In addition, Mr. Holstein has the right to terminate his employment
upon 30 days' written notice to Synetic at any time after a 12-month period
following the occurrence of "change of control". A "change of control" will
occur if:
o any person, entity or group (excluding Mr. Martin J. Wygod)
acquires at least 50% of the voting power of the outstanding
voting securities of Synetic and following such acquisition Mr.
Wygod ceases to hold one or more of the positions of the Chairman
of the Board of Directors of Synetic, Chief Executive Officer of
Synetic or a senior executive officer of the acquirer of the 50%
voting power (in each case, with duties and responsibilities
substantially equivalent to those prior to such acquisition);
o the occurrence of a reorganization, merger or consolidation or
sale of or other disposition of all or substantially all of
Synetic's assets and following such an event Mr. Wygod ceases to
hold the positions described above; or
o the occurrence of a complete liquidation or dissolution of
Synetic.
In the event of such a termination, his stock options will be treated
in the manner described in the following paragraph.
In the event of termination of Mr. Holstein's employment agreement by
Synetic without "cause" or by Mr. Holstein for "cause," the options to purchase
500,000 shares of Synetic common stock held by Mr. Holstein will remain
outstanding and continue to vest as though Mr. Holstein remained in the employ
of Synetic through the earlier of the second anniversary of the date of
termination and the occurrence of a circumstance or event that would constitute
"cause." In the event of termination of Mr. Holstein's employment agreement by
Mr. Holstein due to a "change in control" or as a result of Mr. Holstein's death
or permanent disability, the options will remain outstanding and continue to
vest as though Mr. Holstein remained in the employ of Synetic through the
earlier of:
o the later of November 6, 2002 and the last date on which such
options actually vest; and
o the occurrence of a circumstance or event that would constitute
"cause."
Mr. Holstein's employment agreement contains confidentiality
obligations that survive indefinitely and non-solicitation and non-competition
obligations which apply for a certain period of time following termination of
employment. All obligations of Synetic may be assigned to any of its affiliates
without the consent of Mr. Holstein.
Compensation Pursuant to Plans and Arrangements of the Company
Set forth below is information with respect to certain benefit plans
and employment arrangements of the company pursuant to which non-cash
compensation was paid or distributed for Fiscal 1998, or is proposed to be paid
or distributed in the future, to the directors and executive officers of our
company. Our executive officers may continue to be included in Synetic's benefit
plans and employment arrangements. Our company would bear a portion of the costs
incurred in connection with such participation.
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<PAGE>
Under Section 162(m) of the Internal Revenue Code of 1986, as amended,
the deduction for federal income tax purposes by publicly held corporations for
amounts in excess of $1 million paid to certain executive officers is limited
unless such excess compensation is "performance-based" (as defined in Section
162(m)), subject to certain exceptions. Except for the grant of stock options,
currently scheduled compensation of our executive officers will not result in
any excess compensation. We intend to take steps to ensure that compensation
realized upon the exercise of stock options will be "performance-based" as
defined in Section 162(m).
Stock Option Plans
We have adopted the CareInsite, Inc. Officer Stock Option Plan and the
CareInsite, Inc. Employee Stock Option Plan. Our shareholders have also approved
these plans. The following description of each of the plans is qualified in its
entirety by the full text of the plans which is set forth as an Exhibit to this
registration statement. The maximum number of shares of our common stock that
will be subject to options under our employee stock option plan is and the
maximum number of shares of our common stock that will be subject to options
under our officer stock option plan is , subject to adjustment in
accordance with the terms of the plans. Each of the plans limits the number of
options that may be granted thereunder to an eligible optionee in any one-year
period to no more than , although options for up to shares may be
granted pursuant to the plans if the grant is made in order to induce the
optionee to enter into an employment or consultancy relationship with our
company or any of its subsidiaries or affiliates, or to serve as an officer of
the company or any of its subsidiaries or affiliates, as applicable. These
amounts are subject to adjustment in accordance with the terms of the plans.
Each of the plans will be administered by our compensation committee
except as described below, provided that under certain circumstances the
compensation committee may delegate authority to certain designated officers to
make awards under the plans. All of the members of the compensation committee
will be nonemployee directors and "outside directors" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934 and Section 162(m) of the
Internal Revenue Code of 1986, as amended, respectively. Until such time as our
compensation committee is established, the stock option committee of Synetic may
grant options under the plans, so long as such action is separately approved by
our board of directors. The grants to be made on the date of this offering will
be approved by our board of directors as well as the stock option committee of
Synetic. The compensation committee will have the authority, within limitations
as set forth in the plans, to determine the persons to whom options may be
granted, the number of shares of common stock to be covered by each option, the
time or times at which the options may be granted or exercised and the terms and
provisions of the options to be granted.
Eligibility for the grant of options under our officer stock option
plan is limited to officers of our company, its subsidiaries and its affiliates,
so long as they perform services for our company or its subsidiaries.
Eligibility for the grant of options under our employee stock option plan is
limited to employees and certain consultants, agents and key contractors of our
company, its subsidiaries and its affiliates, so long as they perform services
for our company or its subsidiaries. Options granted under the plans may be
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time, or non-qualified stock
options, as determined by the compensation committee. The exercise price for an
incentive stock option may not be less than 100% (or 110% if the optionee owns
or is deemed to own more than 10% of the total combined voting power of all
classes of stock of our company or a subsidiary or the parent) of the fair
market value of the common stock on the date of grant, as determined in
accordance with the plans. Non-qualified stock options granted under the plans
must have an exercise price of at least 85% (100% in the case of designated
eligible optionees whose compensation may be subject to the limitation on tax
deductible compensation imposed by Section 162(m) of the Internal Revenue Code
of 1986) of the fair market value of the common stock on the date of grant (as
determined in accordance with the plans). If there is a change in control (as
defined below), the compensation committee may provide that options granted
under the plans will become exercisable in whole or in part, whether or not the
options are otherwise exercisable. A change in control is generally defined in
both plans as the occurrence of:
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o any person (excluding Synetic and its subsidiaries, our company
and its subsidiaries and certain affiliates of our company, and
our employee benefit plans maintained by Synetic or our company
and its subsidiaries and certain affiliates) becoming the
beneficial owner of 50% or more of the voting power of (a) our
company's securities, or (b) Synetic's voting securities so long
as Synetic is the beneficial owner of 50% or more of our voting
securities;
o during a 24-month period the individuals who, at the beginning of
such period, constituted our company's board of directors cease to
be a majority of such board of directors unless such new directors
were elected or recommended by the individuals who, at the
beginning of such period, constituted our company's board of
directors;
o during a 24-month period the individuals who, at the beginning of
such period, constituted Synetic's board of directors cease to be
a majority of such board of directors unless such new directors
were elected or recommended by the individuals who, at the
beginning of such period, constituted Synetic's board of
directors, but not if, at the time such individuals cease to be a
majority of Synetic's board of directors, Synetic is the
beneficial owner of 50% or more of our voting securities;
o the approval by the stockholders of our company of a merger or
consolidation of our company, without the consent of a majority of
the individuals who, immediately prior to such merger or
consolidation, constituted our company's or Synetic's board of
directors;
o the approval by the stockholders of Synetic of a merger or
consolidation of Synetic, without the consent of a majority of
individuals who, immediately prior to such merger or
consolidation, constituted Synetic's board of directors, but only
if at the time of such approval Synetic is the beneficial owner of
50% or more of our voting securities;
o stockholder approval of a sale of all or substantially all of the
assets of (a) our company, or (b) Synetic, so long as Synetic is
the beneficial owner of 50% or more of our voting securities; or
o adoption of a plan of liquidation of (a) our company, or (b)
Synetic, so long as Synetic is the beneficial owner of 50% or more
of our voting securities.
No option will become exercisable due to a change in control of Synetic, unless,
immediately preceding such change in control, Synetic was in "control" of our
company. In addition, the compensation committee may determine at the time of
grant or thereafter that an option shall become exercisable in full or in part
upon the occurrence of such circumstances or events as the compensation
committee determines merit special consideration.
Each of the plans may be terminated and may be modified or amended by
the board of directors or compensation committee at any time; provided, however,
that:
o no modifications or amendment will be effective without
stockholder approval if such approval is required by law or under
the rules of the Nasdaq National Market or any stock exchange on
which our common stock is listed; and
o no such termination, modification or amendment may adversely
alter or affect the terms of any then outstanding options
previously granted without the consent of the affected optionee.
Synetic Plans
Our CEO and the next four most highly compensated executive officers of
our company for fiscal 1998 have been granted options to purchase shares of
Synetic common stock pursuant to Synetic's stock option plans. See "Management
- -- Executive Compensation." The Synetic option plans are administered by a stock
option committee of Synetic and contain terms and conditions which are
substantially similar to the terms of our stock option plans. Subject to the
terms and conditions of Synetic's stock option plans, the Synetic options will
continue to vest and remain outstanding so long as the respective officers
remain in the employ of our company.
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SECURITY OWNERSHIP OF MANAGEMENT
Prior to the offering, Synetic owned 80.1% of our outstanding common
stock through its wholly owned subsidiary, Avicenna Systems Corporation. Prior
to the offering, all other outstanding shares of our common stock were owned by
Cerner. Synetic's address is River Drive Center II, 669 River Drive, Elmwood
Park, New Jersey, 07407 and Cerner's address is 2800 Rock Creek Parkway, Suite
601, Kansas City, Missouri, 64117. None of our directors or executive officers
beneficially own any of our common stock. The following table, however, sets
forth information with respect to the beneficial ownership of Synetic common
stock as of April 9, 1999 by our directors, each of our CEO and the next four
most highly compensated executive officers of our company for Fiscal 1998, and
all of our directors and executive officers as a group. Except as indicated by
footnote, and subject to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to all shares of
Synetic common stock shown as beneficially owned by them. The number of shares
of Synetic common stock deemed outstanding used in calculating the percentage
for each listed person includes: (1) 20,481,538 shares of Synetic common stock
outstanding as of April 9, 1999, (2) the number of shares of Synetic common
stock that the respective persons named in the above table have the right to
acquire presently or within 60 days of April 9, 1999 upon exercise of stock
options and (3) the number of shares of Synetic common stock that the respective
persons named in the above table have the right to acquire upon conversion of
Convertible Debentures.
<TABLE>
<CAPTION>
Shares of Synetic
Common Stock
Beneficially Percent of
Name Owned(1) Class
- ------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Paul C. Suthern.................................. 340,298(3)(4) 1.64%
David M. Margulies............................... 28,917 *
Paul M. Bernard.................................. -- *
David C. Amburgey................................ 35,026 *
Roger C. Holstein................................ 159,363 *
Martin J. Wygod.................................. 5,603,742(2)(3)(5) 26.79%
James R. Love.................................... -- *
Charles A. Mele.................................. 348,378(2) 1.69%
Directors and executive officers as a group
(9 persons)...................................... 6,291,931 29.21%
- ---------------
</TABLE>
* Less than 1% of the shares outstanding of the class.
(1) The number of shares of common stock beneficially owned includes the
following number of shares of Synetic common stock that the following
persons have the right to acquire on or within 60 days of April 9,
1999 upon exercise of stock options and upon conversion of Synetic's
5% Convertible Subordinated Debentures Due 2007: Mr. Holstein,
158,833; Mr. Mele, 125,833; Mr. Suthern, 305,300; Mr. Wygod, 212,000;
Mr. Amburgey, 35,000 and all directors and executive officers as a
group, 836,966. The number of shares also includes 55 shares of
Synetic common stock allocated to the account of Mr. Holstein, 194
shares of Synetic common stock allocated to the account of Mr. Mele
and 26 shares of Synetic common stock allocated to the account of Mr.
Amburgey under the Porex 401(k) Savings Plan as of September 30, 1998.
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(2) Includes 186,961 shares of Synetic common stock and shares of Synetic
common stock issuable upon conversion of $500,000 principal amount of
Convertible Debentures owned by the Rose Foundation, a charitable
foundation of which Messrs. Mele and Wygod are trustees and share
voting and dispositive power.
(3) Includes 3,500 shares of Synetic common stock and shares of Synetic
common stock issuable upon conversion of $1,500,000 principal amount
of Convertible Debentures owned by the Synetic Foundation, formerly
known as the Medco Containment Services Foundation, Inc., a charitable
foundation of which Messrs. Suthern and Wygod are trustees and share
voting and dispositive power.
(4) Includes 1,200 shares of Synetic common stock held in custodial
accounts for Mr. Suthern's children.
(5) Includes 2,000 shares of Synetic common stock beneficially owned by
Mr. Wygod's spouse, as to which shares Mr. Wygod disclaims beneficial
ownership.
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TRANSACTIONS AND RELATIONSHIPS WITH PRINCIPAL STOCKHOLDERS
Security Ownership
Prior to the offering, 80.1% of our capital stock was owned by Avicenna
Systems Corporation, a wholly owned subsidiary of Synetic and 19.9% was owned by
Cerner. Upon completion of the offering, Synetic will own 20,025,000 shares, or
approximately % of the outstanding shares of our common stock and Cerner
will own approximately million shares, or approximately % of the
outstanding shares of our common stock. In addition, THINC owns a warrant which,
six months after the completion of the offering, may be exercised for 1,623,647
shares. If THINC exercises this warrant, Cerner has a related warrant entitling
it to purchase such additional shares equal to 19.9% of the shares purchased by
THINC in connection with the exercise of THINC's warrant. In addition, we will
issue to Cerner approximately 1,001,250 shares of our common stock on or after
February 15, 2001 at a price of $.01 per share if we realize a specified level
of physician usage of our services. Synetic will have the ability to control the
vote on matters submitted to a vote of our stockholders and will also be able to
elect all of the directors of our company. Certain of our directors and
executive officers own shares of Synetic common stock. See " Security Ownership
of Management."
Conflicts of Interest
Upon completion of the offering, Synetic will retain effective control
of our company and may be in a position to cause us to merge, consolidate,
liquidate or sell all or a substantial portion of our assets on terms determined
by Synetic. Certain of Synetic's officers and directors are officers or
directors of our company. Such directors and officers of our company who are
also directors or officers of Synetic are in positions which may expose them to
conflicts of interest. Such conflicts of interest may arise in connection with
transactions involving business dealings between our company and Synetic, the
allocation of acquisition opportunities, the issuance of additional shares of
our common stock or other securities of our company and other matters involving
conflicts that cannot now be foreseen.
It is contemplated that, after the offering, a majority of the
directors and officers of our company will also be directors and/or officers of
Synetic and will continue to spend a substantial amount of their business time
as directors or officers of Synetic and its other subsidiaries and may be
engaged in other business activities, consistent with their other employment
agreements, if any. For a list of those officers and directors of our company
who are also directors and/or officers of Synetic, and the positions they hold
with each company, see "Management--Directors and Executive Officers."
Stockholders Agreement
We are party to a stockholders agreement with Synetic, Avicenna and
Cerner, dated January 2, 1999, which terminates on the later of January 2, 2004
and the date upon which Cerner ceases to own any of our common stock. Among
other things, the stockholders agreement prohibits Synetic or Avicenna from
entering into transactions with us other than at arm's length, specifies
restrictions on the transfer of shares of our common stock by Cerner, other than
to its affiliates, and provides that, after January 2, 2001, Cerner may make two
demands for registration of our common stock, subject to customary limitations.
This stockholders agreement also provides Cerner the right to buy shares of our
common stock in a private transaction concurrent with this offering.
Certain Agreements
Our company and Synetic have entered into or will enter into a number
of agreements for the purpose of defining the ongoing relationship between the
two companies. Additional or modified agreements, arrangements and transactions
may be entered into by us and Synetic after the completion of the offering. Any
such future agreements, arrangements and transactions will be determined through
negotiations between our company and
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Synetic, as the case may be. Following the offering, we will continue to be
controlled by Synetic and consequently such negotiations will not be
arm's-length.
The following is a summary of certain existing or proposed agreements
between our company and Synetic. We believe these agreements were, or will be,
made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. See Note 6 of the Notes to Consolidated Financial
Statements.
Tax Sharing Agreement. Upon completion of the offering, our company
will cease to file a consolidated federal income tax return with Synetic, but
will continue to file a combined tax return with Synetic for California income
tax purposes. Our company and Synetic will enter into a tax sharing agreement
providing that, for periods prior to the offering and during which our company
was included in Synetic's consolidated federal income tax returns, our company
will be required to pay Synetic an amount equal to our federal income tax
liabilities for these periods, determined as if our company had filed federal
income tax returns on a separate company basis. If our company experiences a net
operating loss resulting in no federal or state income tax liability for a
taxable period in which it was included in Synetic's consolidated federal or
combined state income tax returns, our company will be entitled to a payment
from Synetic equal to the reduction in the federal or state income tax liability
of the Synetic consolidated group by reason of the use of our company's net
operating loss. Additionally, for periods both before and after the offering, in
situations where our company files a combined return with Synetic for state
income tax purposes, such as for California, we will be required to pay Synetic
an amount equal to our state income tax liabilities, determined as if our
company had filed state income tax returns on a separate company basis. Further,
under the tax sharing agreement, if we receive a net tax benefit for certain
equity based compensation arrangements involving Synetic stock, or for the
payment by Synetic of certain litigation expenses and damages pursuant to the
terms of an indemnification agreement between us and Synetic as described below,
then we are required to pay an amount equal to those tax benefits to Synetic
when they are actually realized by us. The tax sharing agreement also will
provide for Synetic to conduct tax audits and tax controversies on our behalf
for periods, and with respect to returns, in which we are included in the
Synetic consolidated or combined returns.
Services Agreement. Our company and Synetic have entered into a
services agreement dated as of January 1, 1999, pursuant to which Synetic will
provide our company with certain administrative services which may include
payroll, accounting, business development, legal, tax, executive services and
information processing and other similar services. Our company will pay the
actual costs of providing these services. Such costs will include an allocable
portion of the compensation and other related expenses of employees of Synetic
who serve as officers of our company. This agreement will be terminable by
either party upon 60 days' prior written notice in certain events, or by
Synetic, at any time, if Synetic ceases to own at least 50% of the voting stock
of our company. The services agreement shall terminate by its terms, if not
previously terminated or renewed, on January 1, 2004.
Indemnification Agreement. Our company and Synetic will enter into an
indemnification agreement, under the terms of which our company will indemnify
and hold harmless Synetic with respect to any and all claims, losses, damages,
liabilities, costs and expenses that arise from or are based on the operations
of the business of our company before or after the date of the consummation of
the offering. Similarly, Synetic will indemnify and hold harmless our company
with respect to any and all claims, losses, damages, liabilities, costs and
expenses that arise from or are based on the operations of Synetic other than
the business of our company before or after the date of the consummation of the
offering. With respect to the Merck litigation, this agreement provides that
Synetic will bear both the actual costs of conducting the litigation and any
monetary damages that may be awarded to Merck and Merck-Medco in the litigation.
The agreement further provides that any damages awarded to our company and
Synetic in the litigation will be for the account of Synetic. Finally, the
agreement provides that Synetic shall not be responsible for any losses suffered
by CareInsite resulting from any equitable relief obtained by Merck and
Merck-Medco against CareInsite, including any lost profits, other losses,
damages, liabilities, or costs or expenses arising from such equitable relief.
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The following is a summary of certain agreements we have entered into
with THINC and Cerner.
THINC. In January 1999, our company, THINC, and THINC's founding
members, Greater New York Hospital Association, Empire, Group Health
Incorporated and HIP Health Plans entered into definitive agreements and
consummated a transaction for a broad strategic alliance. Under this
arrangement, among other things, our company:
o acquired a 20% ownership interest in THINC in exchange for $1.5
million in cash and a warrant to purchase an aggregate of
1,623,647 shares of common stock of our company, referred to as
the THINC warrant;
o agreed to extend up to $2,000,000 and $1,500,000 in senior
loans to THINC;
o entered into a Management Services Agreement with THINC pursuant
to which our company will manage all operations of THINC,
including, as part of our services, providing THINC with certain
content and messaging services, and THINC will provide our
company with the right to deploy our prescription and laboratory
communication services on the THINC network on behalf of the
payers;
o licensed to THINC our content and messaging services for use over
the THINC network; and
o entered into Clinical Transaction Agreements with each of Empire,
Group Health Incorporated and HIP, who we refer to together as
the "THINC Payers," to provide online prescription and laboratory
communication services.
Our Clinical Transaction Agreement with Group Health Incorporated
specifies that we do not have the right to provide prescription communication
services to Group Health Incorporated unless either we enter into an agreement
with Group Health Incorporated's pharmacy benefit manager outlining a
methodology for the implementation of such services or Group Health Incorporated
elects to proceed without such an agreement. Group Health Incorporated's current
pharmacy benefit manager is Merck-Medco. To date, we have not entered into any
such agreement with Merck-Medco and Group Health Incorporated has not made such
election. See "Risk Factors -- Litigation by Merck & Co., Inc. and Merck-Medco
Managed Care, L.L.C. against our company."
In connection with our entering into a strategic relationship with
Cerner, we sold to Cerner the economic rights to 2% of THINC, although we retain
registered ownership and voting control over that interest, and Cerner has
agreed to fund $1,000,000 of our $2,000,000 senior loan to THINC.
As part of this arrangement, THINC entered into Managed Care
Transaction Contracts with each of the THINC payers whereby the THINC payers
agreed to use the THINC network for their online medical claims submission,
eligibility, benefit plan detail, roster distribution, remittance advice
distribution, claims inquiry, referral/pre-certification and authorization, and
encounter submission transactions.
The THINC warrant is exercisable 180 days following the occurrence of
an initial public offering of CareInsite's common stock or, if an initial public
offering has not occurred, at the end of term of the THINC warrant, into an
aggregate of 1,623,647 shares of the common stock of our company. The exercise
price per share of the THINC warrant is the lesser of:
o the price per share of common stock issued in the initial public
offering price of our common stock, if an initial public offering
has occurred; and
o $9.99 per share.
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The THINC warrant expires on January 1, 2006, subject to certain exceptions. The
THINC warrant and the shares of our common stock issuable upon the exercise of
the THINC warrant are subject to certain restrictions on transfer.
Cerner. In January 1999, our company also entered into definitive
agreements and consummated a transaction with Cerner for a broad strategic
alliance. Cerner, a publicly traded corporation, is a supplier of clinical and
management information systems for healthcare organizations. Under this
arrangement, our company, among other things, obtained a perpetual, royalty-free
license to the Cerner technology in exchange for a 19.9% equity interest in our
company. Such equity interest is subject to certain restrictions on transfer and
other adjustments. In addition, we have issued to Cerner a warrant to purchase
up to 323,103 shares of common stock at $9.99 per share, exercisable only in the
event THINC exercises its warrant. Also, we will issue to Cerner approximately
1,001,250 shares of our common stock on or after February 15, 2001 at a price of
$.01 per share if we realize a specified level of physician usage of our
services. In connection with our strategic relationship with Cerner, we sold
Cerner the economic rights to 2% of THINC. Additionally, Cerner has agreed to
fund $1,000,000 of our $2,000,000 senior loan to THINC. Our company and Cerner
have entered into a non-competition agreement and, as a result, agreed that our
company will be their exclusive vehicle for providing a full suite of
prescription, laboratory and managed care transaction and messaging services
that connect physician's offices with managed care organizations, pharmacy
benefit managers, clinical laboratories, pharmacies and other providers. We also
entered into a marketing agreement that allows for the marketing and
distribution of our services to the physicians and providers associated with
more than 1,000 healthcare organizations who currently utilize Cerner's clinical
and management information system. Our company and Cerner also agreed to promote
each other's services to their respective customers. In addition, Cerner
committed to make available to our company engineering and systems architecture
personnel and expertise to accelerate the deployment of CareInsite's services,
as well as ongoing technical support and future enhancements to the licensed
Cerner technology.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is
subject to the Delaware General Corporation Law and to provisions contained in
the Company's Certificate of Incorporation and By-Laws, copies of which are
exhibits to this prospectus. Reference is made to such exhibits for a detailed
description of the provisions thereof summarized below.
Our authorized capital consists of 200,000,000 shares of common stock,
par value $.01 per share, and 20,000,000 shares of preferred stock, $0.01 par
value per share. Immediately prior to the offering, 25,000,000 shares of our
common stock were issued and outstanding. Immediately following the offering,
shares of our common stock will be issued and outstanding. Holders of
common stock have no preemptive or other subscription rights.
Common Stock
Holders of record of common stock are entitled to one vote per share on
all matters upon which shareholders have the right to vote. There are no
cumulative voting rights or preemptive rights. Therefore, holders of more than
50% of the shares of common stock are able to elect all our directors eligible
for election each year. All issued and outstanding shares of our common stock
are, and the common stock to be sold in the offering, when issued and paid for,
will be, validly issued, fully paid and non-assessable. Holders of our common
stock are entitled to such dividends as may be declared from time to time by our
Board of Directors out of funds legally available for that purpose. We do not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy." Upon dissolution, holders of our common stock are entitled to share pro
rata in the assets of our company remaining after payment in full of all of our
liabilities and obligations, including payment of the liquidation preference, if
any, of any preferred stock then outstanding. There are no redemption or sinking
fund provisions applicable to the common stock.
Preferred Stock
There are no shares of preferred stock outstanding. Series of the
preferred stock may be created and issued from time to time by our board of
directors, with such rights and preferences as they may determine. Because of
its broad discretion with respect to the creation and issuance of any series of
preferred stock without stockholder approval, the Board of Directors could
adversely affect the voting power of common stock. The issuance of preferred
stock may also have the effect of delaying, deferring or preventing a change in
control of our company.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
o prior to such date, the board of directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder,
o upon consummation of the transaction that resulted in such person
becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding, for
purposes of determining the number of shares outstanding, shares
owned by certain directors or certain employee stock plans), or
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o on or after the date the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote (and not by
written consent) of at least two-thirds of the outstanding voting
stock excluding that stock owned by the interested stockholder.
A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who (other than the corporation and any
direct or indirect majority-owned subsidiary of the corporation), together with
affiliates and associates, owns (or, as an affiliate or associate, within three
years prior, did own) 15% or more of the corporation's outstanding voting stock.
The application of Section 203 could have the effect of delaying or preventing a
change of control of our company.
Indemnification
Our by-laws require us to indemnify each of our directors and officers
to the fullest extent permitted by law and limits the liability of our directors
and stockholders for monetary damages in certain circumstances.
Article Six of our certificate of incorporation provides that no
director shall have any personal liability to the Company or its stockholders
for any monetary damages for breach of fiduciary duty as a director, provided
that such provision does not limit or eliminate the liability of any director:
o for any breach of such director's duty of loyalty to the Company
or its stockholders,
o for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
o under Section 174 of the Delaware General Corporation Law
(involving certain unlawful dividends or stock repurchases) or
o for any transaction from which such director derived an improper
personal benefit.
Any amendment to such article will not affect the liability of any
director for any act or omission occurring prior to the effective time of such
amendment.
Transfer Agent and Registrar
We have appointed Registrar and Transfer Company as the transfer agent
and registrar for our common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. No information is currently available and no prediction can be made as to
the timing or amount of future sales of shares, or the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of our common stock, including shares issuable upon exercise of stock
options or warrants, in the public market after the lapse of the legal and
contractual restrictions, including lock-up agreements, described below, or the
perception that such sales may occur, could materially and adversely affect the
prevailing market prices for our common stock and our ability to raise equity
capital in the future. See "Risk Factors -- Future sales of shares of our common
stock could affect our stock price."
After completion of this offering, we will have an aggregate of
shares of common stock outstanding, assuming no exercise of the Underwriters'
over-allotment option. All of the shares of our common stock offered in
this offering will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of our
company, as that term is defined in Rule 144 under the Securities Act. The
shares of common stock to be purchased by Cerner in a private transaction
concurrent with this offering are subject to contractual restrictions on
transfer described below and will be "restricted shares," as that term is
defined in Rule 144, and may not be sold in the absence of registration other
than in accordance with Rule 144 or another exemption from registration under
the Securities Act which rules are summarized below. In addition, the shares
of our common stock held by Cerner, which were acquired prior to this
transaction, will be subject to the contractual restrictions described below
and will also be "restricted securities," subject to the same Securities Act
restrictions. The remaining shares of common stock outstanding upon
completion of this offering are held by Synetic and will also be "restricted
securities," subject to the same Securities Act restrictions.
As a result of the contractual restrictions described below and the
provisions of Rules 144 and 144(k) described below, additional shares will be
available for sale in the public market as follows:
o no shares of common stock, other than those sold
hereby and not held by affiliates, will be available
for immediate sale in the public market on the date
of this prospectus,
o any shares of common stock sold hereby and purchased
by affiliates will be eligible for sale 90 days after
the date of this prospectus, subject to the volume,
manner of sale and reporting requirements of Rule
144,
o approximately shares of common stock, all of which
are held by Synetic, will be eligible for sale upon expiration
of the lock-up agreements days after the date of this
prospectus, subject to the volume, manner of sale and reporting
requirements of Rule 144,
o approximately shares of common stock acquired by Cerner
prior to this offering will be eligible for sale, subject to the
volume, manner of sale and reporting requirements of Rule 144,
after January 2, 2000. These shares may also be sold pursuant to
Cerner's registration rights after January 2, 2001, if not
previously sold pursuant to Rule 144 or another exemption from
registration under the Securities Act, and
o the shares of our common stock purchased by Cerner in a
private transaction concurrent with this offering will be eligible
for sale days after the date of this prospectus, upon
expiration certain contractual restrictions, subject to the
volume, manner of sale and reporting requirements of Rule 144.
In addition, THINC and Cerner own warrants exercisable for an aggregate
of 1,946,750 shares of our common stock, which warrants cannot be exercised
until 180 days after the completion of this offering. We will also issue to
Cerner approximately 1,001,250 shares of our common stock on or after February
15, 2001 at a price of $.01 per share if we realize specified levels of
physician usage of our services.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; and
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o the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner other than an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
offering.
Stock Plans
We plan to file a registration statement to register shares of
common stock reserved for issuance under our stock option plans. See "Management
- -- Compensation Pursuant to Plans and Arrangements of the Company -- Stock
Option Plans." Once registered, persons acquiring such shares upon exercise of
their options, whether or not they are affiliates, will be permitted to resell
their shares in the public market without regard to the Rule 144 holding period.
Registration Rights
Upon completion of this offering, Cerner will be entitled to certain
rights with respect to the registration of shares under the Securities Act
after January 2, 2001. Registration of such shares under the Securities Act
would result in such shares, except for shares purchased by affiliates, becoming
eligible for sale immediately upon the effectiveness of such registration. In
addition, THINC may exercise demand registration rights requiring us to register
for sale any shares issued pursuant to the exercise of its warrant beginning any
time after January 1, 2001.
Lock-up Agreements and Contractual Restrictions
Upon consummation of this offering, Synetic and Cerner will own
approximately % and % of our outstanding common stock, respectively.
Synetic and Cerner have advised us that they currently have no plans to reduce
their respective ownership interests following this offering. However, Synetic
is not subject to any contractual obligation to retain its controlling interest,
except that Synetic has agreed not to sell or otherwise dispose of any shares of
our company for a period of days after the date of this prospectus without
the prior written consent of Merrill Lynch. In addition, subject to certain
exceptions, we have agreed not to sell or otherwise dispose of any shares of
our common stock for such -day period without the prior written consent of
Merrill Lynch. See "Underwriting." Pursuant to a stockholders agreement, Cerner
is prohibited from transferring any of the shares of our common stock acquired
in the separate, private transaction concurrent with this offering, prior to
days after the date of this prospectus. See "Transactions and
Relationships with Principal Stockholders -- Stockholders Agreement."
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement
(the "Purchase Agreement") between our company and each of the underwriters
named below, we agreed to sell to each of the underwriters, and each of the
underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Warburg Dillon Read, as joint book runners, are acting as representatives,
have agreed to purchase from us, the number of shares of common stock set forth
opposite its name below:
Number
Underwriter of Shares
----------- ---------
Merrill Lynch, Pierce Fenner & Smith
Incorporated....................................
Warburg Dillon Read LLC......................................
---------
Total............................................
=========
The Purchase Agreement provides that the obligations of each of the
underwriters are subject to certain conditions and that when all those
conditions are satisfied each of the underwriters will be obligated to purchase
all of the shares of common stock offered in this offering. In the event of
default by an underwriter, under the Purchase Agreement the commitments of
non-defaulting underwriters may be increased.
The representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per share
of common stock. The underwriters may allow, and those dealers may reallow, a
discount not in excess of $ per share of common stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the per share and total public offering
price, underwriting discount to be paid by us to the underwriters and the
proceeds of the sale of shares to the underwriters before expenses to us. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Total
-------------------------
Without With
Per Share Option Option
----------- ----------- ----------
<S> <C> <C> <C>
Public offering price................................ $ $ $
Underwriting discount................................ $ $ $
Proceeds, before expenses, to our company............ $ $ $
</TABLE>
We have granted to the underwriters an option, exercisable for up to 30
days after the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the initial public offering price set
forth on the cover of this prospectus less the underwriting discount to cover
over-allotments, if any, made on the sale of the common stock offered hereby. If
the underwriters exercise the over-allotment option, the underwriters have
agreed, subject to certain conditions, to purchase approximately the same
percentage of the additional shares that the number of shares of common stock to
be purchased by each of them as shown in the foregoing table bears to the
shares of common stock offered in this offering. The underwriters may
exercise
64
<PAGE>
such option only to cover over-allotments made in connection with the sale of
the shares of common stock offered hereby.
At our request, the underwriters have reserved for sale, at the initial
public offering price, of the shares offered hereby to be sold to certain
directors, officers and employees of our company, of Synetic and of Cerner. The
number of shares of our common stock available for sale to the general public
will be reduced to the extent these persons purchase the reserved shares. Any
reserved shares which are not orally confirmed for purchase within one day of
the pricing of this offering will be offered by the underwriters to the general
public on the same terms as the other shares offered in this offering.
Cerner has agreed to purchase directly from us in a separate, private
transaction concurrent with this offering, shares of our common stock at
a price equal to the initial public offering price per share less the
underwriting discount.
Our company and each of our directors, officers and stockholders have
agreed that, for a period of days after the date of this prospectus,
subject to certain exceptions, they will not without the prior written consent
of Merrill Lynch, directly or indirectly:
o offer, pledge, sell, agree to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer, any
shares of our common stock or securities convertible into or
exchangeable or exercisable for our common stock, whether now
owned by them or acquired by them in the future, or over which
they now have or acquire power of disposition, or file a
registration statement under the Securities Act with respect to
the offering of any shares of our common stock; or
o enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of our common
stock whether any such swap or transaction is to be settled by
delivery of common stock or other securities, in cash or
otherwise.
The foregoing restrictions shall not apply to the shares of our common
stock to be sold hereunder or, with respect to our company, any shares of our
common stock issued or options to purchase shares of our common stock granted
pursuant to existing employee benefit or stock option plans referred to in this
prospectus or any shares of our common stock or any such securities or rights
issued in connection with investments in, acquisitions of, or mergers or other
combinations with, other companies.
Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
between our company and the representatives. The factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, are
o price-to-revenues ratios of publicly traded companies that
the representatives believe to be comparable to our company,
o certain financial information of our company,
o the history of, and the prospects for, our company and the
industry in which it competes,
o an assessment of our management, our past and present operations,
the prospects for, and timing of, future revenues of our company,
o the present state of our development, and
65
<PAGE>
o the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to our company.
We expect our common stock to be approved for listing on the Nasdaq
National Market, subject to notice of issuance, under the symbol " ." However,
there can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market subsequent
to the offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares of common stock being offered in this offering.
We have agreed to indemnify the underwriters against, or to contribute
to payments the underwriters may be required to make in respect of certain
liabilities, including certain liabilities under the Securities Act.
Until the distribution of the shares of common stock is completed,
rules of the Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase our
common stock. As an exception to these rules, the representatives are permitted
to engage in certain transactions that stabilize the price of our common stock.
These transactions may include bids or purchases for the purpose of pegging,
fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell a larger number of shares of
common stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing common stock in the
open market. The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase shares of common stock in the open market to reduce the underwriters'
short position or to stabilize the price of our common stock, they may reclaim
the amount of the selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
If the representatives purchase the common stock to stabilize the price
or to reduce the underwriters' short position, the price of our common stock
could be higher than it might be in the absence of such purchases. The
imposition of a penalty bid might also have an effect on the price of our common
stock to the extent that it discourages resales of our common stock.
Neither our company nor any of the underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
any of the transactions described above may have on the price of the common
stock. In addition, neither our company nor any of the underwriters makes any
representation that the representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Merrill Lynch, from time to time, performs investment banking and other
financial services for our company, Synetic and affiliates of each of these
companies.
We will pay all of the expenses of the offering, excluding underwriting
discounts, and we estimate that these expenses will be approximately $ .
66
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Shearman & Sterling, New York, New York. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Brown & Wood LLP. Shearman & Sterling is a limited partner in SN Investors,
L.P. SN Investors is a limited partnership the general partner of which is SYNC,
Inc., whose sole stockholder is Martin J. Wygod, Chairman of our company and
Synetic. SN Investors currently holds 5,061,857 shares of Synetic common stock.
EXPERTS
The audited financial statements of CareInsite, Inc. and Avicenna
Systems Corporation included in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The audited financial statements of The Health Information Network
Connection, LLC included in this registration statement have been audited by
KPMG LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
The statements of law under the caption "Risk Factors -- Government
regulation of the Internet and/or healthcare e-commerce services could adversely
affect our business" and under the caption "Business -- Government Regulation"
in this prospectus are based upon the opinion of Kegler, Brown, Hill & Ritter
Co., L.P.A., Columbus, Ohio, special regulatory counsel to the Company. Robert
D. Marotta, Esq., of counsel to such firm, holds 75,000 options to purchase
Synetic common stock.
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-1
under the Securities Act with respect to the shares of common stock offered
hereby. For the purposes hereof, the term "registration statement" means the
original registration statement and any and all amendments thereto. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to our company and such common stock, reference is hereby made to such
registration statement, including exhibits thereto, which can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission at Seven World Trade Center, New York, New York 10048 and 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
Statements contained in the prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
We are not currently subject to the informational requirements of the
Exchange Act. As a result of the offering of our common stock, we will become
subject to the reporting requirements of the Exchange Act. We intend to furnish
our stockholders with annual reports containing consolidated financial
statements audited by independent certified public accountants.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
CareInsite, Inc. (a Development Stage Company)
Report of Independent Public Accountants................................F-3
Consolidated Balance Sheets at June 30, 1997 and 1998 and
March 31, 1999 (unaudited)..............................................F-4
Consolidated Statements of Operations for the Period From
Inception (December 24, 1996) through June 30, 1997, the Year
Ended June 30, 1998 and the Nine Months Ended
March 31, 1998 and 1999 (unaudited) and Cumulative from
(December 24, 1996) through March 31, 1999 (unaudited)..................F-6
Consolidated Statements of Changes in Stockholders' Equity for the
Period From Inception (December 24, 1996) through June 30, 1997,
the Year Ended June 30, 1998, the Nine Months Ended March 31, 1999
(unaudited) and Cumulative from Inception (December 24, 1996)
through March 31, 1999 (unaudited)......................................F-7
Consolidated Statements of Cash Flows for the Period From
Inception (December 24, 1996) through June 30, 1997, the Year
Ended June 30, 1998, the Nine Months Ended March 31, 1998 and 1999
(unaudited) and Cumulative From Inception (December 24, 1996)
through March 31, 1999 (unaudited)......................................F-8
Notes to Consolidated Financial Statements..............................F-9
Avicenna Systems Corporation (a Development Stage Company, acquired on
December 24, 1996) -- Predecessor Business
Report of Independent Public Accountants...............................F-20
Statements of Operations for the Year Ended
December 31, 1995, the Period from January 1, 1996 through
December 23, 1996 and Cumulative from Inception
(September 20, 1994) through December 23, 1996 ........................F-21
Statements of Changes in Redeemable Convertible Stock and
Stockholder's Deficit for the Period From Inception
(September 20, 1994) through December 31, 1994, the
Year Ended December 31, 1995 and the Period from
January 1, 1996 through December 23, 1996..............................F-22
Statements of Cash Flows for the Year Ended December 31, 1995, the
Period From January 1, 1996 through December 23, 1996 and
Cumulative from Inception (September 20, 1994) through
December 23, 1996......................................................F-23
Notes to Financial Statements..........................................F-25
F-1
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Health Information Network Connection, LLC (a Development Stage Company)
- --A company in which we own a minority equity interest
Independent Auditors' Report...........................................F-29
Balance Sheets at December 31, 1998 and March 31, 1999
(unaudited)............................................................F-30
Statements of Operations for the Year Ended
December 31, 1998, the Period from Inception
(November 12, 1996) to December 31, 1998 and the three
months ended March 31, 1998 and 1999 (unaudited).......................F-31
Statements of Changes in Members' Deficit for the
Period from Inception (November 12, 1996)
to December 31, 1997, the Year Ended
December 31, 1998, and the three
months ended March 31, 1999 (unaudited)................................F-32
Statements of Cash Flows for the Year Ended
December 31, 1998, the Period from Inception
(November 12, 1996) to December 31, 1998 and the three
months ended March 31, 1998 and 1999 (unaudited).......................F-33
Notes to Financial Statements..........................................F-34
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After CareInsite, Inc. amends its Certificate of Incorporation to
increase the number of authorized common shares to $200,000,000 and authorizes
20,000,000 shares of preferred stock and effects a 20.025-for-1 stock split, we
expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 17, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CareInsite, Inc.:
We have audited the accompanying consolidated balance sheets of
CareInsite, Inc. (a Delaware corporation in the development stage) and
subsidiary (formerly Synetic Healthcare Communications, Inc.) as of June 30,
1997 and 1998, and the related consolidated statements of operations, changes in
stockholder's equity and cash flows for the period from Inception (December 24,
1996) through June 30, 1997 and for the year ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CareInsite, Inc. and
subsidiary as of June 30, 1997 and 1998, and the results of their operations and
their cash flows for the period from Inception (December 24, 1996) through June
30, 1997 and for the year ended June 30, 1998 in conformity with generally
accepted accounting principles.
F-3
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 30, March 31,
-------------------- -----------
1997 1998 1999
-------- -------- -----------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents ................ $ 246 $ 315 $ 5,058
Note receivable .......................... -- 2,000 --
Other current assets ..................... 72 220 554
-------- -------- --------
Total current assets ................... 318 2,535 5,612
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements ................... 366 681 701
Machinery and equipment .................. 1,244 2,826 2,914
Furniture and fixtures ................... 171 371 388
-------- -------- --------
1,781 3,878 4,003
Less: Accumulated depreciation .......... (184) (1,025) (1,740)
-------- -------- --------
Property, plant and equipment, net ....... 1,597 2,853 2,263
-------- -------- --------
CAPITALIZED SOFTWARE
DEVELOPMENT COSTS: ....................... 348 4,972 31,330
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $405, $1,214 and $1,618
at June 30, 1997 and 1998 and
March 31, 1999, respectively .......... 1,213 404 --
Investments .............................. -- -- 4,668
Other .................................... -- 69 62
-------- -------- --------
Total other assets ................. 1,213 473 4,730
-------- -------- --------
$ 3,476 $ 10,833 $ 43,935
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
-------------------- -----------
1997 1998 1999
-------- -------- -----------
(unaudited)
CURRENT LIABILITIES:
Accounts payable .......................... $ 265 $ 594 $ 247
Accrued liabilities ....................... 1,645 1,166 1,023
-------- --------- --------
Total current liabilities .............. 1,910 1,760 1,270
-------- --------- --------
DEFERRED INCOME TAXES:...................... -- 1,275 1,415
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 20,000,000
shares authorized; none-issued and
outstanding .......................... -- -- --
Common stock, $.01 par value; authorized
200,000,000 shares; 20,025,000
shares issued and outstanding at
June 30, 1997 and 1998, and
25,000,000 shares issued and
outstanding at March 31, 1999 ........ 200 200 250
Paid-in capital ........................... 53,723 70,290 109,173
Stock subscription receivable ............. (10,000) (10,000) --
Deficit accumulated during the development
stage ................................ (42,357) (52,692) (68,173)
-------- --------- --------
Total stockholders' equity ................ 1,566 7,798 41,250
-------- --------- --------
$ 3,476 $ 10,833 $ 43,935
======== ========= ========
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period Cumulative
From From
Inception Inception
(Dec 24, (Dec 24,
1996) Year Nine Months 1996)
Through Ended Ended Through
June 30, June 30, March 31, March 31,
1997 1998 1998 1999 1999
-------- -------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Service revenue
(related party) ........ $ -- $ -- $ -- $ 213 $ 213
Cost and expenses:
Cost of services
(related party) ... -- -- -- 213 213
Research and
development ....... 7,652 4,762 3,976 8,720 21,134
Sales and marketing ... 1,150 1,733 1,232 1,427 4,310
General and
administrative .... 1,379 3,887 2,589 2,944 8,210
Litigation costs ...... -- -- -- 2,500 2,500
Other income, net ..... (9) (47) (7) (110) (166)
Acquired in-process
research and
development ....... 32,185 -- -- -- 32,185
-------- -------- -------- -------- --------
42,357 10,335 7,790 15,694 68,386
-------- -------- -------- -------- --------
Net loss ................. $(42,357) $(10,335) $ (7,790) $(15,481) $(68,173)
======== ======== ======== ======== ========
Net loss per share - basic
and diluted ........... $ (2.12) $ (0.52) $ (0.39) $ (0.71) $ (3.31)
======== ======== ======== ======== ========
Weighted average
shares outstanding
- basic and diluted 20,025 20,025 20,025 21,683 20,577
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Deficit
------------------- Accumulated
Number Stock During the Total
of Paid-In Subscription Development Stockholders'
Shares Amount Capital Receivable Stage Equity
------ ------ ------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Capitalization at Inception, December 24, 1996 .... 20,025 $ 200 $ 9,800 $(10,000) $ -- $ --
Pushdown of Avicenna acquisition .................. -- -- 28,817 -- -- 28,817
Pushdown of CareAgents acquisition ................ -- -- 3,250 -- -- 3,250
Net loss .......................................... -- -- -- -- (42,357) (42,357)
Capital contributions from parent ................. -- -- 11,856 -- -- 11,856
-------- -------- -------- -------- -------- --------
Balance, June 30, 1997 ............................ 20,025 200 53,723 (10,000) (42,357) 1,566
Net loss .......................................... -- -- -- -- (10,335) (10,335)
Capital contributions from parent ................. -- -- 16,567 -- -- 16,567
-------- -------- -------- -------- -------- --------
Balance, June 30, 1998 ............................ 20,025 200 70,290 (10,000) (52,692) 7,798
Settlement of stock subscription receivable
(unaudited) .................................. -- -- -- 10,000 -- 10,000
Equity issued to Cerner (unaudited) ............... 4,975 50 20,750 -- -- 20,800
Issuance of warrants to THINC (unaudited) ......... -- -- 1,700 -- -- 1,700
Net loss (unaudited) .............................. -- -- -- -- (15,481) (15,481)
Capital contributions from parent (unaudited) ..... -- -- 16,433 -- -- 16,433
-------- -------- -------- -------- -------- --------
Balance, March 31, 1999 (unaudited) ............... 25,000 $ 250 $109,173 $ -- $(68,173) $ 41,250
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Cumulative
Period From Inception Year From Inception
(December 24, 1996) Ended Nine Months Ended (December 24, 1996)
Through June 30, June 30, March 31, Through March 31,
1997 1998 1998 1999 1999
--------------------- -------- ---- ---- --------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $(42,357) $(10,335) $ (7,790) $(15,481) $(68,173)
Adjustments to reconcile net loss to
net cash used in operating activities:
Write-off of acquired in-process
purchased research and
development costs ........................... 32,185 -- -- -- 32,185
Write-off of acquired intellectual
property and software technologies .......... 5,228 -- -- -- 5,228
Depreciation and amortization .................... 589 1,650 1,086 1,119 3,358
Write-off of capitalized software costs .......... -- -- -- 2,381 2,381
Other ............................................ -- -- -- 212 212
Changes in operating assets and liabilities, net of
the effects of acquisitions:
Other assets ..................................... 61 (217) (2,292) (187) (343)
Accounts payable ................................. (241) 329 (87) (347) (259)
Accrued liabilities .............................. (476) (479) (911) (144) (1,099)
-------- -------- -------- -------- --------
Net cash used in operating activities ....... (5,011) (9,052) (9,994) (12,447) (26,510)
-------- -------- -------- -------- --------
Cash flows used in investing activities:
Purchases of property, plant & equipment ............. (1,023) (2,097) (777) (124) (3,244)
Software development costs ........................... (348) (4,624) (2,540) (7,769) (12,741)
Investment in unconsolidated affiliate ............... -- -- -- (1,350) (1,350)
-------- -------- -------- -------- --------
Net cash used in investing activities ....... (1,371) (6,721) (3,317) (9,243) (17,335)
-------- -------- -------- -------- --------
Cash flows provided by financing activities:
Proceeds from subscription receivable ................ -- -- -- 10,000 10,000
Capital contribution from parent ..................... 6,628 15,842 13,309 16,433 38,903
-------- -------- -------- -------- --------
Net cash provided by financing activities ........ 6,628 15,842 13,309 26,433 48,903
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents .............. 246 69 (2) 4,743 5,058
Cash and cash equivalents, beginning of period ......... -- 246 246 315 --
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period ............... $ 246 $ 315 $ 244 $ 5,058 $ 5,058
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
The Company--
On December 24, 1996, Synetic, Inc. ("Synetic" or the "Parent")
acquired Avicenna Systems Corporation (a Development Stage Company -- "Avicenna"
- -- See Note 2), a privately held company that marketed and built Intranets for
managed healthcare plans, integrated healthcare delivery systems and hospitals.
The acquisition of Avicenna marked the Inception of Synetic's healthcare
electronic commerce business. On January 23, 1997, Synetic acquired CareAgents,
Inc. ("CareAgents" -- See Note 2), a privately held company engaged in
developing Internet- based clinical commerce applications. On November 24, 1998,
Synetic formed Synetic Healthcare Communications, Inc., which was subsequently
renamed CareInsite, Inc. (the "Company"). On January 2, 1999, Synetic
contributed the stock of CareAgents to Avicenna. Concurrently, Avicenna
contributed the stock of CareAgents and substantially all of Avicenna's other
assets and liabilities to the Company (the "Formation"). Synetic also agreed to
contribute $10,000,000 in cash to the Company, which amount was subsequently
funded. The Formation has been accounted for using the carryover basis of
accounting and the Company's financial statements include the accounts and
operations of Avicenna and CareAgents for all periods presented from the date
each entity was acquired. Upon Formation, the Certificate of Incorporation
provided for authorized capital stock consisting of 10,000,000 shares of common
stock, $.01 par value and 1,000,000 shares were subsequently issued. The shares
issued in connection with the Formation reflect the 20.025-for-1 stock split of
the common stock to be effected in the form of a stock dividend to be declared
and paid prior to the closing of the initial public offering ("IPO") of the
Company's common stock. All references in the financial statements to shares,
share prices, per share amounts and warrants have been adjusted retroactively
for the 20.025-for-1 stock split.
The Company is in the development stage. The Company intends to provide
a broad range of healthcare electronic commerce services which will leverage
Internet technology to improve communication among physicians, payers, suppliers
and patients. The provision of products and services using Internet technology
in the healthcare electronic commerce industry is subject to risks, including
but not limited, to those associated with competition from existing companies
offering the same or similar services, uncertainty with respect to market
acceptance of its products and services, rapid technological change, management
of growth, availability of future capital and minimal previous record of
operations or earnings.
In October 1998, the Company entered into agreements in principle with
The Health Information Network Connection LLC ("THINC") and Cerner Corporation
("Cerner").
THINC--
In January 1999, the Company, THINC, and THINC founding members,
Greater New York Hospital Association, Empire Blue Cross and Blue Shield, Group
Health Incorporated ("GHI"), and HIP Health Plans entered into definitive
agreements and consummated a transaction for a broad strategic alliance. Under
this arrangement, among other things, the Company (i) acquired a 20% ownership
interest in THINC in exchange for $1,500,000 and a warrant to purchase an
aggregate of 1,623,647 shares of common stock of the Company, (ii) agreed to
extend up to $2,000,000 and $1,500,000 in senior loans to THINC, (iii) entered
into a Management Services Agreement with THINC pursuant to which the Company
will manage all operations of THINC, including, providing THINC with certain
content and messaging services, (iv) licensed to THINC content and messaging
services for use over the THINC network and (v) entered into Clinical
Transaction Agreements with each of Empire, GHI and HIP (the "THINC Payers") to
provide online prescription and laboratory transaction services. The Company's
Clinical Transaction Agreement with GHI specifies that it does not have the
exclusive right to provide prescription communication services to GHI unless
either the Company enters into an agreement with GHI's pharmacy benefit
F-9
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
manager outlining a methodology for the implementation of such services or GHI
elects to proceed without such an agreement. GHI's current pharmacy benefit
manager is Merck-Medco, a company with whom the Company is currently involved in
litigation (See Note 8). To date, the Company has not entered into any such
agreement with Merck-Medco and GHI has not made such election.
As part of this arrangement, THINC entered into Managed Care
Transaction Contracts with each of the THINC Payers whereby the THINC Payers
agreed to use the THINC network for their online medical claims submission,
eligibility, benefit plan detail, roster distribution, remittance advice
distribution, claims inquiry, referral/pre-certification and authorization, and
encounter submission transactions.
The warrant issued to THINC is exercisable 180 days following the
occurrence of an initial public offering ("IPO") of the Company's common stock
or, if an IPO has not occurred, at the end of term of the warrant. The exercise
price per share of the warrant is the lesser of (i) the price per share of
common stock issued in the IPO, if an IPO has occurred, and (ii) $9.99 per
share. The warrant expires on January 1, 2006, subject to certain exceptions.
The warrant and the shares of our common stock issuable upon the exercise of the
warrant are subject to certain restrictions on transfer. The estimated fair
value of the warrant at the date issued was approximately $1,700,000, as
determined using the Black-Scholes option pricing model. The Company will
account for its investment in THINC using the equity method of accounting.
Assuming CareInsites' investment in THINC had been consummated on July
1, 1997, net loss and net loss per share for the year ended June 30, 1998 and
the nine months ended March 31, 1999 would have been $(11,089,000) or $(.55) per
share and $(15,962,000) or $(.74) per share, respectively. This pro forma
information is not necessarily indicative of what would actually have occurred
if the investment had been made on July 1, 1997, nor is it intended to be a
projection of future results.
Cerner--
In January 1999, the Company also entered into definitive agreements and
consummated a transaction with Cerner for a broad strategic alliance. Cerner, a
publicly traded corporation, is a supplier of clinical and management
information systems for healthcare organizations. Under this arrangement, the
Company, among other things, obtained a perpetual software license to the
functionality embedded in Cerner's Health Network Architecture ("HNA") including
HNA Millennium Architecture in exchange for a 19.9% equity interest in the
Company (such equity interest is subject to certain restrictions on transfer and
other adjustments). In addition, the Company has issued to Cerner a warrant to
purchase up to 323,103 shares of common stock at $9.99 per share, exercisable
only in the event THINC exercises its warrant. Also, the Company will issue to
Cerner 1,001,250 additional shares of common stock on or after February 15, 2001
at $.01 per share in the event the Company has achieved a stated level of
physician participation by 2001. The software acquired from Cerner was valued at
approximately $20,800,000 based on the value of the equity consideration as
determined using established valuation techniques. In connection with our
strategic relationship with Cerner, we sold Cerner the economic rights to 2% of
THINC. Additionally, Cerner has agreed to fund $1,000,000 of the Company's
$2,000,000 senior loan to THINC. Additionally, the Company and Cerner entered
into a Marketing Agreement that allows for the marketing and distribution of the
Company's services to the physicians and providers associated with more than
1,000 healthcare organizations who currently utilize Cerner's clinical and
management information system. In addition, Cerner committed to make available
engineering and systems architecture personnel and expertise to accelerate the
deployment of the Company's services, as well as ongoing technical support and
future enhancements to HNA.
F-10
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
Principles of Consolidation--
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, CareAgents, after elimination of
all significant intercompany accounts and transactions.
Interim Financial Information--
Information for the nine months ended March 31, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting only of normal recurring
adjustments that management considers necessary for a fair presentation of the
Company's operating results for such periods. Results for the nine months ended
March 31, 1999 are not necessarily indicative of results to be expected for the
full fiscal year 1999 or for any future period.
Fair Value of Financial Instruments--
The carrying amounts of cash and cash equivalents and note receivable
approximate fair value because of the short-term maturity of these instruments.
Cash and Cash Equivalents--
The Company considers all investment instruments with a maturity of
three months or less from the date of purchase to be the equivalent of cash for
purposes of balance sheet presentation and for the consolidated statements of
cash flows.
Property, Plant and Equipment--
Property, plant and equipment are stated at cost. For financial
reporting purposes, depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets. Annual depreciation rates
range from 20% to 33% for leasehold improvements and from 10% to 33% for
machinery and equipment and furniture and fixtures. Expenditures for
maintenance, repair and renewals of minor items are charged to operations as
incurred. Major betterments are capitalized.
Capitalized Software Development Costs--
The Company capitalizes costs incurred for the production of computer
software for use in the sale of its services. Costs capitalized include direct
labor and related overhead for software produced by the Company and the costs of
software licensed from third parties. All costs in the software development
process which are classified as research and development are expensed as
incurred until technological feasibility has been established. Once
technological feasibility has been established, such software development costs
are capitalized until the software is commercially available. Such costs are
recorded at the lower of unamortized cost or net realizable value. As of June
30, 1997, June 30, 1998 and March 31, 1999, capitalized internally generated
costs were $348,000, $4,368,000 and $4,353,000, respectively. As of June 30,
1998 and March 31, 1999, amounts capitalized costs for software components
licensed from vendors were $604,000 and $26,977,000, respectively. There were no
capitalized costs
F-11
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
for software components licensed from third party vendors as of June 30, 1997.
Software components licensed from vendors include amounts capitalized related to
the perpetual software licenses obtained from Cerner.
As a result of the Company entering into license agreements with Cerner
under which the Company obtained a perpetual license to Cerner's HNA
architecture, certain elements of previously capitalized software costs were
deemed duplicative and obsolete and had no alternative future use. Consequently,
$2,381,000 of capitalized software were written off in December, 1998 and
included in selling, general and administrative expenses in the nine month
period.
For the period from inception (December 24, 1996) through June 30,
1997, $5,228,000 of costs associated with the acquisitions of certain
intellectual property and software technologies was expensed as research and
development as technological feasibility had not been reached.
Long-Lived Assets--
In accordance with Statement of Financial Accounting Standard ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
long-lived assets requires revision or that all or a portion of the remaining
balance may not be recoverable. Management does not believe that any such events
or changes in circumstances have occurred.
Accrued Liabilities--
Accrued liabilities consisted of the following (in thousands):
June 30
---------------------
1997 1998
------ ------
Accrued payroll and benefit costs.............. $ 233 $ 408
Accrued software costs......................... -- 400
Accrued acquisition costs...................... 1,256 109
Accrued consulting............................. 25 154
Other.......................................... 131 95
------ ------
Total................................. $1,645 $1,166
====== ======
Revenue Recognition--
The Company recognizes revenues from the management services it
provides to THINC. Revenues are recognized as the services are performed.
Income Taxes--
The Company accounts for income taxes pursuant to SFAS 109, "Accounting
for Income Taxes", which uses the liability method to calculate deferred income
taxes.
F-12
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
The Company is included in the consolidated federal income tax return
of Synetic. The accompanying consolidated statements of operations reflect
income taxes as if the Company filed a separate tax return.
Net Loss Per Share--
Basic net loss per share and diluted net loss per share are presented
in conformity with SFAS No. 128, "Earnings per Share" and SEC Staff Accounting
Bulletin No. 98 ("SAB 98"). Under SFAS No. 128 and SAB 98, basic net loss per
share is computed by dividing net income by the weighted-average number of
common shares outstanding for the period. In accordance with SAB 98, the Company
has determined that there were no nominal issuances of the Company's common
stock prior to the proposed IPO. The calculation of diluted net loss per share
excludes shares of common stock issuable upon exercise of employee stock options
as the effect of such exercises would be anti-dilutive. Common shares
outstanding and per share amounts reflect the Formation and are considered
outstanding from inception.
Accounting for Stock-Based Compensation--
The Company accounts for its stock-based employee compensation
agreements in accordance with the provisions of Accounting Principles Board
Opinion No. 25.
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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards--
In June 1997, the Financial Accounting Standards Board, (FASB), issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company is required to adopt SFAS No. 131 for its year ending
June 30, 1999. SFAS No. 131 requires disclosure of certain information regarding
operating segments, products and services, geographic areas of operation and
major customers. Adoption of SFAS No. 131 is expected to have no material impact
on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company is required to adopt SFAS No.
133 for its year ending June 30, 2000. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because the Company
currently holds no derivative financial instruments and does not currently
engage in hedging activities, adoption of SFAS No. 133 is expected to have no
material impact on the Company's financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position, or "SOP," 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company is required to implement SOP 98-1
for the year ending June 30, 2000. Adoption of SOP 98-1 is expected to have no
material impact on the Company's financial condition or results of operations.
F-13
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position or "SOP" 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that entities expense start-up costs as incurred.
The Company is required to implement SOP 98-5 for the year ending June 30, 2000.
Adoption of SOP 98-5 is expected to have no material impact on the Company's
financial condition or results of operations.
(2) Acquisitions:
Avicenna--
On December 24, 1996, Synetic acquired the outstanding equity and
indebtedness (including employee stock options) of Avicenna, a privately-held
company located in Cambridge, Massachusetts, for 428,643 shares of Synetic's
common stock and 161,015 shares of Synetic's common stock to be issued in
connection with the exercise of employee stock options. The acquisition was
accounted for using the purchase method with the purchase price being allocated
to assets acquired and liabilities assumed based on their fair values.
A summary of the purchase price allocation is as follows (in
thousands):
Cash................................................. $42
Short-term investments............................... 240
Other assets......................................... 216
Property, plant and equipment........................ 759
Purchased research and development................... 28,600
Intangible assets.................................... 1,502
Goodwill............................................. 116
Accounts payable..................................... (507)
Accrued liabilities.................................. (2,151)
-------
$28,817
=======
The intangible assets of $1,502,000 represent the estimated fair market
value of Avicenna's existing technical staff. The amount allocated to technical
staff was determined using established valuation techniques, and were amortized
over a two-year period. The amount allocated to purchased research and
development of $28,600,000 was determined using established valuation
techniques. Remaining amounts have been allocated to goodwill and were amortized
over a two-year period.
CareAgents--
On January 23, 1997, Synetic acquired CareAgents for 106,029 shares of
Synetic's common stock. CareAgents was an early development stage company
focused on Internet-based clinical commerce applications. The acquisition was
accounted for using the purchase method with the purchase price being allocated
to the assets acquired, purchased research and development of $3,585,000 and
liabilities assumed of $335,000, based on their fair values. The amount
allocated to purchased research and development of $3,585,000 was determined
using established valuation techniques.
F-14
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Acquisitions: (continued)
Acquired In-Process Research and Development--
In connection with the acquisitions of Avicenna and CareAgents, an
allocation of the purchase price was made to acquired in-process research and
development. The estimates of fair value for the purchased research and
development are primarily the responsibility of management. These amounts have
been expensed on the respective acquisition dates as the in-process research and
development had not reached technological feasibility and had no alternative
future use. A description of the acquired in-process research and development
and the estimates made are as follows:
Avicenna--
The amount allocated to acquired in-process research and development of
$28,600,000 was determined based on an income approach valuation methodology.
The valuation projected revenue and costs over a nine year period with
profitability commencing in three years and increasing steadily through year
nine. The assumptions on which the projections were based are subject to a high
degree of uncertainty. The more significant uncertainties were those regarding
the timing and extent of the estimated revenues associated with this technology
as well as the estimated costs to complete the development. A nine year forecast
of revenues and costs attributable to the acquired technology was prepared. The
nine year projection period was consistent with the expected useful life of the
Intranets under development. The resulting operating cash flows were then
reduced by working capital and capital expenditures and discounted to present
value based upon a discount rate of 30%.
Avicenna was in the early stages of its development and the systems
under development had not yet reached technological feasibility. There was no
alternative future use for the technology then developed.
Avicenna had incurred approximately $1,263,000 in research and
development costs to develop the technology to its then current status.
Significant costs remained to complete the technological capabilities of its
product line and then migrate those capabilities to a new business model
envisioned by Synetic.
CareAgents--
The entire purchase price of $3,585,000 was assigned to acquired
in-process purchased research and development. The purchase price allocation to
acquired in-progress research and development was determined based on an income
approach methodology. The assumptions on which the projections were based are
subject to a high degree of uncertainty. The more significant uncertainties were
those regarding the timing and extent of the estimated revenues associated with
this technology as well as the estimated costs to complete the development, as
the company was in its initial stages of development. A nine year forecast of
revenues and costs attributable to the acquired technology was prepared. The
nine year projection period was consistent with the expected useful life of the
Intranets under development. The resulting operations cash flows were then
reduced by working capital and capital expenditures and discounted to present
value based upon a discount rate of 50%.
CareAgents' technology was in the very early stages of development with
basic user requirements, a business plan, preliminary system architecture with
process flow diagrams and prototyping efforts comprising the work completed to
date. Substantial costs remained to mature the technology to the point of
technological feasibility and then complete for first product deployment. No
work had been completed on a detailed engineering design or on building or
testing any substantive code.
F-15
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Stockholders' Equity:
Included in capital contributions from parent for the period from
Inception (December 24, 1996) through June 30, 1997 is $5,228,000 of rights to
certain intellectual property and software technologies purchased by Synetic to
be utilized in the development of the Company's healthcare communications
business.
Included in capital contributions from parent for the year ended June
30, 1998 is an assignment by Synetic of rights to an 8% Senior Convertible Note
for $2,000,000 from a privately held company (See Note 7).
(4) Income Taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At June 30,
1998 and March 31, 1999, deferred tax liabilities of $1,275,000 and $1,415,000,
respectively, primarily relate to software development costs capitalized for
financial reporting purposes and expensed for tax purposes.
For the period from inception (December 24, 1996) through January 2,
1999, the tax benefits associated with net operating losses generated by the
Company were retained by Synetic. Accordingly, no tax benefit has been or will
be reflected in the accompanying financial statements for these net operating
losses.
(5) Stock Options:
The Company expects to adopt a stock option plan covering its
employees, officers and directors, and certain consultants, agents and key
contractors. The Company intends to grant stock options under this plan to
certain employees, officers and directors in connection with an IPO of the
Company's common stock. The Company intends to grant such stock options at fair
market value.
Historically, the employees of the Company have participated in the
stock option plans of Synetic. These plans provide for both non-qualified and
incentive stock options. Generally, options granted under these plans become
exercisable at a rate of 20% on each annual anniversary of the grant and expire
within ten to fifteen years from the date of the grant and have an exercise
price equal to 100% of the fair market value of Synetic's common stock on the
date of grant.
Synetic has elected to follow APB No. 25 in accounting for its employee
stock options. Accordingly, no compensation cost has been recognized for option
plans. Had the determination of compensation costs for employees of the Company
who participated in the stock option plans of Synetic been based on the fair
value at the grant dates for awards under these plans, consistent with the
method of SFAS No. 123, the Company's net loss would have been $(45,570,000) and
$(20,340,000) and basic and diluted loss per share would have been $(2.28) and
$(1.02) for the period from Inception (December 24, 1996) through June 30, 1997
and for the year ended June 30, 1998, respectively. At June 30, 1998, the
Company's employees had 4,173,444 and 717,739 of Synetic's stock options
outstanding and exercisable, respectively.
The pro forma results are not intended to be indicative of or a
projection of future results.
F-16
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Stock Options: (continued)
The fair value of each option grant is estimated on the date of grant
by using the Black-Scholes option-pricing model. The following weighted average
assumptions were used:
1997 1998
----------- -----------
Expected dividend yield 0% 0%
Expected volatility .2722 .2986
Risk-free interest rates 6.5% 6.3%
Expected option lives (years) .083 - 1.74 .50 - 2.00
Weighted average fair value of $10.11 $13.10
options granted during the year
(6) Related Party Transactions:
Tax Sharing Agreement--
Upon completion of the offering, the Company will cease to file a
consolidated federal income tax return with Synetic, but will continue to file a
combined tax return with Synetic for California income tax purposes. The Company
and Synetic will enter into a tax sharing agreement providing that, for periods
prior to the offering and during which the Company was included in Synetic's
consolidated federal income tax returns, the Company will be required to pay
Synetic an amount equal to our federal income tax liabilities for these periods,
determined as if the Company had filed federal income tax returns on a separate
company basis. If the Company experiences a net operating loss resulting in no
federal or state income tax liability for a taxable period in which it was
included in Synetic's consolidated federal or combined state income tax returns,
the Company will be entitled to a payment from Synetic equal to the reduction in
the federal or state income tax liability of the Synetic consolidated group by
reason of the use of the Company's net operating loss. Additionally, for periods
both before and after the offering, in situations where the Company files a
combined return with Synetic for state income tax purposes, such as for
California, the Company will be required to pay Synetic an amount equal to our
state income tax liabilities, determined as if the Company had filed state
income tax returns on a separate company basis. Further, under the tax sharing
agreement, if the Company receives a net tax benefit for certain equity based
compensation arrangements involving Synetic stock, or for the payment by Synetic
of certain litigation expenses and damages, pursuant to the terms of an
indemnification agreement between the Company and Synetic as described below,
then the Company is required to pay an amount equal to those tax benefits to
Synetic when they are actually realized by the Company. The tax sharing
agreement also will provide for Synetic to conduct tax audits and tax
controversies on the Company's behalf for periods, and with respect to returns,
in which the Company is included in the Synetic consolidated or combined
returns.
F-17
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Related Party Transactions: (continued)
Services Agreement--
The Company and Synetic have entered into a services agreement dated as
of January 1, 1999, pursuant to which Synetic will provide the Company with
certain administrative services which may include payroll, accounting, business
development, legal, tax, executive services and information processing and other
similar services. The Company will pay the actual costs of providing these
services. Such costs will include an allocable portion of the compensation and
other related expenses of employees of Synetic who serve as officers of the
Company. This agreement will be terminable by either party upon 60 days prior
written notice in certain events, or by Synetic, at any time, if Synetic ceases
to own at least 50% of the voting stock of the Company. The services agreement
shall terminate by its terms, if not previously terminated or renewed, on
January 1, 2004.
Allocations from Synetic to the Company were $230,000, $836,000,
$562,000 and $747,000 for the period from Inception (December 24, 1996) through
June 30, 1997, for the fiscal year ended June 30, 1998 and for the nine months
ended March 31, 1998 and 1999, respectively. The allocation was calculated based
on the estimated time the Synetic employees worked providing services to the
Company.
Indemnification Agreement--
The Company and Synetic will enter into an indemnification agreement,
under the terms of which the Company will indemnify and hold harmless Synetic
with respect to any and all claims, losses, damages, liabilities, costs and
expenses that arise from or are based on the operations of the business of the
Company before or after the date of the consummation of the offering. Similarly,
Synetic will indemnify and hold harmless the Company with respect to any and all
claims, losses, damages, liabilities, costs and expenses that arise from or are
based on the operations of Synetic other than the business of the Company before
or after the date of the consummation of the offering. With respect to the Merck
litigation, this agreement provides that Synetic will bear both the actual costs
of conducting the litigation and any monetary damages that may be awarded to
Merck and Merck-Medco in the litigation. The agreement further provides that any
damages awarded to the Company and Synetic in the litigation will be for the
account of Synetic. Finally, the agreement provides that Synetic shall not be
responsible for any losses suffered by CareInsite resulting from any equitable
relief obtained by Merck and Merck-Medco against CareInsite, including any lost
profits, other losses, damages, liabilities, or costs or expenses arising from
such equitable relief.
(7) Note Receivable:
On March 24, 1998 Synetic loaned a privately held company ("Debtor")
$2,000,000 under an 8% Senior Convertible Note due March 23, 1999 (the "Note").
In connection with the formation of the Company, Synetic assigned its rights
under the Note to the Company. In January, 1999, Debtor was acquired by another
privately held company ("Successor"). In connection with this acquisition, the
Company elected to convert the Note into 291,952 shares of Successor's Series B
Preferred Stock ("Preferred"). The Preferred is convertible into common stock
(i) at the Company's option any time after the annual anniversary date of
issuance, and (ii) automatically immediately prior to an IPO of Successor. In
1999, the Successor filed a registration statement for an IPO. The Preferred is
included in investments on the March 31, 1999 consolidated balance sheet.
(8) Commitments and Contingencies:
Legal Proceedings--
On February 18, 1999, Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. filed a complaint in the Superior Court of New Jersey against the
Company, Synetic, Martin J. Wygod, Chairman of the Company and Synetic, and
three officers and/or directors of the Company and Synetic, Paul C. Suthern,
Roger C. Holstein and Charles A. Mele. The plaintiffs assert that the Company,
Synetic and the individual defendants are in violation of
F-18
<PAGE>
CareInsite, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Commitments and Contingencies: (continued)
certain non-competition, non-solicitation and other agreements with Merck and
Merck-Medco, and seek to enjoin the Company and them from conducting the
Company's healthcare e-commerce business and from soliciting Merck-Medco's
customers. The Synetic and Wygod agreements provide an expiration date of May
24, 1999. Mr. Suthern's, Mr. Mele's and Mr. Holstein's agreements expire in
December 1999, March 2000 and September 2002, respectively.
A hearing was held on March 22, 1999 on an application for preliminary
injunction filed by Merck and Merck-Medco. On April 15, 1999, the Superior Court
denied this application. The Company believes that Merck's and Merck-Medco's
positions in relation to it and the individual defendants are without merit.
The Company intends to vigorously defend the litigation. However, the outcome of
complex litigation is uncertain and cannot be predicted at this time. Any
unanticipated adverse result could have a material adverse effect on the
Company's financial condition and results of operations.
The Company has recorded $2,500,000 in litigation costs associated with
the Merck and Merck-Medco litigation for the nine months ended March 31, 1999.
Leases--
The Company leases office space and equipment under various
noncancellable operating leases. Rental expense was $270,000 and $1,241,000 for
the period from Inception (December 24, 1996) through June 30, 1997 and for the
fiscal year ended June 30, 1998, respectively. The minimum aggregate rental
commitments under noncancellable leases, excluding renewal options, are as
follows (in thousands):
Years ending June 30,
- ----------------------------------------------------------
1999...................................................... $1,270
2000...................................................... 1,229
2001...................................................... 1,207
2002...................................................... 805
Thereafter................................................ -
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Avicenna Systems Corporation:
We have audited the accompanying statements of operations, changes in
redeemable convertible preferred stock and stockholder's deficit and cash flows
of Avicenna Systems Corporation (a Massachusetts corporation in the development
stage) for the year ended December 31, 1995, for the period from January 1, 1996
through December 23, 1996 and for the period from inception (September 20, 1994)
through December 23, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Avicenna Systems Corporation for the year ended December 31, 1995, for the
period from January 1, 1996 through December 23, 1996 and for the period from
inception (September 20, 1994) through December 23, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 22, 1999
F-20
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Cumulative
Period from
from Inception
January 1, (September 20,
Year 1996 1994)
Ended Through Through
December 31, December 23, December 23,
1995 1996 1996
------- ---------- ----------
<S> <C> <C> <C>
Revenue........................................ $ -- $ 20 $ 20
------- ---------- ----------
Operating expenses
Research and development....................... 86 1,161 1,263
Sales and marketing............................ 12 1,297 1,318
General and administrative..................... 69 860 936
------- ---------- ----------
Total operating expenses....................... 167 3,318 3,517
------- ---------- ----------
Net loss....................................... $ (167) $ (3,298) $ (3,497)
======= ========= =========
Preferred stock dividends...................... -- (241) (241)
------- --------- ---------
Net loss applicable to common stockholder...... $ (167) $ (3,539) $ (3,738)
======= ========= =========
Net loss per share applicable to common
stockholder - basic and diluted........... $ (.44) $ (9.34) $ (9.86)
======= ========= =========
Weighted average common shares
outstanding - basic and diluted........... 379 379 379
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDER'S DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Redeemable Convertible Stockholder's Deficit
Preferred Stock -----------------------------------------------
----------------------- Deficit
Common Accumulated
Stock Additional During the Total
Number of Carrying Number Carrying Paid-In Development Stockholder's
Shares Value of Shares Value Capital Stage Deficit
--------- -------- --------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization, September 20, 1994 ... -- $ -- 379 $ 4 $ -- $ (4) $ --
Net loss ..................................... -- -- -- -- -- (32) (32)
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1994 ................... -- -- 379 4 -- (36) (32)
Sales of Series A redeemable convertible
preferred stock, net of issuance costs.. 450 1,350 -- -- -- (38) (38)
Capital contributed in connection with
repayment of stockholder loans ......... -- -- -- -- 32 -- 32
Net loss ..................................... -- -- -- -- -- (167) (167)
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1995 ................... 450 1,350 379 4 32 (241) (205)
Sales of Series A redeemable convertible
preferred stock ........................ 583 1,750 -- -- -- -- --
Preferred stock dividends .................... -- 241 -- -- -- (241) (241)
Net loss ..................................... -- -- -- -- -- (3,298) (3,298)
------- ------- ------- ------- ------- ------- -------
Balance, December 23, 1996 ................... 1,033 $ 3,341 379 $ 4 $ 32 $(3,780) $(3,744)
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Cumulative From
Period From Inception
January 1, 1996 (September 20, 1994)
Year Ended Through Through
December 31, 1995 December 23, 1996 December 23, 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $ (167) $(3,298) $(3,497)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ....................................... 2 136 138
Changes in current assets and liabilities
Accounts payable ................................... -- 496 507
Accrued expenses ................................... 45 35 80
Accounts receivable ................................ -- (84) (84)
Customer deposits .................................. -- 79 79
Other .............................................. (8) (21) (29)
------- ------- -------
Net cash used in operating activities ........... (128) (2,657) (2,806)
------- ------- -------
Cash flows used in investing activities:
Purchase of property and equipment .................... (136) (760) (896)
Increase in other assets .............................. (11) (99) (110)
------- ------- -------
Net cash used in investing activities .............. (147) (859) (1,006)
------- ------- -------
Cash flows from financing activities:
Proceeds from stockholder loans ....................... 111 -- 132
Payments of stockholder loans ......................... (100) -- (100)
Proceeds from issuance of 7% demand note .............. -- 1,000 1,000
Proceeds from sale of redeemable convertible
preferred stock, net ............................... 1,312 1,750 3,062
------- ------- -------
Net cash provided by financing activities .......... 1,323 2,750 4,094
------- ------- -------
Net increase/(decrease) in cash and cash equivalents ..... 1,048 (766) 282
Cash and cash equivalents, beginning of period ........... -- 1,048 --
------- ------- -------
Cash and cash equivalents, end of period ................. $ 1,048 $ 282 $ 282
------- ------- -------
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Contribution of loan payable to stockholder to
capital ............................................ $ 32 $ -- $ 32
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
NOTES TO FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
The Company --
Avicenna Systems Corporation (the "Company") was incorporated on
September 20, 1994 to develop Internet technology based systems for
healthcare organizations. Prior to December 15, 1995, the Company
operated as an S Corporation for federal and state income tax purposes.
On December 24, 1996, all of the outstanding equity and indebtedness
(including employee stock options) of the Company were acquired by
Synetic, Inc.
The Company is in the development stage and is devoting substantially
all of its efforts toward product research and development. The Company
is subject to a number of risks similar to those of other development
companies, including the development of commercially viable products,
competition from substitute products and larger companies, and the
ability to obtain adequate additional financing necessary to fund
product development.
The accompanying financial statements reflect the application of
certain accounting practices as described in this note and elsewhere in
the notes to the financial statements. Financial statements prepared in
conformity with generally accepted accounting principles require the
use of estimates. Actual results could vary from estimates.
Reclassifications --
Certain reclassifications have been made to prior year amounts to
conform to current year presentation.
Depreciation --
The Company provides for depreciation by charges to operations in
amounts that allocate the cost of property and equipment on a
straight-line basis over their estimated useful lives of 3 years for
computers and equipment and 5 years for furniture and fixtures.
Loan Payable to Stockholder --
Through December 31, 1994, a stockholder of the Company advanced the
Company approximately $21,000 for operating expenses incurred in 1994.
During 1995, this stockholder advanced the Company an additional amount
of approximately $111,000. These advances were non-interest-bearing.
Upon the closing of the sale of the Series A redeemable convertible
preferred stock, $100,000 of these advances was repaid, and the
remaining balance of approximately $32,000 was contributed to capital.
Research and Development --
The Company has evaluated the establishment of technological
feasibility of its products in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software To Be Sold, Leased or Otherwise Marketed. All costs
in the software development process which are classified as research
and development are expensed as incurred until technological
possibility has been established. The Company defines the technological
feasibility as the completion of a working model. The time period
during which costs could be capitalized from the point of researching
technological feasibility until the time of general product release is
very short, and consequently, the amounts that could be capitalized are
not material to the Company's financial position or results of
operations. Therefore, the Company has charged all such costs to
research and development in the period incurred.
F-24
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
NOTES TO FINANCIAL STATEMENTS
(1) Nature of Operations and Summary of Significant Accounting Policies:
(continued)
Net Loss Per Share --
Basic and diluted net loss per share is based on the average number of
shares outstanding during the year. Diluted loss per share is the same
as basic as the inclusion of common stock equivalents would be
antidilutive.
Accounting for Stock-Based Compensation --
The Company accounts for its stock-based employee compensation
agreements in accordance with the provisions of Accounting Principles
Board Opinion No. 25.
(2) Income Taxes:
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by
SFAS No. 109, a deferred tax asset or liability is determined based on
the difference between the financial statement and the tax bases of
assets and liabilities, as measured by the enacted tax rates assumed to
be in effect when those differences reverse.
Prior to December 15, 1995 the Company elected to be taxed as an S
Corporation for federal and state income tax purposes.
As of December 23, 1996 the Company had a net operating loss
carryforward of approximately $1.2 million. A full valuation allowance
has been recorded against the Company's deferred tax asset as of
December 23, 1996, as the ultimate realization of this asset is not
assured.
(3) Convertible Demand Notes:
In October 1996, the Company entered into an agreement with the
majority of the holders of the Series A Preferred Stock (the
Purchasers) to sell to the Purchasers, on a pro rata basis and from
time to time over a period of six months, up to $3,000,000 of the
Company's Convertible Demand Notes (the Demand Notes). The interest
rate for each of these notes is 7%. In conjunction with the issuance of
each note, the Company has agreed to issue to each of the Purchasers a
warrant to purchase additional Equity Securities. The aggregate
exercise price of the warrant is equal to 25% of the principal amount
of each note sold to the Purchasers. As of December 23, 1996, the
Company has issued a total of $1,000,000 of Demand Notes with
accompanying warrants. The warrants expire at the earliest to occur of
(i) either the sale of the Company, (ii) the effective date of an
initial public offering of any stock or security of the Company, or
(iii) the third anniversary of the closing date of the Additional Sale.
(4) Redeemable Convertible Preferred Stock:
The Company has 1,066,667 authorized shares of preferred stock, all of
which have been designated as Series A Redeemable Convertible Preferred
Stock (Series A Preferred Stock). The Company has reserved 1,066,667
shares of common stock related to the conversion of Series A Preferred
Stock. On December 15, 1995 the Company sold 450,000 shares of Series A
Preferred Stock for $3.00 per share. The issuance resulted in gross
proceeds to the Company of $1,350,000. The holders of the Series A
Preferred Stock were also given the right to purchase up to an
additional 583,333 shares of Series A Preferred Stock. In February
1996, the Company issued an additional 15,000 shares of Series A
Preferred Stock at $3.00 per share, and in June 1996 the Company issued
an additional 568,334 shares of Series A Preferred Stock at
F-25
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
NOTES TO FINANCIAL STATEMENTS
(4) Redeemable Convertible Preferred Stock: (continued)
$3.00 per share. These issuances resulted in gross proceeds to the
Company of approximately $1,750,000. The rights, preferences and
privileges of the holders of the Series A Preferred Stock are as
follows:
Dividends --
Each holder of Series A Preferred Stock is entitled to receive, when
and if declared by the Board of Directors, quarterly dividends at the
annual rate of $0.24 per share. These dividends, whether or not earned
or declared, are cumulative. At December 23, 1996, total dividends in
arrears were $240,900.
Conversion --
Each share of Series A Preferred Stock is convertible at any time into
common stock at the exchange rate in effect at the time of the
conversion, currently a one-to-one exchange rate, and is subject to
appropriate adjustments, as defined. In addition, any accumulated
dividends are convertible into common stock at the then current
conversion rate. Conversion is automatic upon the closing of a public
stock offering of common stock in which the aggregate proceeds to the
Company are at least $10,000,000 and the price per share is at least
$15.00.
Voting --
Each holder of Series A Preferred Stock is entitled to the number of
votes equal to the number of shares of common stock into which such
preferred stock is then currently convertible.
Liquidation --
In the event of liquidation, the holders of the Series A Preferred
Stock are entitled to receive a liquidation preference equal to $3.00
per share plus any amount of declared but unpaid dividends, including
the cumulative dividends. Any remaining assets will be distributed on a
pro rata basis among the holders of common stock, as defined.
Redemption --
The Company is required to offer to redeem, on a pro rata basis, the
shares of Series A Preferred Stock at the rate of 25% per annum
beginning December 31, 2000 and on each succeeding anniversary date
until all shares are redeemed, at the rate of $3.00 per share plus all
declared but unpaid dividends, excluding the cumulative dividends. The
redemption requirement is waived if less than 60% of the holders of
Series A Preferred Stock accept the offer. If the Company has
insufficient funds to redeem the shares at the redemption date, then
the Company is required to use available funds at the end of each
succeeding quarter or quarters to meet redemption requirements.
(5) Stockholder's Deficit:
Restricted Stock Agreement --
The Company's founder and sole common stockholder and the holders of
the Series A Preferred Stock have entered into a restricted stock
agreement whereby the Company has the right to repurchase all of the
founder's common stock unless certain length of employment conditions
are met. The restriction provides that as of December 31, 1995, 25% of
the shares have become unrestricted under the agreement. The lapsing of
the restriction of an additional 25% occurred in June 1996, at the time
of the second closing of
F-26
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
NOTES TO FINANCIAL STATEMENTS
(5) Stockholder's Deficit: (continued)
the Series A Preferred Stock. The lapsing of the restriction will
continue under the agreement at the rate of 3.125% per quarter for the
next 16 quarters following December 31, 1995, unless employment is
terminated for any reason. The lapsing of the restriction will
accelerate by 75% of unrestricted shares in the event of a sale or
merger of the Company involving a change of more than 50% of the
Company's voting stock or a sale of substantially all of the Company's
assets.
(6) Stock Options:
In 1995, the Company adopted the 1995 Stock Option Plan (the 1995
Plan). Under the 1995 Plan, stock options, consisting of either
incentive stock options or non qualified stock options, may be granted
to directors, officers, employees and consultants of the Company to
purchase shares of the Company's common stock at no less than the fair
market value of the Company's common stock at the grant date. Options
become exercisable at the rate of 25% per year on the anniversary date
of the grant and generally expire 10 years from the date the option is
granted. In the event of (i) a sale or merger of the Company involving
a change of more than 50% of the voting stock, (ii) a sale of
substantially all of the Company's assets, or (iii) a liquidation of
the Company, as defined, unvested options shall be subject to
accelerated vesting. Upon the occurrence of such an event, 75% of all
unvested options shall immediately vest, provided that the Series A
Preferred Stockholders receive a certain minimum rate of return on
their investment, as defined. As of December 23, 1996, the Company had
reserved 716,800 shares of common stock for issuance under its 1995
Plan. A summary of activity under the 1995 Plan is as follows:
Number of Exercise Price
Shares Per Share
------- ---------
Balance, December 31, 1994 -- $ --
Granted 106,176 0.30
------- ---------
Balance, December 31, 1995 106,176 $ 0.30
Granted 566,396 0.30
------- ---------
Balance, December 23, 1996 672,572 $ 0.30
------- --------
Exercisable, December 23, 1996 50,244 $ 0.30
------- --------
The Company has elected to follow APB No. 25 in accounting for its
employee stock options. Accordingly, no compensation cost has been
recognized for its stock option plan. Had compensation costs been based
on the fair value method of SFAS No. 123, the Company's net loss would
have been $(181,000) for the year ended December 31, 1995 and
$(3,580,000) for the period from January 1, 1996 through December 23,
1996 and basic and diluted net loss applicable to common stockholder
would have been $(.48) for the year ended December 31, 1995 and $(9.45)
for the period from January 1, 1996 through December 23, 1996.
The pro forma results indicated above are not intended to be indicative
of or a projection of future results.
F-27
<PAGE>
AVICENNA SYSTEMS CORPORATION
(a Development Stage Company)
(Predecessor Business)
NOTES TO FINANCIAL STATEMENTS
(6) Stock Options: (continued)
The fair value of each option grant is estimated on the date of grant
by using the Black-Scholes Option Pricing model using the following
weighted average assumptions: risk free interest rate of 6.5% and an
expected option life (in years) of 5 years.
(7) Commitments:
The Company began conducting its operations in leased facilities in
1996. The operating lease on this facility expires in January 1999.
However, in October 1996, the Company entered into an operating lease
for additional office space, and sublet its original leased facility
in its entirety at full cost. The new lease expires in July 2001. The
future minimum rental payments are approximately as follows:
Gross Net
Minimum Sublease Minimum
Rental Income Rental
------------ ---------- -----------
1997 $ 66,000 $ 50,000 $ 16,000
1998 251,000 54,000 197,000
1999 201,000 4,000 197,000
2000 197,000 - 197,000
2001 197,000 - 197,000
Thereafter 115,000 - 115,000
------------ ---------- -----------
$ 1,027,000 $ 108,000 $ 919,000
------------ ---------- -----------
F-28
<PAGE>
Independent Auditors' Report
To The Health Information Network Connection, LLC:
We have audited the accompanying balance sheet of The Health Information Network
Connection, LLC (the Company) (a development stage company) as of December 31,
1998, and the related statements of operations, members' deficits and cash flows
for the year then ended and for the period from November 12, 1996 (inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Health Information Network
Connection, LLC as of December 31, 1998 and the results of its operations and
its cash flows for the year then ended and for the period November 12, 1996 to
December 31, 1998 in conformity with generally accepted accounting principles.
KPMG LLP
Melville, New York
February 26, 1999
F-29
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
Assets 1998 1999
----------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,122 $ 570,546
Due from Empire Blue Cross and Blue Shield 60,000 --
Due from employees 7,764 10,438
Other assets 1,581 34,000
----------- ---------
Total current assets 74,467 614,984
Property and equipment, net 2,769,822 2,516,476
Restricted cash 420,000 420,000
Organization costs, net of accumulated
amortization of $43,187 at December 31, 1998 64,902 --
Security deposits 103,455 103,555
Warrants in CareInsite, Inc. -- 1,726,845
----------- ---------
Total assets $ 3,432,646 $ 5,381,860
=========== =========
Liabilities and Members' Deficit
Current liabilities:
Accounts payable $ 1,439,029 802,563
Accrued expenses 267,993 288,827
Current installments of obligations under capital leases 722,406 738,233
Notes payable to members 1,200,000 1,036,324
Current portion of note payable to BRC 41,747 83,335
Amount due to BRC 50,000 50,000
Deferred revenue 846,750 1,665,130
----------- ---------
Total current liabilities 4,567,925 4,664,412
Obligations under capital leases, net of current portion 1,657,869 1,467,265
Note payable to BRC, net of current portion 458,253 416,665
Due to member - HIP 443,100 446,250
----------- ---------
Total liabilities 7,127,147 6,994,592
----------- ---------
Commitments and contingencies
Members' deficit:
Members' capital contributed 4,346,201 7,573,046
Deficit accumulated during the development stage (7,790,702) (9,035,778)
----------- ---------
(3,444,501) (1,462,732)
Less subscription receivables (250,000) (150,000)
----------- ---------
Total members' deficit (3,694,501) (1,612,732)
----------- ---------
Total liabilities and members' deficit $ 3,432,646 $ 5,381,860
=========== =========
</TABLE>
See accompanying notes to financial statements
F-30
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
period from
inception
(November 12, Three months ended
Year Ended 1996) to March 31,
December 31, December 31, ----------------------------
1998 1998 1998 1999
------------ ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Consulting revenues from
related party $ -- $ 25,000 $ -- $ --
Interest income 23,055 46,700 7,251 4,389
Other income 6,535 6,535 6,622 18
------------ ---------- ---------- ----------
Total revenues 29,590 78,235 13,873 4,407
Expenses:
Salaries and employee benefits 1,607,739 2,162,247 202,372 271,060
Technical costs - BRC 427,184 1,122,831 327,233 -
Management fee - CareInsite - - - 213,000
Professional fees 302,041 470,911 44,599 89,694
Sales and marketing 166,901 307,802 44,314 22,894
Software maintenance fees 135,996 396,167 80,145 54,007
General and administrative 835,612 1,317,552 160,030 175,588
Interest 374,067 588,927 77,002 77,981
Depreciation and amortization 1,016,887 1,502,500 187,578 280,357
------------ ---------- ---------- ----------
Total expenses 4,866,427 7,868,937 1,123,273 1,184,581
------------ ---------- ---------- ----------
Net loss before cumulative
effect of change in
acounting principle (4,836,837) (7,790,702) (1,109,400) (1,180,174)
------------ ---------- ---------- ----------
Cumulative effect of change in
accounting for organization costs -- -- -- (64,902)
------------ ---------- ---------- ----------
Net loss $ (4,836,837) $(7,790,702) $(1,109,400) $(1,245,076)
============ ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
STATEMENTS OF MEMBERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Members' Less During
Capital Subscription Development
Contributed Receivable Stage Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at inception (November 12, 1996) $ -- $ -- $ -- $ --
Initial capital subscriptions due from
members 3,750,000 3,750,000 -- --
Payment on subscriptions -- 400,000 -- 400,000
Net loss for the period from inception
to December 31, 1996 -- -- (54,762) (54,762)
---------- ---------- ---------- ----------
Balance at December 31, 1996 3,750,000 (3,350,000) (54,762) 345,238
Payment on subscriptions -- 2,100,000 -- 2,100,000
Capital contribution from GNYHA 91,201 -- -- 91,201
Net loss -- -- (2,899,103) (2,899,103)
---------- ---------- ---------- ----------
Balance at December 31, 1997 3,841,201 (1,250,000) (2,953,865) (362,664)
Payment on subscriptions -- 1,000,000 -- 1,000,000
Repurchase of BRC's membership interest (500,000) -- -- (500,000)
Capital contributions from members 1,005,000 -- -- 1,005,000
Net Loss -- -- (4,836,837) (4,836,837)
---------- ---------- ---------- ----------
Balance at December 31, 1998 4,346,201 (250,000) (7,790,702) (3,694,501)
Payment on subscription (unaudited) -- 100,000 -- 100,00
Capital contribution of cash and warrants
in CareInsite, Inc. (unaudited) 3,226,845 -- -- 3,226,845
Net loss (unaudited) -- -- (1,245,076) (1,245,076
---------- ---------- ---------- ----------
Balance at March 31, 1999 (unaudited) $7,573,046 $ (150,000) $(9,035,778) $(1,612,732)
========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
period from
inception
(November 12, Three months ended
Year ended 1996) to March 31,
December 31, December 31, --------------------------
1998 1998 1998 1999
------------ ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,836,837) $(7,790,702) $(1,109,400) $(1,245,076)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,016,887 1,502,500 187,578 280,357
Cumulative effect of change in
accounting principle -- -- -- 64,902
Change in assets and liabilities:
Due from BCBS (60,000) (60,000) -- 60,000
Due from employees 578 (7,764) 6,404 (2,774)
Other assets 31,375 (105,036) 15,057 (32,419)
Due to member - BRC (479,933) 50,000 -- --
Accounts payable and accrued expenses 1,364,137 1,707,022 (156,797) (615,631)
Deferred revenue 636,750 846,750 -- 818,380
----------- ---------- ---------- ----------
Net cash used in operating activities (2,327,043) (3,857,230) (1,057,158) (672,261)
----------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of equipment (864,563) (1,011,009) (111,280) (27,012)
Organizational costs -- (108,089) -- --
Sale of short-term investment 20,716 -- -- --
----------- ---------- ---------- ----------
Net cash used in investing activities (843,847) (1,119,098) (111,280) (27,012)
----------- ---------- ---------- ----------
Cash flows from financing activities:
Principal payments on capital lease obligations (531,250) (837,851) (110,248) (174,777)
Advance from member - HIP 12,600 443,100 -- 3,150
Decrease (increase) in restricted cash 3,994 (420,000) 3,944 --
Capital contributions and cash received from payment
of subscriptions 2,005,000 4,596,201 950,000 1,600,000
Proceeds from (repayment of) notes payable 1,200,000 1,200,000 -- (163,676)
----------- ---------- ---------- ----------
Net cash provided by financing activities 2,690,344 4,981,450 843,696 1,264,697
----------- ---------- ---------- ----------
(Decrease) increase in cash and cash equivalents (480,546) 5,122 (324,742) 565,424
Cash and cash equivalents at beginning of period 485,668 -- 485,668 5,122
----------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 5,122 $ 5,122 $ 160,926 $ 570,546
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Capital lease obligations incurred for the purchase
of equipment $ 807,611 $ 3,018,126 $ 631,674 $ --
=========== =========== =========== ===========
Cash paid during period for interest $ 329,115 $ 541,475 $ 77,002 $ 70,308
=========== =========== =========== ===========
Repurchase of membership interest in exchange
for note payable $ 500,000 $ 500,000 $ -- $ --
=========== =========== =========== ===========
Capital contribution in form of warrants
in CareInsite $ -- $ -- $ -- $ 1,726,845
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies and Practices:
(a) Description of Business and Basis of Presentation
The Health Information Network Connection, LLC ("THINC" or the
"Company") was established as a New York Limited Liability
Company (LLC) on November 12, 1996. THINC was organized for
the development of a community health information network
(CHIN) for the metropolitan New York, New Jersey and
Connecticut region. THINC plans to provide software and
technical support which will facilitate the exchange of
healthcare information in the metropolitan New York area,
allowing providers and payers to access their patients'
clinical and insurance-related information through their
desktop computers. It will allow hospitals, continuing care
facilities, physicians, laboratories, and third party payers
to exchange business and patient care data through a private
electronic "intranet" system.
THINC is a joint venture originally owned by the following
institutions: Greater New York Hospital Association (GNYHA),
Group Health Incorporated (GHI), Health Insurance Plan of
Greater New York (HIP), Empire Blue Cross and Blue Shield
(BCBS), and BRC Health Care of Dallas, Texas (BRC) (until June
22, 1998). THINC had entered into a service agreement with BRC
to provide technical personnel. On June 22, 1998, THINC and
BRC agreed to terminate this agreement and THINC
repurchased BRC's membership interest (note 2). As a
limited liability corporation, the liability of each member is
limited to the amount of each members' capital contribution.
As of December 31, 1998, THINC has entered into software
license and network services agreements with the following
institutions: Beth Israel Medical Center, New York University
Medical Center, New York Downtown Hospital, Hospital for Joint
Diseases Orthopedic Institute, and Lenox Hill Hospital. During
1998, the Company received $636,750 from Beth Israel Medical
Center pursuant to a software license and network services
agreement. During 1997, the Company received $210,000 from
the other institutions pursuant to the terms of the applicable
agreements. Such amounts have been reflected as deferred
revenue in the accompanying balance sheet. Such amounts will
be recorded as revenue upon acceptance of the health care
information systems by the institutions.
The efforts of THINC during 1996 were devoted to financing
organizational costs and developing a business and marketing
plan. The focus of its efforts during 1997 and 1998 have
shifted to establishing technical operations and building a
client base. Since no revenue has been generated from THINC's
planned principal operations, the accompanying financial
statements are presented under the guidelines stipulated by
the Financial Accounting Standards Board, Statement of
Financial Accounting Standards (SFAS) No. 7, "Accounting and
Reporting by Development Stage Enterprises."
The Company has suffered operating losses since inception and
the Company's current liabilities exceeded total current
assets by $4,493,458, at December 31, 1998. Management
believes that as a result of its agreement with CareInsite,
Inc. (Note 9), the Company will have adequate working capital
to continue its operations through at least January 1, 2000.
F-34
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies and Practices (continued):
(b) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reports
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
(c) Cash Equivalents
THINC considers all highly liquid investments with maturities
of three months or less when purchased to be cash equivalents.
Cash equivalents of $420,000 at December 31, 1998 consist of
certificates of deposit with an initial term of less than
three months and is included in restricted cash in the
accompanying balance sheet.
(d) Property and Equipment
Property and equipment, including purchased software costs,
are stated at cost. Plant and equipment under capital leases
are stated at the present value of minimum lease payments.
Depreciation of plant and equipment is calculated on the
straight-line method over the estimated useful lives of the
assets. Plant and equipment held under capital leases and
leasehold improvements are amortized straight line over the
shorter of the lease term or the estimated useful life of the
asset. THINC periodically reviews its long-lived assets to
assess recoverability and to ensure the carrying values of
such long-lived assets have not been impaired.
All costs in the software development process which includes
customization of the purchased networking software from HNV
(note 2) are expensed as incurred until technological
feasibility of the software product has been established. The
Company defines technological feasibility as the completion of
a working model. Through December 31, 1998, the Company has
not completed or fully installed a working model and,
accordingly, all development costs have been expensed and all
funds received from the health care institutions to date have
been deferred.
(e) Organization Costs
Organizational costs consist of legal and other professional
fees incurred to establish THINC as a New York limited
liability company and are being amortized over five years on a
straight line basis.
In April 1998, the AICPA Accounting Standards Executive
Committee issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires
that costs incurred during start-up activities, including
organization costs, be expensed as incurred. This statement is
effective for annual financial statements issued for fiscal
years beginning after December 15, 1998. The implementation of
SOP 98-5 resulted in the write-off of the unamortized
balance of capitalized organizational costs, amounting to
$64,902, as of January 1, 1999.
(f) Income Taxes
THINC has elected to be treated as a partnership for income
tax purposes and as such the tax liability on all income
earned or the tax benefit of operating losses accrue to the
members as owners of THINC.
F-35
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies and Practices (continued):
(g) Revenue Recognition
The Company recognizes revenue in accordance with Statement
of Position 97-2, Software Revenue Recognition. Accordingly,
revenue from the license of software will be recognized when
the software is delivered, installed and accepted by the
customer, the fee is fixed and determinable and collection of
the resulting receivable is deemed probable. Software
maintenance and network access fees will be deferred and
recognized as revenue ratably over the term of the applicable
contract. Service revenue and training fees are recognized
when the services and training, respectively, are performed.
Deferred revenue represents payments received upon signing of
the software license and network services agreements but for
which the software has not yet been accepted by the customer.
Such amounts are subject to refund if the product is not
ultimately accepted by the customer.
(h) Fair Value of Financial Instruments
The fair value of the Company's capital lease obligations and
note payable to BRC are estimated using discounted cash flow
analyses, based upon the Company's estimated current
incremental borrowing rate for similar types of securities.
For all other financial instruments, the carrying value
approximates fair value due to the short maturity applicable
to such instruments.
(i) Interim Financial Information (Unaudited)
The financial statements as of March 31, 1999 and for the
three-month periods ended March 31, 1998 and 1999 are
unaudited and include all adjustments (consisting only of
normal recurring adjustments) which management considers
necessary for a fair statement of the financial position at
such date and the operating results and cash flows for the
periods. Results for interim periods are not necessarily
indicative of results for the entire year or any future
periods.
(2) Members Equity Contributions:
On November 19, 1996, GNYHA, GHI, HIP, BCBS and BRC each signed a
subscription agreement with THINC to acquire 10 units of THINC at a
purchase price of $75,000 per unit. The total purchase price of
$750,000 for the 10 units was to be paid by each of the companies in
accordance with their respective payment schedule included in the
subscription agreement.
During 1998, GNYHA, HIP, BCBS and BRC made payments of $250,000 each
relating to their units subscriptions. In 1998, the Company and BRC
agreed to terminate BRC's investment and involvement with THINC. As a
result of the termination of the agreement with BRC, THINC signed a
note payable to BRC in the amount of $500,000 in exchange for BRC's
equity interest. In addition, THINC will make a payment to BRC of
$125,000 not less than ten days prior to the time that THINC shall
make any distribution or pay any dividend with respect to any
membership units or any other equity interests issued by THINC or
repurchase any membership units or other equity interest issued by
THINC. If such payment is made in the future, it will be reflected as
a reduction of additional paid-in capital.
During 1998, the Board of Directors approved an additional $320,000
capital contribution from each member. During 1998, GNYHA, GHI, HIP
and BCBS made payments of $45,000, $320,000, $320,000 and $320,000,
respectively, relating to the additional capital contribution. As of
December 31, 1998, the Company had a subscription receivable from
GNYHA in the amount of $250,000. GNYHA also owes $275,000 in
connection with the additional capital contribution approved in 1998.
F-36
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(2) Members Equity Contributions: (continued)
In connection with the investment by CareInsite, Inc. as discussed in
note 9, the THINC operating agreement was amended. The agreement
provides for among other things that GNYHA will receive credits
against future capital contributions to the extent THINC meets certain
projections as to hospital revenue. In addition, the operating
agreement of THINC was amended to eliminate units of interest and to
state members' interest as a percentage of ownership. The description
of the members' capital contribution in the balance sheets and
statements of members' deficit have been revised to reflect this
change.
(3) Software Agreement:
THINC entered into a five-year software license agreement with Health
Network Ventures, Inc. (HNV) on November 29, 1996 to license the
HNVnet software and use such software to create and maintain an
on-line healthcare information exchange network in the THINC market
region. The date of acceptance (as defined in the software license
agreement) did not occur until March 1997. An initial fee of $200,000
was paid on November 29, 1996 and an additional $1,330,000 was paid
upon acceptance in 1997. The cost of the software is being amortized
over the life of the agreement. THINC also contracted for a five-year
maintenance contract for a fee of $680,000, the first installment of
$170,000 due on December 1, 1997, with subsequent installments of
$170,000 each due on the anniversary date thereof. In addition to the
fees stated above, THINC will pay HNV a specified fee per user based
upon the terms as set forth in the software license agreement. The
Company also paid $87,115 to HNV for a processing interface in 1997
and 1998, which has been recorded as purchased software costs.
(4) Property and Equipment:
Property and equipment at December 31, 1998 are as follows:
Estimated
Useful Lives
------------
Office equipment............................. 3 years $ 196,573
Computer equipment........................... 3 years 2,365,085
Purchased software - HNV..................... 5 years 1,617,115
Leasehold improvements....................... 3 years 50,361
----------
4,229,134
Less accumulated depreciation and
amortization...................... (1,459,312)
----------
$2,769,822
==========
Depreciation and amortization expense in 1998 was approximately
$998,000. The unamortized cost of purchased software from HNV at
December 31, 1998 was approximately $943,000.
(5) Note Payable to Members:
GHI, BCBS and HIP loaned the Company $1,200,000 in the form of notes
payable with original maturity dates of October 31, 1998 ($600,000)
and January 30, 1999 ($600,000). Interest accrues at a rate of 8-1/2%
per annum. At December 31, 1998, no repayments have been made.
F-37
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(6) Long-Term Debt:
Long-term debt at December 31, 1998 consists of the following:
Notes payable (a)............................ $ 500,000
Capital lease obligations (b)................ 2,380,275
---------
2,880,275
Less current installments.................... 764,153
---------
$2,116,122
=========
(a) On June 1, 1998, THINC issued a $500,000 note payable to BRC
for the repurchase of 10 membership units, which represents a
repayment of its original investment in THINC. Principal
payments and accrued interest are to be paid in 36 equal
monthly installments of $17,005, with the first such
installment being due on July 1, 1999 and additional
installments being due and payable on the first of each month
through June 1, 2002. Interest accrues at a rate of 8-1/2% per
annum. Principal payments on the note payable to BRC for the
next four years are as follows: $41,747 in 1999; $171,592 in
2000; $186,867 in 2001; and $99,769 in 2002. The carrying
value of the note payable approximates fair value at December
31, 1998.
(b) THINC entered into four capital lease agreements during 1998
and 1997 to finance the licensing of software packages and the
purchase of computer equipment. The leases are for 36 months
(three leases) and 60 months (one lease). The repayment of
one lease with a balance of $1,483,820 at December 31, 1998
is guaranteed by the members of THINC.
The effective interest rates on the above leases range from
6.4% to 12.6%. The estimated fair value of the Company's
capital lease obligations was approximately $2,150,000 at
December 31, 1998.
At December 31, 1998, the gross amount of property, plant and
equipment and related accumulated depreciation recorded under
capital leases were as follows:
Computer equipment.................. $ 1,602,140
Purchased software.................. 1,530,000
Office equipment.................... 85,000
-----------
3,217,140
Less accumulated
amortization..................... (567,124)
-----------
$ 2,650,016
===========
F-38
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(6) Long-Term Debt (continued):
Future obligations under capital leases are as follows:
Year ending Capital lease
December 31, obligations
------------ -----------
1999 $ 905,628
2000 905,628
2001 627,912
2002 306,282
-----------
Less amount representing interest 2,745,450
under capital lease obligations (365,175)
-----------
$ 2,380,275
===========
(7) Related Party Transactions:
At December 31, 1998, THINC owed BRC $50,000 as the result of a
processing interface project performed by BRC and THINC on behalf of
HIP in 1997. The total fee for the project was $75,000, the revenue
from which was distributed 67% and 33% to BRC and THINC, respectively.
BRC provided THINC with technology services and had entered into an
eighteen month information technology service agreement with the
Company dated February 6, 1997, which was terminated June 22, 1998
(note 1(a)).
During 1998, the Company provided technical services to BCBS to develop
a processor interface for which it billed BCBS $60,000 which was
received in January 1999. This amount was offset by a charge for the
same amount from HNV which provided the services under its contract
with THINC.
At December 31, 1998, THINC owes $443,100 to HIP. These funds were
advanced by HIP to allow THINC to secure a letter of credit that
enabled the Company to enter into certain capital lease transactions
during 1997 (note 6). Such funds are reflected as restricted cash in
the amount of $420,000 in the accompanying balance sheet as of December
31, 1998.
(8) Commitments:
At December 31, 1998, THINC is obligated through the year 2000 under
several noncancellable operating lease agreements for office space and
office equipment. Rent expense in 1998 was approximately $328,000. The
following is a schedule of future minimum lease payments:
1999 $ 335,388
2000 $ 150,507
(9) Subsequent Event and Contingency:
In January 1999, Synetic Healthcare Communications, Inc, which was
subsequently renamed CareInsite, Inc., (CareInsite), THINC, and the
THINC founding members, entered into definitive agreements and
consummated a transaction for a broad strategic alliance. Under this
arrangement, among other things,
F-39
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(9) Subsequent Event and Contingency (continued)
CareInsite (i) acquired a 20% ownership interest in THINC in exchange
for $1.5 million in cash and a warrant to purchase 81,081 shares of
CareInsite common stock (subject to adjustment for certain events
including the proposed stock split), (ii) agreed to provide senior
working capital loans to THINC of up to $2.0 million and $1.5 million,
(iii) entered into a Management Services Agreement with THINC pursuant
to which the Company will manage all operations of THINC, including
providing THINC with certain content and messaging services, (iv)
licensed to THINC content and messaging services for use over the
THINC network and (v) entered into Clinical Transaction Agreements
with each of Empire, GHI and HIP (the "THINC Payers") to provide
online prescription and laboratory transaction services, subject to
certain limitations. The working capital loans have due dates of July
1, 2001 for a $2.0 million working capital loan and July 1, 2002 for a
$1.5 million working capital loan. Both working capital loans are
contingent on the continuation of the Management Services Agreement.
As part of this arrangement, THINC entered into Managed Care
Transaction Contracts with each of the THINC Payers whereby the THINC
Payers agreed to use the THINC network for their online medical claims
submission, eligibility, benefit plan detail, roster distribution,
remittance advice distribution, claims inquiry,
referral/pre-certification and authorization, and encounter submission
transactions.
The warrant issued to THINC is exercisable 180 days following the
occurrence of an initial public offering (IPO) of CareInsite's common
stock or, if an IPO has not occurred, at the end of the term of the
warrant. The exercise price of the warrant is the lesser of (i) the IPO
price, if an IPO has occurred, and (ii) $200 per share (subject to
adjustment for the proposed stock split). The warrant expires on
January 1, 2006, subject to certain exceptions. The warrant and the
shares of CareInsite's common stock issuable upon the exercise of the
warrant are subject to certain restrictions on transfer.
On February 18, 1999, Merck & Co., Inc. and Merck-Medco Managed Care,
L.L.C. filed a complaint in the Superior Court of New Jersey against
CareInsite and certain of its officers and directors. Plaintiffs
assert that CareInsite and the individual defendants are in violation
of certain non-competition, non-solicitation and other agreements with
Merck and Merck-Medco, and seek to enjoin CareInsite and them from
conducting CareInsite's healthcare e-commerce business and from
soliciting Merck-Medco's customers. If CareInsite is unsuccessful in
defending this litigation, the ability of CareInsite to provide
services to THINC under the Management Services Agreement between
CareInsite and THINC may be adversely impacted. Such a result could
have a material adverse effect on THINC.
F-40
<PAGE>
================================================================================
Shares
CareInsite, Inc.
Common Stock
--------------
PROSPECTUS
--------------
Merrill Lynch & Co.
Warburg Dillon Read LLC
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee...................................... $ 17,236
NASD filing fee........................................... 6,700
Nasdaq listing fee........................................ 1,000
Blue Sky fees and expenses................................ *
Printing and engraving expenses........................... *
Attorneys' fees and expenses.............................. *
Accountants' fees and expenses............................ *
Transfer agent's and registrar's fees and expenses........ *
Miscellaneous............................................. *
---------
Total............................................ *
=========
- ------------------
* To be supplied by amendment
The amounts set forth above are estimates except for the SEC
registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides, in
summary, that directors and officers of Delaware corporations are entitled,
under certain circumstances, to be indemnified against all expenses and
liabilities (including attorney's fees) incurred by them as a result of suits
brought against them in their capacity as a director or officer, if they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal action
or proceeding, if they had no reasonable cause to believe their conduct was
unlawful; provided that no indemnification may be made against expenses in
respect of any claim, issue or matter as to which they shall have been adjudged
to be liable to the Company, unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, they are fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper. Any such indemnification may be made by the
Company only as authorized in each specific case upon a determination by the
shareholders or disinterested directors that indemnification is proper because
the indemnities has met the applicable standard of conduct.
Article Six of the registrant's Certificate of Incorporation provides
that no director of the registrant shall be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability: (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) in respect of certain unlawful dividend payments or stock redemptions
or purchases; or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Certificate of Incorporation and By-Laws provide for
indemnification of its directors and officers to the fullest extent permitted by
Delaware law, as the same may be amended from time to time.
In addition, the Company maintains liability insurance for its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information reflects sales by the registrant of
unregistered securities within the past three years. The issuance by the
registrant of the securities sold in the transactions referenced below were not
registered under the Securities Act of 1933, as amended pursuant to Section 4(2)
thereof, as such transactions did not involve a public offering.
II-1
<PAGE>
In January 1999, the registrant issued to The Health Information
Network Connection LLC (i) a warrant (the "THINC Warrant") exercisable for
1,623,647 shares of the registrant's common stock (subject to adjustment),
representing approximately 6% of the registrant's common stock outstanding after
giving effect to the exercise of the THINC Warrant and (ii) $1.5 million in
cash, in exchange for a 20% ownership interest in THINC.
In January 1999, the registrant issued to Cerner Corporation (i)
4,975,000 shares of its common stock, representing 19.9% of its common stock
outstanding after such issuance, and (ii) a warrant exercisable for a number of
shares of common stock of the registrant equal to 19.9% of the shares issuable
upon exercise of the THINC Warrant, each in consideration for Cerner Corporation
entering into non-competition, marketing, license and master servicing and
outsourcing agreements with the registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit
Number Description of Exhibit
------ ----------------------
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of
the Registrant.*
3.2 By-laws of the Registrant.*
4.1 Specimen Certificate representing Common Stock.*
5.1 Opinion of Shearman & Sterling as to the legality of
the Common Stock.
10.1 Agreement and Plan of Merger among Synetic, Inc.,
Synternet Acquisition Corp., a subsidiary of Synetic,
Inc., Avicenna Systems Corp., and the individuals and
entities listed on the signature pages thereof, dated
as of December 23, 1996.
10.2 Agreement and Plan of Merger among Synetic, Inc.,
Synternet Acquisition Corp., CareAgents Inc. and the
individuals listed on the signature pages thereof,
dated as of January 23, 1997.
10.3 Subscription Agreement dated as of January 2, 1999
between Synetic Healthcare Communications, Inc.
(since renamed CareInsite, Inc. ("CareInsite")),
Synetic, Inc., Avicenna Systems Corporation and
Cerner Corporation.
10.4 License Agreement dated as of January 2, 1999 between
CareInsite and Cerner Corporation.
10.5 Stockholders' Agreement, dated as of January 2, 1999,
among CareInsite, Synetic, Inc., Avicenna Systems
Corporation and Cerner Corporation.
10.6 Non-Competition Agreement, dated as of January 2,
1999, among CareInsite, Synetic, Inc., Avicenna
Systems Corporation and Cerner Corporation.
10.7 Marketing Agreement, dated as of January 2, 1999,
between CareInsite and Cerner Corporation.
10.8 Clinical Transaction Agreement, dated as of January
1, 1999, between CareInsite and Empire Blue Cross and
Blue Shield, Empire Healthchoice, Inc., Empire
Healthchoice Assurance Inc. and Empire Health Plans
Assurance, Inc.+**
10.9 Clinical Transaction Agreement, dated as of January
1, 1999, between CareInsite and Group Health
Incorporated.+**
10.10 Clinical Transaction Agreement, dated as of January
1, 1999, between CareInsite and Health Insurance
Plans of Greater New York.+**
10.11 Management Services Agreement, effective as of
January 1, 1999, between CareInsite and The Health
Information Network Connection LLC ("THINC").
10.12 Warrant dated as of January 1, 1999 (entitling THINC
to purchase from CareInsite 81,081 shares of common
stock).
10.13 Amended and Restated Operating Agreement, dated as of
January 1, 1999, among The Health Information Network
Connection LLC, Empire Blue Cross and Blue Shield,
GNYHA Management Corporation, Group Health
Incorporated, Health Insurance Plan of Greater New
York and CareInsite.
10.14 Form of Tax-Sharing Agreement between the Registrant
and Synetic, Inc.*
10.15 Services Agreement, dated as of January 1, 1999,
between the Registrant and Synetic, Inc.
10.16 Form of Indemnification Agreement between the
Registrant and Synetic, Inc.*
II-2
<PAGE>
10.17 CareInsite, Inc. Employee Stock Option Plan.*
10.18 CareInsite, Inc. Officer Stock Option Plan.*
10.19 Employment Agreement dated as of January 23, 1997
between Synetic, Inc. and David M. Margulies.
10.20 Employment Agreement dated as of November 3, 1997
between Avicenna Systems Corp. and Paul M. Bernard.
10.21 Employment Agreement dated November 6, 1997 between
Synetic, Inc. and Roger C. Holstein.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Shearman & Sterling (included in its
opinion in Exhibit 5.1).
23.3 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.**
23.4 Consent of KPMG LLP.
24.1 Powers of Attorney (included on the signature page of
this Registration Statement).
27.1 Financial Data Schedule for fiscal year ended June
30, 1998 (for SEC use only).**
27.2 Financial Data Schedule for six months ended December
31, 1998 (for SEC use only).**
27.3 Financial Data Schedule for nine months ended March
31, 1999 (for SEC use only).
- -------------------
* To be filed by amendment.
** Previously filed.
+ Exhibits for which Registrant is seeking confidential treatment for
certain portions. Confidential material has been redacted and has been
separately filed with the Securities and Exchange Commission.
(b) Financial Statement Schedules.
The schedules have been omitted because of the absence of circumstances
under which they would be required.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, 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.
The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this Amendment to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Borough of Elmwood Park in the State of New Jersey on
May 6, 1999.
CAREINSITE, INC.
By: /s/ Paul C. Suthern
------------------------------
Name: Paul C. Suthern
Title: President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Paul C. Suthern Director and Principal May 6, 1999
- ---------------------- Executive Officer
Paul C. Suthern
/s/ Paul M. Bernard Principal Financial and May 6, 1999
- ---------------------- Accounting Officer
Paul M. Bernard
* Director May 6, 1999
- ----------------------
Roger C. Holstein
* Director May 6, 1999
- ----------------------
James R. Love
* Director May 6, 1999
- ----------------------
David M. Margulies
* Director May 6, 1999
- ----------------------
Charles A. Mele
* Director May 6, 1999
- ----------------------
Martin J. Wygod
* /s/ David C. Amburgey As Attorney-in-Fact May 6, 1999
- -----------------------
David C. Amburgey
II-4
Conformed Copy
Exhibit 5.1
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022-6069
May 5, 1999
CareInsite, Inc.
669 River Drive, River Drive Center II
Elmwood Park, New Jersey 07407
Ladies and Gentlemen:
We have acted as counsel to CareInsite, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-1 of the Company, filed with the Securities and
Exchange Commission on March 26, 1999 (the "Registration Statement"), relating
to the registration under the Securities Act of 1933, as amended, of the initial
public offering by the Company of the aggregate number of shares of the
Company's Common Stock, par value $.01 per share (the "Registered Shares") to be
registered pursuant to the Registration Statement.
We have examined the Registration Statement and originals, or
copies certified or otherwise identified to our satisfaction, of such other
documents and corporate records as we have deemed necessary as a basis for the
opinion set forth herein, including the form of Amended and Restated Certificate
of Incorporation of the Company which, among other things, increases the number
of authorized shares of the Company's Common Stock, par value $ .01 per share
(the "Amended Charter"). We have relied as to factual matters on certificates or
other documents furnished by the Company or its officers and by governmental
authorities and upon such other documents and data that we have deemed
appropriate. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of all persons executing such documents, the conformity to
original documents of all documents submitted to us as copies and the truth and
correctness of any representations and warranties contained therein.
The opinion expressed below is limited to the General
Corporation Law of Delaware. We express no opinion herein concerning any other
law.
<PAGE>
2
Based on such examination and review and subject to the
foregoing, we are of the opinion that, assuming the Amended Charter is filed
with the Secretary of State of Delaware prior to consummation of the offering
contemplated by the Registration Statement and has become effective, and
assuming the Registered Shares will have been duly authorized by the Company,
the Registered Shares, when issued and paid for in the manner and at the price
set forth in the Prospectus, will be validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Shearman & Sterling
AGREEMENT AND PLAN OF MERGER, dated as of December 23, 1996
(this "Agreement"), among SYNETIC, INC., a Delaware corporation (the "Parent"),
SYNTERNET ACQUISITION CORP., a Delaware corporation and a wholly owned
subsidiary of the Parent (the "Purchaser"), AVICENNA SYSTEMS CORP, a
Massachusetts corporation (the "Company"), and the individuals and entities
listed on the signature pages hereof (each, a "Stockholder", and collectively,
the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing
health care interenterprise connectivity by means of computers (the "Business");
WHEREAS, each Stockholder owns (i) such number of shares of
common stock, par value $0.01 per share (the "Common Stock"), of the Company,
(ii) such number of shares of Series A Convertible Preferred Stock, par value
$0.01 per share (the "Preferred Stock") of the Company, and (iii) certain
convertible demand notes convertible into shares of the Common Stock (the
"Convertible Notes") in such principle amounts, in each case as is set forth
opposite such Stockholder's name in Schedule A hereto;
WHEREAS, the 400,033 shares of Common Stock currently
outstanding (the "Common Shares") and the 1,033,333 shares of Preferred Stock
currently outstanding (the "Preferred Shares", and together with the Common
Shares, the "Shares"), all of which are owned by the Stockholders, will, as of
the Closing, represent all of the issued and outstanding capital stock of the
Company;
WHEREAS, the Company has issued, to the employees and in the
amounts set forth in Schedule A hereto, employee stock options to purchase an
aggregate of 672,572 Common Shares (the "Company Options");
WHEREAS, the Stockholders desire to sell to the Parent, and
the Parent desires to purchase from the Stockholders, the currently outstanding
Shares and the Convertible Notes in exchange for shares of the common stock, par
value $0.01 per share, of the Parent (the "Parent Shares"), upon the terms and
subject to the conditions set forth herein;
WHEREAS, as additional consideration payable to the holders of
Preferred Shares in the Merger (as hereinafter defined), the Parent shall issue
250,000 Parent Warrants (as hereinafter defined);
WHEREAS, in furtherance thereof, the Boards of Directors of
the Parent, the Purchaser and the Company, and Mr. Inder-Jeet Gujral and the
holders of the Preferred
<PAGE>
2
Stock, have each approved the merger (the "Merger") of the Purchaser with and
into the Company in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law") and the Massachusetts Business Corporation Law
("Massachusetts Law") upon the terms and subject to the conditions set forth
herein;
WHEREAS, in connection with the Merger, the parties hereto
desire to provide for the conversion of the Company Options into options
exercisable for Parent Shares;
WHEREAS, the total market value of the Parent Shares
(determined based upon the Signing Date Market Price (as hereinafter defined))
to be issued (i) in consideration for the Shares, (ii) in consideration for the
Convertible Notes, (iii) for which the Company Options shall become exercisable,
and (iv) after the Merger, in satisfaction of the right held by BlueCross
BlueShield of Massachusetts to acquire 20,333 Preferred Shares, in each case as
of the date of this Agreement, shall be $30,500,000 (the "Purchase Price");
WHEREAS, based upon the Signing Date Market Price, the total
number of Parent Shares issuable with respect to each Stockholder and each
holder of Company Options in consideration for the Common Shares, the Preferred
Shares, the Convertible Notes, and upon the exercise of the Company Options, is
set forth on Schedule A hereto;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I. THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined
below), the Purchaser shall be merged with and into the Company, and the Company
shall be the surviving corporation in the Merger (in such capacity, the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the Commonwealth of Massachusetts. At the Effective Time, the separate
corporate existence of the Purchaser shall cease.
SECTION 1.02. Effective Time of the Merger. The Merger shall
become effective after properly executed certificates of merger (the
"Certificates of Merger") are duly filed with the Secretary of State of the
State of Delaware, in accordance with Delaware Law and the Secretary of State of
the Commonwealth of Massachusetts, in accordance with Massachusetts Law (the
"Effective Time").
SECTION 1.03. Certificate of Incorporation. At the Effective
Time, the Articles of Organization of the Surviving Corporation shall be the
Amended and Restated
<PAGE>
3
Articles of Organization set forth in Exhibit 1.03 hereof until thereafter
amended in accordance with applicable law.
SECTION 1.04. By-laws. At the Effective Time, the By-laws of
the Surviving Corporation shall be as set forth in Exhibit 1.03 hereto, until
thereafter amended in accordance with applicable law.
SECTION 1.05. Directors and Officers. The directors of the
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Articles of Organization and By-laws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.06. Effect of the Merger. At and after the Effective
Time, the effect of the Merger shall, in all respects, be as provided by
Delaware Law and Massachusetts Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges and powers of the Purchaser shall vest in the Surviving Corporation
and all debts, liabilities and duties of the Purchaser and the Company shall
become debts, liabilities and duties of the Surviving Corporation.
SECTION 1.07. Closing; Payment of the Purchase Price. (a) Upon
the terms and subject to the conditions of this Agreement, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Shearman & Sterling, 599 Lexington Avenue, New York, NY at 9:00
am, New York City time, or as promptly as practicable thereafter, on the date of
the satisfaction of the conditions set forth herein (the "Closing Date").
(b) At the Closing, the Stockholders shall deliver or cause to
be delivered to the Parent:
(i) stock certificates evidencing the Shares;
(ii) the Convertible Notes; and
(iii) the opinions, certificates and other documents
required to be delivered pursuant to Section 5.02.
(c) At the Closing, the Parent shall deliver to the
Stockholders:
(i) stock certificates evidencing the Parent Shares, as set
forth in Sections 1.08 and 1.09 below;
<PAGE>
4
(ii) the Parent Warrants; and
(iii) the opinions, certificates and other documents
required to be delivered pursuant to Section 5.01.
(d) On the Closing Date, the Certificates of Merger with
respect to the Merger shall be filed with the Secretary of State of the State of
Delaware and the Secretary of State of the Commonwealth of Massachusetts.
SECTION 1.08. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of the Parent, the
Purchaser, the Company or the Stockholders, and subject to Section 1.10:
(a) Each Share shall be cancelled and converted automatically
into the right to receive that number of Parent Shares equal to the
quotient (the "Exchange Ratio") obtained by dividing (i) a fraction,
the numerator of which shall be 26,329,699 and the denominator of which
shall be 2,126,271 by (ii) the Signing Date Market Price of one Parent
Share. The "Signing Date Market Price" means the lower of (A) the
arithmetic average of the last reported sales price of Parent Shares on
the National Association of Securities Dealers' national market system
("NASDAQ") for each of the ten trading days ending on the trading day
immediately preceding the date of this Agreement or (B) the last
reported sales price of Parent Shares on the NASDAQ on the trading day
immediately preceding the date of this Agreement. In accordance with
the above formulas, the Exchange Ratio has been calculated to be 0.2394
of a Parent Share, and the Signing Date Market Price (based on clause
(A) of the definition thereof) has been calculated to be $51.725.
(b) Each Preferred Share shall, upon cancellation pursuant to
Section 1.08(a) above and in addition to the Parent Shares referred to
in such Section 1.08(a), be converted into (i) that number of Parent
Shares equal to (A) $3.00 divided by (B) the Signing Date Market Price;
and (ii) a number of warrants, each such warrant exercisable for one
Parent Share at an exercise price equal to $54.50 (the "Parent
Warrants"), equal to (x) 250,000 divided by (y) 1,053,666.
(c) Each Share held in the Company's treasury as of the
Effective Time shall be canceled and retired and all rights in respect
thereof shall cease to exist, without any conversion thereof or payment
of any consideration therefor.
(d) From and after the Effective Time, all Shares to be
converted into Parent Shares pursuant to this Section 1.08 shall cease
to be outstanding, shall be cancelled and retired and shall cease to
exist, and the holders of certificates
<PAGE>
5
representing the Shares shall cease to have any rights with respect to
such Shares, except the right to receive the consideration specified in
this Section 1.08.
(e) Each share of capital stock of the Purchaser that is
issued and outstanding as of the Effective Time shall be converted into
one share of capital stock of the Surviving Corporation.
SECTION 1.09. Convertible Notes; Company Options. (a) In
connection with the Merger, the Parent shall deliver to the holders of
Convertible Notes, in consideration for each Convertible Note, a number of
Parent Shares equal to (i) the aggregate outstanding principal amount and
accrued interest through the Signing Date on such Convertible Note, divided by
(ii) the Signing Date Market Price.
(b) In connection with the Merger, each outstanding Company
Option shall, in accordance with Section 4.03(a) hereof, be amended and
converted into the right to receive, upon exercise thereof, a number of Parent
Shares based on the Exchange Ratio.
SECTION 1.10. Fractional Shares. The Parent will not issue any
fractional Parent Shares pursuant to Section 1.08(a), 1.08(b) or 1.09(a) hereof,
and the Parent will, in lieu of any such fractional shares, round the number of
Parent Shares issuable to each Stockholder to the nearest whole number of Parent
Shares, after aggregating all Parent Shares to which such Stockholder is
entitled pursuant to Sections 1.08(a), 1.08(b) and 1.09(a) hereof. In addition,
the Parent will not issue any fractional warrants pursuant to Section 1.08(b)
hereof and the Parent will, in lieu of any such fractional warrants, round the
number of Parent Warrants issuable to each holder of Preferred Shares to the
nearest whole number of Parent Warrants, after aggregating all Parent Warrants
to which such holder is entitled pursuant to Section 1.08(b). The Parent will
issue a single warrant certificate, substantially in the form attached hereto as
Exhibit 1.10 (each such certificate a "Parent Warrant Certificate"), to each
holder of Preferred Shares, and such Parent Warrant Certificate shall represent
the total number of Parent Warrants to which such holder is entitled pursuant to
the preceding sentence.
SECTION 1.11. Price Protection. (a) If on any Determination
Date the Determination Date Market Price is less than the Guaranteed Price, then
the Parent will deliver to each Stockholder, as payment with respect to such
Stockholder's Protected Shares, on the next business day following such
Determination Date, an amount, payable in Parent Shares, equal to (i) the number
of Protected Shares held by such Stockholder multiplied by (ii) the number
obtained by subtracting (x) the Determination Date Market Price from (y) the
Guaranteed Price (such amount being the "Deficiency Amount"). In such event, the
number of Parent Shares issuable to each Stockholder shall equal the Deficiency
Amount divided by the applicable Determination Date Market Price, and such
shares shall be included in a registration statement filed by the Parent.
<PAGE>
6
(b) "Guaranteed Price" means 90% of the Signing Date Market
Price.
(c) "Protected Shares" means the Parent Shares issued to the
Stockholders pursuant to Sections 1.08(a), 1.08(b) and 1.09(a) hereof; provided,
however, that in the event that Mr. Inder-Jeet Gujral terminates his employment
with the Company for any reason other than death or Permanent Disability (as
defined in Exhibit 5.01(c)), the Parent Shares referred to in Section 4.04 shall
cease to be Protected Shares from and after the date of such termination. In no
event shall either the Parent Warrants or the Parent Shares issuable upon
exercise of the Parent Warrants be entitled to the benefits of this Section
1.11.
(d) "Determination Date" means, (i) with respect to all
Protected Shares issued on the Closing Date (other than those referred to in
clause (ii) below), the first date on which any of the Protected Shares are
first eligible for sale pursuant to an effective registration statement filed
with the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"), in accordance with the provisions of
Section 4.03 hereof, and (ii) with respect to Protected Shares referred to in
Section 4.04, the second anniversary of the Closing Date.
(e) "Determination Date Market Price" means, on any
Determination Date, the last reported sale price of Parent Shares on NASDAQ on
the trading day immediately preceding such Determination Date.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant
to the Parent that, except as set forth in the disclosure schedule dated as of
the date hereof delivered to the Parent by the Stockholders (the "Disclosure
Schedule") (which shall specify any exception to individual representations and
warranties by reference to specific Section numbers):
SECTION 2.01. Organization, Authority and Qualification of the
Stockholders and the Company; Subsidiaries; Certificate and By-laws. (a) Each
Stockholder has all necessary power and authority to enter into this Agreement,
to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by each
Stockholder, the performance by each Stockholder of its obligations hereunder
and the consummation by each Stockholder of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of such
Stockholder. This Agreement has been duly executed and delivered by each
Stockholder, and (assuming due authorization, execution and delivery by the
Parent or the Purchaser) this Agreement constitutes a legal, valid and binding
obligation of each Stockholder, enforceable against each Stockholder in
accordance with its terms (except in each such case as enforceability may be
limited by bankruptcy, insolvency, reorganization
<PAGE>
7
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally). No person other than the Stockholders has a right
or claim to any portion of the Purchase Price or any other payments made by the
Parent to any Stockholder hereunder.
(b) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts, and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on the Business as presently conducted.
The Company has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations and to consummate the
transactions contemplated hereunder. The execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company, and (assuming due authorization,
execution and delivery by the Parent and the Purchaser) this Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (except in each such case as
enforceability may be limited by bankruptcy, insolvency, reorganization and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally). The Company is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except those jurisdictions, if any, in which the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect. The Stockholders have delivered
to the Parent true, complete and correct copies of each of the Certificate of
Incorporation, the by-laws and the minutes of each meeting of the board of
directors and shareholders of the Company. For purposes of this Agreement,
"Material Adverse Effect" means any circumstance, change, event, transaction,
loss, failure, effect or other occurrence that is or will be materially adverse
to the business, operations, properties (including intangible properties),
condition (financial or otherwise), assets, liabilities, results of operations
or prospects of the Company.
(c) There are no corporations, partnerships, joint ventures,
associations or other entities in which the Company owns, of record or
beneficially, any direct or indirect equity or other interest or any right
(contingent or otherwise) to acquire the same. The Company is not a member of
(nor is any part of the Business conducted through) any partnership. The Company
is not a participant in any joint venture or similar arrangement.
SECTION 2.02. Capitalization; Ownership. (a) The authorized
capital stock of the Company consists of (x) 1,066,667 shares of Preferred
Stock, of which 1,033,333
<PAGE>
8
shares are issued and outstanding and each share of which is convertible into
one share of Common Stock and (y) 2,162,667 shares of Common Stock, of which (i)
400,033 shares are issued and outstanding, (ii) 672,572 shares are reserved for
issuance pursuant to outstanding Company Options issued pursuant to the
Company's 1995 Stock Plan (the "Company Stock Plan"), (iii) 44,228 shares are
reserved for issuance upon the granting of additional options pursuant to the
Company Stock Plan and (iv) no shares are reserved for issuance pursuant to the
Convertible Notes.
(b) Except for the Company Options, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which the Company is a party or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company.
Except for the Company Options, no other awards have been made pursuant to the
Company Stock Plan. There are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any of the capital stock of
the Company or to provide funds to or make any material investment (in the form
of a loan, capital contribution or otherwise) in any other entity. The Company
is not a party to any agreement granting registration rights to any person with
respect to any securities of the Company. All warrants issued pursuant to the
Convertible Demand Note and Warrant Purchase Agreement dated as of October 10,
1996 among certain of the Stockholders and the Company (the "Company Warrants")
have been exercised pursuant to the cashless exercise provisions thereof and
20,833 Common Shares have been issued in satisfaction and cancellation of all
such Company Warrants.
(c) The Shares constitute all the issued and outstanding
capital stock of the Company and are owned of record and beneficially solely by
the Stockholders free and clear of all encumbrances. All of the Shares are fully
paid and nonassessable. There are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of any of the Shares.
(d) The stock register of the Company accurately records: (i)
the name and address of each person owning Shares and (ii) the certificate
number of each certificate evidencing Shares issued by the Company, the number
of shares evidenced by each such certificate, the date of issuance thereof and,
in the case of cancellation, the date of cancellation.
SECTION 2.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by the Company and the Stockholders
do not, and the performance of this Agreement by the Company and the
Stockholders will not, (i) conflict with or violate the Certificate of
Incorporation or by-laws of the Company or the organizational documents of any
Stockholder, as applicable, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or the
Stockholders or by which their respective assets or properties are bound or
affected, or
<PAGE>
9
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the properties or assets of
the Company or the Stockholders, respectively, pursuant to, or result in a
change in any of the terms of any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, insurance policy or other instrument or
obligation to which the Company or any Stockholder is a party, or by which the
Company or any Stockholder or any of their respective properties are bound or
affected, except in the case of clause (iii) above for such conflicts which
would not, individually or in the aggregate, have a Material Adverse Effect or
prevent or delay the consummation of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by the
Company and the Stockholders do not, and the performance of this Agreement by
the Company and the Stockholders will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, on the part of the Company or any
Stockholder, except for the filing of articles of merger with the Secretary of
State of the Commonwealth of Massachusetts and the filing of a certificate of
merger with the Secretary of State of the State of Delaware.
SECTION 2.04. Compliance with Laws. The Company is not in
conflict with, or violation of, any law, rule, regulation, order, judgment or
decree applicable to the Company or by which the Company or any of its
properties are bound or affected, except for any such conflicts or violations
which would not, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 2.05. Financial Information; Books and Records. (a)
True and complete copies of (i) the draft of the audited balance sheet of the
Company for the fiscal year ended as of December 31, 1995, and the related
audited statements of income, changes in shareholders' equity and cash flows of
the Company, together with all related notes and schedules thereto (collectively
referred to herein as the "Draft Audited Financial Statements"), and (ii) the
unaudited balance sheet of the Company for the eleven months ended as of
November 30, 1996, and the related statements of income, changes in
shareholders' equity and cash flows of the Company, together with all related
notes and schedules thereto (collectively referred to herein as the "Interim
Financial Statements") are attached as Section 2.05 of the Disclosure Schedule.
The Draft Audited Financial Statements and the Interim Financial Statements (i)
were prepared in accordance with the books of account and other financial
records of the Company, (ii) present fairly the consolidated financial condition
and results of operations of the Company as of the dates thereof or for the
periods covered thereby, (iii) have been prepared in accordance with U.S.
generally accepted accounting principles applied on a basis consistent with the
past practices of the Company and (iv) include all adjustments (consisting only
of normal recurring accruals) that are
<PAGE>
10
necessary for a fair presentation of the financial condition of the Company and
the results of the operations of the Company as of the dates thereof or for the
periods covered thereby; provided, however, that the Interim Financial
Statements may not include all footnotes required by U.S. generally accepted
accounting principles and were or are subject to normal and recurring year-end
adjustments which were not and are not anticipated to be material in amount.
(b) The books of account and other financial records of the
Company: (i) reflect all items of income and expense and all assets and
liabilities required to be reflected therein in accordance with U.S. generally
accepted accounting principles applied on a basis consistent with the past
practices of the Company, (ii) are in all material respects complete and
correct, and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with good business
and accounting practices.
(c) Except for (i) liabilities reflected on the balance sheet
contained in the Interim Financial Statements and (ii) liabilities incurred in
the ordinary course of business of the Company subsequent to November 30, 1996,
the Company has no material liabilities and there is no existing condition or
set of circumstances that could reasonably be expected to result in any such
material liability.
SECTION 2.06. Absence of Certain Changes, Events and
Conditions. Since December 31, 1995, there have not been any changes,
occurrences, or circumstances with respect to the Company which individually or
in aggregate had or have a Material Adverse Effect. Since December 31, 1995, the
Company has operated its business only in the ordinary course, consistent with
past practice, except for the transactions contemplated by this Agreement.
SECTION 2.07. Employee Benefit Plans; Labor Matters;
Consultants. (a) Section 2.07 of the Disclosure Schedule lists each benefit
plan, program, arrangement and contract (including, without limitation, any
"employee benefit plan", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), maintained or contributed to
by the Company for or with respect to any of its current or former employees,
officers, directors or independent contractors, or with respect to which the
Company could incur liability under Section 4069, 4201 or 4212(c) of ERISA (the
"Company Benefit Plans").
(b) None of the Company Benefit Plans promises or provides
retiree medical or life insurance benefits to any person. Each Company Benefit
Plan intended to be qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended, together with the rules and regulations promulgated
thereunder (the "Code") has received a favorable determination letter from the
Internal Revenue Service to the effect that it is so qualified and nothing has
occurred since the date of such letter to affect the qualified status of such
plan.
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11
None of the Company Benefit Plans in effect on the date hereof would result,
separately or in the aggregate (including, without limitation, as a result of
this Agreement or the transactions contemplated hereby), in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code. Each
Company Benefit Plan has been operated in all material respects in accordance
with its terms and the requirements of applicable law. None of the Company
Benefit Plans is subject to Title IV of ERISA, and the Company has not incurred,
and does not reasonably expect to incur, any direct or indirect liability under
or by operation of Title IV or ERISA.
(c) With respect to the Company Benefit Plans, no event has
occurred and, to the knowledge of the Company, there exists no condition or set
of circumstances, in connection with which the Company could be subject to any
liability under the terms of such Company Benefit Plans, ERISA, the Code or any
other applicable law which would, individually or in the aggregate, have a
Material Adverse Effect.
(d) The Company is not a party to any collective bargaining or
other labor union contracts. There is no pending or, to the knowledge of the
Company, threatened labor dispute, strike or work stoppage against the Company
which may interfere with the business activities of the Company. Neither the
Company nor, to the knowledge of the Company, its representatives or employees,
has committed any unfair labor practices in connection with the operation of the
businesses of the Company, and there is no pending or, to the knowledge of the
Company, threatened charge or complaint against the Company by the National
Labor Relations Board or any comparable state agency. The Company's relations
with its employees are good.
(e) Set forth in Section 2.07(e) of the Disclosure Schedule is
a list of all employment agreements between the Company and any of its
employees, copies of which have been delivered by the Company to the Parent.
Except as otherwise specified in Section 2.07(e) of the Disclosure Schedule,
each employee has signed a Non-Competition Agreement and an Employee
Nondisclosure and Developments Agreement, in the form set forth in Schedule
2.07(e) of the Disclosure Schedule, and each such agreement is in full force and
effect.
(f) Set forth in Section 2.07(f) of the Disclosure Schedule is
a list of all consultants engaged by the Company, and the Company has delivered
to the Parent a copy of each agreement between the Company and any such
consultant.
SECTION 2.08. Litigation. There is no pending or, to the
knowledge of Mr. Inder-Jeet Gujral after due inquiry of the employees of the
Company, threatened litigation, arbitration or governmental investigation or
legal, administrative or regulatory proceeding against the Company or to which
any of its properties is or would be subject.
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12
SECTION 2.09. Material Contracts. (a) Section 2.09(a) of the
Disclosure Schedule lists each of the following written contracts and agreements
of the Company (such contracts and agreements being "Material Contracts"):
(i) each contract and agreement for the purchase or lease of
personal property with any supplier or for the furnishing of services
to the Company or otherwise related to the Business;
(ii) each customer contract and agreement and other contract
and agreement for the sale or lease of personal property or for the
furnishing of services by the Company, and any outstanding proposals to
customers or prospective customers of the Company;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which
the Company is a party;
(iv) all leases and subleases of real property;
(v) all contracts and agreements relating to indebtedness
other than trade indebtedness of the Company;
(vi) all contracts and agreements with any governmental
authority to which the Company is a party;
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company to compete in any line of business or
with any person or in any geographic area or during any period of time;
(viii) all contracts and agreements between or among the
Company and any Stockholder or any affiliate of any Stockholder;
(ix) any other material agreement of the Company which is
terminable upon or prohibits a change of ownership or control of the
Company; and
(x) all other contracts and agreements whether or not made in
the ordinary course of business, which are material to the Company or
the conduct of the Business or the absence of which would have a
Material Adverse Effect.
(b) Each Material Contract: (i) is valid and binding on the
respective parties thereto and is in full force and effect and (ii) upon
consummation of the transactions contemplated by this Agreement, shall continue
in full force and effect without penalty or
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13
other adverse consequence. The Company is not in material breach of, or material
default under, any Material Contract and, to the knowledge of the Company, no
other party to any Material Contract is in material breach thereof or material
default thereunder.
(c) As of the date of this Agreement the Company has not
entered into any agreement or arrangement limiting or otherwise restricting it
from engaging or competing in any line of business or in any geographic area.
(d) The Company is not a party to any material oral contract
or, to its knowledge, any other oral contract.
SECTION 2.10. Intellectual Property. (a) The Company owns or
has the legal right to use all Intellectual Property (as hereinafter defined),
as is used or held for use in the Business, including but not limited to all
Developments (as defined in Section 4.07(d)), free and clear of any encumbrance.
"Intellectual Property" means (i) trademarks, service marks,
trade dress, logos, trade names and corporate names (including, without
limitation, the "Avicenna" name and all similar or related names, marks and
logos), whether or not registered, including all common law rights, and
registrations and applications for registration thereof, including, but not
limited to, all marks registered in the United States Patent and Trademark
Office, the Trademark Offices of the States and Territories of the United States
Patent and Trademark Office, the Trademark Offices of the States and Territories
of the United States of America, and the Trademark Offices of other nations
throughout the world, and all rights therein provided by multinational treaties
or conventions, (ii) copyrights (registered or otherwise) and registrations and
applications for registration thereof, and all rights therein provided by
multinational treaties or conventions, (iii) computer software, including,
without limitation, source code, operating systems and specifications, data,
data bases, files, documentation and other materials related thereto, data and
documentation, (iv) trade secrets and confidential, technical or business
information (including ideas, formulas, compositions, inventions and conceptions
of inventions whether patentable or unpatentable and whether or not reduced to
practice), (v) whether or not confidential, technology (including know-how and
show-how), manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (vi) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (vii) issued patents and patent
applications, (viii) all rights to obtain and rights to apply for patents, and
to register trademarks and copyrights, and (ii) all rights to sue and recover
and retain damages and costs and attorneys' fees for present and past
infringement of any of the Intellectual Property rights hereinabove set forth.
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14
(b) Section 2.10(b) of the Disclosure Schedule sets forth a
true and complete list and a brief description of (i) all of the Company's
registered and applied for copyrights, trademarks and patents and all material
licenses pertaining thereto and indicates where and when such Intellectual
Property has been registered or filed with the United States Patent and
Trademark Office or the United States Copyright Office, or the corresponding
office of any other jurisdictions and (ii) all of the Intellectual Property
(other than commercially available shrink-wrap software) licensed or sublicensed
to the Company from any third party. The conduct of the Business does not
conflict with or infringe upon, and, to the best knowledge of the Company or the
Stockholders after due inquiry, no one has asserted to the Company or the
Stockholders that the conduct of the Business conflicts with or infringes upon,
any Intellectual Property owned, possessed, used or claimed by any third party.
The Company has not granted any outstanding licenses or other rights, or
obligated itself to grant licenses or other rights in or to any of the
Intellectual Property owned, used or licensed to it. The consummation of the
transactions contemplated by this Agreement will not result in the termination
or impairment of any of the Intellectual Property.
(c) The Stockholders have, or have caused to be, delivered to
the Parent correct and complete copies of all the licenses and sublicenses for
the Intellectual Property listed in Section 2.10(b) of the Disclosure Schedule
and any and all ancillary documents pertaining thereto (including, but not
limited to, all amendments, consents and evidence of commencement dates and
expiration dates). With respect to each of such licenses and sublicenses:
(i) such license or sublicense, together with all ancillary
documents delivered pursuant to the first sentence of this Section
2.10(c), is valid and binding and in full force and effect and
represents the entire agreement between the respective licensor and
licensee with respect to the subject matter of such license or
sublicense;
(ii) such license or sublicense will not cease to be valid and
binding and in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the
transactions contemplated by this Agreement constitute a breach or
default under such license or sublicense or otherwise give the licensor
or sublicensor a right to terminate such license or sublicense;
(iii) with respect to each such license or sublicense: (A)
neither any Stockholder nor the Company has received any notice of
termination or cancellation under such license or sublicense and no
licensor or sublicensor has any right of termination or cancellation
under such license or sublicense except in connection with the default
of the Company thereunder, (B) neither any Stockholder nor the Company
has received any notice of a breach or default under such license or
sublicense, which breach or default has not been cured, and (C) neither
any Stockholder nor the
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15
Company has granted to any other person any rights, adverse or
otherwise, under such license or sublicense;
(iv) neither the Company nor (to the best knowledge of the
Company or the Stockholders after due inquiry) any other party to such
license or sublicense is in breach or default in any material respect,
and, to the best knowledge of the Company or the Stockholders after due
inquiry, no event has occurred that, with notice or lapse of time would
constitute such a breach or default or permit termination, modification
or acceleration under such license or sublicense;
(v) no actions have been brought or asserted or are pending
(nor, to the best knowledge of the Stockholders after due inquiry, has
any such action been threatened) against the Company either (A) based
upon or challenging or seeking to deny or restrict the use by the
Company of any of such Intellectual Property or (B) alleging that any
such Intellectual Property is being licensed, sublicensed or used in
violation of any patents or trademarks, or any other rights of any
person; and
(vi) to the best knowledge of the Stockholders after due
inquiry, no person is using any patents, copyrights, trademarks,
service marks, trade names, trade secrets or similar property that are
confusingly similar to such Intellectual Property or that infringe upon
such Intellectual Property or upon the rights of the Company therein.
(d) The Stockholders are not aware of any reason that would
prevent any pending applications to register trademarks, service marks or
copyrights or any pending patent applications from being granted.
(e) The Intellectual Property described in Section 2.10(b) of
the Disclosure Schedule constitutes all the Intellectual Property used or held
or intended to be used by the Company or forming a part of, used, held or
intended to be used in, and all such Intellectual Property necessary in the
conduct of, the Business and there are no other items of Intellectual Property
that are material to the Company or the Business.
SECTION 2.11. Real Property. The Company does not own any real
property.
SECTION 2.12. Assets. The Company owns, leases or has the
legal right to use all the properties and assets, including, without limitation,
real property and personal property, used or intended to be used in the conduct
of the Business or otherwise owned, leased or used by the Company and, with
respect to contract rights, is a party to and enjoys the right to the benefits
of all contracts, agreements and other arrangements used or intended to be used
by the Company in or relating to the conduct of the Business (all such
properties,
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16
assets and contract rights being the "Assets"); provided, however, that no
representation or warranty is made pursuant to this Section 2.12 with respect to
Intellectual Property. The Company has good and marketable title to, or, in the
case of leased or subleased Assets, valid and subsisting leasehold interests in,
all the Assets, free and clear of all encumbrances.
SECTION 2.13. Taxes. The Company has timely filed all returns
and reports required to be filed with respect to taxes relating to the Business
on or prior to the Closing Date. All taxes required to be collected or paid by
the Company on or prior to the Closing Date have been timely collected and paid.
The Company has not received from any governmental authority any written notice
of proposed adjustment, deficiency or underpayment of any taxes, which notice
has not been satisfied by payment or been withdrawn, and there are no material
claims that have been asserted or threatened relating to such taxes against the
Company. There are no agreements for the extension of time for the assessment of
any taxes of the Company other than routine audit extensions granted in the
ordinary course of business. No consent under Section 341(f) of the Code has
been filed with respect to the Company. For purposes of this Agreement, "tax" or
"taxes" means any and all taxes, fees, levies, duties, tariffs, imposts and
other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any government or taxing authority, including, without limitation: taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added or gains taxes; license, registration and
documentation fees; and customs' duties, tariffs and similar charges.
SECTION 2.14. Certain Interests. (a) None of the Stockholders
or their affiliates or any officer or director of the Company and, to the
knowledge of the Stockholders and the Company, no immediate relative or spouse
(or immediate relative of such spouse) who resides with, or is a dependent of,
any such officer or director:
(i) has any direct or indirect financial interest in any
competitor, supplier or customer of the Company, provided, however,
that the ownership of securities representing no more than five percent
of the outstanding voting power of any competitor, supplier or
customer, and which are listed on any national securities exchange or
traded actively in the national over-the-counter market, shall not be
deemed to be a "financial interest" so long as the person owning such
securities has no other connection or relationship with such
competitor, supplier or customer, provided further that this Section
2.12(a)(i) shall only apply to Mr. Inder-Jeet Gujral;
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which the
Company uses or has used in
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17
the conduct of the Business or otherwise (except for any such
ownership or interest resulting from the ownership of securities in a
public company); or
(iii) has outstanding any indebtedness to the Company.
(b) Except for the Notes and the Company Options and payment
of employee compensation in the ordinary course of business, the Company has no
liability or any other obligation of any nature whatsoever to any Stockholder or
any affiliate thereof or to any officer or director of the Company or, to the
knowledge of the Stockholders and the Company, to any immediate relative or
spouse (or immediate relative of such spouse) who resides with, or is a
dependent of, any such officer or director.
SECTION 2.15. Investment Intent; Shares Unregistered;
Accredited Investor. (a) The Stockholders are acquiring the Parent Shares for
investment, solely for their own account and not with a view to, or for sale in
connection with, the distribution thereof in violation of United States
securities laws.
(b) Shares Unregistered. The Stockholders understand and
acknowledge that (i) the offer and issuance of the Parent Shares have not been
registered under the Securities Act, (ii) the Parent Shares must be held
indefinitely and the Stockholders must continue to bear the economic risk of the
investment in the Parent Shares unless the offer and sale of such Parent Shares
is subsequently registered under the Securities Act and all applicable state
securities laws or an exemption from such registration is available and (iii) a
restrictive legend in the form set forth in Section 4.10 hereof shall be placed
on the certificates evidencing the Parent Shares.
(c) Accredited Investor. Each Stockholder is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
SECTION 2.16. Full Disclosure. (a) Neither any of the
Stockholders nor the Company is aware of any facts pertaining to the Company's
operations or lines of business which could have a Material Adverse Effect and
which have not been disclosed in this Agreement or the Disclosure Schedule.
(b) No representation or warranty of the Stockholders in this
Agreement, nor any statement or certificate furnished or to be furnished to the
Parent pursuant to this Agreement, or in connection with the transactions
contemplated by this Agreement, contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
SECTION 2.17. Brokers. Except as disclosed in writing to the
Parent, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or
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18
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of the Company or the Stockholders.
The Stockholders shall be solely responsible for any such fees and expenses.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
THE PURCHASER
The Parent and the Purchaser jointly and severally represent
and warrant to the Stockholders that:
SECTION 3.01. Corporate Organization and Authority. Each of
the Parent and the Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is presently conducted. Each of the Parent
and the Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations and to consummate the
transactions contemplated hereunder. The execution and delivery of this
Agreement by each of the Parent and the Purchaser and the consummation by the
Parent and the Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of the Parent and the Purchaser,
respectively, and no other corporate proceedings on the part of the Parent or
the Purchaser are necessary to authorize this Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Parent and the Purchaser and (assuming the due authorization,
execution and delivery by the Company and the Stockholders) constitutes the
legal, valid and binding obligation of each of the Parent and the Purchaser
enforceable against each of the Parent and the Purchaser in accordance with its
terms (except in each such case as enforceability may be limited by bankruptcy,
insolvency, reorganization and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally).
SECTION 3.02. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by each of the Parent and the
Purchaser do not, and the performance of this Agreement by each of the Parent
and the Purchaser will not, (i) conflict with or violate the articles of
incorporation or by-laws of the Parent or the Purchaser, respectively, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Parent or the Purchaser, respectively, or by which either of
them or their properties are bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of the Parent or the Purchaser,
respectively, pursuant to, or result in a change in any
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19
of the terms of any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the Parent
or the Purchaser is a party or by which the Parent or the Purchaser or any of
their respective properties is bound or affected, except, in the case of this
clause (iii), for any such breaches, defaults or other occurrences which would
not, individually or in the aggregate, have a material adverse effect on the
business, operations, properties (including intangible properties), condition
(financial or otherwise), assets, liabilities, results of operations or
prospects of the Parent or prevent or delay the consummation of the transactions
contemplated by this Agreement.
(b) The execution and delivery of this Agreement by each of
the Parent and the Purchaser do not, and the performance of this Agreement by
each of the Parent and the Purchaser (including, without limitation, the
consummation of the transactions hereunder) will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except for the
registration of Parent Shares under the Securities Act, the filing of articles
of merger with the Secretary of State of the Commonwealth of Massachusetts and
the filing of a certificate of merger with the Secretary of State of the State
of Delaware.
SECTION 3.03. SEC Filings; Financial Statements. The Parent
has filed all forms, reports, statements and documents required to be filed with
the SEC since June 30, 1995 (the "Parent SEC Reports"). The Parent SEC Reports
(i) were each prepared in accordance with, and at the time of filing complied in
all material respects with, the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case
may be, and (ii) did not at the time they were filed 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. None of
the Parent's subsidiaries (including the Purchaser) is required to file any
forms, reports or other documents with the SEC. The financial statements
included in the Parent SEC Reports (i) were prepared in accordance with the
books of account and other financial records of the Parent, (ii) present fairly
the consolidated financial condition and results of operations of the Parent as
of the dates thereof or for the periods covered thereby, (iii) have been
prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with the past practices of the Parent and (iv)
include all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair presentation of the financial condition of the Parent and
the results of the operations of the Parent as of the dates thereof or for the
periods covered thereby.
SECTION 3.04. Common Stock; Options; Warrants. Assuming all
conditions set forth in Article V are satisfied, all Parent Shares subject to
issuance pursuant to this Agreement, the Company Options, the Parent Options (as
hereinafter defined) and the Parent Warrants, upon such issuance as payment for
the Shares and the Convertible Notes as
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20
contemplated by this Agreement or upon exercise of the Company Options, the
Parent Options or the Parent Warrants, as the case may be, shall (i) be duly
authorized, validly issued, fully paid and nonassessable and (ii) not be subject
to any encumbrances created by or on behalf of the Parent or the Purchaser. The
Company Options, the Parent Options and the Parent Warrants will be exercisable
for Parent Shares in accordance with the terms of the Company Stock Plan, as
amended pursuant to Section 4.03 hereof, the Parent Option Plan (as hereinafter
defined) and the Parent Warrant Certificates, respectively.
SECTION 3.05. Investment Purpose. The Parent is acquiring the
Shares solely for the purpose of investment and not with a view to, or for offer
or sale in connection with, any distribution thereof in violation of United
States securities laws.
SECTION 3.06. Full Disclosure. (a) The Parent is not aware of
any facts pertaining to the Parent's operations or lines of business which could
have a material adverse effect on the Parent and which have not been disclosed
in this Agreement or the Parent SEC Reports.
(b) No representation or warranty of the Parent in this
Agreement, nor any statement or certificate furnished or to be furnished to the
Stockholders pursuant to this Agreement, or in connection with the transactions
contemplated by this Agreement, contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
SECTION 3.07. Corporate Structure. The Purchaser is a direct
wholly- owned subsidiary of the Parent.
SECTION 3.08. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions hereunder based upon arrangements made by or on behalf of
the Parent or the Purchaser.
ARTICLE IV. ADDITIONAL AGREEMENTS
SECTION 4.01. Conduct of Business by the Company Pending the
Closing. Except as contemplated by this Agreement, the Stockholders covenant and
agree that, during the period between the date of this Agreement and through and
including the Closing Date, unless the Parent shall otherwise agree in writing,
the Business shall be conducted only in, and the Company shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice. The Stockholders will not take, and will not permit the
Company to take, any action that would cause any representation or warranty made
by the Stockholders in this Agreement to become untrue in any material respect.
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21
SECTION 4.02. Further Action; Public Announcements. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereunder. The Stockholders will cause the Draft
Audited Financial Statements to be delivered in audited form, accompanied by the
reports thereon of the Company's accountants, by December 27, 1996. None of the
Stockholders shall issue any press release with respect to the transactions
contemplated hereunder. None of the Stockholders shall otherwise make any public
statement (i) prior to the Closing, with respect to the transactions
contemplated hereunder and (ii) after the Closing, relating to the plans,
operations, prospects or business of the Company, in each case without the prior
written consent of the Parent.
SECTION 4.03. Options; Warrants; Reservation of Shares;
Registration Rights. (a) Prior to the Closing, the Stockholders shall use their
best efforts (i) to cause the Company to amend the Company Stock Plan and the
Company Options, effective as of the Closing, in the manner set forth in Exhibit
4.03(a) hereto and (ii) to obtain the consent to such amendment of each holder
of Company Options.
(b) As promptly as practicable following the Closing, the
Parent shall adopt an option plan (the "Parent Option Plan") substantially in
the form of Exhibit 4.03(b) hereto providing for the issuance to certain of the
Company's officers and other key employees of options (the "Parent Options") to
purchase up to 800,000 Parent Shares in the aggregate.
(c) As promptly as practicable following the Closing, the
Parent will file, and will use all reasonable efforts to cause to be declared
effective, a registration statement (the "Registration Statement") with the SEC
under the Securities Act with respect to the Parent Shares issued pursuant to
Sections 1.08(a), 1.08(b) and 1.09(a) hereof (exclusive of the 50% of the Parent
Shares issued to Mr. Inder-Jeet Gujral referenced in Section 4.04) (the
"Registered Shares") and will cause the Registration Statement to remain
effective (subject to the further provisions of this Section 4.03(c)) until the
earliest to occur of (i) the sale of all Registered Shares (pursuant to the
Registration Statement or otherwise) by the Stockholders, (ii) the Parent Shares
being tradeable pursuant to Rule 144 (taking into account the volume
restrictions contained therein) under the Securities Act (or any similar
provision then in force) or (iii) June 30, 1998. At any time after the
Registration Statement has been maintained effective for at least 30 days, the
Parent may from time to time, by notice to the Stockholders (a "Suspension
Notice"), require the Stockholders to suspend all offers and sales of Parent
Shares pursuant to the Registration Statement due to pending or contemplated
acquisitions, financings or other corporate transactions that the Board of
Directors of the Parent determine in good faith make it necessary or advisable
to cease offers and sales of Parent Shares; provided that notwithstanding the
foregoing, the Parent will in any event permit sales during the period between
the date of the Closing through December 30, 1997
<PAGE>
22
for a total of at least 120 days, and during the period from January 1, 1998
through June 30, 1998 for a total of at least 60 days. The Stockholders agree
that, upon receipt of any Suspension Notice, the Stockholders will (and will
cause any limited partner distributees of any Parent Shares to) forthwith
discontinue the offer and sale of Parent Shares pursuant to the Registration
Statement until receipt of a notice from the Parent that such offers and sales
may recommence.
(d) The Parent will file a registration statement with the SEC
on Form S-8 (or any successor form) or another appropriate form, and will use
all reasonable efforts to cause such registration statement to be declared
effective as promptly as practicable following the Closing Date (provided that
the Parent shall have no obligation to cause such registration statement to be
declared effective prior to the effectiveness of the registration statement
referred to in Section 4.03(c) above), with respect to the Parent Shares subject
to the Company Options. With respect to the Parent Shares subject to the Parent
Options, the Parent will file a registration statement with the SEC on Form S-8,
and will use all reasonable effort to cause such registration statement to be
declared effective, at such time as shall be required to register such Parent
Shares under the Securities Act. The Parent shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectuses contained therein) for so long as the Company
Options or the Parent Options, as applicable, remain outstanding.
(e) Effective at the Closing, the holders of Parent Warrants
shall have the registration rights and obligations set forth in Exhibit 4.03(e)
hereto with respect to the Parent Shares issuable upon exercise of such Parent
Warrants.
SECTION 4.04. Disposition of Certain Securities. As a material
inducement for the Parent and the Purchaser to enter into this Agreement, Mr.
Inder-Jeet Gujral agrees that he will not sell, assign or otherwise transfer in
excess of 50% of the Parent Shares received in consideration for his Common
Shares until after the second anniversary of the Closing Date. In the event that
Mr. Inder-Jeet Gujral desires to sell any of such Parent Shares after the second
anniversary of the Closing Date, he shall sell such Parent Shares (i) pursuant
to Rule 144 promulgated under the Securities Act or any other applicable
exemption from registration under the Securities Act or (ii) at the request of
the Parent, pursuant to a registration statement provided by the Parent.
SECTION 4.05. Board Representation. The Parent shall take all
action necessary to appoint Mr. Inder-Jeet Gujral as a member of the board of
directors of the Parent as promptly as practicable following the Closing.
SECTION 4.06. Non-Competition. (a) For a period of five (5)
years after the Closing (the "Restricted Period"), Mr. Inder-Jeet Gujral shall
not engage, directly or indirectly, in any business anywhere in the United
States that produces or supplies products
<PAGE>
23
or services of the kind produced or supplied by the Business or the Company, or
contemplated by the Company's business plan, as of the Closing Date or, without
the prior written consent of the Parent, directly or indirectly, own an interest
in, manage, operate, join, control, lend money or render financial or other
assistance to or participate in or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, any person that competes with the
Parent, the Business or the Company in producing or supplying products or
services of the kind produced or supplied by the Business or the Company, or
contemplated by the Company's business plan, as of the Closing Date; provided,
however, that, for the purposes of this Section 4.06, ownership of securities
having no more than one percent of the outstanding voting power of any
competitor which are listed on any national securities exchange or traded
actively in the national over-the-counter market shall not be deemed to be in
violation of this Section 4.06 so long as the person owning such securities has
no other connection or relationship with such competitor.
(b) As a separate and independent covenant, (i) Mr. Inder-Jeet
Gujral agrees that, for a period of five (5) years following the Closing, he
will not in any way, directly or indirectly, for the purpose of conducting or
engaging in any business that produces or supplies products or services of the
kind produced or supplied by the Business or the Company, or contemplated by the
Company's business plan, as of the Closing Date, call upon, solicit, advise or
otherwise do, or attempt to do, business with any customers of the Business or
the Company with whom the Business, the Company or Mr. Gujral had any dealings
during the period of time in which Mr. Gujral was affiliated with the Company,
or take away or interfere or attempt to interfere with any custom, trade,
business or patronage of the Business or the Company, and (ii) the Stockholders
agree that, for a period of five (5) years following the Closing, neither the
Stockholders nor any of their affiliates will in any way interfere with or
attempt to interfere with any officers, employees, representatives or agents of
the Business or the Company, or induce or attempt to induce any of them to leave
the employ of the Company or violate the terms of their contracts, or any
employment arrangements, with the Company.
(c) The Restricted Period shall be extended by the length of
any period during which the Stockholders are in breach of the terms of this
Section 4.06.
(d) The Stockholders hereby acknowledge that any and all
Developments that have at any time been made or suggested by any Stockholder,
whether acting alone or in conjunction with others, during such Stockholder's
association with the Company, are the sole and absolute property of the Company,
free of any reserved or other rights of any kind on such Stockholder's part.
Each Stockholder has fully disclosed all such Developments to the Company and,
if requested by the Company, shall, at the Company's cost and expense, do all
acts and things (including, among others, the execution and delivery under oath
of patent and copyright applications and instruments of assignment) deemed by
the Company to be necessary or desirable at any time in order to effect the full
assignment to the Company of
<PAGE>
24
such Stockholder's right and title, if any, to such Developments. For purposes
of this Agreement, the term "Developments" means all data, discoveries,
findings, reports, designs, inventions, improvements, methods, practices,
techniques, developments, programs, concepts, and ideas, whether or not
patentable, relating to the products or services of the kind produced or
supplied by the Business or the Company, or contemplated by the Company's
business plan.
(e) The Stockholders acknowledge that the covenants of the
Stockholders set forth in this Section 4.06 are an essential element of this
Agreement and that, but for the agreement of the Stockholders to comply with
these covenants, the Parent and the Purchaser would not have entered into this
Agreement. The Stockholders acknowledge that this Section 4.06 constitutes an
independent covenant and shall not be affected by performance or nonperformance
of any other provision of this Agreement by the Parent or the Purchaser. The
Stockholders have independently consulted with their respective counsel and
after such consultation agree that the covenants set forth in this Section 4.06
are reasonable and proper.
(f) If any provision contained in this Section 4.06 is
determined by a court of competent jurisdiction to be excessively broad as to
duration, activity, geographic application or subject, it shall be construed, by
limiting or reducing it to the extent legally permitted, so as to be enforceable
to the extent compatible with then applicable law.
SECTION 4.07. Confidentiality. The Stockholders agree to, and
shall cause their respective agents, representatives, affiliates, employees,
officers and directors to: (i) treat and hold as confidential (and not disclose
or provide access to any person to) all information relating to trade secrets,
proprietary processes, patent applications and trademark application information
that has not been publicly disclosed, product development, price, customer and
supplier lists, pricing and marketing plans, policies and strategies, details of
client and consultant contracts, operations methods, product development
techniques, business acquisition plans, new personnel acquisition plans and all
other confidential information with respect to the Business and the Company,
(ii) in the event that any Stockholder or any such agent, representative,
affiliate, employee, officer or director becomes legally compelled to disclose
any such information, provide the Parent with prompt written notice of such
requirement so that the Parent or the Company may seek a protective order or
other remedy or waive compliance with this Section 4.07, (iii) in the event that
such protective order or other remedy is not obtained, or the Parent waives
compliance with this Section 4.07, furnish only that portion of such
confidential information which is legally required to be provided and exercise
its best efforts to obtain assurances that confidential treatment will be
accorded such information, (iv) except for Mr. Inder-Jeet Gujral, who may retain
such information in his possession consistent with his employment by the
Company, promptly furnish (prior to, at, or as soon as practicable following,
the Closing) to the Company or the Parent or destroy any and all copies (in
whatever form or medium) of all such confidential information then in the
possession of the Stockholders or any of their
<PAGE>
25
agents, representatives, affiliates, employees, officers and directors of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that, at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by any Stockholder, its agents, representatives, affiliates,
employees, officers or directors; provided further that, with respect to
Intellectual Property, specific information shall not be deemed to be within the
foregoing exception merely because it is embraced in general disclosures in the
public domain. In addition, with respect to Intellectual Property, any
combination of features shall not be deemed to be within the foregoing exception
merely because the individual features are in the public domain unless the
combination itself and its principle of operation are in the public domain. The
Stockholders agree and acknowledge that remedies at law for any breach of its
obligations under this Section 4.07 are inadequate and that in addition thereto
the Parent shall be entitled to seek equitable relief, including injunction and
specific performance, in the event of any such breach.
SECTION 4.08. Cancellation of Agreements. The Stockholders and
the Company agree that, effective as of the Closing, all shareholders'
agreements (including, without limitation, the Convertible Demand Note and
Warrant Purchase Agreement dated as of October 10, 1996 among certain of the
Stockholders and the Company, the Stock Restriction Agreement dated December 28,
1995 among certain of the Stockholders and the Company, the Voting Agreement
dated December 28, 1995 among certain of the Stockholders and the Company, the
Registration Rights Agreement dated as of December 28, 1995 among certain of the
Stockholders and the Company, and The Series A Convertible Preferred Stock
Purchase Agreement dated as of December 28, 1995 among certain of the
Stockholders and the Company) to which any of the Stockholders is a party
relating to the Company or the Shares shall terminate, and neither the Parent
nor the Company shall have any liability under any such shareholders' agreement
on and after the Closing Date. No payment or other consideration shall be paid
by the Company in connection with any such termination.
SECTION 4.09. Legends. The Parent shall affix to each
certificate evidencing outstanding Parent Shares that is issued to any
Stockholder a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION."
<PAGE>
26
SECTION 4.10. BlueCross BlueShield Purchase Right. In the
event that the Parent has not, within 6 months of the Closing Date, issued to
BlueCross BlueShield of Massachusetts ("BCBS") the Parent Shares and Parent
Warrants to which BCBS would have been entitled had it exercised its right to
acquire Preferred Shares prior to the Closing, the Parent will issue to the
holders of Preferred Shares as additional consideration, in accordance with
their respective holdings, the Preferred Shares and Preferred Warrants that
would otherwise have been issued to BCBS. Such Parent Shares and Parent Warrants
shall be deemed to have been outstanding as of the Closing for all purposes of
this Agreement.
ARTICLE V. CONDITIONS TO THE CLOSING
SECTION 5.01. Conditions to Obligations of the Parent and the
Purchaser. The obligations of the Parent and the Purchaser to effect the Closing
shall be subject to the prior fulfillment of each of the following conditions:
(a) Representations and Warranties; Agreements and Covenants.
(i) The representations and warranties of the Stockholders contained in
this Agreement shall be true and correct in all material respects on
and as of the Closing, with the same force and effect as if made as of
the Closing, (ii) all the agreements contained in this Agreement to be
performed or complied with by the Stockholders at or before the Closing
shall have been performed or complied with in all material respects and
(iii) the Parent shall have received a certificate from the
Stockholders as to the fulfillment of the conditions set forth in the
foregoing clauses (i) and (ii).
(b) Litigation. There shall have been no order or preliminary
or permanent injunction entered in any action or proceeding before any
federal, state or foreign court or governmental, administrative or
regulatory authority or agency by any federal, state or foreign
legislative body, court, government or governmental, administrative or
regulatory authority or agency which shall have remained in effect and
which shall have had the effect of making illegal the consummation of
any of the transactions hereunder.
(c) Employment Agreements. The Parent shall have received from
each individual listed on the employment agreements included as Exhibit
5.01(c) hereto executed employment agreements in the respective forms
of such exhibit.
(d) Company Options. The Parent shall have received evidence,
in form and substance satisfactory to the Parent, of the amendment of
the Company Stock Plan and all of the Company Options, each in
accordance with Article IV hereof.
<PAGE>
27
(e) Opinions. The Parent shall have received (i) an opinion
from Lucash, Gesmer & Updergrove substantially in the form attached
hereto as Exhibit 5.01(e)(i), and (ii) an opinion from other counsel to
the Stockholders, reasonably acceptable to the Parent, substantially in
the form of Exhibit 5.01(e)(ii).
(f) Section 280G. The Parent shall have received evidence, in
form and substance satisfactory to the Parent, that any payment or
benefit that would otherwise constitute a "parachute payment" (within
the meaning of Section 280G of the Code) that will be made or provided
to any "disqualified individual" (within the meaning of Section 280G(c)
of the Code) as a result of this Agreement and the transactions
contemplated hereby has been approved by a vote of the stockholders of
the Company satisfying the requirements of Section 280G(b)(5) of the
Code, and the right of any such disqualified individual to receive any
such payments or benefits shall have been made subject to the approval
of the Company's stockholders described in this sentence. The right of
Mr. Inder-Jeet Gujral to receive any amounts pursuant to Section 1.11,
or any other payment or benefit that results from this Agreement and
the transactions contemplated hereby and which would otherwise
constitute a "parachute payment" shall be subject to the approval of
the Company's stockholders described in the preceding sentence.
(g) Good Standing; Qualification to Do Business. The Parent
shall have received a certificate of legal existence for the Company
from the Secretary of State of the Commonwealth of Massachusetts, dated
as of a date reasonably proximate to the Closing Date, and telephonic
confirmation thereof on the Closing Date.
SECTION 5.02. Conditions to Obligations of the Stockholders.
The obligations of the Stockholders to effect the Closing shall be subject to
the prior fulfillment of each of the following conditions:
(a) Representations and Warranties. (i) The representations
and warranties of the Parent and the Purchaser contained in this
Agreement shall be true and correct in all material respects on and as
of the Closing, with the same force and effect as if made as of the
Closing, (ii) all the agreements contained in this Agreement and in any
certificates or agreements of the Parent or the Purchaser delivered
pursuant hereto to be performed or complied with by the Parent or the
Purchaser, at or before the Closing, shall have been performed or
complied with in all material respects and (iii) the Stockholders shall
have received a certificate of each of the Parent and the Purchaser,
signed by a duly authorized officer thereof, as to the fulfillment of
the conditions set forth in the foregoing clauses (i) and (ii).
(b) Litigation. There shall have been no order or preliminary
or permanent injunction entered in any action or proceeding before any
federal, state or foreign
<PAGE>
28
court or governmental, administrative or regulatory authority or agency
by any federal, state or foreign legislative body, court, government or
governmental, administrative or regulatory authority or agency which
shall have remained in effect and which shall have had the effect of
making illegal the consummation of any of the transactions hereunder.
(c) Parent Shares and Parent Warrant Certificates. The Parent
Warrant Certificates evidencing the right to purchase 250,000 Purchaser
Shares and stock certificates evidencing the Parent Shares issuable
pursuant to Sections 1.08(a), 1.08(b) and 1.09(c) hereof, in each case
registered in the name of the applicable Stockholder and free and clear
of all encumbrances, shall have been duly issued and delivered, or
caused to be delivered, by the Parent to the Stockholders with all
required stock transfer tax stamps affixed;
(d) Employment Agreements. The individuals listed on the
employment agreements included as Exhibit 5.01(c) hereto shall have
received executed employment agreements from the Parent in the
respective forms of such exhibit.
(f) Opinion. The Stockholders shall have received an opinion
from Shearman & Sterling substantially in the form attached hereto as
Exhibit 5.02(f).
ARTICLE VI. INDEMNIFICATION
SECTION 6.01. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement shall survive the
Closing until March 31, 1998; provided, however, that the representations and
warranties contained in Section 2.02(c) (but only applied severally to each
Stockholder with respect to such Stockholder's Share ownership) and 3.04, shall
survive indefinitely. Neither the period of survival nor the liability of the
Stockholders with respect to the Stockholders' representations and warranties
shall be reduced by any investigation made at any time by or on behalf of the
Parent or the Purchaser, and neither the period of survival nor the liability of
the Parent with respect to the representations and warranties of the Parent and
the Purchaser shall be reduced by any investigation made at any time by or on
behalf of the Stockholders. If written notice of a claim has been given prior to
the expiration of the applicable representations and warranties, then the
relevant representations and warranties shall survive as to such claim, until
such claim has been finally resolved.
SECTION 6.02. Indemnification by the Stockholders and the
Parent. (a) The Parent and its affiliates (including, after the Closing, the
Surviving Corporation), officers, directors, employees, agents, successors and
assigns shall be indemnified and held harmless by the Stockholders for any and
all liabilities, losses, damages, claims, costs and expenses,
<PAGE>
29
interest, awards, judgments and penalties (including, without limitation,
attorneys' fees and expenses) actually suffered or incurred by them (including,
without limitation, in connection with any action brought or otherwise initiated
by any of them) (hereinafter a "Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Stockholders in this Agreement; or
(ii) the breach of any covenant or agreement by the Stockholders
contained in this Agreement.
To the extent that the Stockholders' undertakings set forth in this Section
6.02(a) may be unenforceable, the Stockholders shall contribute the maximum
amount that they are permitted to contribute under applicable law to the payment
and satisfaction of all Losses incurred by the parties entitled to
indemnification hereunder.
(b) The Stockholders and their respective affiliates,
officers, directors, employees, agents, successors and assigns shall be
indemnified and held harmless by the Parent for any and all Losses arising out
of or resulting from:
(i) the breach of any representation or warranty made by the
Parent or the Purchaser in this Agreement;
(ii) the breach of any covenant or agreement by the Purchaser
contained in this Agreement; or
(iii) any claim brought by a third party with respect to
liabilities of the Company existing or created prior to the Closing,
but only in the event that the existence of such liability or the
circumstances resulting in such liability would not have constituted
or been deemed to be a breach of any representation, warranty or
covenant of the Stockholders under this Agreement.
To the extent that the Parent's undertakings set forth in this Section 6.02(b)
may be unenforceable, the Parent shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the parties entitled to indemnification hereunder.
(c) Any party seeking indemnification under this Article VI
(an "Indemnified Party") shall give each party from whom indemnification is
being sought (each, an "Indemnifying Party") notice of any matter which such
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement, within 60 days of such determination,
stating the amount of the Loss, if known, and method of computation thereof, and
containing a reference to the provisions of this Agreement in
<PAGE>
30
respect of which such right of indemnification is claimed or arises. The
obligations and liabilities of an Indemnifying Party under this Article VI with
respect to Losses arising from claims of any third party which are subject to
the indemnification provided for in this Article VI ("Third Party Claims") shall
be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim within 30 days of the receipt by the Indemnified Party of such
notice; provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this Article VI
except to the extent the Indemnifying Party is materially prejudiced by such
failure. If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any Losses that may result
from such Third Party Claim, then the Indemnifying Party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Indemnified Party within ten days of the receipt of such notice from the
Indemnified Party; provided, however, that if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the Indemnified Party for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of the
Indemnifying Party. In the event the Indemnifying Party exercises the right to
undertake any such defense against any such Third Party Claim as provided above,
the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnifying Party's expense, all such witnesses,
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party without the prior written consent of the Indemnified
Party, which consent shall not be unreasonably withheld.
SECTION 6.03. Limits on Indemnification. No amount shall be
payable by the Stockholders or the Parent pursuant to Section 6.02(a) or
6.02(b), respectively, unless the aggregate dollar amount of all Losses which
would otherwise be indemnifiable pursuant to Section 6.02(a) or (b), as
applicable, exceeds $50,000, in which case the full amount of such Losses shall
be payable as provided in Section 6.02. With respect to any claim for
indemnifiable Losses made by the Parent pursuant to Section 6.02(a), each
Stockholder shall indemnify the Parent only for such portion of such
indemnifiable Losses equal to (i) the total amount of such Losses multiplied by
(ii) a fraction, the numerator of which shall be the total
<PAGE>
31
number of Shares held by such Stockholder immediately prior to the Closing, as
set forth on Schedule A hereto, and the denominator of which shall be 1,433,366.
Notwithstanding anything to the contrary in this Agreement, the maximum amount
of indemnifiable Losses that may be recovered from any Stockholder pursuant to
Section 6.02(a) shall be an amount equal to (x) $2,100,000 multiplied by (y) a
fraction, the numerator of which shall be the total number of Shares held by
such Stockholder immediately prior to the Closing, as set forth on Schedule A
hereto, and the denominator of which shall be 1,433,366; provided, however, that
the maximum amount of indemnifiable Losses that may be recovered from any
Stockholder, if such Losses are a result of any breach by such Stockholder of
the representation and warranty contained in Section 2.02(c) as applied to the
Shares owned by it, shall be an amount equal to the value on the Closing Date of
all Parent Shares and Parent Warrants received by such Stockholder pursuant to
this Agreement; provided, further, that there shall be no limit on the amount of
indemnifiable Losses that may be recovered from any Stockholder in the event
that the breach of the representation, warranty or covenant that gave rise to
such Losses resulted from or arose out of fraud on the part of such Stockholder.
Notwithstanding anything to the contrary in this Agreement, the maximum amount
of indemnifiable Losses that may be recovered from the Parent shall be
$2,100,000; provided, however, that the maximum amount of indemnifiable Losses
that may be recovered from the Parent by any Stockholder if such Losses are a
result of any breach of the representation and warranty contained in Section
3.04 shall be an amount equal to the value on the Closing Date of all Parent
Shares and Parent Warrants received by such Stockholder pursuant to this
Agreement; provided, further, there shall be no limit on the amount of
indemnifiable Losses that may be recovered from the Parent in the event that the
breach of the representation, warranty or covenant that gave rise to such Losses
resulted from or arose out of fraud on the part of the Parent or the Purchaser.
SECTION 6.04. Indemnification as Exclusive Remedy. The
indemnification provided by this Article VI, subject to the limitations set
forth herein, shall be the exclusive post-Closing remedy available to the
parties hereto for any breach of any representation or warranty contained in
this Agreement, and the parties hereto acknowledge that no party hereto has made
any representation or warranty to any other party hereto other than as set forth
in this Agreement. In no event shall any party hereto be entitled to rescission
of this Agreement as a result of any breach of any representation, warranty,
covenant or agreement contained herein.
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER; MISCELLANEOUS
SECTION 7.01. Termination. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned at any time prior to
the Closing Date (i) by mutual written consent of the Stockholders and the
Parent or (ii) by either the Stockholders or the Parent if there has been a
material breach of any representation,
<PAGE>
32
warranty, covenant or agreement on the part of the other parties which would
cause the conditions to Closing to fail to be satisfied and which is incapable
of being cured prior to January 15, 1997; or (iii) by the Stockholders or the
Parent, if the Closing shall not have occurred by January 15, 1997; provided,
however, that the right to terminate this Agreement under this Section
6.01(a)(iii) shall not be available to any party whose wilful failure to fulfill
any material obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date.
SECTION 7.02. Effect of Termination; Expenses. In the event of
the termination of this Agreement pursuant to Section 6.01, this Agreement shall
forthwith become void and have no effect and there shall be no liability on the
part of any party hereto or its affiliates, directors, officers or shareholders;
provided, however, that nothing herein shall relieve any party from liability
for any willful breach hereof prior to such termination. All costs and expenses,
including, without limitation, fees and disbursements of counsel, financial
advisors and accountants, incurred by the Company or the Stockholders in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Stockholders (except for the legal fees and expenses listed on
Schedule 2.06 of the Disclosure Schedule (up to a maximum of $25,000), which
shall be paid by the Company) and all costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by the Parent in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Parent, whether or not the
Closing shall have occurred.
SECTION 7.03. Miscellaneous. This Agreement may be amended at
any time by an instrument signed by the Parent and the Stockholders. Either the
Stockholders or the Parent may (a) extend the time for the performance of any of
the obligations or other acts of the Company or any Stockholder, or the Parent
and the Purchaser, respectively, (b) waive any inaccuracies in the
representations and warranties of the Company or any Stockholder, or the Parent
and the Purchaser, respectively, contained herein or in any document delivered
pursuant hereto by the Company or any Stockholder, or the Parent and the
Purchaser, respectively and (c) waive compliance with any of the agreements of
the Company or any Stockholder, or the Parent and the Purchaser, respectively,
or any conditions contained herein. Any such extension or waiver shall be valid
if set forth in an instrument in writing signed by the party to be bound
thereby. The failure of any party to assert any of its rights hereunder shall
not constitute a waiver of any such rights. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the
<PAGE>
33
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible. This Agreement and the exhibits hereto constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof. This Agreement may
not be assigned by operation of law or otherwise without the express written
consent of the Parent and the Stockholders; provided, however, that the Parent
may assign this Agreement to an affiliate of the Parent without the consent of
the Stockholders, but no such assignment shall relieve the Parent of its
obligations hereunder if such assignee does not perform such obligations. This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were not
to be performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity. Any notices under this Agreement shall be
addressed, if to the Parent, to its principal executive office, attention: Chief
Executive Officer; if to Advanced Technology Venture IV, L.P., to its General
Partner at Somerset Court, 281 Winter Street, Suite 350, Waltham, MA 02154; if
to Nazem & Company IV, L.P., to its General Partner at 645 Madison Avenue, New
York, NY 10022, if to CGJR Capital Management, to its General Partner at 104
Woodmont Blvd., Suite 410, Nashville, TN 37205; if to Delphi Venture III, L.P.,
to its General Partner at 3000 Sand Hill Road, Building One, Suite 135, Menlo
Park 94025; if to Delphi BioInvestments III, L.P., to its General Partner at
3000 Sand Hill Road, Building One, Suite 135, Menlo Park 94025; and if to
Inder-Jeet Gujral, at 1030 Massachusetts Avenue, Cambridge, MA 02138.
<PAGE>
IN WITNESS WHEREOF, the Parent, the Purchaser, the Company and
the Stockholders have each caused this Agreement to be executed as of the date
first written above by their respective officers thereunto duly authorized.
SYNETIC, INC.
By:
-------------------------------------------
Name:
Title:
----------------------------------------------
Name:
Address:
Social Security #:
ADVANCED TECHNOLOGY VENTURES IV,
L.P., by ATV Associates IV, L.P., its General
Partner
By:
------------------------------------------
Name:
Title:
Taxpayer ID #:
DELPHI VENTURES III, L.P.,
by Delphi Management Partners III, L.L.C., its
General Partner
By:
-------------------------------------------
Name:
Title:
Taxpayer ID #:
<PAGE>
DELPHI INVESTMENTS III, L.P.,
by Delphi Management Partners III, L.L.C., its
General Partner
By:
-------------------------------------------
Name:
Title:
Taxpayer ID #:
NAZEM & COMPANY IV, L.P., by
Nazem & Associates IV, L.P., its General
Partner
By:
-------------------------------------------
Name:
Title:
Taxpayer ID #:
CGJR Health Care Services Private Equities,
L.P., by CGJR Capital Management, Inc., its
General Partner
By:
-------------------------------------------
Name:
Title:
Taxpayer ID #:
BLUECROSS BLUESHIELD OF
MASSACHUSETTS (also making the
representations and
warranties contained in
Schedule B to this Agreement)
By:
-------------------------------------------
Name:
Title:
Taxpayer ID #:
<PAGE>
AVICENNA SYSTEMS CORP.
By:
-------------------------------------------
President
Company's Taxpayer ID #:
By:
-------------------------------------------
Treasurer
AGREEMENT AND PLAN OF MERGER, dated as of January 23, 1997
(this "Agreement"), among SYNETIC, INC., a Delaware corporation (the "Parent"),
SYNTERNET ACQUISITION CORP., a Delaware corporation and a wholly owned
subsidiary of the Parent (the "Purchaser"), CAREAGENTS, INC., a Delaware
corporation (the "Company"), and the individuals listed on the signature pages
hereof (each, a "Stockholder", and collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing
health care interenterprise connectivity by means of computers (the "Business"),
which Business is currently under active development;
WHEREAS, the Stockholders desire to sell to the Parent, and
the Parent desires to purchase from the Stockholders, all of the outstanding
capital stock of the Company upon the terms and subject to the conditions set
forth herein;
WHEREAS, the parties hereto intend the Merger (as hereinafter
defined) to qualify as a reorganization pursuant to section 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I. THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined
below), the Purchaser shall be merged with and into the Company, and the Company
shall be the surviving corporation in the Merger (in such capacity, the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware. At the Effective Time, the separate corporate
existence of the Purchaser shall cease.
SECTION 1.02. Effective Time of the Merger. The Merger shall
become effective (the "Effective Time") after a properly executed certificate of
merger (the "Certificate of Merger") is duly filed with the Secretary of State
of the State of Delaware, in accordance with the General Corporation Law of the
State of Delaware ("Delaware Law").
SECTION 1.03. Certificate of Incorporation. At the Effective
Time, the Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of the Company, until thereafter amended in
accordance with applicable law.
<PAGE>
2
SECTION 1.04. By-laws. At the Effective Time, the By-laws of
the Surviving Corporation shall be the By-laws of the Purchaser, as set forth in
Exhibit 1.03 hereto, until thereafter amended in accordance with applicable law.
SECTION 1.05. Directors and Officers. The directors of the
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.06. Effect of the Merger. At and after the Effective
Time, the effect of the Merger shall, in all respects, be as provided by
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges and powers
of the Purchaser shall vest in the Surviving Corporation and all debts,
liabilities and duties of the Purchaser and the Company shall become debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.07. Closing; Payment of the Purchase Price. (a) Upon
the terms and subject to the conditions of this Agreement, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Shearman & Sterling, 599 Lexington Avenue, New York, NY
simultaneously with the execution of this Agreement (the "Closing Date").
(b) At the Closing, the Stockholders shall deliver or cause
to be delivered to the Parent:
(i) stock certificates evidencing the Company Shares (as
hereinafter defined);
(ii) The Notes and related Pledge Agreements referred to in
Section 4.02(b);
(iii) executed employment agreements and an executed
consulting agreement in the respective forms attached hereto as Exhibit
1.07(b)(iii); and
(iv) an opinion from Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C. substantially in the form attached hereto as Exhibit
1.07(b)(iv).
(c) At the Closing, the Parent shall deliver to the
Stockholders:
(i) stock certificates evidencing the Parent Shares (as
hereinafter defined) less the Escrow Shares (as hereinafter defined);
(ii) the Parent Loans referred to in Section 4.02(b);
<PAGE>
3
(iii) executed employment agreements and an executed
consulting agreement in the respective forms attached hereto as Exhibit
1.07(b)(iii); and
(iv) an opinion from Shearman & Sterling substantially in the
form attached hereto as Exhibit 1.07(c)(iv).
(d) At the Closing, the Parent shall deliver to United States
Trust Company of New York (the "Escrow Agent"), in accordance with the escrow
agreement attached hereto as Exhibit 1.07(d) (the "Escrow Agreement"), fifty
percent of the Parent Shares issuable to each Stockholder pursuant to Section
1.08 below (such number of Parent Shares being the "Escrow Shares") to the
accounts designated therefor in the Escrow Agreement.
(e) On the Closing Date, the Certificate of Merger with
respect to the Merger shall be filed with the Secretary of State of the State of
Delaware.
SECTION 1.08. Conversion of Securities. (a) At the Effective
Time, by virtue of the Merger and without any action on the part of the Parent,
the Purchaser, the Company or the Stockholders, and subject to Section 1.10,
each Company Share (as defined below) shall be cancelled and converted
automatically into the right to receive that number of shares of common stock,
par value $0.01 per share, of the Parent (the "Parent Shares") equal to the
quotient (the "Exchange Ratio") obtained by dividing (i) a fraction, the
numerator of which shall be 5,000,000 and the denominator of which shall be
9,999 by (ii) the Signing Date Market Price of one Parent Share. The "Signing
Date Market Price" means the lower of (A) the arithmetic average of the last
reported sales price of Parent Shares on the National Association of Securities
Dealers' national market system ("NASDAQ") for each of the ten trading days
ending on the trading day immediately preceding the date of this Agreement or
(B) the last reported sales price of Parent Shares on the NASDAQ on the trading
day immediately preceding the date of this Agreement; provided, however, that in
no event shall the Signing Date Market Price exceed $47.50. In accordance with
the above formulas, the Exchange Ratio has been calculated to be 10.6041 Parent
Shares per Company Share, and the Signing Date Market Price (based on clause (A)
of the definition thereof) has been calculated to be $47.15625.
(b) From and after the Effective Time, all Company Shares to
be converted into Parent Shares pursuant to this Section 1.08 shall cease to be
outstanding, shall be cancelled and retired and shall cease to exist, and the
holders of certificates representing the Company Shares shall cease to have any
rights with respect to such Company Shares, except the right to receive the
consideration specified in this Section 1.08.
(c) Each share of capital stock of the Purchaser that is
issued and outstanding as of the Effective Time shall be converted into one
share of capital stock of the Surviving Corporation.
SECTION 1.09. Fractional Shares. The Parent will not issue any
fractional Parent Shares pursuant to Section 1.08(a) hereof, and the Parent
will, in lieu of any such
<PAGE>
4
fractional shares, round the number of Parent Shares issuable to each
Stockholder to the nearest whole number of Parent Shares.
SECTION 1.10. Escrow. Prior to the Closing, the Stockholders
and the Parent shall enter into the Escrow Agreement with the Escrow Agent. In
accordance with the terms of the Escrow Agreement, the Parent shall deposit the
Escrow Shares in a separate accounts for each Stockholder to be managed and paid
out by the Escrow Agent in accordance with the terms of the Escrow Agreement.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant
to the Parent that:
SECTION 2.01. Organization, Authority and Qualification of the
Stockholders and the Company; Subsidiaries; Certificate and By-laws. (a) Each
Stockholder has all necessary power and authority to enter into this Agreement,
to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by each
Stockholder, the performance by each Stockholder of its obligations hereunder
and the consummation by each Stockholder of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of such
Stockholder. This Agreement has been duly executed and delivered by each
Stockholder, and (assuming due authorization, execution and delivery by the
Parent or the Purchaser) this Agreement constitutes a legal, valid and binding
obligation of each Stockholder, enforceable against each Stockholder in
accordance with its terms. No person other than the Stockholders has a right or
claim to any portion of the Purchase Price or any other payments made by the
Parent to any Stockholder hereunder.
(b) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on the Business as presently conducted. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations and to consummate the transactions
contemplated hereunder. The execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company, and (assuming due authorization, execution and
delivery by the Parent and the Purchaser) this Agreement constitutes a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms. The Company is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties
<PAGE>
5
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary. The Stockholders have delivered to the
Parent true, complete and correct copies of each of the Certificate of
Incorporation, the by-laws and the minutes of each meeting of the board of
directors and shareholders of the Company.
(c) There are no corporations, partnerships, joint ventures,
associations or other entities in which the Company owns, of record or
beneficially, any direct or indirect equity or other interest or any right
(contingent or otherwise) to acquire the same. The Company is not a member of
(nor is any part of the Business conducted through) any partnership. The Company
is not a participant in any joint venture or similar arrangement.
SECTION 2.02. Capitalization; Ownership. (a) The authorized
capital stock of the Company consists of 35,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of which 9,999 shares are issued and
outstanding (each share of Common Stock being a "Company Share"). No Common
Stock is held by the Company as treasury stock. Each Stockholder owns
beneficially and of record the number of Company Shares set forth opposite such
Stockholder's name on the signature pages hereof.
(b) There are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which the Company is
a party or obligating the Company to issue or sell any shares of capital stock
of, or other equity interests in, the Company. There are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any of the capital stock of the Company or to provide funds to or make
any material investment (in the form of a loan, capital contribution or
otherwise) in any other entity. The Company is not a party to any agreement
granting registration rights to any person with respect to any securities of the
Company.
(c) The Company Shares constitute all the issued and
outstanding capital stock of the Company and are owned of record and
beneficially solely by the Stockholders free and clear of all encumbrances. All
of the Company Shares are fully paid and nonassessable. There are no voting
trusts, stockholder agreements, proxies or other agreements or understandings in
effect with respect to the voting or transfer of any of the Company Shares.
(d) The stock register of the Company accurately records: (i)
the name and address of each person owning Company Shares and (ii) the
certificate number of each certificate evidencing Company Shares issued by the
Company, the number of shares evidenced by each such certificate, the date of
issuance thereof and, in the case of cancellation, the date of cancellation.
SECTION 2.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by the Company and the Stockholders
do not, and the performance of this Agreement by the Company and the
Stockholders will not, (i) conflict with or violate the Certificate of
Incorporation or by-laws of the Company, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to
<PAGE>
6
the Company or the Stockholders or by which their respective assets or
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or the
Stockholders, respectively, pursuant to, or result in a change in any of the
terms of any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, insurance policy or other instrument or obligation to which the
Company or any Stockholder is a party, or by which the Company or any
Stockholder or any of their respective properties are bound or affected, except
in the case of clause (iii) above for such conflicts which would not,
individually or in the aggregate, have a material adverse effect on the Company
or prevent or delay the consummation of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by the
Company and the Stockholders do not, and the performance of this Agreement by
the Company and the Stockholders will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, on the part of the Company or any
Stockholder, except for the filing of a certificate of merger with the Secretary
of State of the State of Delaware.
SECTION 2.04. Compliance with Laws. The Company is not in
conflict with, or violation of, any law, rule, regulation, order, judgment or
decree applicable to the Company or by which the Company or any of its
properties are bound or affected.
SECTION 2.05. No Liabilities. The Company has no liabilities,
contingent or otherwise, including, without limitation, liabilities related to
taxes, and there is no existing condition or set of circumstances that could be
expected to result in any such liability, other than liabilities to the
Stockholders for purchases of office and computer equipment as set forth on
Schedule A hereto, all of which equipment is owned by the Company. The Company
is not a party to, does not maintain or have any obligation under, any employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended) or any bonus, equity, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plan, program or arrangement with respect to any of
its current or former employees, officers, directors or independent contractors.
The Company has no employees other than the Stockholders.
SECTION 2.06. Contracts. (a) Except as otherwise disclosed in
writing to the Parent, the Company has not entered into any customer, supplier
or other contractual relationships, written or oral, with any person or business
entity. None of the Stockholders (i) have entered into any contractual
relationships, written or oral, for which the Company will have any
responsibility or (ii) except as otherwise disclosed in writing to the Parent,
is a party to any non-competition, non-solicitation, confidentiality or similar
agreement with any person or business entity.
<PAGE>
7
(b) None of the agreements disclosed in writing to the Parent
pursuant to Section 2.06(a)(ii) will be breached or violated as a result of the
contemplated services to be provided by the Stockholders to Synetic or the
Company following the Closing.
SECTION 2.07. Intellectual Property. (a) The Company owns or
has the legal right to use all Intellectual Property (as hereinafter defined),
as is used or held for use in the Business, including but not limited to all
presently existing Developments (as defined in Section 4.05(d)), free and clear
of any encumbrance.
"Intellectual Property" means any (i) trademarks, service
marks, trade dress, logos, trade names and corporate names (including, without
limitation, the "CareAgents" name and all similar or related names, marks and
logos), whether or not registered, including all common law rights, and
registrations and applications for registration thereof, including, but not
limited to, all marks registered in the United States Patent and Trademark
Office, the Trademark Offices of the States and Territories of the United States
Patent and Trademark Office, the Trademark Offices of the States and Territories
of the United States of America, and the Trademark Offices of other nations
throughout the world, and all rights therein provided by multinational treaties
or conventions, (ii) copyrights (registered or otherwise) and registrations and
applications for registration thereof, and all rights therein provided by
multinational treaties or conventions, (iii) computer software, including,
without limitation, source code, operating systems and specifications, data,
data bases, files, documentation and other materials related thereto, data and
documentation, (iv) trade secrets and confidential, technical or business
information (including ideas, formulas, compositions, inventions and conceptions
of inventions whether patentable or unpatentable and whether or not reduced to
practice), (v) whether or not confidential, technology (including know-how and
show-how), manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (vi) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (vii) issued patents and patent
applications, (viii) all rights to obtain and rights to apply for patents, and
to register trademarks and copyrights, and (ii) all rights to sue and recover
and retain damages and costs and attorneys' fees for present and past
infringement of any of the Intellectual Property rights hereinabove set forth.
(b) The Stockholders have delivered to the Parent a true and
complete list and a brief description of (i) all of the Company's registered and
applied for copyrights, trademarks and patents and all material licenses
pertaining thereto and such list indicates where and when such Intellectual
Property has been registered or filed with the United States Patent and
Trademark Office or the United States Copyright Office, or the corresponding
office of any other jurisdictions and (ii) all of the Intellectual Property
(other than commercially available shrink-wrap software) licensed or sublicensed
to the Company from any third party. The conduct of the Business does not
conflict with or infringe upon, and no one has asserted to the Company or the
Stockholders that the conduct of the Business conflicts with or infringes upon,
any Intellectual Property owned, possessed, used or claimed
<PAGE>
8
by any third party. Neither the Company nor any of the Stockholders has granted
any outstanding licenses or other rights, or obligated itself to grant licenses
or other rights in or to any of the Intellectual Property owned, used or
licensed to the Company. The consummation of the transactions contemplated by
this Agreement will not result in the termination or impairment of any of the
Intellectual Property.
(c) The Stockholders have, or have caused to be, delivered to
the Parent correct and complete copies of all the licenses and sublicenses for
the Intellectual Property referred to in Section 2.07(b) and any and all
ancillary documents pertaining thereto (including, but not limited to, all
amendments, consents and evidence of commencement dates and expiration dates).
(d) The Intellectual Property described in Section 2.07(b)
constitutes all the Intellectual Property used or held by the Company or forming
a part of or used or held by, and all such Intellectual Property necessary in
the conduct of, the Business and there are no other items of Intellectual
Property that are material to the Company or the Business. Certain software
intended to be used by the Company or in the Business has not been sufficiently
developed to (i) describe, (ii) protect from infringement by third parties or
(iii) analyze with respect to such software's potential infringement of third
party rights, but the Stockholders are not aware of any reason why the Company
would not be able to license or develop the Intellectual Property required to
complete the development of such software.
SECTION 2.08. Real Property. The Company does not own or lease
any real property.
SECTION 2.09. Certain Interests. (a) None of the Stockholders
or their affiliates or any officer or director of the Company and, to the
knowledge of the Stockholders and the Company, no immediate relative or spouse
(or immediate relative of such spouse) who resides with, or is a dependent of,
any such officer or director:
(i) has any direct or indirect financial interest in any
competitor of the Company, provided, however, that the ownership of
securities representing no more than five percent of the outstanding
voting power of any competitor and which are listed on any national
securities exchange or traded actively in the national over-the-counter
market, shall not be deemed to be a "financial interest" so long as the
person owning such securities has no other connection or relationship
with such competitor;
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which the
Company uses or has used in the conduct of the Business or otherwise;
or
(iii) has outstanding any indebtedness to the Company.
<PAGE>
9
(b) Except as referred to in Section 2.05, the Company has no
outstanding indebtedness to any Stockholder.
SECTION 2.10. Investment Intent; Shares Unregistered;
Accredited Investor. (a) The Stockholders are acquiring the Parent Shares for
investment, solely for their own account and not with a view to, or for sale in
connection with, the distribution thereof in violation of United States
securities laws.
(b) Shares Unregistered. The Stockholders understand and
acknowledge that (i) the offer and issuance of the Parent Shares have not been
registered under the Securities Act, (ii) the Parent Shares must be held
indefinitely and the Stockholders must continue to bear the economic risk of the
investment in the Parent Shares unless the offer and sale of such Parent Shares
is subsequently registered under the Securities Act and all applicable state
securities laws or an exemption from such registration is available and (iii) a
restrictive legend in the form set forth in Section 4.07 hereof shall be placed
on the certificates evidencing the Parent Shares.
(c) Accredited Investor. Each Stockholder is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
SECTION 2.11. Full Disclosure. (a) Neither any of the
Stockholders nor the Company is aware of any facts pertaining to the Company's
operations or Business which could have a material adverse effect on the Company
and which have not been disclosed to the Parent in writing.
(b) No representation or warranty of the Stockholders in this
Agreement, nor any written statement or certificate furnished or to be furnished
to the Parent pursuant to this Agreement, or in connection with the transactions
contemplated by this Agreement, contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
SECTION 2.12. Brokers. Except as disclosed in writing to the
Parent, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement, based upon arrangements made by or on behalf of
the Company or the Stockholders. The Stockholders shall be solely responsible
for any such fees and expenses.
<PAGE>
10
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
THE PURCHASER
The Parent and the Purchaser jointly and severally represent
and warrant to the Stockholders that:
SECTION 3.01. Corporate Organization and Authority. Each of
the Parent and the Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is presently conducted. Each of the Parent
and the Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations and to consummate the
transactions contemplated hereunder. The execution and delivery of this
Agreement by each of the Parent and the Purchaser and the consummation by the
Parent and the Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of the Parent and the Purchaser,
respectively, and no other corporate proceedings on the part of the Parent or
the Purchaser are necessary to authorize this Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Parent and the Purchaser and (assuming the due authorization,
execution and delivery by the Company and the Stockholders) constitutes the
legal, valid and binding obligation of each of the Parent and the Purchaser
enforceable against each of the Parent and the Purchaser in accordance with its
terms.
SECTION 3.02. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by each of the Parent and the
Purchaser do not, and the performance of this Agreement by each of the Parent
and the Purchaser will not, (i) conflict with or violate the certificate of
incorporation or by-laws of the Parent or the Purchaser, respectively, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Parent or the Purchaser, respectively, or by which either of
them or their properties are bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of the Parent or the Purchaser,
respectively, pursuant to, or result in a change in any of the terms of any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Parent or the Purchaser
is a party or by which the Parent or the Purchaser or any of their respective
properties is bound or affected, except, in the case of this clause (iii), for
any such breaches, defaults or other occurrences which would not, individually
or in the aggregate, have a material adverse effect on the Parent or prevent or
delay the consummation of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by each of
the Parent and the Purchaser do not, and the performance of this Agreement by
each of the Parent and the
<PAGE>
11
Purchaser (including, without limitation, the consummation of the transactions
hereunder) will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except for the filing of a certificate of merger with the
Secretary of State of the State of Delaware.
SECTION 3.03. SEC Filings; Financial Statements. The Parent
has filed all forms, reports, statements and documents required to be filed with
the SEC since June 30, 1995 (the "Parent SEC Reports"). The Parent SEC Reports
(i) were each prepared in accordance with, and at the time of filing complied in
all material respects with, the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case
may be, and (ii) did not at the time they were filed 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. The
financial statements included in the Parent SEC Reports (i) were prepared in
accordance with the books of account and other financial records of the Parent,
(ii) present fairly the consolidated financial condition and results of
operations of the Parent as of the dates thereof or for the periods covered
thereby, (iii) have been prepared in accordance with U.S. generally accepted
accounting principles applied on a basis consistent with the past practices of
the Parent and (iv) include all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation of the financial condition
of the Parent and the results of the operations of the Parent as of the dates
thereof or for the periods covered thereby.
SECTION 3.04. Common Stock; Options. All Parent Shares subject
to issuance pursuant to this Agreement and the Parent Options (as hereinafter
defined), upon issuance as payment for the Company Shares as contemplated by
this Agreement or upon exercise of the Parent Options, as the case may be, shall
(i) be duly authorized, validly issued, fully paid and nonassessable and (ii)
not be subject to any encumbrances created by or on behalf of the Parent or the
Purchaser. The Parent Options will be exercisable for Parent Shares in
accordance with the terms of the Parent Option Plan (as hereinafter defined).
The Parent will, prior to the date on which any Parent Options become
exercisable, reserve sufficient Parent Shares for issuance upon exercise of such
Parent Options.
SECTION 3.05. Investment Purpose. The Parent is acquiring the
Company Shares solely for the purpose of investment and not with a view to, or
for offer or sale in connection with, any distribution thereof in violation of
United States securities laws.
SECTION 3.06. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions hereunder based upon arrangements made by or on behalf of
the Parent or the Purchaser.
<PAGE>
12
ARTICLE IV. ADDITIONAL AGREEMENTS
SECTION 4.01. Further Action; Public Announcements. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereunder. None of the Stockholders shall issue any
press release or otherwise make any public statement with respect to the
transactions contemplated hereunder without the prior written consent of the
Parent.
SECTION 4.02. Options; Parent Loans. (a) On the Closing Date,
the Parent shall adopt an option plan (the "Parent Option Plan") in the form of
Exhibit 4.02(a) hereto providing for the issuance to the Stockholders of options
(the "Parent Options") to purchase up to 1,000,000 Parent Shares in the
aggregate, and the Parent will issue such Parent Options on the Closing Date.
(b) To the extent requested by any Stockholder, the Parent
shall, within 30 days following the Closing, loan to such Stockholder, by wire
transfer in immediately available funds to the account designated in writing by
such Stockholder, an amount equal to up to 50% of the product of (i) the number
of Parent Shares issuable to such Stockholder at the Closing (other than the
Escrow Shares) multiplied by (ii) the Signing Date Market Price (each a "Parent
Loan", and together, the "Parent Loans"), and each Stockholder shall deliver to
the Parent a promissory note (each a "Note", and together, the "Notes"),
substantially in the form attached hereto as Exhibit 4.02(b)(i), evidencing such
Stockholder's Parent Loan, together with the certificates evidencing Parent
Shares issued to such Stockholder (other than the Escrow Shares) with a value
(based upon the last reported sales price of Parent Shares on the NASDAQ on the
trading day immediately preceding the date of such loan) equal to 200% of the
principal amount of such Stockholder's Parent Loan, to hold as security for such
Parent Loan as more fully provided for in the form of stock pledge agreement
attached hereto as Exhibit 4.02(b)(ii) (the "Pledge Agreement").
SECTION 4.03. Disposition of Securities. As a material
inducement for the Parent and the Purchaser to enter into this Agreement, the
Stockholders agree that they will not sell, assign or otherwise transfer any of
the Parent Shares received in consideration for Company Shares until after the
second anniversary of the Closing Date; provided, however, that each Stockholder
may transfer Parent Shares (other than the Escrow Shares) to immediate family
members or trusts for the exclusive benefit of immediate family members,
provided that such Stockholder delivers evidence to the Parent that (i) any such
immediate family member or trust has entered into an agreement in form and
substance satisfactory to the Parent whereby such immediate family member or
trust shall be bound by the terms of this Agreement as if a party hereto and
(ii) that the Parent shall not otherwise be adversely affected by such transfer.
SECTION 4.04. Board Representation. At the next annual meeting
of the Parent's shareholders, the Parent shall use all reasonable efforts to
cause the size of the
<PAGE>
13
board of directors of the parent to be increased and to include Mr. David M.
Margulies as a management nominee to fill one of the vacancies created thereby.
SECTION 4.05. Non-Competition. (a) During the period specified
in the form of employment agreement or consulting agreement, as applicable,
attached hereto as Exhibit 1.07(b)(iii) during which each Stockholder is
restricted from competing with the Company (a "Restricted Period"), such
Stockholder shall not engage, directly or indirectly, in any business anywhere
in the United States that produces or supplies products or services of the kind
produced or supplied by the Business or the Company, or contemplated by the
Company's business plan, as of the Closing Date or, without the prior written
consent of the Parent, directly or indirectly, own an interest in, manage,
operate, join, control, lend money or render financial or other assistance to or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any person that competes with the Parent,
the Business or the Company in producing or supplying products or services of
the kind produced or supplied by the Business or the Company, or contemplated by
the Company's business plan, as of the Closing Date; provided, however, that,
for the purposes of this Section 4.05, ownership of securities having no more
than one percent of the outstanding voting power of any competitor which are
listed on any national securities exchange or traded actively in the national
over-the-counter market shall not be deemed to be in violation of this Section
4.05 so long as the person owning such securities has no other connection or
relationship with such competitor.
(b) As a separate and independent covenant, each Stockholder
agrees that, during the Restricted Period, such Stockholder will not in any way,
directly or indirectly, for the purpose of conducting or engaging in any
business that produces or supplies products or services of the kind produced or
supplied by the Business or the Company, or contemplated by the Company's
business plan, as of the Closing Date, call upon, solicit, advise or otherwise
do, or attempt to do, business with any proposed customers of the Business or
the Company with whom the Business, the Company, such Stockholder or any other
Stockholder had any dealings during the period of time in which such Stockholder
or such other Stockholder was affiliated with the Company or which was a
prospective customer of the Company under the Company's business plan, or take
away or interfere or attempt to interfere with any custom, trade, business or
patronage of the Business or the Company, and each Stockholder will not in any
way interfere with or attempt to interfere with any officers, employees,
representatives or agents of the Business or the Company, or induce or attempt
to induce any of them to leave the employ of the Company or violate the terms of
their contracts, or any employment arrangements, with the Company.
(c) The Restricted Period with respect to each Stockholder
shall be extended by the length of any period during which such Stockholder is
in breach of the terms of this Section 4.05.
(d) The Stockholders hereby acknowledge that any and all
Developments that have at any time been made or suggested by any Stockholder,
whether acting alone or in conjunction with others, during such Stockholder's
association with the Company or prior
<PAGE>
14
thereto in contemplation of the formation of the Company or the pursuit of the
Business, are the sole and absolute property of the Company, free of any
reserved or other rights of any kind on such Stockholder's part. Each
Stockholder has fully disclosed all such Developments to the Company and, if
requested by the Company, shall, at the Company's cost and expense, do all acts
and things (including, among others, the execution and delivery under oath of
patent and copyright applications and instruments of assignment) deemed by the
Company to be necessary or desirable at any time in order to effect the full
assignment to the Company of such Stockholder's right and title, if any, to such
Developments. For purposes of this Agreement, the term "Developments" means all
data, discoveries, findings, reports, designs, inventions, improvements,
methods, practices, techniques, developments, programs, concepts, and ideas,
whether or not patentable, relating to the products or services of the kind
produced or supplied by the Business or the Company, or contemplated by the
Company's business plan.
(e) The Stockholders acknowledge that the covenants of the
Stockholders set forth in this Section 4.05 are an essential element of this
Agreement and that, but for the agreement of the Stockholders to comply with
these covenants, the Parent and the Purchaser would not have entered into this
Agreement. The Stockholders acknowledge that this Section 4.05 constitutes an
independent covenant and shall not be affected by performance or nonperformance
of any other provision of this Agreement by the Parent or the Purchaser. The
Stockholders have independently consulted with their respective counsel and
after such consultation agree that the covenants set forth in this Section 4.05
are reasonable and proper.
(f) If any provision contained in this Section 4.05 is
determined by a court of competent jurisdiction to be excessively broad as to
duration, activity, geographic application or subject, it shall be construed, by
limiting or reducing it to the extent legally permitted, so as to be enforceable
to the extent compatible with then applicable law.
SECTION 4.06. Confidentiality. The Stockholders agree to, and
shall cause their respective agents, representatives and affiliates to: (i)
treat and hold as confidential (and not disclose or provide access to any person
to) all information relating to trade secrets, proprietary processes, patent and
trademark applications, product development, computer software (including,
without limitation, source code, operating systems and specifications, data,
data bases, files, documentation and other materials related thereto), price,
customer and supplier lists and arrangements, pricing and marketing plans,
policies and strategies, details of client and consultant contracts, operations
methods, product development techniques, business acquisition plans, new
personnel acquisition plans and all other confidential information with respect
to the Business and the Company, (ii) in the event that any Stockholder or any
such agent, representative or affiliate becomes legally compelled to disclose
any such information, provide the Parent with prompt written notice of such
requirement so that the Parent or the Company may seek a protective order or
other remedy or waive compliance with this Section 4.07, and (iii) in the event
that such protective order or other remedy is not obtained, or the Parent waives
compliance with this Section 4.07, furnish only that portion of such
confidential information which is legally required to be provided and exercise
its best efforts to obtain assurances that confidential treatment will be
<PAGE>
15
accorded such information; provided, however, that this sentence shall not apply
to any information that, at the time of disclosure, is available publicly and
was not disclosed in breach of this Agreement by any Stockholder, its agents,
representatives or affiliates; provided further that, with respect to
Intellectual Property, specific information shall not be deemed to be within the
foregoing exception merely because it is embraced in general disclosures in the
public domain. In addition, with respect to Intellectual Property, any
combination of features shall not be deemed to be within the foregoing exception
merely because the individual features are in the public domain unless the
combination itself and its principle of operation are in the public domain. The
Stockholders agree and acknowledge that remedies at law for any breach of its
obligations under this Section 4.06 are inadequate and that in addition thereto
the Parent shall be entitled to seek equitable relief, including injunction and
specific performance, in the event of any such breach.
SECTION 4.07. Legends. The Parent shall affix to each
certificate evidencing outstanding Parent Shares that is issued to any
Stockholder a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS ON DISPOSITION CONTAINED IN AN AGREEMENT AND
PLAN OF MERGER DATED AS OF JANUARY 23, 1997 AMONG SYNETIC,
INC., SYNTERNET ACQUISITION CORP., CAREAGENTS, INC. AND THE
INDIVIDUALS LISTED ON THE SIGNATURE PAGES THEREOF. COPIES OF
SUCH AGREEMENT ARE ON FILE AT THE OFFICE OF SYNETIC, INC. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION."
As promptly as practicable following the second anniversary of the Closing Date,
at the request of any Stockholder, the Parent shall cause the first two
sentences of such legend to be removed from each certificate held by such
Stockholder.
ARTICLE V. INDEMNIFICATION
SECTION 5.01. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement shall survive the
Closing until the second anniversary thereof; provided, however, that the
representations and warranties contained in Section 2.02, 2.10 and 3.04 shall
survive indefinitely. Neither the period of survival nor the liability of the
Stockholders with respect to the Stockholders' representations and warranties
shall be reduced by any investigation made at any time by or on behalf of the
<PAGE>
16
Parent or the Purchaser, and neither the period of survival nor the liability of
the Parent with respect to the representations and warranties of the Parent and
the Purchaser shall be reduced by any investigation made at any time by or on
behalf of the Stockholders. If written notice of a claim has been given prior to
the expiration of the applicable representations and warranties, then the
relevant representations and warranties shall survive as to such claim, until
such claim has been finally resolved.
SECTION 5.02. Indemnification by the Stockholders and the
Parent. (a) The Parent and its affiliates (including, after the Closing, the
Surviving Corporation), officers, directors, employees, agents, successors and
assigns shall be indemnified and held harmless by the Stockholders for any and
all liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, attorneys' fees and
expenses) actually suffered or incurred by them (including, without limitation,
in connection with any action brought or otherwise initiated by any of them)
(hereinafter a "Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Stockholders in this Agreement; or
(ii) the breach of any covenant or agreement by the
Stockholders contained in this Agreement.
To the extent that the Stockholders' undertakings set forth in this Section
5.02(a) may be unenforceable, the Stockholders shall contribute the maximum
amount that they are permitted to contribute under applicable law to the payment
and satisfaction of all Losses incurred by the parties entitled to
indemnification hereunder.
(b) The Stockholders and their respective affiliates,
officers, directors, employees, agents, successors and assigns shall be
indemnified and held harmless by the Parent for any and all Losses arising out
of or resulting from:
(i) the breach of any representation or warranty made by the
Parent or the Purchaser in this Agreement; or
(ii) the breach of any covenant or agreement by the Purchaser
contained in this Agreement.
To the extent that the Parent's undertakings set forth in this Section 5.02(b)
may be unenforceable, the Parent shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the parties entitled to indemnification hereunder.
(c) Any party seeking indemnification under this Article V (an
"Indemnified Party") shall give each party from whom indemnification is being
sought (each, an "Indemnifying Party") notice of any matter which such
Indemnified Party has determined
<PAGE>
17
has given or could give rise to a right of indemnification under this Agreement,
within 60 days of such determination, stating the amount of the Loss, if known,
and method of computation thereof, and containing a reference to the provisions
of this Agreement in respect of which such right of indemnification is claimed
or arises. The obligations and liabilities of an Indemnifying Party under this
Article V with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article V ("Third Party
Claims") shall be governed by and contingent upon the following additional terms
and conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim within 30 days of the receipt by the Indemnified Party of such
notice; provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this Article V
except to the extent the Indemnifying Party is materially prejudiced by such
failure. If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any Losses that may result
from such Third Party Claim, then the Indemnifying Party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Indemnified Party within ten days of the receipt of such notice from the
Indemnified Party; provided, however, that if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the Indemnified Party for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of the
Indemnifying Party. In the event the Indemnifying Party exercises the right to
undertake any such defense against any such Third Party Claim as provided above,
the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnifying Party's expense, all such witnesses,
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party without the prior written consent of the Indemnified
Party, which consent shall not be unreasonably withheld.
SECTION 5.03. Limits on Indemnification; Breach of Sections
4.05 and 4.06. With respect to any claim for indemnifiable Losses made by the
Parent pursuant to Section 5.02(a)(i), each Stockholder shall indemnify the
Parent only for such portion of such indemnifiable Losses equal to (i) the total
amount of such Losses multiplied by (ii) a fraction, the numerator of which
shall be the total number of Company Shares held by such Seller immediately
prior to the Closing and the denominator of which shall be 9,999. With respect
to any claim for indemnifiable Losses made by the Parent pursuant to Section
5.02(a)(ii), each Stockholder shall indemnify the Parent only with respect to
any breach by such
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18
Stockholder resulting in such indemnifiable Losses, and not for a breach of any
other Stockholder. Notwithstanding anything to the contrary in this Agreement,
(A) the maximum amount that may be recovered from any Stockholder with respect
to any indemnifiable Loss pursuant to Section 5.02(a)(i) shall be an amount
equal to (x)(I) the product of the total number of Parent Shares issued to such
Stockholder pursuant to this Agreement (less any Escrow Shares forfeited by such
Stockholder pursuant to Section 4(a)(i)(B) of the Escrow Agreement or the next
succeeding sentence of this Section 5.03) multiplied by (II) the last reported
sales price of Parent Shares on the NASDAQ on the trading day immediately
preceding the date of payment of such Loss, minus (y) the total amount of
indemnifiable Losses (it being understood that, for the purposes of this clause
(y), "indemnifiable Losses" shall not include any Escrow Shares forfeited by
such Stockholder pursuant to Section 4(a)(i)(B) of the Escrow Agreement or the
next succeeding sentence of this Section 5.03) previously paid to the Parent by
such Stockholder, calculated in accordance with clause (x) above at the time of
payment of such indemnifiable Losses and (B) no provision of this Agreement or
the Escrow Agreement shall be construed so as to limit the indemnity obligations
of the Stockholders hereunder to the amounts held in escrow pursuant to the
Escrow Agreement. The parties hereto agree that in the event that any
Stockholder breaches Section 4.05 or 4.06 of this Agreement, such Stockholder
shall, in addition to other remedies available to the Parent at law or in
equity, forfeit all Escrow Shares then held by the Escrow Agent on behalf of
such Stockholder. Each party hereto agrees that the forfeiture referred to in
the preceding sentence would be, by itself, inadequate to compensate the Parent
for the damages it would sustain in the event of a breach by any Stockholder of
Section 4.05 or 4.06 of this Agreement, and such forfeiture shall in no way
limit the ability of the Parent to obtain further remedies, including money
damages and injunctive relief, in any proceeding at law or in equity. Each party
hereto further acknowledges that the forfeiture referred to above is not
intended to compel performance with, or to constitute a penalty for
nonperformance of, any Stockholder's obligations under Section 4.05 or 4.06
hereof.
SECTION 5.04. Indemnification as Exclusive Remedy. The
indemnification provided by this Article V, subject to the limitations set forth
herein, shall be the exclusive post-Closing remedy available to the parties
hereto for any breach of any representation or warranty contained in this
Agreement, and the parties hereto acknowledge that no party hereto has made any
representation or warranty to any other party hereto other than as set forth in
this Agreement. In no event shall any party hereto be entitled to rescission of
this Agreement as a result of any breach of any representation, warranty,
covenant or agreement contained herein.
ARTICLE VI. TERMINATION, AMENDMENT AND WAIVER; MISCELLANEOUS
SECTION 6.01. Expenses. All costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred by the Company or the Stockholders in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
Stockholders and all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants,
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19
incurred by the Parent or the Purchaser in connection with this Agreement and
the transactions contemplated hereby shall be paid by the Parent.
SECTION 6.02. Miscellaneous. This Agreement may be amended at
any time by an instrument signed by the Parent and the Stockholders. Either the
Stockholders or the Parent may (a) extend the time for the performance of any of
the obligations or other acts of the Company or any Stockholder, or the Parent
and the Purchaser, respectively, (b) waive any inaccuracies in the
representations and warranties of the Company or any Stockholder, or the Parent
and the Purchaser, respectively, contained herein or in any document delivered
pursuant hereto by the Company or any Stockholder, or the Parent and the
Purchaser, respectively and (c) waive compliance with any of the agreements of
the Company or any Stockholder, or the Parent and the Purchaser, respectively,
or any conditions contained herein. Any such extension or waiver shall be valid
if set forth in an instrument in writing signed by the party to be bound
thereby. The failure of any party to assert any of its rights hereunder shall
not constitute a waiver of any such rights. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible. This Agreement and the exhibits
hereto constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties with respect to the subject matter hereof.
This Agreement may not be assigned by operation of law or otherwise without the
express written consent of the Parent and the Stockholders; provided, however,
that the Parent may assign this Agreement to an affiliate of the Parent without
the consent of the Stockholders, but no such assignment shall relieve the Parent
of its obligations hereunder if such assignee does not perform such obligations.
This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. Each party hereto agrees that any legal suit, action or proceeding arising
out of or relating to this Agreement shall be instituted and heard exclusively
in any New York federal or state court in New York City, and each party hereto
waives any objection that such party may now or hereafter have to the laying of
venue of any such legal suit, action or proceeding and irrevocably submits to
the exclusive jurisdiction of any such court in any such legal suit, action or
proceeding. This Agreement may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were not
to be performed in accordance with the terms
<PAGE>
20
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity. Any notices
under this Agreement shall be addressed, if to the Parent, to its principal
executive office, attention: Vice President, Finance; and if to the
Stockholders, to each Stockholder at such Stockholders' address set forth on the
signature pagers hereto.
<PAGE>
IN WITNESS WHEREOF, the Parent, the Purchaser, the Company and
the Stockholders have each caused this Agreement to be executed as of the date
first written above by their respective officers thereunto duly authorized.
SYNETIC, INC.
By:
-------------------------------------
Name:
Title:
SYNTERNET ACQUISITION CORP.
By:
-------------------------------------
Name:
Title:
CAREAGENTS, INC.
By:
-------------------------------------
Name:
Title:
-------------------------------------
Name:
Address:
Company Shares:
-------------------------------------
Name:
Address:
Company Shares:
<PAGE>
-------------------------------------
Name:
Address:
Company Shares:
-------------------------------------
Name:
Address:
Company Shares:
-------------------------------------
Name:
Address:
Company Shares:
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of January 2, 1999, between
SYNETIC HEALTHCARE COMMUNICATIONS, INC., a Delaware corporation (the "Company"),
SYNETIC, INC., a Delaware Corporation ("Synetic"), AVICENNA SYSTEMS CORPORATION,
a Massachusetts Corporation ("Avicenna") a wholly owned subsidiary of Synetic,
and CERNER CORPORATION, a Delaware corporation ("Cerner").
WHEREAS, the Company was formed to conduct the healthcare
communications business previously conducted by Synetic, and certain of its
subsidiaries, including Avicenna.
WHEREAS, subject to certain exclusions, Synetic and Avicenna
have contributed to the Company all of the assets and liabilities of the Company
Business and the Company has issued to Avicenna 1,000,000 shares of the common
stock, par value $.01 per share (the "Common Stock"), of the Company; and
WHEREAS, on the Closing Date, on the terms and conditions set
forth in this Agreement, Cerner desires to subscribe for and purchase from the
Company, and the Company desires to issue and sell to Cerner, an aggregate of
248,439 shares of Common Stock in exchange for Cerner entering into various
agreements, as more fully described herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" means this Subscription Agreement, dated as of
January 2, 1999 and all amendments made hereto in accordance with the provisions
hereof.
<PAGE>
2
"Ancillary Agreements" means the Stockholders' Agreement, the
Marketing Agreement, the Non-Competition Agreement, the License Agreement and
the Master Services and Outsourcing Agreement.
"Assets" means the "Assets" as defined in the Formation
Agreement.
"Avicenna" has the meaning specified in the recitals to this
Agreement.
"Business" has the meaning specified in the recitals to this
Agreement
"Cerner" has the meaning specified in the preamble to this
Agreement.
"Cerner Shares" means the 248,439 shares of Common Stock
issued to Cerner by the Company in accordance with this Agreement.
"Closing" has the meaning specified in Section 2.02.
"Closing Date" has the meaning specified in Section 2.02.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning specified in the recitals to
this Agreement.
"Company" has the meaning specified in the preamble to this
Agreement.
"Company Business" means the provision of "extra-enterprise"
prescription, laboratory and managed care transaction and messaging services
(the "Services") that connect physicians with Payers, pharmacies and
laboratories, which shall include, without limitation, connection to and
management of Services with all PBM systems; connection to and management of
Services with all Payer systems (including third party payers and direct payers
(e.g., employers)); connection to and management of Services with all physicians
and other provider systems; connection to and management of Services with
healthcare suppliers (e.g., pharmacies, laboratories); connection to and
management of Services with consumers; and connection to and management of
services with other data switches (e.g., clearing houses); and any mutually
agreed to extension or modifications of the foregoing.
"Formation Agreement" means a formation agreement
substantially in the form of Exhibit F hereto..
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
<PAGE>
3
"License Agreement" means a license agreement substantially in
the form of Exhibit A hereto.
"Lien" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens).
"Marketing Agreement" means a marketing agreement
substantially in the form of Exhibit B hereto.
"Master Services and Outsourcing Agreement" means a master
services and outsourcing agreement substantially in the form of Exhibit C
hereto.
"Non-Competition Agreement" means a non-competition agreement
substantially in the form of Exhibit D hereto.
"Payer" means any HMO, PBM, indemnity or other health care
insurer, self- funded health plan, union sponsored plan (including employers),
workers compensation entity or other source responsible for the payment of fees
and expenses for health care services.
"PBM" means a pharmacy benefits manager.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder.
"Stockholders Agreement" means a stockholders agreement
substantially in the form of Exhibit E hereto.
"Synetic" has the meaning specified in the recitals to this
Agreement.
"THINC" means The Health Information Network Connection LLC, a
New York limited liability company.
"THINC Warrants" means the warrants due to be issued to THINC
pursuant to the proposed agreement between THINC and the Company the ("THINC
Agreement"), entitling it to purchase 81,081 shares of Common Stock at an
exercise price determined in accordance with the THINC Agreement.
<PAGE>
4
ARTICLE II
PURCHASE AND SALE OF THE CERNER SHARES
SECTION 2.01. Commitment to Purchase the Cerner Shares. (a)
Upon the terms and subject to the conditions set forth in this Agreement, the
Company agrees to issue and sell to Cerner, and Cerner, upon the terms and
subject to the conditions set forth in this Agreement, agrees to purchase from
the Company, the Cerner Shares.
(b) In consideration for the issuance of the Cerner Shares to
Cerner and on the terms and subject to the conditions set forth in this
Agreement, Cerner shall, at the Closing, enter into the Ancillary Agreements.
SECTION 2.02. Closing. Upon the terms and subject to the
conditions set forth in this Agreement, the sale and purchase provided for in
Section 2.01 shall take place at a closing (the "Closing") to be held at the
offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York at
10:00 A.M. New York time on the later of January 2, 1999 or the business day
following the satisfaction or waiver of all other conditions to the obligations
of the parties set forth in Article VI, or at such other place or at such other
time or on such other date as the parties may mutually agree upon in writing
(the day on which the Closing takes place being the "Closing Date").
SECTION 2.03. Closing Deliveries by the Company. (a) At the
Closing, the Company shall deliver to Cerner: (i) a certificate or certificates
evidencing the Cerner Shares to be purchased by Cerner pursuant to this
Agreement in definitive form and registered in such names and in such
denominations as Cerner shall request; (ii) an executed counterpart of each of
the Ancillary Agreements to which the Company is a party; (iii) a certificate
from the Company to the effect that the representations and warranties of the
Company contained in this Agreement are true and correct as of the Closing, with
the same force and effect as if made as of the Closing Date, signed by a duly
authorized officer; and (iv) a true and complete copy, certified by the
Secretary of the Company of the resolutions duly and validly adopted by its
Board of Directors of evidencing their authorization of the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, together with a certified copy of the Charter and By-laws of the
Company.
(b) At the Closing, Avicenna shall deliver to Cerner: (i) an
executed counterpart of each of the Ancillary Agreements to which Avicenna is a
party; (ii) a certificate from Avicenna to the effect that the representations
and warranties of Avicenna contained in this Agreement are true and correct as
of the Closing, with the same force and effect as if made as of the Closing
Date, signed by a duly authorized officer; and (iii) a true and complete copy,
certified by the Secretary of Avicenna of the resolutions duly and validly
adopted by its Board of Directors of evidencing their authorization of the
execution and delivery of this Agreement and the
<PAGE>
5
consummation of the transactions contemplated hereby, together with a certified
copy of the Charter and By-laws of Avicenna.
(c) At the Closing, Synetic shall deliver to Cerner: (i) an
executed counterpart of each of the Ancillary Agreements to which Synetic is a
party; (ii) a certificate from Synetic to the effect that the representations
and warranties of the Company contained in this Agreement are true and correct
as of the Closing, with the same force and effect as if made as of the Closing
Date, signed by a duly authorized officer; and (iii) a true and complete copy,
certified by the Secretary of Synetic of the resolutions duly and validly
adopted by its Board of Directors of evidencing their authorization of the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, together with a certified copy of the Charter
and By-laws of Synetic.
SECTION 2.04. Closing Deliveries by Cerner. At the Closing,
Cerner shall deliver to the Company (i) an executed counterpart of each of the
Ancillary Agreements to which it is a party and (ii) a certificate to the effect
that the representations and warranties of Cerner contained in this Agreement
are true and correct as of the Closing, with the same force and effect as if
made as of the Closing Date, signed by a duly authorized officer; and (iii) a
certified copy of the Charter and By-laws of Cerner.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
SYNETIC AND AVICENNA
The Company, Synetic and Avicenna jointly and severally
represent and warrant to Cerner as follows:
SECTION 3.01. Organization and Authority of the Company. Each
of the Company, Synetic and Avicenna is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, in the
case of the Company and Synetic, and the State of Massachusetts, in the case of
Avicenna, and has all necessary power and authority to enter into this Agreement
and the Ancillary Agreements, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The Company is duly licensed or qualified to do business and is in good standing
in each jurisdiction in which the properties owned or leased by it or the
operation of its business makes such licensing or qualification necessary,
except to the extent that the failure to be so licensed or qualified would not
materially and adversely affect the transactions contemplated by this Agreement
and the Ancillary Agreements. The execution and delivery of this Agreement and
the Ancillary Agreements by the Company, Synetic and Avicenna, the performance
by the Company,
<PAGE>
6
Synetic and Avicenna of their respective obligations hereunder and thereunder
and the consummation by the Company, Synetic and Avicenna of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of the Company, Synetic and Avicenna. This Agreement has
been, and upon their execution the Ancillary Agreements will be, duly executed
and delivered by the Company, Synetic and Avicenna, to the extent each of such
parties is a party to the Ancillary Agreements, and (assuming due authorization,
execution and delivery by the other parties thereto) this Agreement constitutes,
and upon their execution the Ancillary Agreements will constitute, legal, valid
and binding obligations of the Company, Synetic and Avicenna enforceable against
the Company, Synetic and Avicenna in accordance with their respective terms to
the extent each of such parties is a party to the Ancillary Agreements.
SECTION 3.02. Capital Stock of Company. The Cerner Shares to
be purchased by Cerner pursuant to this Agreement have been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement, will
have been validly issued and will be fully paid and nonassessable. The issuance
of the Cerner Shares is not subject to preemptive or similar rights and, except
as contemplated by the Stockholders' Agreement, holders of the Cerner Shares
will not be entitled to any preemptive or similar rights. As of the Closing,
after giving effect to the issuance of the Cerner Shares, the authorized capital
stock of the Company will consist of 10,000,000 shares of Common Stock, of which
1,248,439 shares of Common Stock will be issued and outstanding in total, of
which Avicenna will own 1,000,000. The Company will have outstanding no other
shares of capital stock and no securities convertible into or exchangeable for,
or warrants, options or other rights to acquire from the Company, or other
obligations of the Company to issue, directly or indirectly, any shares of
capital stock of the Company, other than the THINC Warrants and the right of
Cerner to additional Common Stock set out in Section 2.05 of the Stockholders
Agreement. Except as set forth above, no shares of capital stock of the Company
have been reserved for issuance for any reason and there are no plans or
arrangements in existence relating to the issuance of shares of capital stock of
the Company.
SECTION 3.03. No Conflict. Assuming that all consents,
approvals, authorizations and other actions described in Section 3.04 have been
obtained, the execution, delivery and performance of this Agreement and the
Ancillary Agreements by the Company, Synetic and Avicenna do not and will not
(a) violate, conflict with or result in the breach of any provision of each of
their Certificates of Incorporation or By-laws, (b) conflict with or violate (or
cause an event which could materially and adversely effect the transactions
contemplated by this Agreement and the Ancillary Agreements as a result of) any
law, governmental regulation or governmental order applicable to them or any of
their respective assets, properties or businesses or (c) conflict with, result
in any breach of, constitute a default (or event which with the giving of notice
or lapse of time, or both, would become a default) under, require any consent
under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any Lien
on any of the assets or properties of any of
<PAGE>
7
them pursuant to, any note, bond, mortgage or indenture, contract, agreement,
lease, sublease, license, permit, franchise or other instrument or arrangement
to which the Company, Synetic and Avicenna is a party or by which any of such
respective assets or properties is bound or affected.
SECTION 3.04. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement and each Ancillary
Agreement by the Company, Synetic and Avicenna, to the extent each of such
parties is a party to the Ancillary Agreements do not and will not require any
consent, approval, authorization or other order of, action by, filing with or
notification to, any governmental authority, except the requirements of the HSR
Act.
SECTION 3.05. Pro Forma Balance Sheet. Attached hereto as
Schedule 3.05 is a pro forma balance sheet of the Company as of September 30,
1998, reflecting (i) all of the transactions described in the second "Whereas"
clause of this Agreement, (ii) the entering into of the agreement with THINC
referred to in Section 2.04 of the Stockholders Agreement, (iii) the THINC
Warrants and the transactions contemplated by this Agreement, and (iv) the
contribution of $10,000,000 in cash by Synetic and Avicenna to the capital of
the Company, all as though they had occurred on the date of such proforma
balance sheet. Such pro forma balance sheet has been prepared in accordance with
generally accepted accounting principles consistently applied except as set
forth in the notes to such pro forma balance sheet. Since September 30, 1998,
the Company Business has not incurred any liabilities other than in the ordinary
course of business consistent with past practice.
SECTION 3.06. Outstanding Equity Securities of Avicenna. As of
the date hereof and as of the date of Closing, there are not, and there will not
be, any outstanding shares of capital stock of Avicenna (or any successor by
merger or consolidation) or any commitments or obligations to issue any shares
of capital stock of Avicenna (or any successor by merger or consolidation) other
than those owned beneficially and of record by Synetic.
SECTION 3.07. Assets. The Assets:
(i) constitute substantially all the properties and assets forming a
part of, used, held, or intended to be useful in, and all such
properties, assets and rights as are necessary in the conduct of, the
Company Business, except, in each case, as would not reasonably be
expected to materially and adversely affect the Business;
(ii) represent all of the properties and amounts formerly held by
Synetic or Avicenna and useful in connection with the Company Business;
(iii) have been validly transferred and conveyed by Synetic and
Avicenna to the Company such that the Company has all rights in respect
of such properties and assets that were formerly held by Synetic and
Avicenna (except that certain software licenses may contain
restrictions on assignment); and
<PAGE>
8
(iv) all software and other intellectual property set forth on Schedule
3.07 is owned by the Company free and clear of all Liens, except as
noted on schedule 3.07.
Section 3.08. Brokers. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement or the Ancillary
Agreements based upon arrangements made by or on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CERNER
Cerner represents and warrants to the Company as follows:
SECTION 4.01. Organization and Authority of Cerner. Cerner is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all necessary power and authority to enter
into this Agreement and the Ancillary Agreements, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. Cerner is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary,
except to the extent that the failure to be so licensed or qualified would not
materially and adversely effect the transactions contemplated by this Agreement
and the Ancillary Agreements. The execution and delivery of this Agreement and
the Ancillary Agreements by Cerner, the performance by Cerner of its obligations
hereunder and thereunder and the consummation by Cerner of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of Cerner. This Agreement has been, and upon their execution
the Ancillary Agreements will be, duly executed and delivered by Cerner, and
(assuming due authorization, execution and delivery by the other parties
thereto) this Agreement constitutes, and upon their execution the Ancillary
Agreements will constitute, legal, valid and binding obligations of Cerner
enforceable against Cerner in accordance with their respective terms.
SECTION 4.02. No Conflict. Assuming that all consents,
approvals, authorizations and other actions described in Section 4.03 have been
obtained, the execution, delivery and performance of this Agreement and the
Ancillary Agreements by Cerner do not and will not (a) violate, conflict with or
result in the breach of any provision of the Charter or By-laws (or similar
organizational documents) of Cerner, (b) conflict with or violate (or cause an
event which could materially and adversely effect the transactions contemplated
by this Agreement and the Ancillary Agreements as a result of) any law,
governmental regulation or governmental order applicable to Cerner or any of its
assets, properties or businesses or (c) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both,
<PAGE>
9
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of any Lien on any of the assets or
properties of Cerner pursuant to, any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which Cerner is a party or by which any of such
assets or properties is bound or affected.
SECTION 4.03. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement and each Ancillary
Agreement by Cerner do not and will not require any consent, approval,
authorization or other order of, action by, filing with or notification to, any
governmental authority, except the requirements of the HSR Act.
SECTION 4.04. Private Placement. (i) Cerner understands that
(A) the offering and sale of the Cerner Shares hereunder are intended to be
exempt from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act and (B) there is no existing public or other market for the
Cerner Shares and there can be no assurance that Cerner will be able to sell or
dispose of the Cerner Shares.
(ii) The Cerner Shares are being acquired for Cerner's own
account and without a view to the public distribution of the Cerner Shares or
any interest therein.
(iii) Cerner is an "accredited investor" as such term is
defined in Regulation D, as amended, under the Securities Act.
(iv) Cerner is not a broker-dealer subject to Regulation T of
the Federal Reserve Board.
(v) Cerner has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Cerner Shares, and Cerner is capable of bearing
the economic risks of such investment, including a complete loss of its
investment in the Cerner Shares.
(vi) Cerner has been given the opportunity to ask questions
of, and receive answers from, the Company concerning the Company, the Cerner
Shares and other related matters. Cerner further represents and warrants to the
Company that the Company has made available to Cerner or its agents all
documents and information requested by or on behalf of Cerner relating to an
investment in the Cerner Shares, including, without limitation, the risks
relating to the Business described in Synetic's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998. In evaluating the suitability of an
investment in the Cerner Shares, Cerner has not relied upon any representations
or other information (whether oral or written) made by or on behalf of the
Company other than as contemplated by the two preceding sentences and Article
III.
<PAGE>
10
SECTION 4.05. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement or the Ancillary Agreements
based upon arrangements made by or on behalf of Cerner.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Further Assurances. Each of the parties hereto
shall use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement and the Ancillary
Agreements.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of Cerner contained in this Agreement
shall have been true and correct when made and shall be true and
correct as of the Closing, with the same force and effect as if made as
of the Closing Date, other than such representations and warranties as
are made as of another date.
(b) No Prohibition. The purchase of the Cerner Shares by
Cerner shall not be prohibited by any applicable law, court order or
governmental regulation.
(c) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act, applicable to the formation of the Company or the
purchase of the Cerner Shares contemplated hereby or the entering into
of the Ancillary Agreements shall have expired or shall have been
terminated.
SECTION 6.02. Conditions to Obligations of Cerner. The
obligations of Cerner to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
<PAGE>
11
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company, Avicenna and Synetic
contained in this Agreement shall have been true and correct when made
and shall be true and correct as of the Closing, with the same force
and effect as if made as of the Closing Date, other than such
representations and warranties as are made as of another date.
(b) No Prohibition. The purchase of the Cerner Shares by
Cerner shall not be prohibited by any applicable law, court order or
governmental regulation.
(c) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act, applicable to the formation of the Company and the
purchase of the Cerner Shares contemplated hereby or the entering into
of the Ancillary Agreements shall have expired or shall have been
terminated.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Termination. This Agreement shall terminate on
June 30, 1998, if the Closing shall not have occurred by such date.
SECTION 7.02. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 7.03. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by telecopy or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 7.03):
<PAGE>
12
(a) if to the Company:
c/o Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07407
Telecopy No.: (201) 703-3401
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
(b) if to Avicenna or Synetic:
Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07407
Telecopy No.: (201) 703-3401
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
(c) if to Cerner:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Telecopy No.: (816) 474-1742
Attention: President
<PAGE>
13
with a copy to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Telecopy No.: (816) 474-1742
Attention: General Counsel
SECTION 7.04. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the Ancillary Agreements or the transactions
contemplated hereby or otherwise communicate with any news media without the
prior written consent of the other party, and the parties shall cooperate as to
the timing and contents of any such press release or public announcement.
SECTION 7.05. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 7.06. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law,
governmental regulation or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
SECTION 7.07. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 7.08. Assignment. This Agreement shall not be assigned
without the express written consent of the parties (which consent may be granted
or withheld in the sole discretion of any party), except that any party hereto
may assign its rights hereunder to an Affiliate of such party; provided,
however, that any such assignment shall not relieve the assigning party of its
obligations hereunder; provided, further, however, that any party may, without
the written consent of any of the other parties, assign and delegate this
Agreement and its rights and obligations hereunder in connection with a merger,
consolidation or sale of all or substantially all
<PAGE>
14
of its assets (which sale shall include the assignment and assumption of all
rights and obligations under the Ancillary Agreements).
SECTION 7.09. No Third Party Beneficiaries. This Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns and successors and nothing herein, express or implied,
is intended to or shall confer upon any other person or entity, any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 7.10. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 7.11. Governing Law. This Agreement shall be governed
by the laws of the State of New York.
SECTION 7.12. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 7.13. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 7.14. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement, the Ancillary Agreements or the
transactions contemplated hereby and thereby and for any counterclaim therein.
<PAGE>
15
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized signatory thereunto
duly authorized as of the date first above written.
SYNETIC HEALTHCARE
COMMUNICATIONS, INC.
By
---------------------------
Name:
Title:
SYNETIC, INC.
By
---------------------------
Name:
Title:
AVICENNA SYSTEMS
CORPORATION
By
---------------------------
Name:
Title:
CERNER CORPORATION
By
---------------------------
Name:
Title:
License Agreement
This License Agreement (the "Agreement") is entered into as of the
2nd day of January, 1999 (the "Effective Date"), by and between Synetic
Healthcare Communications, Inc., with offices at 669 River Drive, Elmwood Park,
New Jersey 07407 ("Company"), and Cerner Corporation, a Delaware corporation
with offices at 2800 Rockcreek Parkway, Kansas City, MO 64117
("Cerner").
WHEREAS, Cerner has entered into a Stockholder's Agreement,
Subscription Agreement, Marketing Agreement, Master Services and Outsourcing
Agreement, and Non-Competition Agreement with Company simultaneously with
the execution of this Agreement;
WHEREAS, Company was formed to engage in certain healthcare communications
business activities, and Cerner is a developer and supplier of certain
information technology and health-services that Company intends to incorporate
into, and make an integral part of, Company's business; and
WHEREAS, as part of such Subscription Agreement and as part of the
consideration for receiving a 19.9% interest in the Company, Cerner agrees to
enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, Company and
Cerner hereby agree as follows:
1. DEFINITIONS
1.1 "Agreement". The term "Agreement" shall mean this Agreement, including all
Schedules attached hereto.
1.2 "Avicenna". The term "Avicenna" shall mean Avicenna Systems Corp., a
Delaware corporation.
1.3 "CareXchange". The term "CareXchange" shall mean the transaction
environment, consisting of a host computer or computers and a network or
networks set up by Company to enable physicians and their staff to perform
information activities and transactions by interfacing between their computers
and those of healthcare payers, healthcare suppliers (e.g., laboratories and
pharmacies), consumers and data switches (e.g., clearing houses).
1.4 "Cerner Excluded Products". The term "Cerner Excluded Products" shall mean
those Cerner software products excluded as part of the Licensed Software, as
such excluded software products are identified on Part V of Schedule A hereto.
1.5 "Company's Business". The term "Company's Business" shall mean the provision
of "extra-enterprise" prescription, laboratory and managed care transaction and
messaging services (the "Services") that connect physicians with payers
(including, without limitation, indemnity insurance companies, HMOs, PBMs, and
employers), pharmacies and laboratories, which shall include, without
limitation, connection to and management of Services with all PBM systems;
connection to and management of Services with all payer systems (including third
party payers and direct payers
<PAGE>
(e.g., employers)); connection to and management of Services with all physicians
and other provider systems; connection to and management of Services with
healthcare suppliers (e.g., pharmacies, laboratories); connection to and
management of Services with consumers; and connection to and management of
Services with other data switches (e.g., clearing houses), and any mutually
agreed to extension or modification of any of the foregoing.
1.6 "Core Technology". The term "Core Technology" shall mean those functions
identified as such on Part II of Schedule A hereto.
1.7 "Development Documentation". The term "Development Documentation" shall mean
all documentation related to the development of the Licensed Software, including
design and system documentation, but excluding General Documentation.
1.8 "Documentation". The term "Documentation" shall mean the Development
Documentation and the General Documentation.
1.9 "Distribution Partner". The term "Distribution Partner" shall have the
meaning assigned to it in the Marketing Agreement.
1.10 "Free Support Period". The term "Free Support Period" shall mean the period
of time commencing on the Effective Date of this Agreement and ending upon the
earlier of: (i) five (5) years following the Effective Date, or (ii) the date
Cerner elects to transfer its shares of the Company to Avicenna pursuant to
Sections 2.03(d) and (e) of the Stockholder's Agreement.
1.11 "General Documentation". The term "General Documentation" shall mean any
and all Source Code, object code, and all user and release documentation and
manuals related to the Licensed Software.
1.12 "General Release". The term "General Release" shall mean the standard used
by Cerner for software that is used in "production" use, or is generally made
available in Cerner's commercial systems or products.
1.13 "HMO". The term "HMO" shall mean a Health Maintenance Organization.
1.14 "IDN" or "Integrated Delivery Network". The term "IDN" or "Integrated
Delivery Network" shall mean a legally structured alliance among one or more
hospitals, physicians and other healthcare providers (laboratories, imaging
centers, etc.) that can provide substantially all health care services to a
defined geographic population of patients in a coordinated fashion.
1.15 "Licensed Software". The term "Licensed Software" shall mean (i) the Cerner
software products, applications and code identified on Schedule A hereto and all
other Cerner software, applications and code (other than Cerner Excluded
Products) existing on the date hereof that facilitate the Company's Business;
(ii) Software Updates delivered by Cerner during any period in which Cerner is
providing Software Support for the Licensed Software; (iii) New Functions
developed by Cerner during the Software Period; (iv) software identified as, or
deemed to be, "Licensed Software" under the Master Services and Outsourcing
Agreement; and (v) all patents related to any of the foregoing. The Licensed
Software shall include both the object code and Source Code versions of such
software. However, the term Licensed Software shall not include Cerner
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Excluded Products. Schedule A shall be regularly updated to reflect the then
current list of Licensed Software delivered to Company pursuant to Section 2.5
herein.
1.16 "Master Services and Outsourcing Agreement". The term "Master Services and
Outsourcing Agreement" shall mean that certain master services and outsourcing
agreement entered into by and between Company and Cerner simultaneous with the
execution of this Agreement.
1.17 "Millennium Compliant". The term "Millennium Compliant" shall mean the
ability of the Licensed Software to provide all of the following functions: (a)
consistently handle date information before, during, and after January 1, 2000,
including but not limited to accepting date input, providing date output, and
performing calculations on dates or portions of dates; (b) function accurately,
in accordance with its applicable General Documentation, and without
interruption before, during, and after January 1, 2000, without any change in
operations associated with the advent of the new century; (c) respond to
two-digit year-date input in a predefined and consistent manner; and (d) store
and provide output of date information in ways that are unambiguous as to
century.
1.18 "New Architecture". The term "New Architecture" shall mean a new set of
functions that are incompatible with comparable functions (e.g., Classic OCF and
Millennium OCF).
1.19 "New Functions". The term "New Functions" shall mean functions developed by
Cerner that facilitate Company's Business, are not included on the current
Schedule A, are not Cerner Excluded Products and are not included in a Software
Update given in support of a function included on the then-current Schedule A.
1.20 "Non-Competition Agreement". The term "Non-Competition Agreement" shall
mean that certain non-competition agreement entered into by and among Company,
Cerner, Avicenna and Synetic, Inc. simultaneous with the execution of this
Agreement.
1.21 "PBM". The term "PBM" shall mean a pharmacy benefits manager.
1.22 "POMIS". The term "POMIS" shall mean a physician office management
information system.
1.23 "Related Agreements". The term "Related Agreements" shall mean that certain
Stockholder's Agreement, Subscription Agreement, Marketing Agreement, Master
Services and Outsourcing Agreement, and Non-Competition Agreement entered into
by and between the parties simultaneously with the
execution of this Agreement.
1.24 "Restricted Uses". The term "Restricted Uses" shall mean those restricted
uses set forth on Schedule C hereto.
1.25 "Restricted Services". The term "Restricted Services" shall have the
meaning assigned to it in the Non-Competition Agreement.
1.26 "SDK". The term "SDK" shall mean a software developer's kit designed to
allow Distribution Partners to integrate Core Technology into their POMIS.
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1.27 "Software Period". The term "Software Period" shall mean the period of time
commencing on the Effective Date and ending on the later of: (a) the expiration
of the Free Support Period; or (b) the first date upon which Cerner is no longer
a shareholder of Company.
1.28 "Software Support". The term "Software Support" shall mean the software
support services for the Licensed Software, as such services are described on
Schedule B hereto.
1.29 "Software Updates". The term "Software Updates" shall have the meaning as
set forth on Schedule B hereto.
1.30 "Source Code". The term "Source Code" shall mean the source code form of
the Licensed Software, including source code listings as then commented.
1.31 "Stockholder's Agreement". The term "Stockholder's Agreement" shall mean
that certain stockholder's agreement entered into by and among Company, Cerner,
Synetic, Inc. and Avicenna simultaneous with the execution of this Agreement.
1.32 "Territory". The term "Territory" shall mean (a) the United States; (b)
Canada; (c) Mexico; and (d) any additional countries (each, an "Additional
Country") included in the Territory as provided in Section 2.6 herein.
2. LICENSE/DELIVERY
2.1 License To Software. Cerner hereby grants, pursuant to the terms of this
Agreement (including, without limitation, Section 2.3 hereof), to Company in the
Territory, a perpetual, irrevocable, royalty-free, non-exclusive and
non-assignable (except as permitted in Section 10.8) license: (i) to use,
modify, copy, enhance, display, perform, distribute, transmit, adapt, maintain,
customize, and create derivative works of, the Licensed Software (in object code
form only, and not in the Source Code form of the Licensed Software), and the
Documentation, (ii) to use, modify, copy, enhance, perform, adapt, maintain,
customize, transmit or distribute, create derivative works of the Source Code
form of the Licensed Software, and (iii) to integrate into other Company systems
and to sublicense the Licensed Software, in whole or in part.
2.2 Documentation. Cerner shall deliver to Company such number of copies of the
Documentation as are reasonably requested by Company for each component of the
Licensed Software (including Software Updates thereto) delivered hereunder.
Company will have the unlimited right, as part of the license granted herein, to
make as many additional copies of the Documentation as it may deem necessary.
2.3 Scope of Use. The licenses granted hereunder only permits Company to: (a)
use the Licensed Software and Documentation in connection with Company's
Business; (b) use the Licensed Software and Documentation for development,
testing or disaster recovery production purposes; (c) modify the Licensed
Software, in its sole discretion through the services of its own employees or of
independent contractors, provided such independent contractors shall execute a
nondisclosure agreement with Company prior to gaining access to the Source Code;
(d) integrate and/or embed components of the Licensed Software, in whole or in
part, in Company systems and services, in desktop software and/or hardware
distributed to physicians and as a SDK in POMIS solutions of Distribution
Partners; (e) sublicense the Licensed Software, in whole or in part, to third
parties in
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order to: (i) allow any third party to connect to the CareXchange; (ii) allow
deployment of physician desktop software (set forth in Parts II and III of
Schedule A); and (iii) to allow a physician or a POMIS vendor to connect to the
CareXchange through a POMIS by way of a SDK (as described in Part II of Schedule
A), and in each case in furtherance of Company's Business; and (f) permit
(either remotely or on-site) the use of or access to the Licensed Software by
third parties providing maintenance, development, disaster recovery, facilities
management, outsourcing or other services to Company, provided such third party
shall execute a nondisclosure agreement with Company prior to using or gaining
access to the Licensed Software. However, this Section 2.3 does not permit
Company to use the Licensed Software for any Restricted Uses. Cerner shall
cooperate fully with Company to allow Company's full use and enjoyment of any
rights granted hereunder or in any Related Agreement. In any event, Source Code
may only be disclosed, licensed or sublicensed to third parties to the extent
necessary to develop, modify or support Licensed Software, to create interfaces
to Licensed Software, and for use of an SDK by POMIS vendors as permitted by
this Section 2.3.
2.4 Third Party Use. The Company will not allow the use of the Licensed Software
by any third party (including a Distribution Partner) unless such party has
signed and delivered to Company an agreement restricting use of such Licensed
Software in a manner consistent with Section 2.3 of this Agreement, and Company
shall use reasonable efforts to include language substantially similar to the
following in any such third party agreements:
IN NO EVENT SHALL COMPANY, OR ITS SUPPLIERS AND LICENSORS, BE LIABLE FOR
ANY DAMAGES OF ANY KIND OR NATURE, INCLUDING DIRECT, INDIRECT, INCIDENTAL,
SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL, ARISING OUT OF THE USE OF
ANY SOFTWARE SUPPLIED BY COMPANY. The licensee understands and agrees that
the software provided by Company to licensee contains software that is the
copyrighted product and a trade secret of Company and its suppliers and
licensors, and that licensee will not use any such software in violation
of the restrictions contained in this agreement and will not disclose the
software to anyone other than its employees or agents as reasonably
necessary for the purpose of this agreement and on the condition that it
accepts full responsibility for any breach hereof by any such individual.
The foregoing agreements are for the express benefit of Company, its
suppliers and licensors, and may be enforced by Company, and its suppliers
and licensors.
In the event any such third party does not agree to language substantially
similar to the foregoing, Company shall consult with Cerner as to appropriate
language for such third party. Company shall obtain Cerner's written consent
(which shall not be unreasonably delayed or withheld) to language which is not
substantially similar to the language set forth herein prior to releasing or
allowing the use of the Licensed Software by such third party.
2.5 Delivery. Upon execution of this Agreement, Cerner shall deliver one copy
(in both object code and Source Code forms) of each component of the Licensed
Software listed on Schedule A hereto, together with their applicable
Documentation that is available for General Release. In addition, during the
Software Period, Cerner shall use best efforts to deliver as promptly as
possible, but in no event longer than ten (10) business days, one copy (in both
object code and Source Code forms) of other Licensed Software which Company
requests to utilize, together with applicable Documentation. Without limitation
of the foregoing, during any period in which Cerner is providing
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Software Support for the Licensed Software, Cerner shall use best efforts to
provide Company with all Software Updates and during the Software Period, New
Functions. Upon delivery of any Licensed Software to Company, Cerner shall amend
Schedule A appropriately, sign two copies of the amendment and forward them to
Company for countersignature and the return of one copy.
2.6 Additional Countries. Company shall have the right during the Software
Period, to notify Cerner in writing of its intent to expand the Territory to
Additional Countries. Within ten (10) business days or receipt of such notice,
Cerner shall respond in writing indicating either that (a) the Territory has
been deemed to be expanded to include the Additional Country or (b) the
inclusion of such Additional Country in the Territory at the time of such
request would cause Cerner to be in breach of pre-existing contractual
commitments (and subject to applicable confidentiality restrictions, Cerner
shall inform Company as to the nature of such commitments). If during the
Software Period, the Territory is expanded to include Additional Countries,
Cerner shall have the option to eliminate any Additional Country from the
Territory twenty-four months from the date such Additional Country was included
in the Territory if Company fails to enter into a written agreement with another
party to deliver Services in such Additional Country during such twenty-four
month period.
2.7 Cerner Patents. Cerner hereby grants to Company the right to enforce such
patents relating to the Licensed Software against third parties in Cerner's
name, at Company's sole cost, provided however that Company will not so enforce
such patents against third parties without Cerner's express written consent. In
addition, during the term of the Non-Competition Agreement, Cerner shall not
assert any patent it has against Company's Business.
2.8 365(n). All rights and licenses granted under or pursuant to this Agreement
by Cerner to Company are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the United States Bankruptcy Code (the "Code"), licenses to
rights to "intellectual property" as defined in the Code. The parties agree that
Company, as licensee of such rights under this Agreement, shall retain and may
fully exercise all of its rights and elections under the Code. The parties
further agree that, in the event of the commencement of bankruptcy proceeding by
or against Cerner under the Code, Company shall be entitled to retain all of its
rights under this Agreement.
3. SUPPORT
3.1 Software Support. Cerner shall provide to Company Software Support services
for all Licensed Software (excluding, however, any modifications to the Licensed
Software not made by Cerner, or under Cerner's direction, oversight, control or
supervision and any Licensed Software to the extent affected by such
modifications) during the Free Support Period, at no additional charge, subject
to the terms and conditions set forth in Schedule B. Thereafter, subject to the
following sentence, Cerner shall make Software Support available to Company, at
Company's sole option, at the monthly Software Support services fees set forth
in Schedule B hereto. Cerner shall make Software Support services available for
at least five (5) years from the conclusion of the Free Support Period.
3.2 Termination of Support. Company may terminate Software Support services
hereunder, at its convenience, by providing thirty (30) days prior notice to
Cerner. In addition, Company may
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terminate Software Support services, upon notice to Cerner, in the event Cerner
breaches or fails to perform any of its Software Support obligations hereunder.
4. PAYMENTS
4.1 Software Support Fees. Should Company wish to receive Software Support
services following the Free Support Period, then Cerner shall issue invoices for
Software Support services fees (pursuant to Section 3.1), on a monthly basis, in
advance, as of the first day of each calendar month. Charges for partial month's
services shall be prorated on a daily basis. Company shall pay all properly
issued and undisputed invoices within thirty (30) days following receipt thereof
by Company.
5. WARRANTIES
5.1 General Warranty. Cerner warrants and represents to Company that: (i) with
respect to the Licensed Software (set forth on Part I of Schedule A) that is
ready for General Release (excluding, however, any modifications to the Licensed
Software which were neither made by Cerner nor under Cerner's direction,
oversight, control or supervision and any Licensed Software to the extent
affected by such modifications), such Licensed Software shall be free from any
material defects in materials and workmanship and remain in good working order
and perform all the functions and operate in accordance with this Agreement and
their respective General Documentation for so long as Cerner is obligated to
provide Software Support services for such Licensed Software; (ii) the Licensed
Software (set forth on Part I of Schedule A) (including all Software Updates
thereto) to the extent used as products or modules provided by Cerner
(excluding, however, any modifications to the Licensed Software which were
neither made by Cerner nor under Cerner's direction, oversight, control or
supervision and any Licensed Software to the extent affected by such
modifications), shall be fully operational and usable in accordance with the
terms and conditions of this Agreement; and (iii) Cerner is not aware of any
material problems or difficulties concerning the Licensed Software (set forth on
Part I of Schedule A) which might affect or adversely impact on Company's use
and enjoyment of the Licensed Software as contemplated herein or in any Related
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
the use of Cerner provided end-user tools, including, without limitation,
Cerner's OCF "Private Data Extent", to extend the functionality of the Licensed
Software will not be considered a modification of the Licensed Software for all
purposes of this Agreement, and shall in no event reduce, void, or eliminate
Cerner's obligations under this Agreement with respect to such Licensed
Software, including, without limitation, Cerner's warranties and
representations, indemnification and support obligations hereunder.
5.2 Ownership Warranty. Cerner warrants and represents that it owns or otherwise
has the irrevocable right to license the Licensed Software to Company hereunder
and that it possesses all rights and interests in the Licensed Software
necessary to enter into this Agreement.
5.3 Encumbrances. Cerner warrants and represents that the Licensed Software,
upon the Effective Date and at all times thereafter, shall be free and clear of
all liens, restrictions, claims, charges, security interests, or other
encumbrances of any nature whatsoever which might affect or adversely impact on
Company's use of the Licensed Software.
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5.4 Required Consents/No Conflicts. Cerner warrants and represents that no
approval, authorization, consent, permission, or waiver to or from, or notice,
filing, or recording to or with, any person, entity or governmental authority is
necessary for the execution and delivery of this Agreement. Cerner warrants and
represents that neither the execution and delivery of this Agreement, nor the
grant of licenses hereunder will conflict with or violate any other license,
instrument, contract, agreement, or other commitment or arrangement to which
Cerner is a party or by which Cerner is bound.
5.5 Litigation. Cerner warrants and represents that no claim, action, suit,
proceeding, inquiry, hearing, arbitration, administrative proceeding, or
investigation (collectively, "Litigation") is pending or threatened against
Cerner, its present or former directors, officers, or employees, affecting,
involving, or relating to the Licensed Software. Cerner knows of no facts that
could reasonably be expected to serve as the basis for Litigation against
itself, its present or former directors, officers, or employees, affecting,
involving, or relating to the Licensed Software.
5.6 Documentation. Cerner warrants and represents that the General Documentation
shall at all times be complete, accurate and correct in all material respects
and shall describe the proper procedures for installing and operating the
Licensed Software, and shall provide sufficient information to enable Company
personnel to install and operate the Licensed Software.
5.7 Virus Warranty. Cerner warrants and represents that the Licensed Software
does not and will not contain, any program routine, device, or other undisclosed
feature, including, without limitation, a time bomb, virus, software lock,
drop-dead device, malicious logic, worm, trojan horse, bug, error, defect or
trap door, that is capable of deleting, disabling, deactivating, interfering
with, or otherwise harming the Licensed Software, Company's hardware, data, or
computer programs or codes, or that is capable of providing access or produce
modifications not authorized by Company.
5.8 No Infringement. Cerner warrants and represents that the Licensed Software
and all components thereof do not infringe upon the intellectual property
rights, including without limitation the patent, copyright, trademark or trade
secret rights, of any third parties, nor will the use of the Licensed Software
or any component thereof by Company subject any third party to such an
infringement.
5.9 Millennium Compliance. Cerner warrants and represents that the Licensed
Software shall be Millennium Compliant. Any modification necessary to make the
Licensed Software Millennium Compliant, including date century recognition,
calculations which accommodate same century and multi-century formulas and date
values, that reflect the century, shall be provided by Cerner at no additional
charge to Company.
5.10 New Releases. Cerner warrants and represents that no Software Update to
Licensed Software within a Cerner software architectural family will materially
degrade the functionality, capabilities or features of the Licensed Software as
of the time first released. Company shall have the right to refuse any
particular Software Update and Cerner (if requested by Company during the term
of Software Support) will make any error corrections and bug fixes in the
Licensed Software used by the Company and contained in such Software Update,
regardless of such refusal. Cerner agrees that it shall advise Company in
advance of any New Architecture of Cerner software which may cause a degradation
of functionality, capabilities or features or in the event it shall not be
backward compatible. Notwithstanding the foregoing, at any time that Cerner is
providing Software
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Support to Company, Cerner shall provide all necessary tools and assistance to
convert and migrate any data files or databases to be utilized in any Software
Update, including to a New Architecture to the extent available from Cerner. In
the event any such tools are not available, Cerner shall provide to Company
reasonable methodology for converting and migrating such data files and
databases.
5.11 Remedies for Breach of Warranty. In the event of breach of any of the
warranties contained in this Agreement, Cerner shall provide, promptly and at no
cost to Company, the necessary steps required to meet said warranties. In the
event Cerner cannot meet the warranties within thirty (30) days from notice
provided by Company, Company shall have the right, at Cerner's expense, to
engage a mutually acceptable consulting firm to devote immediate efforts to
assist in resolving any breaches of the warranties. Such consulting firm shall
issue a written report to both Company and Cerner with its suggested solutions
to the problems. Cerner shall immediately effect whatever solutions are
recommended and acceptable to Company without any cost to Company unless Company
agrees otherwise, in writing. In the event Company and Cerner are unable to
mutually agree on a consulting firm as provided above, then such consulting firm
shall be selected in accordance with the following procedure: (i) each party
shall name a consulting firm within five (5) business days of the date the
parties conclude they are unable to mutually agree on a consulting firm, then
(ii) within five (5) business days such consulting firms are named by the
parties, such consulting firms shall select a third consulting firm to provide
consulting services described above.
5.12 Software Under Development. Company specifically understands and
acknowledges that certain of the Licensed Software is still under development.
To the extent Company requests such Licensed Software, such Licensed Software
shall be designated as "Under Development" on Schedule A. The warranties of
Sections 5.1 and 5.6 shall not apply to Licensed Software designated as "Under
Development" until such Licensed Software is available for General Release, at
which time Schedule A will be deemed to be amended to cause such Licensed
Software to be no longer "under development".
6. INDEMNIFICATION
6.1 Cerner Indemnity. Cerner, at its own expense, shall indemnify and hold
harmless Company and defend any action brought against Company with respect to
any claim, demand, cause of action, debt, liability or expense, including
attorneys' fees, arising out of or based upon: (a) the Licensed Software,
Documentation, or any component thereof (excluding, however, any modifications
to the Licensed Software which were neither made by Cerner nor under Cerner's
direction, oversight, control or supervision), infringing or violating any
patents, copyrights, trademarks, trade secrets, licenses, or other proprietary
rights of any third party; (b) claims for personal or bodily injury or damage to
property (tangible and intangible) arising out of the negligent or intentional
acts of Cerner, its employees or subcontractors or arising out of the negligent
design of the Licensed Software (excluding, however, to the extent caused by any
modifications to the Licensed Software which were neither made by Cerner nor
under Cerner's direction, oversight, control or supervision); or (c) any claims
which involve a breach of Cerner's representations, warranties or obligations
hereunder. Company may, at its own expense, assist in such defense if it so
chooses, provided that Cerner shall control such defense and all negotiations
relative to the settlement of any such claim. Cerner shall not settle any claim
that adversely affects any rights of Company, without Company's prior written
consent. Company shall promptly provide Cerner with written notice of any claim
that Company believes falls within the scope of this Section. At any time after
Cerner becomes aware of
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any such claim under subsection (a) herein, or in the event that the Licensed
Software or any portion thereof is held to constitute an infringement or its use
is enjoined, Cerner shall have the additional obligation to, at its option and
at its own expense: (i) modify the infringing item without impairing in any
material respect the functionality or performance, so that it is non-infringing;
(ii) procure for Company the right to continue to use the infringing item; or
(iii) replace the infringing item with an equally suitable, non-infringing
software, which Company shall have the right to subject to reasonable acceptance
testing.
6.2 Company Indemnity. Company, at its own expense, shall indemnify and hold
harmless Cerner and defend any action brought against Cerner with respect to any
claim, demand, cause of action, debt, liability or expense, including attorneys'
fees ("Liability"), arising out of or based upon: (a) any modifications to the
Licensed Software, Documentation or any component thereof not made by Cerner or
under Cerner's direction, oversight, control or supervision; (b) Company's use
of the Licensed Software, Documentation or any component thereof outside the
scope of license set forth herein; (c) claims for personal or bodily injury or
damage to property (tangible and intangible) arising out of the negligent or
intentional acts of Company, its employees or subcontractors; or (d) any claims
which involve a breach of Company's representations, warranties or obligations
hereunder. Cerner may, at its own expense, assist in such defense if it so
chooses, provided that Company shall control such defense and all negotiations
relative to the settlement of any such claim. Company shall not settle any claim
that adversely affects any rights of Cerner, without Cerner's prior written
consent. Cerner shall promptly provide Company with written notice of any claim
that Cerner believes falls within the scope of this Section.
7. LIMITATION OF LIABILITY
7.1 Limitation of Liability. IN NO EVENT SHALL EITHER CERNER OR COMPANY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT,
EVEN IF ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SUCH DAMAGES. IN ADDITION,
THE CUMULATIVE LIABILITY OF EITHER PARTY TO THE OTHER PARTY FOR ALL CLAIMS
WHATSOEVER RELATED TO THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, ANY CAUSE OF
ACTION IN CONTRACT, TORT OR STRICT LIABILITY, SHALL NOT EXCEED THREE MILLION
DOLLARS ($3,000,000). CERNER ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE RIGHT
TO SEEK INJUNCTIVE RELIEF SOLELY FOR THE PURPOSE OF ENJOINING COMPANY'S USE OF
THE LICENSED SOFTWARE BEYOND THE SCOPE OF USE PERMITTED PURSUANT TO THIS
AGREEMENT AND THUS RESTRICTING COMPANY'S SCOPE OF USE TO THAT PERMITTED PURSUANT
TO THIS AGREEMENT AND THE CONFIDENTIALITY PROVISIONS OF SECTION 9.1 HEREOF,
CERNER'S SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THIS AGREEMENT BY COMPANY,
OR FAILURE BY COMPANY TO PERFORM ANY OF ITS OBLIGATIONS HEREUNDER, SHALL BE
LIMITED TO CERNER'S RECOVERY OF MONETARY DAMAGES ONLY (SUBJECT TO THIS SECTION
7), AND CERNER SHALL NOT HAVE THE RIGHT (AND CERNER HEREBY WAIVES ITS RIGHT) TO
SEEK OR OBTAIN ANY OTHER INJUNCTIVE RELIEF. THE LIMITATIONS SET FORTH IN THIS
SECTION 7.1 SHALL NOT APPLY TO THIRD PARTY CLAIMS TO WHICH A PARTY IS ENTITLED
TO INDEMNIFICATION OR CONTRIBUTION FROM THE OTHER PARTY PURSUANT TO THIS
AGREEMENT OR AS A MATTER OF LAW.
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8. OWNERSHIP
8.1 Ownership. Except for the rights granted herein to Company, Cerner reserves
and retains all right, title and interest in and to the Licensed Software and
any customizations or other modifications made to the Licensed Software by or
under the direction of Cerner. In addition, any customizations or other
modifications made to the Licensed Software by Company or any third party on
behalf of Company ("Company Enhancements"), shall be owned exclusively by
Cerner, except for any proprietary or confidential information of Company
contained therein. In addition, Cerner hereby grants to Company a perpetual,
irrevocable, royalty-free, exclusive license to use, modify, copy, enhance,
display, perform, distribute, transmit, adapt, maintain, customize, and create
derivative works of, the Company Enhancements, in both object code and Source
Code forms, subject to the terms of this Agreement (including, without
limitation, Section 2.3 hereof). In addition, Cerner may not use the Company
Enhancements to compete, directly or indirectly, with Company's provision of the
"prescription services" component of the Restricted Services for a period of
three (3) years following the expiration of the Non-Competition Agreement.
9. CONFIDENTIALITY
9.1 Confidentiality. Cerner will receive or learn from Company, and Company's
parents, subsidiaries and affiliates, and Company will learn from Cerner,
information, both orally and in writing, concerning the business of Company or
Cerner, respectively, including, without limitation, financial, technical and
marketing information, data, and information related to the development of
technology and services relating to Company's and Cerner's business, as the case
may be, and the Licensed Software, which information is deemed, in the case of
Company, proprietary to Company and, in the case of Cerner, proprietary to
Cerner. Both parties hereby agree, as set forth below, to protect such
information, whether furnished before, on or after the date of this Agreement,
as it protects its own similar confidential information, but never less than
commercially reasonable efforts, and not to disclose such information to anyone
except as otherwise provided for in this Agreement. Such information, in whole
or in part, together with analyses, compilations, programs, reports, proposals,
studies or any other documentation prepared by the parties, as the case may be,
which contain or otherwise reflect or make reference to such information, is
hereinafter referred to as "Confidential Information". Both parties hereby agree
that the Confidential Information will be used solely for the purpose of this
Agreement and not for any other purpose. Both parties further agree that any
Confidential Information pertaining to the other party is the sole and exclusive
property of such other party, and that the receiving party shall not have any
right, title, or interest in or to such Confidential Information except as
expressly provided in this Agreement. Both parties further agree to protect and
not to disclose to anyone (except as provided in this Agreement) for any reason
Confidential Information pertaining to the other party; provided, however, that:
(a) such Confidential Information may be disclosed to the receiving party's
respective officers, directors, employees, agents, or representatives
(collectively, our "Representatives") on a "need to know" basis for the purpose
of this Agreement on the condition that (i) each such Representative will be
informed by the receiving party of the confidential nature of such Confidential
Information and will agree to be bound by the terms of this Agreement and not to
disclose the Confidential Information to any other person and (ii) both parties
agree to accept full responsibility for any breach of this Section 9 by its
respective Representatives; and (b) Confidential Information pertaining to the
other party may be disclosed upon the prior written consent of the other party.
Both parties hereby agree, upon the request of the other party, to promptly
deliver to the other party at its cost the Confidential
11
<PAGE>
Information pertaining to such other party, without retaining any copies
thereof. Specifically and without limitation, Company agrees (i) to reproduce
(and refrain from removing or destroying) copyright and proprietary rights
notices which are placed on the Licensed Software, (ii) erase or otherwise
destroy, prior to disposing of media, all portions of Licensed Software
contained on such media, and (iii) notify Cerner promptly in writing upon any
Company officer or director learning of any unauthorized disclosure or use of
the Licensed Software, and reasonably cooperate with Cerner to cure any
unauthorized disclosure or use of the Licensed Software, and cooperate fully and
promptly with Cerner to cure any unauthorized disclosure or use of the Licensed
Software, at Cerner's cost, unless caused by breach of this Agreement by
Company. Cerner agrees that Company's use and distribution of the Licensed
Software pursuant to and in accordance with the terms of this Agreement shall
not be a violation of this Section 9.1.
9.2 Non-Confidential Information. The term "Confidential Information" shall not
include any information: (i) which at the time of disclosure or thereafter is
generally available to or known by the public (other than as a result of a
disclosure directly or indirectly by the receiving party); (ii) is independently
developed by the receiving party, without reference to or use of, the
Confidential Information of the other party; (iii) was known by the receiving
party as of the time of disclosure without a breach of confidentiality; (iv) is
lawfully learned from a third party not under obligation to the disclosing
party; or (v) is required to be disclosed pursuant to a subpoena, court order or
other legal process, whereupon the receiving party shall provide prompt written
notice to the other party prior to such disclosure.
10. GENERAL
10.1 Force Majeure. Except as expressly provided to the contrary in this
Agreement, neither party shall be liable to the other for any delay or failure
to perform due to causes beyond its reasonable control. Performance times shall
be considered extended for a period of time equivalent to the time lost because
of any such delay.
10.2 Notices. Wherever under this Agreement one party is required or permitted
to give notice to the other, such notice shall be deemed given when delivered in
hand, when telecopied or faxed and receipt confirmed, when sent by overnight
courier service to the address specified below, or when mailed by United States
mail, registered or certified mail, return receipt requested, postage prepaid,
and addressed as follows:
In the case of Company:
Synetic Healthcare Communications, Inc.
c/o Synetic, Inc.
669 River Drive
Elmwood Park, New Jersey 07407
Attn: President
fax: (201) 703-3401
12
<PAGE>
With a copy to:
Synetic, Inc.
669 River Drive
Elmwood Park, New Jersey 07407
Attn: General Counsel
fax: (201) 703-3401
In the case of Cerner:
Cerner Corporation
2800 Rockcreek
Kansas City, Missouri 64117
Attn: President
fax: (816) 474-1742
With a copy to:
Cerner Corporation
2800 Rockcreek
Kansas City, Missouri 64117
Attn: General Counsel
fax: (816) 474-1742
Either party hereto may from time to time change its address for notification
purposes by giving the other written notice of the new address and the date upon
which it will become effective.
10.3 Governing Law. This Agreement shall be governed by, subject to, and
interpreted in accordance with the laws of the State of New York, without regard
to its conflicts of laws principles.
10.4 Severability. In the event any provision hereof shall be deemed invalid or
unenforceable by any court or governmental agency, such provision shall be
deemed severed from this Agreement and replaced by a valid provision which
approximates as closely as possible the intent of the parties. All remaining
provisions shall be afforded full force and effect.
10.5 No Waiver. No delay or omission by either party hereto to exercise any
right or power hereunder shall impair such right or power or be construed to be
a waiver thereof. A waiver by either of the parties hereto of any of the
covenants to be performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or of any other
covenant herein contained.
10.6 Independent Contractor. In performance of this Agreement, Cerner is acting
as an independent contractor. Personnel supplied by Cerner hereunder are not
Company's personnel or agents, and Cerner assumes full responsibility for their
acts. Cerner shall be solely responsible for the payment of compensation to
Cerner's employees and subcontractors assigned to perform services hereunder,
and such employees and subcontractors shall be informed that they are not
entitled to the provision of any employee benefits of Company. Company shall not
be responsible for payment of workers' compensation, disability benefits,
unemployment insurance or for withholding income
13
<PAGE>
taxes and social security for any Cerner employee or subcontractor, but such
responsibility shall be that of Cerner.
10.7 Personnel Rules and Regulations. Cerner personnel and subcontractors will
comply with Company's security regulations particular to each work location,
including any procedures which Company personnel and other consultants are
normally asked to follow. Cerner personnel and subcontractors, when deemed
appropriate by Company, will be issued visitor identification cards. Each such
card will be surrendered by Cerner personnel and subcontractors upon demand by
Company or upon termination of Cerner's services hereunder. Unless otherwise
agreed to by the parties, Cerner personnel and subcontractors shall observe the
working hours, working rules and holiday schedules of Company while working on
Company's premises.
10.8 Assignment. This Agreement shall be binding upon the parties and their
respective successors, representatives and permitted assigns. Neither party may
assign this Agreement, without the prior written consent of the other party,
except that either party hereto may assign its rights hereunder to an affiliate
of such party and either party may, without the consent of the other party,
assign and delegate this Agreement and its rights and obligations hereunder in
connection with a merger, consolidation or sale of substantially all of its
assets (which sale shall include the assignment and assumption of all rights and
obligations under the Related Agreements); provided, however, that any such
assignment shall not relieve the assigning party of its obligations hereunder.
10.9 Availability of Records. Cerner agrees that the Secretary of the Department
of Health and Human Services (the "Secretary") and the Comptroller General of
the United States, or the designee or duly authorized representative of either
of them, shall have access to all books and records of Cerner pertaining to the
subject matter of this Agreement and the provisions of services under it, in
accordance with the criteria presently or hereafter developed by the Department
of Health and Human Services as provided in Section 952 of the Omnibus
Reconciliation Act of 1980 (the "Act"). Upon request of the Secretary, the
Comptroller General, or the designee or authorized representative of either of
them, Cerner shall make available (at reasonable times and places during normal
business hours) this Agreement, and all books, documents and records of Cerner
that are necessary to verify the nature and extent of the costs of the services
provided by Cerner furnished in connection with this Agreement. Notwithstanding
the foregoing provisions, the access to the books, records and documents of
Cerner and any related organization provided for herein shall be discontinued
and become null and void upon a finding by a court of quasi-judicial body of
competent jurisdiction that this Agreement is outside the scope of the
regulatory or statutory definition of those contracts and agreements included
within the purview of Section 952 of the Act or the rules and regulations
promulgated thereunder.
10.10 October 2, 1998 Cerner System Agreement. The representations, warranties,
indemnities, limitations of liability, remedies and Support Services provided
for in this Agreement supercede those provided for in the Cerner System
Agreement dated October 2, 1998 between Cerner and Avicenna (the "System
Agreement", which has been assigned to the Company) with respect to the Licensed
Software that is also subject to the System Agreement. Any exercise of any
rights hereunder (including, without limitation, those rights contained in
Section 2.3 hereof) shall not be a violation of the System Agreement.
10.11 Third Party Operating Systems. The object code version of the Licensed
Software requires a third-party operating system, and in some instances a
third-party database, in order to operate.
14
<PAGE>
Cerner makes no representations or warranties concerning the third-party
operating systems or databases.
10.12 Survival. Sections 2.1, 2.2, 2.3, 2.4, 2.7, 2.8, 5, 6, 7, 8, 9 and 10
shall survive the termination of this Agreement.
10.13 Entire Agreement. Each party acknowledges that this Agreement, including
the Schedules attached hereto and the documents incorporated by reference herein
constitute the complete and exclusive statement of the terms and conditions
between the parties, which supersedes all prior proposals, understandings and
all other agreements, oral and written, between the parties relating to the
subject matter of this Agreement. This Agreement may not be modified or altered
except by a written instrument duly executed by both parties.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the date
and year first written above by their fully authorized representatives.
SYNETIC HEALTHCARE COMMUNICATIONS, INC. CERNER CORPORATION
By: By:
---------------------------------- ------------------------------------
Name: Name:
Title: Title:
15
================================================================================
----------------------------------------------
STOCKHOLDERS' AGREEMENT
----------------------------------------------
among
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
and
ITS STOCKHOLDERS
Dated as of January 2, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms...........................................1
ARTICLE II
CERTAIN AGREEMENTS
SECTION 2.01. Board of Directors..............................................8
SECTION 2.02. Certain Issuances of New Securities.............................9
SECTION 2.03. Deployment Level...............................................10
SECTION 2.04. Investment in THINC............................................12
SECTION 2.05. Cerner Warrant.................................................13
SECTION 2.06. Affiliate Transactions.........................................13
SECTION 2.07. Public Offerings Co-operation..................................13
SECTION 2.08. Liquidity of Cerner Shares.....................................14
ARTICLE III
RESTRICTIONS ON TRANSFER
SECTION 3.01. General Restriction............................................14
SECTION 3.02. Legends ......................................................15
SECTION 3.03. Certain Restrictions on Transfer...............................16
SECTION 3.04. "Tag-Along" Rights.............................................16
SECTION 3.05. "Drag-Along" Rights............................................19
SECTION 3.06. Certain Persons to Execute Agreement...........................22
SECTION 3.07. Improper Sale or Encumbrance...................................22
ARTICLE IV
REGISTRATION RIGHTS
SECTION 4.01. Demand Registration............................................23
SECTION 4.02. Registration Procedures........................................24
SECTION 4.03 Indemnification................................................26
SECTION 4.04. Contribution...................................................27
<PAGE>
ii
Page
SECTION 4.05. Right to Participate...........................................28
SECTION 4.06. No Assignment..................................................28
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Termination....................................................28
SECTION 5.02. Conflict with Certificate of Incorporation or By-laws
of the Company...............................................28
SECTION 5.03. Expenses ......................................................29
SECTION 5.04. Notices ......................................................29
SECTION 5.05. Public Announcements...........................................30
SECTION 5.06. Headings ......................................................30
SECTION 5.07. Severability...................................................30
SECTION 5.08. Entire Agreement...............................................31
SECTION 5.09. Assignment.....................................................31
SECTION 5.10. No Third Party Beneficiaries...................................31
SECTION 5.11. Amendment......................................................31
SECTION 5.12. Governing Law..................................................31
SECTION 5.13. Counterparts...................................................31
SECTION 5.14. Specific Performance...........................................31
SECTION 5.15. Payments ......................................................32
SECTION 5.16. Waiver of Jury Trial...........................................32
<PAGE>
STOCKHOLDERS' AGREEMENT, dated as of January 2, 1999, among SYNETIC
HEALTHCARE COMMUNICATIONS, INC., a Delaware corporation (the "Company");
SYNETIC, INC., a Delaware corporation ("Synetic"); AVICENNA SYSTEMS CORPORATION,
a Massachusetts corporation ("Avicenna"), and a wholly owned subsidiary of
Synetic; and CERNER CORPORATION, a Delaware corporation ("Cerner").
W I T N E S S E T H:
--------------------
WHEREAS, the Company is authorized by its Certificate of
Incorporation (as such Certificate of Incorporation may be amended from time to
time, the "Certificate of Incorporation") to issue 10,000,000 shares of Common
Stock, par value $.01 per share (the "Common Stock");
WHEREAS, on the date hereof, the Company, Synetic, Avicenna and Cerner
are consummating the transactions contemplated by the Subscription Agreement,
dated as of January 2, 1999 (the "Subscription Agreement"), among the Company,
Synetic, Avicenna and Cerner and each of the Ancillary Agreements (as defined
below); and
WHEREAS, as a condition to the consummation of the transactions
contemplated by the Subscription Agreement and in order to make certain
agreements with respect to their respective rights and obligations as holders of
Common Stock, the parties hereto have determined that it is in their best
interests to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, such
specified Person.
"Affiliated Group", with respect to any Person, means such Person and
each Affiliate and Associate of such Person and each other Person with whom
such Person is acting "as a partnership, limited partnership, syndicate, or
other group for the purpose of acquiring, holding, or disposing of" Shares
(within the meaning of Section 13(d)(3) of the Exchange Act, regardless of
whether the Company shall at any time be subject to the requirements of the
Exchange Act).
<PAGE>
2
"Agreement" or "this Agreement" means this Stockholders' Agreement,
dated as of January 2, 1999, among the Company and each of the other parties
signatory hereto, and all amendments hereto made in accordance with the
provisions of Section 5.11.
"Ancillary Agreements" means:
(i) the Non-Competition Agreement;
(ii) a marketing agreement between Cerner and the Company, dated
as of the date hereof;
(iii) a license agreement between Cerner and the Company, dated as
of the date hereof;
(iv) a master services and outsourcing agreement between Cerner
and the Company, dated as of the date hereof;
(v) a services agreement between Synetic and the Company, dated as
of the date hereof; and
(vi) a subscription agreement between Cerner and the Company,
dated as of January 2, 1999.
"Associate" has the meaning given such term in Rule 12b-2 under the
Exchange Act.
"Avicenna" has the meaning specified in the preamble to this Agreement.
"beneficial owner" or "beneficially own" has the meaning given such
term in Rule 13d-3 under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the
City of New York.
"Capital Stock" means, with respect to any Person at any time, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital stock, partnership
interests (whether general or limited) or equivalent ownership interests in
or issued by such Person.
<PAGE>
3
"CareXchange" means the transaction environment, consisting of the
Company's host computer or computers and a network or networks set up by the
Company to enable physicians and their staff to perform information
activities and transactions by interfacing between their computers, those of
the Company, and those of healthcare payers, laboratories and pharmacies.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States
or any political subdivision of any such state or any public instrumentality
thereof maturing within one year from the date of acquisition thereof and,
at the time of acquisition, having the highest rating obtainable from either
Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies,
Inc. ("S&P") or Moody's Investors Service, Inc.; or (c) commercial paper
maturing not more than one year from the date of issuance thereof and, at
the time of acquisition, having the highest rating obtainable from either
S&P or Moody's Investors Service, Inc.
"Cerner" has the meaning specified in the preamble to this Agreement.
"Certificate of Incorporation" has the meaning specified in the
recitals to this Agreement.
"Commission" means the Securities and Exchange Commission, and any
successor commission or agency having similar powers.
"Common Stock" has the meaning specified in the recitals to this
Agreement.
"Company" has the meaning specified in the preamble to this Agreement.
"Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities,
as trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body
governing the affairs of such Person.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any
kind, including, without limitation, any
<PAGE>
4
restriction on the use, voting, transfer, receipt of income or other
exercise of any attributes of ownership.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Fair Value" means (i) as to publicly traded securities, the average of
the daily closing prices or last reported sales price, as applicable, or if
closing prices or last reported sales prices are not available, the average
of the highest reported bid and the lowest reported asked price, for the ten
(10) consecutive trading days ending on the most recent trading day prior to
the date of determination, and (ii) as to other assets, the fair market
value of such assets determined in good faith by an independent nationally
recognized investment banking firm selected by the Company and approved by
the Stockholders (which approval shall not be unreasonably withheld) and
which shall have provided no material services to the Company or any
Stockholder within the preceding year.
"Full Deployment" means the attainment by the Company of in excess of
15,000 registered physician users of the CareXchange, on the date at which
the number of such CareXchange users is being evaluated in accordance with
Section 2.03(a) or Section 2.08, at least 50% of such users logging onto the
CareXchange server, or creating transactions to be processed by the
CareXchange server, three or more times per week in each week during the
four (4) weeks immediately prior to the date at which the number of such
CareXchange users is being evaluated in accordance with Section 2.03(a) or
Section 2.08 and ending on such date.
"Fully Diluted Shares" means the aggregate of (i) the number of Shares
issued and outstanding (other than Shares held in the treasury of the
Company or held by any Subsidiary) and (ii) the number of Shares issuable
upon (x) the exercise of any then exercisable outstanding options, warrants
or similar instruments (other than such instruments held by the Company or
any Subsidiary) and (y) the exercise of any then exercisable conversion or
exchange rights with respect to any outstanding securities or instruments
(other than such securities or instruments held by the Company or any
Subsidiary).
"IPO Lock-Up Period" means the period from the date of the Public
Offering pursuant to which the Company first becomes a Public Company up to
the date six months after the end of any "lock-up" period during which the
Company agrees with the underwriters of such Public Offering not to issue or
sell additional shares of Capital Stock.
"Limited Deployment" means the attainment by the Company of less than
8,000, but more than 5,000, registered physician users of the CareXchange,
on the date at which
<PAGE>
5
the number of such CareXchange users is being evaluated in accordance with
Section 2.03(a).
"Marketable Securities" means securities that are (a) (i) securities of
or other interests in any Person that are traded on a national securities
exchange, reported on the Nasdaq Stock Market System or otherwise actively
traded over-the-counter or (ii) debt securities of an issuer that has debt
or equity securities that are so traded or so reported on and which a
nationally recognized securities firm has agreed to make a market in, and
(b) not subject to restrictions on transfer as a result of any applicable
contractual provisions or the provisions of the Securities Act or, if
subject to such restrictions under the Securities Act, are also subject to
registration rights reasonably acceptable to Avicenna.
"Minimum Registration Amount" means a number of shares of Registrable
Securities equal to twenty-five percent (25%) of the total number of shares
of Common Stock held by Cerner as at the date hereof.
"New Securities" means any Capital Stock of the Company, whether or not
now authorized, and rights, options or warrants to purchase such Capital
Stock, and securities of any type whatsoever that are, or may become,
convertible into or exchangeable or exercisable for Capital Stock of the
Company; provided, however, that the term "New Securities" does not include
(i) securities of the Company issued to employees, consultants, officers or
directors of the Company, or which have been reserved for issuance, pursuant
to any employee stock option, stock purchase, stock bonus plan, or other
similar stock agreement or arrangement approved by the Board; (ii)
securities of the Company issued in connection with any stock split, stock
dividend or recapitalization of the Company; (iii) securities of the Company
issued in a Public Offering; (iv) securities of the Company issued upon the
conversion or exchange of convertible or exchangeable securities of the
Company that are outstanding as of the date of this Agreement or that have
been issued in compliance with the provisions of Section 2.02; any (v) and
right, option or warrant to acquire any security convertible into or
exchangeable or exercisable for the securities excluded from the definition
of New Securities pursuant to subsection (i) above if issued pursuant to any
employee stock option, stock purchase, stock bonus plan or other similar
stock agreement or arrangement approved by the Board.
"Non-Competition Agreement" means the non-competition agreement among
Synetic, Avicenna, Cerner and the Company, dated as of the date hereof.
"Permitted Transferee" means (a) (i) in the case of Cerner, any
Subsidiary of Cerner; (ii) in the case of Avicenna or Synetic, any
Subsidiary of Synetic; and (iii) in the case of the Company, any Subsidiary
of the Company; or (b) any Person with respect to
<PAGE>
6
which the parties agree that they have no objection if a Sale of Shares is
made to such Person.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act.
"Prospective Transferee" has the meaning set forth in Section 3.06(a).
"Public Company" means that, as of the date of determination, the
shares of Common Stock that have been sold in Public Offerings shall equal
not less than 10% of the then outstanding shares of Common Stock (determined
on a fully diluted basis).
"Public Offering" means an underwritten public offering of equity
securities of the Company pursuant to an effective registration statement
under the Securities Act.
"Registrable Securities" means all Restricted Shares, at any time
outstanding, held by Cerner or its Permitted Transferees, if any. As to any
particular Registrable Securities that have been issued, such securities
shall cease to be Registrable Securities when (i) a registration statement
with respect to the sale of such securities shall have become effective
under the Securities Act and such securities shall have been disposed of
under such registration statement; (ii) they shall have become freely
tradeable pursuant to Rule 144 (k); (iii) they shall have been otherwise
transferred or disposed of, and new certificates therefor not bearing a
legend to the effect set forth in the first paragraph of the form of legend
required by Section 3.02(a) restricting further transfer shall have been
delivered by the Company, and subsequent transfer or disposition of them
shall not require their registration or qualification under the Securities
Act or any similar state law then in force; or (iv) they shall have ceased
to be outstanding.
"Registration Expenses" means all out-of-pocket expenses incident to
the Company's performance of or compliance with Article IV, including,
without limitation, all registration and filing fees (including filing fees
with respect to the National Association of Securities Dealers, Inc.), all
fees and expenses of complying with state securities or "blue sky" laws
(including reasonable fees and disbursements of underwriters' counsel in
connection with any "blue sky" memorandum or survey), all printing expenses,
all listing fees, all registrars' and transfer agents' fees, the fees and
disbursements of counsel for the Company and of its independent certified
public accountants, including the expenses of any special audits and/or
"comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of one outside counsel
retained by the holders of Registrable Securities being registered (which
counsel shall be satisfactory to the holders of a majority of the shares of
Registrable Securities being registered), but excluding underwriting
discounts and commissions and applicable
<PAGE>
7
transfer taxes, if any, which shall be borne by the sellers of the
Registrable Securities being registered in all cases.
"Restricted Shares" means all Shares other than (a) Shares that have
been registered under a registration statement pursuant to the Securities
Act; (b) Shares with respect to which a Sale has been made in reliance upon,
and in accordance with, Rule 144; or (c) Shares with respect to which the
holder thereof shall have delivered to the Company either (i) a written
opinion, in form and substance reasonably satisfactory to the Company, of
counsel, who shall be reasonably satisfactory to the Company, or (ii) a "no
action" letter from the Commission, to the effect that subsequent transfers
of such Shares may be effected without registration under the Securities
Act.
"Restructuring Event " means the attainment by the Company of 5,000 or
fewer registered physician users of the CareXchange, on the date at which
the number of such CareXchange users is being evaluated in accordance with
Section 2.03(a).
"Rule 144" means Rule 144 (or any successor provision) under the
Securities Act.
"Rule 144 Transaction" means any Sale of shares of Common Stock made in
reliance upon, and in accordance with, Rule 144.
"Sale" means any sale, assignment, transfer, distribution or other
disposition of Shares or of a participation or other right therein, whether
voluntarily or by operation of law.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Share" means any share of Common Stock.
"Stockholder" means each Person (other than the Company) who shall be a
party to this Agreement, whether in connection with the execution and
delivery hereof as of the date hereof, pursuant to Section 3.06 or
otherwise, so long as such Person shall own, beneficially or of record, any
Shares.
"Subsidiary" or "Subsidiaries" of any Person means any corporation,
partnership, joint venture, association or other entity, all of the capital
stock or other similar equity interests of which, are owned beneficially and
of record by such Person directly or indirectly through one or more
intermediaries.
"Successful Deployment" means the attainment by the Company of at least
8,000 registered physician users of the CareXchange, but Full Deployment has
not yet been
<PAGE>
8
achieved, on the date at which the number of such CareXchange users is being
evaluated in accordance with Section 2.03(a).
"Synetic" has the meaning specified in the preamble to this Agreement.
"THINC" means The Health Information Network Connection LLC, a New York
limited liability company.
"Third Party" means, with respect to any Stockholder, any Person, other
than (i) the Company, (ii) any Subsidiary of the Company or (iii) any
Permitted Transferee of such Stockholder.
ARTICLE II
CERTAIN AGREEMENTS
SECTION 2.01. Board of Directors. (a) Cerner Directors. At all times
prior to such time as the Company first becomes a Public Company, Cerner shall
be entitled, at its election, to have one of its representatives receive notice
of and to attend on a nonvoting basis each meeting of the Board or to have its
nominees on the Board represent the greater of (A) one director and (B) such
number of directors representing twenty percent (20%) of the total number of
directors (rounded down to the nearest whole number) (such nominees being,
collectively, the "Cerner Directors"). The procedures set forth in subsections
(b) through (e) of Section 2.01 shall govern Cerner if it elects to have one or
more of its nominees serve as a member of the Board.
(b) Nomination by Cerner. Cerner shall be entitled to nominate one or
more candidates for director of the Company, which nomination shall be
considered at a meeting of Stockholders to be held within thirty (30) days of
such nomination, such that upon election of all candidates at such meeting, or
pursuant to unanimous written consent of all Stockholders, the Board shall
include the appropriate number of Cerner Directors. Promptly following such
nomination, the Stockholders will take all actions necessary to cause the Board
to contain the appropriate number of Cerner Directors. If Cerner does not
nominate any candidate for director there shall be no Cerner Directors serving
on the Board of Directors until Cerner does nominate candidates to be Cerner
Directors.
(c) Voting Agreement. Each Stockholder shall take all actions necessary
to vote all Shares entitled to vote and owned or held of record by such
Stockholder at any annual or special stockholders' meeting at which one or more
directors are elected in favor of, or shall take all actions by written consent
in lieu of any such meeting necessary to cause, the election of all individuals
that are candidates to serve as directors, including individuals, if any, that
are candidates to serve as Cerner Directors, at such time.
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9
(d) Removal. Each Stockholder agrees that, if, at any time, it is then
entitled to vote for the removal of directors of the Company, it will not vote
any Shares in favor of the removal of a Cerner Director unless such removal
shall be for Cause (as defined below) or Cerner shall have consented to or
directed such removal in writing; provided, however, that if the size of the
Board is reduced such that the number of Cerner Directors would be reduced,
Cerner shall direct the removal of the appropriate number of directors. Removal
for "Cause" shall mean removal of a director because of such director's (A)
willful and continued failure to substantially perform his duties as a director
of the Company, (B) willful conduct which is significantly injurious to the
Company, momentarily or otherwise, (C) conviction for, or guilty plea to, a
felony or a crime involving moral turpitude, (D) abuse of illegal drugs or other
controlled substances or habitual intoxication, or (E) willful breach of this
Agreement by Cerner.
(e) Vacancies. If, as a result of death, disability, retirement,
resignation, removal (with or without Cause) or otherwise, there shall exist or
occur any vacancy in the directorship that had been held by a Cerner Director or
if the size of the Board is increased such that the number of Cerner Directors
would be increased, then Cerner shall have the right to designate in writing the
nominee for election to fill such vacancy or to be such additional Cerner
Director and each Stockholder then entitled to vote for the election of such
nominee as a director of the Company agrees that it will vote its Shares, or
execute a written consent, as the case may be, so as to elect such nominee as a
director of the Company.
(f) Termination. The provisions of this Section 2.01 shall terminate at
such time as the Company first becomes a Public Company or, if earlier, at the
time of any sale by Cerner of all of its shares.
(g) No Transfer. Notwithstanding any other provision of this Agreement,
the rights of Cerner pursuant to this Section 2.01 shall not be transferrable to
a Third Party by Cerner, but will transfer to a Permitted Transferee of Cerner
to whom Cerner transfers all of the Cerner Shares.
SECTION 2.02. Certain Issuances of New Securities. (a) In the event the
Company proposes to issue New Securities to Synetic or any Affiliate of Synetic,
other than pursuant to a stock dividend or other pro rata distribution to
stockholders, the Company hereby grants to Cerner the right to purchase in lieu
of Synetic or such Affiliate, in accordance with Section 2.02(b), a number of
shares or other amount of any New Securities which the Company proposes to issue
equal to the product of (a) the total number of shares or other amount of such
New Securities which the Company proposes to issue to Synetic or any Affiliate
of Synetic at such time, multiplied by (b) a fraction, (i) the numerator of
which shall be the total number of Fully Diluted Shares then beneficially owned
by Cerner, excluding any Cerner warrants not exercisable under Section 2.05 and
(ii) the denominator of which shall be the total number of Fully Diluted Shares
then beneficially owned by Cerner and its Affiliates and by Synetic and its
Affiliates excluding any Cerner warrants not exercisable under Section 2.05.
<PAGE>
10
(b) In the event that the Company proposes to issue New Securities to
Synetic or any Affiliate of Synetic, it shall give Cerner written notice (a
"Notice of Issuance") of its intention, describing all material terms of the New
Securities and the price and all material terms upon which the Company proposes
to issue such New Securities. Cerner shall have ten (10) business days from the
date of the Notice of Issuance to agree to purchase all or any portion of its
pro rata share of such New Securities (as determined pursuant to Section
5.01(a)) at the price and upon the terms stated in the Notice of Issuance;
provided, however, that if the Company is proposing to issue New Securities for
consideration other than all cash, the Company shall accept from Cerner either
non-cash consideration which is reasonably comparable to the non-cash
consideration specified in the Notice of Issuance or the cash in an amount equal
to the Fair Value of the non-cash consideration. Any purchase by Cerner of New
Securities shall be consummated on the date on which all other New Securities
described in the applicable Notice of Issuance are issued to Synetic and/or any
of its Affiliates.
(c) Termination. The provisions of this Section 2.02 shall terminate at
such time as the Company first becomes a Public Company.
(d) No Transfer. Notwithstanding any other provision of this Agreement,
the rights of Cerner pursuant to this Section 2.02 shall not be transferrable to
a Third Party by Cerner, but will transfer to a Permitted Transferee of Cerner
to whom Cerner transfers all of the Cerner Shares.
SECTION 2.03. Deployment Level. (a) (i) The Company, Avicenna and
Cerner agree that on February 15, 2001, the Company shall determine whether Full
Deployment, Successful Deployment, Limited Deployment or a Restructuring Event
has occurred (the "Deployment Level"). As promptly as practicable, but in any
event within thirty (30) calendar days of February 15, 2001, the Company shall
deliver notice thereof to Cerner.
(ii) Cerner may dispute the Deployment Level if it so notifies the
Company within thirty (30) calendar days of receipt of notice thereof from the
Company, specifying, in reasonable detail, the basis for such dispute. If Cerner
and the Company are unable to reach a resolution within ten (10) calendar days
after receipt by the Company of Cerner's written notice of dispute, they shall
submit the dispute for resolution to an independent public accounting firm of
national reputation mutually acceptable to the Company and Cerner (the
"Independent Accounting Firm"), which shall, within thirty (30) calendar days
from such submission, determine and report to the Company and Cerner upon the
dispute, and such report shall be final, binding and conclusive on the Company
and Cerner. The fees and disbursements of the Independent Accounting Firm shall
be paid by the Company if Cerner successfully disputes the Deployment Level and
otherwise by Cerner.
(b) The Company and Avicenna agree that in the event of a determination
of Full Deployment in accordance with the provisions of Section 2.03(a),
effective as of February 15,
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11
2001, the Company shall issue to Cerner, in exchange for a cash payment equal to
the par value of such Shares, 50,000 additional new Shares (such number to be
adjusted to take account of any stock splits, reverse stock splits, stock
dividends, combinations, subdivisions or similar adjustments prior to such date)
and the Non-Competition Agreement shall continue in force.
(c) Avicenna and Cerner agree that in the event of a determination of
Successful Deployment in accordance with the provisions of Section 2.03(a), the
number of Shares held by Cerner shall not be modified and the Non-Competition
Agreement shall continue in force.
(d) Avicenna and Cerner agree that in the event of a determination of
Limited Deployment in accordance with the provisions of Section 2.03(a) above:
(i) Cerner will purchase from Avicenna (or any Permitted
Transferee of Avicenna) such number of Shares as equals one percent (1%) of the
Shares then outstanding in exchange for two million dollars ($2,000,000) in
cash, such purchase to occur (x) on the thirtieth (30th) calendar day following
the delivery of notice by the Company pursuant to paragraph (a)(i) above if
Cerner does not dispute such notice or (y) ten (10) business days following the
report of the Independent Accounting Firm if Cerner disputes the notice
delivered pursuant to paragraph (a)(i) above; and
(ii) Cerner shall, on or prior to the third anniversary of this
Agreement, have the option of transferring the Shares purchased in accordance
with paragraph (d)(i) above and all other Shares owned of record or beneficially
by Cerner to Avicenna in exchange for the par value of such Shares. If Cerner
affects such transfer on or prior to the third anniversary of this Agreement,
the Non-Competition Agreement shall be terminated in accordance with its terms,
effective on the fourth anniversary of this Agreement.
(e) Avicenna and Cerner agree that in the event of a determination of a
Restructuring Event in accordance with the provisions of Section 2.03(a) above:
(i) Cerner will purchase from Avicenna (or any Permitted
Transferee of Avicenna) such number of Shares as equals two percent (2%) of the
Shares then outstanding in exchange for four million dollars ($4,000,000) in
cash, such purchase to occur (x) on the thirtieth (30th) calendar day following
the delivery of notice by the Company pursuant to paragraph (a)(i) above if
Cerner does not dispute such notice or (y) ten (10) business days following the
report of the Independent Accounting Firm if Cerner disputes the notice
delivered pursuant to paragraph (a)(i) above; and
(ii) Cerner shall have the option (exercisable within ten (10)
business days after the date of purchase under paragraph (e)(i) above) of
transferring the Shares purchased in accordance with paragraph (e)(i) above and
all other Shares owned of record or beneficially by Cerner to Avicenna in
exchange for the par value of such Shares. If Cerner affects such transfer
<PAGE>
12
within thirty (30) days of the purchase of Shares under (e)(i) above, the
Non-Competition Agreement shall be terminated in accordance with its terms,
effective on the third anniversary of this Agreement.
(f) Nothing in this Section 2.03 shall grant or imply any obligation on
the part of Synetic and Avicenna, or any right on the part of Cerner, with
respect to the operation of the Company. No act or failure to act on the part of
the Company, Synetic or Avicenna (including but not limited to a delay or
failure by Synetic to continue its product development efforts) shall affect the
obligation of Cerner pursuant to this Section 2.03 regardless of whether such
act or failure to act could have been expected to result in a Deployment Level
being attained different from the Deployment Level actually attained.
SECTION 2.04. Investment in THINC. (a) The Company and THINC proposes
to enter into agreements whereby the Company will manage the operations of THINC
and will provide it with certain services, copies of which have been previously
provided to Cerner (the "THINC Agreements").
(b) In connection with the THINC Agreements, the Company shall (i) make
an equity investment in THINC of $1,500,000 in cash, (ii) issue the THINC
Warrants (as defined in Section 2.05(a) below), and (iii) agree to an initial
$2,000,000 loan to THINC (the "THINC Loan") and a potential further loan of
$1,500,000, all in exchange for receipt by the Company of 20% of the then
outstanding units of THINC.
(c) Avicenna, Cerner and the Company agree that on closing in
accordance with the THINC Agreements, Cerner shall pay to the Company (i)
$150,000 towards the Company's obligation in Section 2.04 (b)(i) above, in
exchange, subject to Section 2.04(d) below, for a beneficial interest in 2% of
THINC's then outstanding units from the Company (the "THINC Stock"), and (ii)
$1,000,000 in respect of a fifty percent (50%) participation in the THINC Loan
(the "THINC Loan Participation").
(d) Cerner and the Company agree that Cerner shall be the beneficial
owner of the THINC Stock and receive from the Company such dividends, income and
liquidation and disposition proceeds as it receives in respect of the THINC
Stock but that the THINC Stock remain in the record ownership of the Company and
that the Company shall freely exercise all voting rights over the THINC Stock
and shall have the right to sell, transfer, exchange, encumber or otherwise
dispose of the THINC Stock as it sees fit.
(e) Cerner agrees that the THINC Loan shall be held in the name, and
under the sole control, of the Company and that Cerner shall have no direct
rights against THINC with respect to the THINC Loan Participation. Cerner agrees
that it shall have no rights against the Company in respect of the THINC Loan
Participation other than to receive its pro rata share of any principal and
interest payments made pursuant to the THINC Loan and actually received by the
Company.
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13
Cerner hereby authorizes the Company to take such action with regard to the
THINC Loan as the Company in its sole discretion deems appropriate; provided,
however, that the Company may not reduce the amount of, or alter the payment
dates of, principal or interest payable under the THINC Loan without the prior
written consent of Cerner.
SECTION 2.05. Cerner Warrant. (a) Under the terms of the THINC
Agreements, the Company has agreed to issue to THINC warrants ("THINC Warrants")
to purchase 81,081 Shares at a price per Share determined in accordance with the
THINC Agreements (the "Exercise Price"). The Company hereby grants to Cerner a
warrant (the "Cerner Warrant") entitling it to such number of additional Shares
as equals 19.9% of the aggregate number of Shares issued pursuant to the THINC
Warrants and to Cerner pursuant to this Section 2.05 (such number to be adjusted
to take account of any stock splits, reverse stock splits, stock dividends,
combinations, subdivisions of similar adjustments prior to the date of exercise
of the Cerner Warrant) at the Exercise Price. The Cerner Warrant, exercisable
based on a Company valuation of $200 million or the Exercise Price, whichever is
lower, shall be exercisable only if the THINC Warrants have been exercised and
during each period commencing on the date on which the THINC Warrants are
exercised and ending on the first anniversary of such date.
(b) The Company shall, at all times from the initial grant of the THINC
Warrants until the expiration thereof, reserve for issuance and delivery
pursuant to Section 2.05(a) such number of Shares as shall be required to
satisfy the Company's obligations under Section 2.05(a).
(c) Cerner shall not, by virtue of the rights granted to it pursuant to
this Section 2.05, have any rights as a stockholder of the Company with respect
to any Shares that may be issued to it pursuant to Section 2.05(a) unless and
until such Shares are issued.
(d) Upon execution of the THINC Agreements, the Company will provide
Cerner with copies of all THINC Agreements (including the documents related to
the THNC Loan and the THINC Warrants.
SECTION 2.06. Affiliate Transactions. Synetic, Avicenna and the Company
agree that the Company shall not enter into any agreements with, purchase any
products or services from, sell any products or services to, grant any loans to,
or borrow from, any of Synetic, Avicenna or any of their Affiliates, other than
as permitted in the Ancillary Agreements, unless such transactions are on terms
no more favorable to Synetic, Avicenna or their Affiliates than could have been
obtained by arm's length negotiations with a person other than Synetic,
Avicenna, any of their Affiliates or the Company.
SECTION 2.07. Public Offerings Co-operation. (a) Each of Avicenna and
Cerner agree that if the Company shall decide to undertake a Public Offering,
all parties shall co-operate fully, and provide any such assistance as the
Company and its advisers shall reasonably require, to achieve such Public
Offering. Such co-operation and assistance shall include, without limitation,
<PAGE>
14
facilitating any corporate restructuring reasonably deemed advisable by the
Company and that does not adversely affect Cerner's or Avicenna's interest in
connection with such Public Offering, providing information about the
Stockholders and their Affiliates and making representatives available to the
Company and its advisers for such assistance or as is reasonably necessary
market and implement a successful Public Offering.
(b) Each of Avicenna and Cerner agree that following any Public
Offering, they shall not dispose of any Shares acquired in such Public Offering
until the end of six (6) months following any "lock-up" period which the Company
reasonably agrees with the underwriters of such Public Offering.
SECTION 2.08. Liquidity of Cerner Shares. The Company, Synetic and
Avicenna agree that if:
(a) on each of the fourth and fifth anniversary of this Agreement, the
Company is not a Public Company and no reasonable effort, successful or
otherwise, shall have been made by the Company during the prior twelve
months to achieve a Public Offering pursuant to which the Company shall have
first become a Public Company; and
(b) Full Deployment shall have been attained at the date of whichever
anniversary Cerner seeks to exercise its rights under this Section 2.08,
Cerner may request within thirty (30) days of each of the fourth and fifth
anniversary of this Agreement that Synetic (or Avicenna or an Affiliate of
Synetic, at Synetic's option) purchase all Shares held by Cerner at a purchase
price equal to their Fair Value. Such purchase shall, at Synetic's option, be
for cash or common stock of Synetic (valued at Fair Value), and shall be
completed within two months from that date of Cerner's request.
For the purposes of this Section 2.08, a "reasonable effort" to achieve a Public
Offering shall require the consultation by the Company with an investment bank
of national reputation experienced in initial public offerings, upon whose
advice the Company shall rely to determine whether a successful Public Offering
could be made, having regard to the Company's business and general financial
market conditions.
ARTICLE III
RESTRICTIONS ON TRANSFER
SECTION 3.01. General Restriction. Each Stockholder agrees that it will
not, directly or indirectly, make or solicit any Sale of, or create, incur,
solicit or assume any
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15
Encumbrance with respect to, any Share, except in compliance with the Securities
Act and this Agreement.
SECTION 3.02. Legends. (a) The Company shall affix to each certificate
evidencing Shares a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF TRANSFER OF SUCH
SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS
MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
OR SUCH ACT DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT, DATED AS
OF JANUARY 2, 1999, AS IT MAY THEREAFTER BE AMENDED, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS
AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.
THE HOLDER OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE IS ENTITLED TO
CERTAIN RIGHTS AND SUBJECT TO CERTAIN OBLIGATIONS AS SET FORTH IN A
STOCKHOLDERS' AGREEMENT, DATED AS OF JANUARY 2, 1999, AS IT MAY THEREAFTER
BE AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE ISSUER."
(b) In the event that any Shares shall cease to be Restricted Shares,
the Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such Shares without the first paragraph of
the legend required by Section 3.02(a) endorsed thereon; provided, however, that
such holder shall furnish the Company or its transfer agent such certificates,
legal opinions or other information as the Company or its transfer agent may
reasonably require to confirm that the legend is not required on such
certificate. In the event that any Shares shall cease to be subject to the
restrictions on transfer set forth in this Agreement, the Company shall, upon
the written request of the holder thereof, issue to such holder a new
certificate evidencing such Shares without the second paragraph of the legend
required by Section 3.02(a). In the event that any Shares shall cease to be
entitled to any rights and subject to any obligations set forth in this
Agreement, the Company shall, upon the written
<PAGE>
16
request of the holder thereof, issue to such holder a new certificate evidencing
such Shares without the third paragraph of the legend required by Section
3.02(a).
SECTION 3.03. Certain Restrictions on Transfer. Each Stockholder agrees
that it will not, directly or indirectly, make or solicit any Sale of, or
create, incur, solicit or assume any Encumbrance with respect to, any Share held
by such Stockholder, and Synetic agrees that it will not, directly or
indirectly, make or solicit any Sale of, or create, incur, solicit or assume any
Encumbrance with respect to any of the capital stock of Avicenna ("Avicenna
Stock"), other than (a) any Sale or Encumbrance incurred to a Permitted
Transferee; (b) any Sale made or Encumbrance incurred by Cerner or its Permitted
Transferees, if any, after the first date that is after the later of January 2,
2001 and the end of the IPO Lock-Up Period; provided, however, that such Sale or
Encumbrance is allowed prior to January 2, 2001 if the IPO Lock-Up Period has
ended and Sales are made or Encumbrances incurred by Synetic, Avicenna or their
respective Permitted Transferees pursuant to Section 3.03(c), such Sales or
Encumbrances by Cerner or its Permitted Transferees to be of a percentage of the
total Shares it then owns which is no greater than the percentage of total
Shares owned by Synetic, Avicenna or their respective Permitted Transferees
which are sold or encumbered pursuant to Section 3.03(c); (c) any Sale that is
made or Encumbrance incurred by Synetic, Avicenna or their respective Permitted
Transferees, if any; provided, however, that if such Sale is made prior to the
time that the Company first becomes a Public Company, such Sale shall be made in
compliance with the procedures, and subject to the limitations, of the
"tag-along" rights or the "drag-along" rights set forth in Sections 3.04 and
3.05, respectively; provided, further, that Avicenna and its Permitted
Transferees shall not make any such sale during the IPO Lock-Up Period; (d) any
Sale pursuant to a Public Offering; (e) any Sale of Shares of Common Stock
pursuant to a Rule 144 Transaction so long as immediately prior to, and
immediately after the consummation of, such Rule 144 Transaction the Company is
a Public Company; or (f) any Sale by Cerner or its Permitted Transferees to
Avicenna pursuant to Section 2.03 above. Notwithstanding the foregoing, except
as otherwise expressly provided in this Agreement, (x) all Sales permitted by
the foregoing clauses (a) through (f) shall be subject to, and shall not be made
other than in compliance with, the provisions of Sections 3.01, 3.02, 3.06, and
3.07, and (y) no Sales or Encumbrances of Avicenna Stock permitted above may be
made if Avicenna acquires any assets or assumes any liabilities, other than its
Common Stock and its rights and obligations under this Agreement and the
Ancillary Agreements.
SECTION 3.04. "Tag-Along" Rights. (a) (i) So long as (A) the Company is
not a Public Company and (B) Avicenna and its Permitted Transferees, if any,
own, in the aggregate, Shares representing at least 25% of the Shares of Common
Stock then outstanding, neither Synetic nor Avicenna nor any of their Permitted
Transferees shall, in any transaction or series of related transactions,
directly or indirectly, make any Sale of or otherwise dispose of for value any
shares of Common Stock or Avicenna Stock held by them to any Third Party or
Third Parties, unless the terms and conditions of such Sale or other disposition
shall include an offer to include, at the option of each of the other
Stockholders other than Avicenna and its Permitted Transferees (for purposes of
this Section 3.04, the "Other Stockholders"), in such Sale or other disposition
to
<PAGE>
17
the Third Party or Third Parties, the number of shares of Common Stock then
owned by each Other Stockholder, as determined by Section 3.04(a)(iii).
(ii) If, (A) so long as the Company is not a Public Company and (B)
Avicenna and its Permitted Transferees, if any, own, in the aggregate, Shares
representing at least 25% of the Shares of Common Stock then outstanding,
Avicenna and/or any of its Permitted Transferees receives from a Third Party or
Third Parties a bona fide offer or offers to purchase or otherwise acquire (for
purposes of this Section an "Offer") any shares of Common Stock held by Avicenna
or such Permitted Transferees or any Avicenna Stock held by Synetic or its
Permitted Transferees (both such Common Stock or Avicenna Stock for purposes of
this Section 3.04, the "Offered Shares"), and Synetic, Avicenna and/or any of
their Permitted Transferees intends to sell such Offered Shares to such Third
Party or Third Parties, then Synetic, Avicenna and all of their Permitted
Transferees (for purposes of this Section 3.04, the "Prospective Sellers") shall
jointly provide written notice (for purposes of this Section 3.04, the "Offer
Notice") of such Offer to each of the Other Stockholders not later than thirty
(30) days prior to the consummation of the Sale or other disposition
contemplated by the Offer. The Offer Notice shall identify the Offered Shares,
either (x) the price offered for such Offered Shares if the Offered Shares are
Common Stock, or (y) if the Offered Shares are Avicenna Stock, the price offered
for such Offered Shares multiplied by a fraction, the numerator of which shall
be the total number of shares of Avicenna Stock outstanding, and the denominator
of which shall be the total number of shares of Common Stock owned by Avicenna
and its Permitted Transferees (either of such prices, for purposes of this
Section 3.04, the "Offer Price"), all other material terms and conditions of the
Offer and, in the case of an Offer in which the consideration payable for
Offered Shares consists in whole or in part of consideration other than cash,
such information relating to such other consideration as may be reasonably
necessary to ascertain the value of such other consideration.
(iii) Each of the Other Stockholders shall have the right and option,
for the period of twenty (20) days after the date the Offer Notice is given (for
purposes of this Section 3.04, the "Notice Period"), to notify the Prospective
Sellers of its interest in selling or otherwise disposing of up to the Pro Rata
Portion of its Common Stock pursuant to the Offer. For purposes of this
subsection 3.04, "Pro Rata Portion" means, with respect to each Other
Stockholder, a number of shares of Common Stock equal to either, (a) if the
Offered Shares are Common Stock, the product of (x) the total number of shares
of Common Stock then owned by such Other Stockholder, multiplied by (y) a
fraction, the numerator of which shall be the total number of shares of Common
Stock proposed to be sold by the Prospective Sellers, and the denominator of
which shall be the total number of shares of Common Stock then owned by the
Prospective Sellers, or (b) if the Offered Shares are Avicenna Stock, the
product of (x) the total number of shares of Common Stock then owned by such
Other Stockholder, multiplied by (y) a fraction, the numerator of which shall be
the total number of shares of Avicenna Stock proposed to be sold by the
Prospective Sellers and the denominator of which shall be the total number of
shares of Avicenna Stock then owned by the Prospective Sellers.
<PAGE>
18
(iv) Each Other Stockholder desiring to exercise the "tag-along" right
provided for in this Section 3.04 shall, prior to the expiration of the Notice
Period, provide the Prospective Sellers with a written notice specifying the
number of shares of Common Stock as to which such Other Stockholder has an
interest in selling or otherwise disposing of pursuant to the Offer (for
purposes of this Section 3.04, a "Notice of Interest"), and shall deliver to the
Prospective Sellers, to be held in trust, (A) the certificate or certificates
evidencing the shares of Common Stock to be sold or otherwise disposed of by
such Other Stockholder duly endorsed in blank or accompanied by written
instruments of transfer in form reasonably satisfactory to the Prospective
Sellers executed by such Other Stockholder; (B) an instrument of assignment
reasonably satisfactory to the Prospective Sellers assigning, as of the
consummation of the Sale or other disposition to the Third Party or Third
Parties, all of such Other Stockholder's rights under this Agreement with
respect to the shares of Common Stock to be sold or otherwise disposed of; (C) a
special irrevocable power-of-attorney authorizing the Prospective Sellers, on
behalf of such Other Stockholder, to sell or otherwise dispose of such shares of
Common Stock pursuant to the terms of the Offer (at a price equal to the Offer
Price) and to take all such actions as shall be necessary or appropriate in
order to consummate such Sale or other disposition; and (D) wire transfer
instruction for payment of the purchase price for the purchase of the Other
Stockholder's Shares. Delivery of such certificate or certificates evidencing
the shares of Common Stock to be sold, the instrument of assignment, the special
irrevocable power-of-attorney authorizing the Prospective Sellers and wire
transfer instructions, on behalf of such Other Stockholder, to sell or otherwise
dispose of such Shares shall constitute an irrevocable election by such Other
Stockholder to authorize and permit the Prospective Sellers to sell such shares
of Common Stock, on behalf of such Other Stockholder, pursuant to the Offer. The
Prospective Sellers shall cause the Third Party to whom the Shares of the Other
Stockholders are being sold or otherwise disposed to deliver the appropriate
amount of immediately available funds for the purchase of such Shares to the
Other Stockholders pursuant to the wire transfer instructions described in
clause (D) above. Subject to the last sentence of this paragraph, if in
connection with such Sale or other disposition, the Prospective Sellers are to
receive consideration other than cash, Cash Equivalents or Marketable
Securities, each of the Other Stockholders shall have the right to elect to
receive in lieu thereof Cash or Cash Equivalents equal to the Fair Value of the
consideration otherwise payable to such Other Stockholder. Such Other
Stockholder shall make such election in the Notice of Interest provided to
Prospective Sellers. Notwithstanding the previous two sentences, in the event
the terms of such Sale provide that the Third Party shall be under an obligation
to, within a definite time period, make cash, Cash Equivalents or Marketable
Securities available to the Company and each of the Other Stockholders, on the
same terms to each, in exchange for such consideration received, any election to
receive cash by the Other Stockholders shall be of no force and effect.
(v) Promptly after the consummation of the Sale or other disposition of
the shares of Common Stock of the Prospective Sellers and the shares of Common
Stock of the Other Stockholders to the Third Party or Third Parties pursuant to
the Offer, the Other Stockholders shall pay to the Prospective Sellers the Other
Stockholders' pro rata portion of the documented
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19
and reasonable expenses (including, without limitation, reasonable legal
expenses) actually incurred by the Prospective Sellers in connection with such
sale or disposition.
(vi) If at the end of the Notice Period any Other Stockholder shall not
have given a Notice of Interest (and delivered all other required documents)
with respect to some or all of its shares of Common Stock, such Other
Stockholder will be deemed to have waived all of its rights under this Section
3.04 with respect to the portion of its shares of Common Stock for which a
Notice of Interest shall not have been given. If, at the end of the 180-day
period following the giving of the Offer Notice, the Prospective Sellers shall
not have completed the Sale or other disposition of all the Offered Shares and
the shares of Common Stock with respect to which Other Stockholders shall have
given Notices of Interest pursuant to this Section 3.04, the Prospective Sellers
shall return to such Other Stockholders all certificates evidencing the unsold
shares of Common Stock that such Other Stockholders delivered for Sale or other
disposition pursuant to this Section 3.04 and such Other Stockholders' related
instruments of assignment and powers-of-attorney and the Prospective Sellers
shall not consummate the Sale or other disposition with such Third Party or
Third Parties without again complying with the terms and procedures set forth in
this Section 3.04, including providing to the Other Stockholders another Offer
Notice.
(vii) Except as expressly provided in this Section 3.04, no Prospective
Seller shall have any obligation to any Other Stockholder with respect to the
Sale or other disposition of any shares of Common Stock owned by any Other
Stockholder in connection with this Section 3.04. Anything herein to the
contrary notwithstanding and irrespective of whether any Notice of Interest
shall have been given, no Prospective Seller shall have any obligation to any
Other Stockholder to sell or otherwise dispose of any Offered Shares pursuant to
this Section 3.04 as a result of any decision by such Prospective Seller not to
accept or consummate any Offer or Sale or other disposition with respect to the
Offered Shares (it being understood that any and all such decisions shall be
made by such Prospective Seller in its sole discretion). Except as otherwise
permitted herein, no Other Stockholder shall be entitled to sell or otherwise
dispose of Shares directly to any Third Party or Parties pursuant to an Offer
(it being understood that all such sales and other dispositions shall be made
only on the terms and pursuant to the procedures set forth in this Section
3.04).
(b) Anything in this Section 3.04 to the contrary notwithstanding, in
the event that Synetic or its Permitted Transferees shall exercise the
"drag-along" rights referred to in Section 3.05, the Other Stockholders shall
thereafter have no right pursuant to this Section 3.04 to participate in any
such sale. Nothing in this Section 3.04 shall affect any of the obligations of
any of the Stockholders under any other provision of this Agreement.
SECTION 3.05. "Drag-Along" Rights. (a) Prior to such time as the
Company first becomes a Public Company and if Avicenna or its Permitted
Transferees, if any, own in the aggregate, Shares representing at least
twenty-five (25%) of the Shares of Common Stock then outstanding, if Synetic or
Avicenna and/or any of their Permitted Transferees, if any, shall, in any
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20
transaction or series of related transactions, directly or indirectly, propose
to make a Sale for cash, Cash Equivalents or Marketable Securities of shares of
Common Stock or Avicenna Stock held by them (for purposes of this Section 3.05,
the "Controlling Shares") to a Third Party or Third Parties (for purposes of
this Section 3.05, an "Offer") and as a result of such Sale such Third Party or
Third Parties and the members of any Affiliated Group of such Third Party or
Third Parties would own a majority of the then outstanding shares of Common
Stock or Avicenna Stock, Avicenna and/or its Permitted Transferees may, at their
option, require each of the other Stockholders (for purposes of this Section
3.05, the "Other Stockholders") to sell the Pro Rata Portion of its Common Stock
to such Third Party or Third Parties either (i) if the Offer was made in respect
to Common Stock, for the same consideration per share and otherwise upon the
same terms and conditions upon which Avicenna and/or its Permitted Transferees
sell their shares, or (ii) if the Offer was made in respect to Avicenna Stock,
for a consideration equal to the consideration received per share of Avicenna
Stock by Synetic or its Permitted Transferees multiplied by a fraction, the
numerator of which shall be the total number of shares of Avicenna Stock
outstanding and the denominator of which shall be the total number of shares of
Common Stock owned by Avicenna and its Permitted Transferees. For purposes of
this Section 3.05, "Pro Rata Portion" means, with respect to each Other
Stockholder, either (a) if the Controlling Shares are Common Stock, a number of
shares of Common Stock equal to the product of (x) the total number of shares of
Common Stock then owned by such Other Stockholder, multiplied by (y) a fraction,
the numerator of which shall be the total number of shares of Common Stock
proposed to be sold by Avicenna and/or its Permitted Transferees, and the
denominator of which shall be the total number of shares of Common Stock then
owned by Avicenna and/or its Permitted Transferees, or (b) if the Controlling
Shares are Avicenna Stock, the product of (x) the total number of shares of
Common Stock then owned by such Other Stockholder, multiplied by (y) a fraction,
the numerator of which shall be the total number of shares of Avicenna Stock
proposed to be sold by Synetic and/or its Permitted Transferees, and the
denominator of which shall be the total number of shares of Avicenna Stock then
owned by Synetic and/or its Permitted Transferees.
(b) (i) Avicenna and/or such Permitted Transferees shall provide a
written notice (for purposes of this Section 3.05, the "Offer Notice") of such
Offer to each of the Other Stockholders not later than the fifteenth Business
Day prior to the consummation of the Sale contemplated by the Offer. The Offer
Notice shall contain written notice of the exercise of the "drag-along" rights
of Synetic or Avicenna and/or their Permitted Transferees pursuant to Section
3.05(a), setting forth the consideration per share of Common Stock to be paid by
the Third Party or Third Parties and the other material terms and conditions of
the Offer. Within 10 Business Days following the date the Offer Notice is given,
each of the Other Stockholders shall deliver to Avicenna and/or such Permitted
Transferees, to be held in trust, (A) the certificate or certificates evidencing
the Pro Rata Portion of Common Stock owned or held by such Other Stockholder
duly endorsed in blank or accompanied by written instruments of transfer in form
reasonably satisfactory to Avicenna and/or such Permitted Transferees executed
by such Other Stockholder, (B) a special irrevocable power-of-attorney
authorizing Avicenna and/or such Permitted Transferees, on behalf of such Other
Stockholder, to sell or otherwise dispose of such
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21
shares of Common Stock pursuant to the terms of the Offer and to take all such
actions as shall be necessary or appropriate in order to consummate such sale or
disposition, and (C) wire transfer instructions for payment of the purchase
price of the Other Stockholder's Shares; provided that no Other Stockholder
shall have any liability to any purchaser of the shares of Common Stock pursuant
to the Offer in excess of the aggregate proceeds received by such Other
Stockholder in exchange for its shares of Common Stock. Synetic or Avicenna
and/or their Permitted Transferees shall cause the Third Party to whom the
Shares of the Other Stockholders are being sold or otherwise disposed to deliver
the appropriate amount of immediately available funds for the purchase of such
Shares to the Other Stockholders pursuant to the wire transfer instructions
described in clause (C) above. If in connection with such Sale or other
disposition, Synetic or Avicenna and/or their Permitted Transferees are to
receive consideration other than cash, Cash Equivalents or Marketable
Securities, each Other Stockholder shall have the right to elect to receive in
lieu thereof cash or Cash Equivalents equal to the Fair Value of the
consideration otherwise payable to such Other Stockholder. Such Other
Stockholder shall make such election in a written notice to Synetic or Avicenna
and/or their Permitted Transferees within ten (10) Business Days following the
date the Offer Notice is provided to such Other Stockholder.
(ii) Promptly after the consummation of the Sale of shares to the Third
Party or Third Parties pursuant to the Offer, the Other Stockholders shall pay
to Synetic or Avicenna and/or their Permitted Transferees, as the case may be,
the Other Stockholders' pro rata portion of the documented and reasonable
expenses (including, without limitation, reasonable legal expenses) actually
incurred by Synetic or Avicenna and/or their Permitted Transferees in connection
with such Sale.
(iii) If, at the end of the 180-day period following the giving of the
Offer Notice, Synetic or Avicenna and/or their Permitted Transferees shall not
have completed the Sale of all the Controlling Shares and the Other
Stockholders' shares delivered pursuant to Section 3.05(b)(i), Synetic or
Avicenna and/or their Permitted Transferees shall return to each of the Other
Stockholders all certificates evidencing unsold shares and related
powers-of-attorney that such Other Stockholder delivered pursuant to this
Section 3.05 and Synetic or Avicenna and/or their Permitted Transferees shall
not consummate the Sale or other disposition with such Third Party or Third
Parties without again complying with the terms and procedures set forth in this
Section 3.05, including providing to the Other Stockholders another Offer
Notice.
(iv) Except as expressly provided in this Section 3.05, Synetic or
Avicenna and their Permitted Transferees, if any, shall have no obligation to
any Other Stockholder with respect to the Sale or other disposition of any
shares owned by any Other Stockholder in connection with this Section 3.05.
Anything herein to the contrary notwithstanding, Synetic or Avicenna and their
Permitted Transferees, if any, shall have no obligation to any Other Stockholder
to sell or otherwise dispose of any Controlling Shares pursuant to this Section
3.05 as a result of any decision by Synetic or Avicenna and/or their Permitted
Transferees not to accept or consummate any Offer or Sale with respect to the
Controlling Shares (it being understood that any and all such
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22
decisions shall be made by Synetic or Avicenna and/or their Permitted
Transferees in their sole discretion). No Other Stockholder shall be entitled to
make any Sale of shares directly to any Third Party pursuant to an Offer (it
being understood that all such Sales shall be made only on the terms and
pursuant to the procedures set forth in this Section 3.05). Nothing in this
Section 3.05 shall affect any of the obligations of any of the Stockholders
under any other provision of this Agreement.
(c) Anything in this Section 3.05 to the contrary notwithstanding, the
provisions of this Section 3.05 shall not be applicable from such time as the
Company becomes a Public Company and shall not be applicable to: (i) any Sale of
Shares pursuant to a Public Offering; or (ii) any Sale of Shares in a Rule 144
Transaction so long as immediately prior to, and immediately after the
consummation of, such Rule 144 Transaction the Company is a Public Company.
SECTION 3.06. Certain Persons to Execute Agreement. (a) Each
Stockholder agrees that it will not directly or indirectly make any Sale of, or
create, incur or assume any Encumbrance with respect to, any Shares held by such
Stockholder, unless, prior to the consummation of any such Sale or the creation,
incurrence or assumption of any such Encumbrance, the Person to whom such Sale
is proposed to be made or the Person in whose favor such Encumbrance is proposed
to be created, incurred or assumed (for purposes of this Section 3.06, a
"Prospective Transferee") (i) executes and delivers to the Company an agreement,
in form and substance reasonably satisfactory to the Company, whereby such
Prospective Transferee confirms that, with respect to the Shares that are the
subject of such Sale or Encumbrance, it shall be deemed to be a "Stockholder"
for the purposes of this Agreement and agrees to be bound by all the terms of
this Agreement and (ii) delivers to the Company a written opinion of counsel,
satisfactory in form and substance to the Company, to the effect that the
agreement referred to above that is delivered by such Prospective Transferee is
a legal, valid and binding obligation of such Prospective Transferee enforceable
against such Prospective Transferee in accordance with its terms. Upon the
execution and delivery by such Prospective Transferee of the agreement referred
to in clause (i) of the next preceding sentence and, if required, the delivery
of the opinion of counsel referred to in clause (ii) of the next preceding
sentence, such Prospective Transferee shall be deemed a "Stockholder" for the
purposes of this Agreement, and shall have the rights and be subject to the
obligations of a Stockholder hereunder with respect to the Shares held by such
Prospective Transferee or in respect of which such Encumbrance shall have been
created, incurred or assumed.
(b) Anything in this Section 3.06 to the contrary notwithstanding, the
provisions of this Section 3.06 will not be applicable to (i) any Sale of Shares
pursuant to a Public Offering or (ii) any Sale of Shares in a Rule 144
Transaction so long as immediately prior to, and immediately after the
consummation of, such Rule 144 Transaction the Company is a Public Company.
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23
SECTION 3.07. Improper Sale or Encumbrance. Any attempt to make any
Sale of, or create, incur or assume any Encumbrance with respect to, any Shares
not in compliance with this Agreement shall be null and void and the Company
shall not give any effect in the Company's stock records to such attempted Sale
or Encumbrance.
ARTICLE IV
REGISTRATION RIGHTS
SECTION 4.01. Demand Registration. (a) At any time during the period
commencing at the later of January 2, 2001 and the completion of the IPO Lock-Up
Period, and ending three (3) years thereafter, Cerner may make a written request
for registration under the Securities Act of all or part of its Registrable
Securities (a "Demand Registration") for the disposition of such Registrable
Securities pursuant to an underwritten public offering; provided, however, that
the Company shall not be obligated to effect more than two Demand Registrations;
and provided, further, however, that each Demand Registration cover at least the
Minimum Registration Amount. A request for a Demand Registration will specify
the number of shares of Registrable Securities proposed to be sold. A
registration will not count as a Demand Registration until the registration
statement relating thereto has become effective. Cerner shall not request a
Demand Registration during the six-month period following the effective date of
the registration statement relating to a prior Demand Registration.
(b) Notwithstanding any other provision hereof to the contrary, the
Company shall be entitled, in its sole discretion, to elect once with respect to
each of the Demand Registrations it may be requested to effect to delay the
filing of a registration statement pursuant to the terms hereof for up to 120
days from the date of the request therefor under Section 4.01(a).
(c) The Company shall have the right to select the managing underwriter
or underwriters for the underwritten public offering to which each Demand
Registration relates, subject to the approval of the Cerner, which shall not be
unreasonably withheld.
(d) If the managing underwriter or underwriters shall advise the
Company and Cerner that, in the view of such underwriters, Cerner shall have
requested the registration of a number of Registrable Securities that exceeds
the maximum number of securities that can be sold without having an adverse
effect on a Demand Registration, including the price at which such securities
can be sold, the Company shall not be required to register shares in excess of
such maximum number.
(e) The Company shall co-operate fully, and provide such assistance as
Cerner and its advisors shall reasonably require, to achieve each Demand
Registration. Such co-operation and assistance shall include, without
limitation, providing information about the
<PAGE>
24
Company and making representatives available to Cerner and its advisers for such
assistance or as is reasonably necessary to market and implement a successful
Demand Registration.
(f) The Company shall pay all Registration Expenses in connection with
each Demand Registration.
SECTION 4.02. Registration Procedures. Whenever Cerner requests that
any Registrable Securities be registered pursuant to Section 4.01 hereof, and
subject to Sections 4.01(b) and 4.01(d), the Company will use its reasonable
efforts to effect the registration of such Registrable Securities as promptly as
practicable, and in connection with any such request:
(a) The Company will prepare and file with the Commission a
registration statement on any form for which the Company then qualifies and
which counsel for the Company shall deem appropriate and available for the
sale of the Registrable Securities to be registered thereunder and in
accordance with the distribution thereof pursuant to an underwritten public
offering, and use its reasonable efforts to cause such filed registration
statement to become and remain effective for a period of not less than the
earlier of (i) the completion of the sale of all of the Registrable
Securities and (ii) 90 days.
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to Cerner and each
managing underwriter copies thereof, and thereafter furnish to Cerner and
each such underwriter such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto and documents incorporated by reference therein) and the prospectus
included in such registration statement (including each preliminary
prospectus) as Cerner or such underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities.
(c) After the filing of the registration statement, the Company will
promptly notify Cerner of any stop order issued or, to the knowledge of the
Company, threatened to be issued by the Commission and take all necessary
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will endeavor to qualify the Registrable Securities for
offer and sale under such other securities or "blue sky" laws of such
jurisdictions in the United States as Cerner reasonably (in light of the
plan of distribution of such Registrable Securities pursuant to an
underwritten public offering) requests; provided, however, that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such jurisdiction
or (iii) consent to general service of process in any such jurisdiction.
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25
(e) The Company will, as promptly as practicable, notify Cerner, at any
time when a prospectus relating to the sale of the Registrable Securities is
required by law to be delivered in connection with sales by an underwriter
or dealer, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Registrable Securities, such prospectus will not
contain an untrue statement of a material fact or omit to state any 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, and as promptly as practicable make available to Cerner and to
the underwriters any such supplement or amendment. Cerner agrees that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in the preceding sentence, Cerner will forthwith discontinue
the offer and sale of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until receipt of the copies
of such supplemented or amended prospectus and, if so directed by the
Company, Cerner will deliver to the Company all copies, other than permanent
file copies then in Cerner's possession, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice.
In the event the Company shall give such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective as provided in Section 4.02(a) hereof by the number of days during
the period from and including the date of the giving of such notice to the
date when the Company shall make available to Cerner such supplemented or
amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement in customary form and satisfactory in form and
substance to the Company) and take such other actions as are reasonably
required in order to expedite or facilitate the sale of such Registrable
Securities.
(g) The Company will furnish to Cerner and to each managing underwriter
a signed counterpart, addressed to Cerner and each underwriter, of (i) an
opinion or opinions of counsel to the Company and (ii) a "comfort" letter or
"comfort" letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or "comfort" letters delivered to such parties.
(h) The Company shall make available for inspection by Cerner, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by Cerner or
underwriter (collectively for purposes of this clause (h), the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company reasonably necessary to enable the
Inspectors to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant
or agent in connection with such registration statement.
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26
(i) The Company shall provide a transfer agent and registrar for all
Registrable Securities included in such registration statement not later
than the effective date of such registration statement.
(j) The Company will use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange or quotation system on
which similar securities issued by the Company are then listed.
The Company may require Cerner promptly to furnish in writing to the Company
such information regarding Cerner, the plan of distribution of the Registrable
Securities and other information as the Company may from time to time reasonably
request or as may be legally required in connection with such registration.
SECTION 4.03 Indemnification. (a) The Company agrees to indemnify and
hold harmless Cerner, its employees, officers and directors, and each person, if
any, who controls Cerner within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Parent shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
furnished to the Company by or on behalf of Cerner; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of Cerner if a copy of the current prospectus was not
provided to a purchaser of the Registrable Securities and such current
prospectus would have cured the defect giving rise to such loss, claim, damage
or liability or for any sales occurring after the Company has informed Cerner
under Section 4.02(e) and prior to the delivery by the Company of any supplement
or amendment to such prospectus. The Company also agrees to indemnify any
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of Cerner provided in this Section 4.03(a).
(b) Cerner agrees to indemnify and hold harmless the Company, its
officers and directors, and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
Cerner, but only with reference to information furnished by or on behalf of
Cerner for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Cerner also agrees to indemnify and hold harmless any
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters
<PAGE>
27
on substantially the same basis as that of the indemnification of the Company
provided in this Section 4.03(b) or on such other basis as such underwriters may
require.
(c) Any person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with respect to which its
seeks indemnification (provided, however, that the failure to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest may exist between such
indemnified and indemnifying parties with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party and in that case the indemnified party
shall have the right to participate in the conduct of such defense (provided,
however, that it will pay for the fees of its own counsel.) Whether or not such
defense is assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving of the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other such indemnified party with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
counsel or counsels.
SECTION 4.04. Contribution. (a) If the indemnification provided for in
Section 4.03 is unavailable to the indemnified parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities, in such proportion as is appropriate to reflect
the relative fault of the Company, Cerner and the underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company, Cerner and the underwriters 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 such party and the parties'
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(b) The Company and Cerner agree that it would not be just and
equitable if contribution pursuant to this Section 4.04 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 in Section 4.04(a).
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28
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 4.04(a) shall be deemed to
include, subject to the limitations set forth above, 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
Section 4.04, no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the securities
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, and Cerner shall not be required to contribute any amount
in excess of the amount by which the net proceeds of the offering (before
deducting expenses) received by Cerner exceeds the amount of any damages which
Cerner 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 Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 4.05. Right to Participate. If Avicenna, Synetic or any of
their Permitted Transferees sell any of their Capital Stock of the Company in
the Company's first Public Offering, Cerner shall have the right to include
within such Public Offering a number of Shares owned by Cerner and its
Affiliates equal to the total number of Shares owned by Cerner and its
Affiliates multiplied by a fraction the numerator of which shall be the number
of shares of Capital Stock to be sold by Avicenna, Synetic and any of their
Affiliates and Permitted Transferees and the denominator of which is the total
number of shares of Capital Stock owned by all of them. Cerner shall participate
in such Public Offering on the same basis as Avicenna, Synetic and their
Affiliates and Permitted Transferees.
SECTION 4.06. No Assignment. No assignment of the registration rights
granted to Cerner in this Article IV, in whole or in part, shall be permitted to
any transferee of Registrable Securities other than a Permitted Transferee of
Cerner.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Termination. Unless otherwise expressly provided herein,
the obligations of the parties hereto shall terminate on the later of the fifth
anniversary of the execution and delivery hereof or the date upon which Cerner
ceases to own any Common Stock.
SECTION 5.02. Conflict with Certificate of Incorporation or By-laws of
the Company. In the event any provision of this Agreement conflicts with any
provision of the Certificate of Incorporation or the By-laws of the Company, the
terms of this Agreement shall
<PAGE>
29
control, and each Stockholder shall vote all shares of Common Stock which it
holds of record, and shall take all actions necessary, to ensure that at all
times the Certificate of Incorporation and the By-laws of the Company do not
conflict with any provision of this Agreement.
SECTION 5.03. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 5.04. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 5.04):
(a) if to the Company:
c/o Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07407
Telecopy No.: (201) 703-3401
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
(b) if to Avicenna or Synetic:
Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07407
Telecopy No.: (201) 703-3401
Attention: General Counsel
<PAGE>
30
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
(c) if to Cerner:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Telecopy: (816) 474-1742
Attention: President
with a copy to:
Cerner Corporation
2900 Rockcreeck Parkway
Kansas City, Missouri 64117
Telecopy No.: (816) 474-1742
Attention: General Counsel
SECTION 5.05. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the Ancillary Agreements or the transactions
contemplated hereby or otherwise communicate with any news media without the
prior written consent of the other party, and the parties shall cooperate as to
the timing and contents of any such press release or public announcement.
SECTION 5.06. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 5.07. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law,
governmental regulation or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate
<PAGE>
31
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
SECTION 5.08. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, with
respect to the subject matter hereof.
SECTION 5.09. Assignment. This Agreement shall not be assigned without
the express written consent of the parties (which consent may be granted or
withheld in the sole discretion of any party), except that any party hereto may
assign its rights hereunder to an Affiliate of such party; provided, however,
that any such assignment shall not relieve the assigning party of its
obligations hereunder; provided, further, however, that any party may, without
the written consent of any other party, assign and delegate this Agreement and
its rights and obligations hereunder in connection with a merger, consolidation
or sale of all or substantially all of its assets (which sale shall include the
assignment and assumption of all rights and obligations under the Ancillary
Agreements).
SECTION 5.10. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and successors and nothing herein, express or implied, is
intended to or shall confer upon any other person or entity, any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 5.11. Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, each of the
parties.
SECTION 5.12. Governing Law. This Agreement shall be governed by the
laws of the State of New York.
SECTION 5.13. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 5.14. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
<PAGE>
32
SECTION 5.15. Payments. Except as otherwise provided herein, all
payments to be made in cash pursuant to this Agreement shall be made by
certified check or by wire transfer of immediately available funds to an account
designated by the recipient of such payment.
SECTION 5.16. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement, the Ancillary Agreements or the
transactions contemplated hereby and thereby and for any counterclaim therein.
<PAGE>
33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
SYNETIC HEALTHCARE
COMMUNICATIONS, INC.
By
-------------------------------
Name:
Title:
AVICENNA SYSTEMS CORPORATION
By
-------------------------------
Name:
Title:
SYNETIC, INC.
By
-------------------------------
Name:
Title:
CERNER CORPORATION
By
-------------------------------
Name:
Title:
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (this "Agreement"), dated as of
January 2, 1999, among SYNETIC HEALTHCARE COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), SYNETIC, INC., a Delaware corporation ("Synetic"),
Avicenna Systems Corporation, a Massachusetts corporation ("Avicenna") and
wholly owned subsidiary of Synetic, and CERNER CORPORATION, a Delaware
corporation ("Cerner").
WHEREAS, the Company and Cerner have entered into a
Subscription Agreement, dated as of January 2, 1999 (the "Subscription
Agreement"), pursuant to which Cerner agreed to subscribe for and purchase from
the Company, and the Company agreed to issue and sell to Cerner, 248,439 shares
of the Company's common stock, par value $.01 per share, in exchange for Cerner
agreeing to enter into various agreements, including this Agreement; and
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the consummation of the transactions
contemplated by the Subscription Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control
with, such specified Person.
"CareXchange" means the transaction environment, consisting of
the Company's host computer or computers and a network or networks set
up by the Company to enable physicians and their staff to perform
information activities and transactions by interfacing between their
computers, those of the Company, and those of healthcare payers,
laboratories and pharmacies.
<PAGE>
2
"Company Business" means the provision of "extra-enterprise"
prescription, laboratory and managed care transaction and messaging
services (the "Services") that connect physicians with Payers,
pharmacies and laboratories, which shall include, without limitation,
connection to and management of Services with all PBM systems;
connection to and management of Services with all Payer systems
(including third party payers and direct payers (e.g., employers));
connection to and management of Services with all physicians and other
provider systems; connection to and management of Services with
healthcare suppliers (e.g., pharmacies, laboratories); connection to
and management of Services with consumers; and connection to and
management of services with other data switches (e.g., clearing
houses); and any mutually agreed to extension or modification of the
foregoing.
"Distribution Partner" means a Person that provides software
to physicians and physician office desktops and has (i) the right to
integrate the Company's core software or services into its physician
desktops which provides or enables access to the CareXchange and/or
(ii) the ability to distribute such integrated software to physicians,
subject to restrictions and scope of use of such licensed technology.
"HMO" means a Health Maintenance Organization.
"HNV" means Health Network Ventures, Inc., a Delaware
corporation.
"IDN" or "Integrated Delivery Network" means a legally
structured alliance among one or more hospitals, physicians and other
healthcare providers (laboratories, imaging centers, etc.) that can
provide substantially all health care services to a defined geographic
population of patients in a coordinated fashion.
"Inter-Exchange Partner" means a Person that provides networks
to Payers, physicians or suppliers of health care products or services
and has the right to connect to the Company's network for the purpose
of exchanging reciprocal services between its network and the Company's
network of associated Payers, physicians and suppliers.
"Marketing Agent" means a Person that has the right to sell
services of the Company to certain Payers or suppliers of health care
products or services, at prices, terms and technical requirements
determined by the Company.
"Marketing Agreement" means the marketing agreement among the
Company and Cerner, dated as of the date hereof.
"Payer" means any HMO, PBM, indemnity or other healthcare
insurer, self-funded health plan (including employers), union sponsored
plan, workers compensation entity or other source responsible for the
payment of fees and expenses for health care services.
<PAGE>
3
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"Restricted Period" means the shorter of:
(i) the longer of (v) the period from the date of
this Agreement until five years thereafter and (w) the period
from the date of this Agreement until expiration of one year
following the date from which Cerner is no longer the
beneficial owner of any Common Stock, and
(ii) the period from the date of this Agreement until
(x) the fourth anniversary of this Agreement in the event
Cerner transfers shares of Common Stock to Synetic in
accordance with Section 2.03(d) of the Stockholders Agreement
or (y) the third anniversary of this Agreement in the event
Cerner transfers shares of Common Stock to Synetic in
accordance with Section 2.03(e) of the Stockholders Agreement.
"Restricted Services" means the following "extra enterprise"
medical/healthcare transaction and messaging services to Payers,
medical laboratories, pharmacies and physicians, unless acting as a
Distribution Partner, Marketing Agent or Inter-Exchange Partner for the
Company:
(i) claims, claims status and remittance advice;
(ii) encounter submission;
(iii) eligibility, which may include benefit plan
detail;
(iv) referrals and authorizations;
(v) pre-certifications and authorizations;
(vi) prescription services; and
(vii) laboratory services (specifically, orders
and results linked to Payer rules).
"Synetic" means Synetic, Inc., a Delaware corporation.
"Stockholders Agreement" means the stockholders agreement
among Avicenna, Synetic, Cerner and the Company, dated as of the date
hereof.
<PAGE>
4
ARTICLE II
NON-COMPETITION
SECTION 2.01. Non-Competition of Cerner. (a) During the
Restricted Period, Cerner and its Affiliates (other than HNV) shall not,
directly or indirectly, provide any Restricted Services or, other than pursuant
to, or permitted by, the Marketing Agreement, act as a Marketing Agent or
Distribution Partner for any Restricted Services within the United States;
provided, however, that, the foregoing shall not prohibit Cerner or any of its
Affiliates from (i) providing intra-enterprise transaction and messaging
services (including HNV products and services) to IDNs and their owned Payers or
owned, affiliated or contracted medical laboratories, pharmacies and physicians
or (ii) contracting to license or otherwise provide technology, intellectual
property or services to any person or entity for intra-enterprise use, even
though the organization or entity may include a medical laboratory, Payer or
pharmaceutical company as part of its business (either as a division or
subsidiary).
(b) During the Restricted Period, without the prior written
consent of the Company, neither Cerner nor any of its Affiliates (other than
HNV) will, directly or indirectly, maintain an investment in any organization
(with the exception of HNV) which provides services which compete with the
Restricted Services as a primary component of its business. Nothing herein shall
prevent Cerner from maintaining an investment in a management services
organization.
(c) Cerner reserves the right to be an Inter-Exchange Partner
for the Kansas City metropolitan area, including to a Payer, IDN, employer,
laboratory, physician, insurance company or other entity involved in health care
or financing health care and any health care technology solution so long as any
extra-enterprise solution is capable of being connected to the CareXchange;
provided, however, that Cerner's right hereunder shall not extend to "extra-
enterprise" prescription services and laboratory services (specifically, orders
and results linked to Payer rules), which services shall be exclusively marketed
by the Company through Cerner.
(d) Nothing in Section 2.01(a), (b), (c) or (e) shall prohibit
Cerner or its Affiliates from performing the following functions or supporting
roles:
(i) allowing IDNs using Cerner software to connect to the
Company's competitor's national networks; provided, however, Cerner
will not actively market and distribute services as part of its desktop
product offering which compete with the Restricted Services;
(ii) providing Cerner software to physicians that allows such
physicians to connect to competitors of the Company's national
networks; provided, however, Cerner
<PAGE>
5
will not actively market and distribute services as part of its desktop
offering which compete with the Restricted Services;
(iii) providing services or technology to IDNs, who wish to
set up their own network of Payers and providers within their service
marketplace so long as such IDNs will be capable of being an
Inter-Exchange Partner to the Company; and
(iv) performing all services and providing all technology
reasonably necessary or desirable to fulfill Cerner's outstanding
proposal to Emphisource if the proposal is accepted in substantially
its current form as regards eligibility. In connection with such
proposal, Cerner shall not provide "extra-enterprise" prescription
services or laboratory services (specifically, orders and results
linked to payer rules) and with respect to other Restricted Services,
Cerner shall only provide such Restricted Services (whether on its own
or in conjunction with a third party), other than eligibility, if such
services cannot be provided by the Company on terms and pricing
comparable to those otherwise available to Cerner. In the event Cerner
is asked by Emphisource to respond to a new "request for information"
or a "request for proposal" after the date hereof, Cerner and the
Company shall cooperate and make such response jointly and such
response shall provide that, to the extent practicable, all Restricted
Services, other than eligibility, will be provided by the Company.
(e) Cerner agrees that:
(i) it will not market HNV's services to non-IDN Payers, but
Cerner maintains the right to sell HNV to IDNs;
(ii) with the exception of Open Engine technology and the
common "web-top", it will not transfer the Cerner technology relating
to the Company Business (either developed independently or jointly) to
HNV;
(iii) it will not share development and implementation staff
that are working directly on the Company's project with HNV;
(iv) it will ensure that the Company's confidential
information is not shared by Cerner with HNV; provided, however, that
this obligation shall not extend to any confidential information which
is lawfully in the possession of HNV from a third party; and
(v) will not license or otherwise provide technology to any
entity that will enable such entity to be a competitor of the Company
Business.
<PAGE>
6
(f) At no time shall Cerner take any action to enable its
desktop technology that would have the effect of forcing physicians that are
using Restricted Services to switch via a new release or an interim release of a
Cerner physician desktop office product or otherwise to an exchange or service
that is in competition with the Company, or that would impede or prevent access
to CareXchange.
SECTION 2.02. Non-Competition of the Company. (a) During the
Restricted Period, neither the Company nor any of its Affiliates will, directly
or indirectly, engage in the business of providing intra-enterprise process
automation software products or services, whether on a locally installed or
remotely provided basis, provided, however, that the foregoing shall not
prohibit the Company from providing task automation tools and services to
physicians and offices of physicians and pharmacies not owned by IDNs, that
facilitate the utilization of the Company's products or services (e.g.,
schedules, day lists, registrations, rosters, etc.).
(b) The Company agrees that, during the Restricted Period, the
Company will not provide any Restricted Services, other than "extra-enterprise"
prescription services or laboratory services (specifically, orders and results
linked to Payer rules), within the greater Kansas City metropolitan area (which
services shall be exclusively marketed by the Company through Cerner in such
territory) without the prior written consent of Cerner; provided, however, that
this Section 2.02(b) shall not apply to contracts of the Company with Payers
with geographically diverse operations headquartered outside Kansas City.
SECTION 2.03. Non-Competition of Synetic. All of the Company's
Business conducted by Synetic, Avicenna and their respective Affiliates shall be
conducted solely through the Company; provided, however, that in the event
Synetic, Avicenna or any Affiliate thereof shall acquire a business that
conducts the Company's Business, Synetic, Avicenna or such Affiliate shall have
a reasonable period of time to transfer such operations to the Company.
SECTION 2.04. Non-Solicitation of All Parties. As a separate
and independent covenant, each party agrees with the other parties that, during
the Restricted Period, each party will not in any way, directly or indirectly,
employ, hire, enter into an independent contracting arrangement or agency
relationship with or solicit in respect of the foregoing any officers or
employees of the other parties or any of their Affiliates; provided, however,
that the Company shall be permitted to employ, hire, enter into an independent
contracting arrangement or agency relationship with or solicit in respect of the
foregoing any officers or employees of Synetic.
SECTION 2.05. Exclusions. Nothing in this Article II shall
limit the right of either Synetic, Cerner or their respective Affiliates to
build and deploy disease management programs.
<PAGE>
7
SECTION 2.06. Acknowledgment. The parties acknowledge that the
covenants of each party set forth in this Article II are an essential element of
this Agreement and the Subscription Agreement and that, but for the agreement of
each of the parties to comply with these covenants, each party would not have
entered into this Agreement and the Company and Cerner would not have entered
into the Subscription Agreement. The parties have independently consulted with
their respective counsel and after such consultation agree that the covenants
set forth in this Agreement are reasonable and proper.
SECTION 2.07. Unenforceability. The parties acknowledge and
agree that the Restricted Period, scope, geographical area and other provisions
of this Agreement have been specifically negotiated by sophisticated commercial
parties and that all such provisions are reasonable under the circumstances of
the transactions contemplated by the parties. In the event that the agreements
contained in this Agreement shall be deemed by any court of competent
jurisdiction to be unenforceable by reason of their extending for too great a
time or over too great a geographical area or by reason of their being too
extensive in any other respect, they shall be interpreted to extend only over
the maximum period of time for which they may be enforceable and/or over the
maximum geographical area as to which they may be enforceable and/or to the
maximum extent in all other respects as to which they may be enforceable, all as
determined by such court in such action.
ARTICLE III
TERM AND TERMINATION.
SECTION 3.01. Term. Unless terminated earlier pursuant to
Section 3.02, this Agreement shall terminate on the expiration of Restricted
Period (the "Term").
SECTION 3.02. Termination. Notwithstanding Section 3.01, this
Agreement may be terminated:
(a) by the Company, at any time, not less than 60 days after
delivery of notice to Cerner, in the event that Cerner shall have
defaulted on or breached any material term of this Agreement and shall
not have cured such breach within 30 days after receiving such notice
from the Company specifying the nature of such default or breach; or
(b) by Cerner, at any time, not less than 60 days after
delivery of notice to the Company in the event that the Company shall
have defaulted on or breached any material term of this Agreement and
shall not have cured such breach within 30 days after receiving notice
from Cerner specifying the nature of such default or breach; or
<PAGE>
8
(c) by any party, immediately upon delivery of notice to the
relevant party, in the event that such other party (i) requires a
composition or other similar arrangement with creditors, files for
bankruptcy or is declared bankrupt or (ii) shall have assigned or
transferred to any third party any of its rights or obligations
hereunder except in accordance with Section 4.04.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 4.02. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 4.03. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 4.04. Assignment. This Agreement shall not be assigned
without the express written consent of the parties (which consent may be granted
or withheld in the sole discretion of any party) except that any party hereto
may assign its rights hereunder to an Affiliate of such party; provided,
however, that any such assignment shall not relieve the assigning party of its
obligations hereunder.; provided, further, however, that any party may, without
the written consent of the other parties, assign and delegate this Agreement and
its rights and obligations hereunder in connection with a merger, consolidation
or sale of all or substantially all of its assets (which sale shall include the
assignment and assumption of all rights and obligations under the Ancillary
Agreements (as defined in the Stockholders Agreement) and the Stockholders
Agreement).
SECTION 4.05. No Third Party Beneficiaries. This Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns and successors and nothing herein, express or implied,
is intended to or shall confer upon any other
<PAGE>
9
person or entity any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 4.06. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 4.07. Governing Law. This Agreement shall be governed
by the laws of the State of New York.
SECTION 4.09. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 4.10. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized signatories
thereunto duly authorized as of the day and year first above written.
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
By
--------------------------------------
Name:
Title:
SYNETIC, INC.
By
--------------------------------------
Name:
Title:
AVICENNA SYSTEMS CORPORATION
By
--------------------------------------
Name:
Title:
CERNER CORPORATION
By
--------------------------------------
Name:
Title:
MARKETING AGREEMENT
MARKETING AGREEMENT (this "Agreement"), dated as of January 2,
1999, between SYNETIC HEALTHCARE COMMUNICATIONS, INC., a Delaware corporation
(the "Company"), and CERNER CORPORATION, a Delaware corporation ("Cerner").
WHEREAS, the Company and Cerner have entered into a
Subscription Agreement, dated as of January 2, 1999 (the "Subscription
Agreement"), pursuant to which Cerner agreed to subscribe for and purchase from
the Company, and the Company agreed to issue and sell to Cerner, 248,439 shares
of the Company's common stock, par value $.01 per share, in exchange for Cerner
agreeing to enter into various agreements, including this Agreement; and
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the consummation of the transactions
contemplated by the Subscription Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control
with, such specified Person.
"CareXchange" means the transaction environment, consisting of
the Company's host computer or computers and a network or networks set
up by the Company to enable physicians and their staff to perform
information activities and transactions by interfacing between their
computers, those of the Company, and those of healthcare payers,
laboratories and pharmacies.
"Distribution Partner" means a Person that provides software
to physicians and physician office desktops and has (i) the right to
integrate the Company's core software or
<PAGE>
2
services into its physician desktops, which provides or enables access
to the CareXchange and (ii) the ability to distribute such integrated
software to physicians, subject to restrictions and scope of use of
such licensed technology.
"HMO" means a Health Maintenance Organization.
"IDN" or "Integrated Delivery Network" means a legally
structured alliance among one or more hospitals, physicians and other
healthcare providers (laboratories, imaging centers, etc.) that can
provide substantially all health care services to a defined geographic
population of patients in a coordinated fashion.
"Inter-Exchange Partner" means a Person that provides networks
to Payers, physicians or suppliers of health care products or services
and has the right to connect to the Company's network for the purpose
of exchanging reciprocal services between its network and the Company's
network of associated Payers, physicians and suppliers.
"License Agreement" means the license agreement among the
Company and Cerner, dated as of the date hereof.
"Marketing Agent" means a Person that has the right to sell
services of the Company to certain Payers or suppliers of health care
products or services, at prices, terms and technical requirements
determined by the Company.
"Non-Competition Agreement" means the non-competition
agreement among the Company, Synetic and Cerner, dated as of the date
hereof.
"PBM" means a pharmacy benefits manager.
"Payer" means any HMO, PBM, indemnity or other health care
insurer, self-funded health plan (including employers), union
sponsored plan, workers compensation entity or other source responsible
for the payment of fees and expenses for health care services.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"RCO" means a remote computing operation.
<PAGE>
3
"Services" means the following "extra-enterprise"
medical/healthcare transaction and messaging services provided by the
Company:
(i) claims, claims status, remittance advice;
(ii) encounter submission;
(iii) eligibility, which may include benefit plan detail;
(iv) referrals and authorizations;
(v) pre-certifications and authorizations;
(vi) prescription services; and
(vii) laboratory services (specifically, orders and results
linked to Payer rules).
"Stockholders Agreement" means the stockholders agreement
among Avicenna Systems Corporation, Synetic, Inc., Cerner and the
Company, dated as of the date hereof.
ARTICLE II
MARKETING RESPONSIBILITIES
SECTION 2.01 Marketing Responsibilities of the Company. At all
times during the Term of this Agreement, the Company shall be responsible for
coordinating the following sales, marketing and contracting activities with
respect to the Services:
(a) direct sales of Services to physicians;
(b) contracting with Distribution Partners to distribute or
sell Services to physicians;
(c) sales of Services, and contracting for the provision of
Services, to non-IDN Payers that seek to apply payer rules to
extra-enterprise ordering (managed care, prescription services and
laboratory services);
(d) contracting with Inter-Exchange Partners to provide
Services and to connect the Company's service network to the service
networks of such Inter-Exchange Partners; and
(e) sales of Services, and contracting for the provision of
Services, to non-IDN suppliers that seek to perfect orders through
utilization of the Services.
SECTION 2.02 Marketing Responsibilities of Cerner. At all
times during the Term of this Agreement, Cerner undertakes as follows with
respect to sales, marketing and contracting activities in connection with the
provision of Services:
<PAGE>
4
(a) Cerner shall be a Distribution Partner for Services, by
integrating Services into Cerner IDN physician desktop and physician
office products. In addition, except as expressly permitted in the
Non-Competition Agreement, Cerner shall not, without the Company's
prior written consent, be a Distribution Partner for any services that
are in competition with the Services with respect to Cerner IDN
physician desktop and physician office products. This Section 2.02(a)
shall prevent Cerner from actively marketing and distributing services
that are in competition with the Services as part of its desktop
product offering, but shall not prevent IDNs from using Cerner software
to connect to the national networks of the Company's competitors;
(b) Cerner shall be a Distributor Partner for Services by
integrating Services into Cerner (non-IDN) physician desktop products.
In addition, except as expressly permitted in the Non-Competition
Agreement, Cerner shall not, without the Company's prior written
consent, be a Distribution Partner for any services that are in
competition with the Services with respect to Cerner (non-IDN)
physician desktop products. This Section 2.02(b) shall prevent Cerner
from actively marketing and distributing services that are in
competition with the services as part of its desktop product offering,
but shall not prevent non-IDN physicians from using Cerner software to
connect to the national networks of the Company's competitors;
(c) Cerner shall be a Marketing Agent for Services to IDN
Payer customers who seek to apply IDN Payer rules to extra enterprise
ordering, and shall be the exclusive Marketing Agent for Services to
Cerner IDN customers. In addition, except as expressly permitted in the
Non-Competition Agreement, Cerner shall not be a Marketing Agent for
any services that are in competition with the Services with respect to
IDN Payer customers who seek to apply IDN Payer rules to
extra-enterprise ordering;
(d) Cerner shall be an Inter-Exchange Partner for Services to
Cerner IDN Payer networks that seek to provide physician access to
extra enterprise ordering. In addition, except as expressly permitted
in the Non-Competition Agreement, Cerner shall not compete with the
Company in the provision of services identical or similar to the
Services to Cerner IDN Payer networks that seek to provide physician
access to extra enterprise services. This Section 2.02(d) shall not,
however, prevent Cerner IDN Payer networks from also being an
Inter-Exchange Partner with the Company's competitors;
(e) the terms of all sales of Services shall be subject to the
prior approval of the Company; and
(f) Cerner shall ensure that all new releases of Cerner
physician desktop software shall be enabled to connect to CareXchange
not later than December 31, 1999,
<PAGE>
5
provided, however, that the Company has provided the necessary
interface specifications at least six (6) months prior to the date of
such release.
SECTION 2.03 Marketing to Non-IDN Payers. At all times during
the Term of this Agreement, the Company shall coordinate all sales of Services
to non-IDN payers and suppliers, and Cerner shall not, without the Company's
prior written consent, be a Marketing Agent for Services to non-IDN Payer
customers. Notwithstanding the foregoing, Cerner may seek to initiate marketing
activities to a Payer only in accordance with the following procedures:
(a) Cerner will identify to the Company in writing such Payer
to which it wishes to market Services;
(b) the Company will notify Cerner within ten business days of
the receipt of such notice whether it wishes to market Services
directly to such Payer or whether it wishes to appoint Cerner to act as
its Marketing Agent with respect to such Payer;
(c) if the Company appoints Cerner as its exclusive Marketing
Agent with respect to such Payer, Cerner shall act in that capacity for
up to nine months from such appointment, such appointment to continue
thereafter only if Cerner contracts with such Payer for Services within
the nine month period from the appointment; and
(d) if the Company does not appoint Cerner as its exclusive
Marketing Agent with respect to such Payer, the Company shall act in
that capacity for up to nine months, at the end of which time, if the
Company has failed to contract with such Payer for Services, Cerner
shall become the exclusive Marketing Agent to such Payer with respect
to Services for a period of nine months from such appointment, such
appointment to continue thereafter only if Cerner contracts with such
Payer for Services within the nine month period from the appointment.
SECTION 2.04 Favorable Pricing. The terms and pricing of the
Services shall be determined by the Company which agrees that the terms and
prices it offers to Cerner for the sale of Services shall be no less favorable
than the terms and prices offered to other marketing agents for services
comparable to the Services.
SECTION 2.05 Marketing of Cerner Products by the Company. (a)
During the Term of this Agreement, the Company shall market to physicians any
Cerner products not in competition with or duplicative of any features of the
Company's products and services, provided that Cerner and the Company can arrive
at mutually acceptable terms.
(b) The Company may license from other third parties, or
independently create, features and or functions, that were not included as part
of the License Agreement, and such
<PAGE>
6
features and/or functions may be delivered on an RCO or locally installed
basis; provided, that such features or functions do not violate the terms of the
Non-Competition Agreement.
(c) The Company shall provide Cerner, on a mutually acceptable
basis, with a list of physicians using the Services.
(d) The Company shall not enter into exclusive marketing
arrangements with providers of products or services competitive with the Cerner
products and services listed on Schedule A hereto.
SECTION 2.06 Data Rights. (a) Cerner Data Rights. Cerner
agrees that it will make the Company a party to any exclusive rights to Payer
data ("Data Rights"), provided that Cerner or the Company receives the Payer's
approval that the Company can be a party to Cerner's exclusive Data Rights.
(b) Company Data Rights. Company agrees that it will make
Cerner a party to any exclusive Data Rights, provided that Cerner or the Company
receives the Payer's approval that Cerner can be a party to the Company's
exclusive Data Rights.
ARTICLE III
COMPENSATION
SECTION 3.01 Compensation Levels. Cerner and the Company agree
that they will negotiate in good faith in the future to agree to compensation
levels for the marketing services provided by each party under this Agreement,
at least sixty (60) days prior to the commencement of such marketing services.
ARTICLE IV
TERM AND TERMINATION
SECTION 4.01 Term. Unless terminated earlier pursuant to
Section 4.02, this Agreement shall terminate five years from the date hereof
(the "Term").
SECTION 4.02 Termination. Notwithstanding Section 4.01, this
Agreement may be terminated:
(a) by the Company, at any time, not less than 60 days after
delivery of notice to Cerner, in the event that Cerner shall have
defaulted on or breached any material term
<PAGE>
7
of this Agreement and shall not have cured such breach within 30 days
after receiving such notice from the Company specifying the nature of
such default or breach; or
(b) by Cerner, at any time, not less than 60 days after
delivery of notice to the Company in the event that the Company shall
have defaulted on or breached any material term of this Agreement and
shall not have cured such breach within 30 days after receiving notice
from Cerner specifying the nature of such default or breach; or
(c) by any party, immediately upon delivery of notice to the
relevant party, in the event that such other party (i) requires a
composition or other similar arrangement with creditors, files for
bankruptcy or is declared bankrupt or (ii) shall have assigned or
transferred to any third party any of its rights or obligations
hereunder except in accordance with Section 4.01; or
(d) by either party upon termination of the Non-Competition
Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 Indemnification. (a) Each party (the
"Indemnifying Party") will indemnify each other party, its officers, employees,
and agents (collectively "Indemnified Parties") against, and hold each
Indemnified Party harmless from, all claims, suits, judgments, losses, damages,
fines or costs (including reasonable legal fees and expenses) ("Losses")
resulting from any claim, suit, or demand by any third party ("Third Party
Claim") for injuries to or deaths of persons or loss of or damage to property
arising out of:
(i) the Indemnifying Party's products or services as marketed
by the Indemnified Parties, unless the Indemnified Parties shall have
acted outside the scope of their rights under this Agreement; and
(ii) the Indemnifying Party's performance or willful
misconduct of the Indemnifying Party, its employees, officers, or
agents in connection with the Indemnifying Party's performance of this
Agreement, except to the extent caused by the negligence of any
Indemnified Party.
(b) The Indemnifying Party's obligations under this Section
5.01 will survive the termination of this Agreement.
(c) Each Indemnified Party shall give an Indemnifying Party
prompt written notice of any Third Party Claim of which such Indemnified Party
has knowledge concerning any
<PAGE>
8
Losses as to which such Indemnified Party may request indemnification hereunder.
If the Indemnifying Party acknowledges in writing its obligation to indemnify
the Indemnified Party hereunder against any Losses that may result from such
Third Party Claim, then the Indemnifying Party shall be entitled to assume and
control the defense of such Third Party Claim at its expense and through counsel
of its choice if it gives notice of its intention to do so to the Indemnified
Party within five (5) days of the receipt of such notice from the Indemnified
Party; provided, however, that if there exists or is reasonably likely to exist
a conflict of interest that would make it inappropriate in the judgment of the
Indemnified Party, in its sole and absolute discretion, for the same counsel to
represent both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own counsel, at the expense of
the Indemnifying Party. In the event the Indemnifying Party exercises the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnified Party's expense, all such witnesses,
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party without the prior written consent of the Indemnified
Party.
(d) In no event shall the Indemnifying Party be liable to an
Indemnified Party for any indirect, incidental, special, punitive, exemplary or
consequential damages arising out of or otherwise relating to this Agreement,
even if the Indemnifying Party has been advised or the possibility or likelihood
of such damages.
SECTION 5.02 Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 5.03 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by telecopy or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 5.03):
<PAGE>
9
(a) if to the Company:
c/o Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07407
Telecopy No.: (201) 703-3401
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
(b) if to Cerner:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Telecopy No.: (816) 474-1742
Attention: President
with a copy to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Telecopy No.: (816) 474-1742
Attention: General Counsel
SECTION 5.04 Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written consent of the other
party, and the parties shall cooperate as to the timing and contents of any such
press release or public announcement.
<PAGE>
10
SECTION 5.05 Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 5.06 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law,
governmental regulation or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
SECTION 5.07 Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 5.08 Assignment. This Agreement shall not be assigned
without the express written consent of the parties (which consent may be granted
or withheld in the sole discretion of any party), except that any party hereto
may assign its rights hereunder to an Affiliate of such party; provided,
however, that any such assignment shall not relieve the assigning party of its
obligations hereunder; provided, further, however, that either party may,
without the written consent of the other party, assign and delegate this
Agreement and its rights and obligations hereunder in connection with a merger,
consolidation or sale of all or substantially all of its assets (which sale
shall include the assignment and assumption of all rights and obligations under
the Ancillary Agreements (as defined in the Stockholders Agreement) and the
Stockholders Agreement).
SECTION 5.09 No Third Party Beneficiaries. This Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns and successors and nothing herein, express or implied,
is intended to or shall confer upon any other person or entity, any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 5.10 Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 5.11 Governing Law. This Agreement shall be governed
by the laws of the State of New York.
<PAGE>
11
SECTION 5.12 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 5.13 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 5.14 Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement, the Ancillary Agreements or the
transactions contemplated hereby and thereby and for any counterclaim therein.
<PAGE>
12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized signatories
thereunto duly authorized as of the day and year first above written.
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
By
-------------------------------------
Name:
Title:
CERNER CORPORATION
By
-------------------------------------
Name:
Title:
MANAGEMENT SERVICES AGREEMENT
Between
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
And
THE HEALTH INFORMATION NETWORK CONNECTION LLC
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS..........................................................1
2. SYNETIC'S RESPONSIBILITIES...........................................5
3. THINC'S RESPONSIBILITIES.............................................7
4. TRANSITION...........................................................8
5. FEES AND PAYMENT.....................................................9
6. CONFIDENTIALITY.....................................................10
7. PROPRIETARY RIGHTS..................................................11
8. TERM AND TERMINATION................................................11
9. WARRANTIES..........................................................13
10. LIMITATIONS AS TO AMOUNT AND TYPE OF LIABILITY......................16
.
11. INDEMNITIES.........................................................16
12. DISPUTE RESOLUTION AND ARBITRATION..................................19
13. GENERAL.............................................................19
TABLE OF SCHEDULES
SCHEDULE A: Operating Plan
SCHEDULE B: Content and Messaging Services
SCHEDULE C: Third-Party Agreements
SCHEDULE D: THINC Employees
SCHEDULE E: Synetic Charges for Management Services
SCHEDULE F: Insurance
SCHEDULE G: Customer Contracts
SCHEDULE H: Performance Standards
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<PAGE>
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (the "Agreement") is between Synetic
Healthcare Communications, Inc., a Delaware corporation having its principal
place of business at River Drive Center 2, 669 River Drive, Elmwood Park, New
Jersey 07407-1361 (hereinafter "Synetic") and The Health Information Network
Connection LLC, a New York limited liability company having its principal place
of business at 1155 Avenue of the Americas, New York, New York 10036
(hereinafter "THINC"), and is effective as of January 1, 1999.
WHEREAS, THINC is engaged in the business of establishing a community
health information network in the New York City metropolitan area (as defined
further herein, the "THINC Network") and Synetic is engaged in the business of
providing healthcare communications products and services in the New York City
metropolitan area and in other areas of the United States;
WHEREAS, Synetic, THINC and the Members of THINC have entered into
simultaneously herewith an Amended and Restated Operating Agreement and other
Related Agreements (as hereinafter defined) whereby, among other things, Synetic
will become the Contract Manager (as defined in the Operating Agreement) of
THINC;
WHEREAS, THINC desires to outsource all Management Services (as
hereinafter defined) and other functions performed by THINC to Synetic, subject
to the terms of this Agreement;
WHEREAS, following the Transition Period (as hereinafter defined), Synetic
will become the Contract Manager of THINC, managing all aspects of THINC's
business, subject to the terms of this Agreement;
WHEREAS, as part of its services, Synetic will provide THINC with certain
Content and Messaging Services (as hereinafter defined); and
WHEREAS, THINC will provide Synetic with the exclusive right to deploy
Synetic's Clinical Transaction Services (as hereinafter defined) on the THINC
Network (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
described in this Agreement, the parties hereby agree as follows:
1. DEFINITIONS
1.1 1997 Financial Statements. "1997 Financial Statements" shall have the
meaning set forth in Section 9.1.11.
1.2 Agreement. "Agreement" shall refer to the terms and conditions set forth
herein and in the Schedules attached hereto, which are hereby made an integral
part of this Agreement and shall be read as if included within the text of this
Agreement.
1.3 Board of Managers. "Board of Managers" shall have the meaning set
forth in the Operating Agreement.
1.4 Change of Control. "Change of Control" shall have the meaning set
forth in Section 8.7.
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<PAGE>
1.5 Clinical Transaction Contract. "Clinical Transaction Contract" shall mean
the contract entered into by Synetic and each of the Current Payer-Members on
the date of this Agreement and any contract entered into by Synetic and any
other Payer in the future, in each case for the provision by Synetic of Clinical
Transaction Services.
1.6 Clinical Transaction Services. "Clinical Transaction Services" shall mean
and include any or all of Synetic's prescription and laboratory services which
connect physicians, staffs and patients, with payers, pharmacies, hospitals,
laboratories, suppliers or other organizations involved in the concurrent,
retrospective or prospective communications of information relating to or
prompted by the selection or use of a prescription drug or lab test (as
applicable) by physicians on behalf of patients, all as provided pursuant to the
Clinical Transaction Contract.
1.7 Confidential Information. "Confidential Information" shall have the
meaning set forth in Section 6.1.
1.8 Confidential Member Information. "Confidential Member Information"
shall mean any information identified in writing by a Member as
"confidential."
1.9 Content and Messaging Services. "Content and Messaging Services"
shall mean, collectively, the services described on Schedule B hereto.
1.10 Cure Period. "Cure Period" shall have the meaning set forth in
Section 8.3.
1.11 Current Payer-Member. "Current Payer-Member" shall mean each of Empire
Blue Cross and Blue Shield, Group Health Incorporated and Health Insurance
Plan of Greater New York.
1.12 Customer Contracts. "Customer Contracts" shall have the meaning set
forth in Section 2.2.
1.13 Debtor Relief Law. "Debtor Relief Law" shall have the meaning set
forth in Section 8.8.
1.14 Effective Date. "Effective Date" shall mean the date of this
Agreement first written above.
1.15 GNYHA. "GNYHA" shall mean GNYHA Management Corporation.
1.16 GNYHA Member. "GNYHA Member" shall mean a member of the Greater New York
Hospital Association.
1.17 Health Plan Competitor. "Health Plan Competitor" shall mean an organization
that is engaged primarily in the business of providing health insurance or
health maintenance organization services.
1.18 Indemnified Party. "Indemnified Party" shall have the meaning set
forth in Section 11.3.1.
1.19 Indemnifying Party. "Indemnifying Party" shall have the meaning set
forth in Section 11.3.1.
1.20 Interim Financial Statements. "Interim Financial Statements" shall
have the meaning set forth in Section 9.1.11.
1.21 Liabilities. "Liabilities" shall have the meaning set forth in
Section 9.1.13.
1.22 Losses. "Losses" shall have the meaning set forth in Section 11.4.
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<PAGE>
1.23 Managed Care Services. "Managed Care Services" shall mean and include any
or all of THINC's managed care transaction services, which include claims
submission, on-line (batch and real-time) eligibility, benefit plan detail,
roster distribution, remittance advice distribution, online claims inquiry,
electronic referral/pre-certification and authorization, and encounter
submission, all as provided pursuant to the Managed Care Transaction Contract.
1.24 Managed Care Transaction Contract. "Managed Care Transaction Contract"
shall mean the contract entered into by THINC and each of the Current
Payer-Members on the date of this Agreement and any contract entered into by
THINC and any other Payer in the future, in each case for the provision by THINC
of Managed Care Services.
1.25 Management Services. "Management Services" shall mean any and all services
relating to the management and day-to-day administration and operation of all
aspects of THINC's business, including without limitation administration,
finance, legal, product development, operations, information systems, marketing
and sales, customer support and account management functions, and
implementation, support and training services to enable use of the Content and
Messaging Services.
1.26 Member. "Member" shall mean any current or future member of THINC,
including without limitation Synetic, GNYHA and any Current Payer-Member.
1.27 Millennium Compliant. "Millennium Compliant" shall have the meaning
set forth in Section 9.2.7.
1.28 Operating Agreement. "Operating Agreement" shall mean that certain Amended
and Restated Operating Agreement of even date herewith entered into by and among
Synetic, GNYHA Management Corporation and the Current Payer-Members, as the same
may be amended or modified from time to time.
1.29 Operating Plan. "Operating Plan" shall mean the preliminary operating plan
(including budget) attached as Schedule A to this Agreement, which Operating
Plan shall be reviewed and amended in accordance with Section 2.4 hereto and the
Operating Agreement.
1.30 Payer. "Payer" shall mean an insurer, health maintenance organization or
other payer of health-related claims.
1.31 Performance Cure Period. "Performance Cure Period" shall have the
meaning set forth in Section 8.6.
1.32 Services. "Services" shall mean, collectively, the Management
Services and the Content and Messaging Services.
1.33 Synetic Proprietary Materials. "Synetic Proprietary Materials" shall mean,
collectively, the Content and Messaging Services, the Clinical Transaction
Services, and any other Synetic-owned or licensed system or technology
(excluding only the THINC Proprietary Materials) used by Synetic in connection
with the provision of the Management Services, the Content and Messaging
Services, and the Clinical Transaction Services, including without limitation
any related communications/integration network designed, developed or
implemented by Synetic, and all software, proprietary elements, documentation,
records and other Synetic-owned or licensed trade secrets or know-how related to
any of the foregoing, including but not limited to all copyrights, trademarks,
patents, trade secrets and other intellectual property rights inherent therein
or appurtenant thereto, and any modifications, enhancements,
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<PAGE>
updates and upgrades thereto owned by Synetic or its licensors as of the
Effective Date or thereafter created, designed or developed by Synetic, its
employees or agents.
1.34 Synetic Relationship Manager. "Synetic Relationship Manager" shall
have the meaning set forth in Section 2.3.
1.35 Synetic System. "Synetic System" shall have the meaning set forth in
Section 9.2.5.
1.36 Term. "Term" shall have the meaning set forth in Section 8.1.
1.37 THINC Employees. "THINC Employees" shall mean THINC personnel identified on
Schedule D hereto.
1.38 THINC Facilities. "THINC Facilities" shall have the meaning set forth
in Section 4.3.
1.39 THINC Network. "THINC Network" shall mean and refer to the network of THINC
equipment, hardware, software and services owned or leased by THINC for the
processing or provision of healthcare communications services in the New York
City metropolitan area.
1.40 THINC Proprietary Materials. "THINC Proprietary Materials" shall have the
meaning set forth in Section 4.4.
1.41 THINC Relationship Manager. "THINC Relationship Manager" shall have the
meaning set forth in Section 3.1.
1.42 THINC-Supplied Assets. "THINC-Supplied Assets" shall have the meaning
set forth in Section 4.2.
1.43 Third-Party Business Property Rights. "Third-Party Business Property
Rights" shall have the meaning set forth in Section 9.1.9.
1.44 Transition Period. "Transition Period" shall mean the sixty (60)-day period
following the Effective Date of this Agreement during which the management of
THINC's operations is transferred from THINC to Synetic, or such longer period
that THINC and Synetic agree is necessary for the completion of such transition.
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<PAGE>
2. SYNETIC'S RESPONSIBILITIES
2.1 Management Services. Following the Transition Period, Synetic shall provide
to THINC the Management Services in material accordance with the Operating Plan.
Without limiting the generality of the foregoing, Synetic shall be responsible
for conducting the management functions set forth in the Operating Plan, and
performing the tasks described in the Operating Plan relating to each such
function, subject in each case to such qualifications and other conditions as
are set forth in the Operating Plan. The parties acknowledge that the financial
targets set forth in the Operating Plan, and the ability of Synetic to
successfully achieve the goals or implement the strategies described in the
Operating Plan, are based on certain assumptions and other factors beyond
Synetic's reasonable control. Accordingly, the failure of THINC to meet such
financial targets or of Synetic to successfully achieve such goals or implement
such strategies shall not, in and of itself, be deemed a breach of this
Agreement. Synetic acknowledges and agrees, however, that it shall not incur
costs or expenses on behalf of THINC in any fiscal year in excess of the
aggregate amount of budgeted cost of sales, operating expenses and capital
expenditures for such fiscal year set forth in the Operating Plan without first
obtaining the required approval of the Members, as provided in the Operating
Agreement.
2.2 Standards of Performance. Synetic agrees to use due care and act in good
faith in its performance of the Management Services and to provide the
Management Services in a professional and businesslike manner and in accordance
with standard industry practices. In addition, provided that the conduct of such
THINC performance shall be within Synetic's reasonable control, Synetic agrees
to (a) cause THINC to perform in all material respects in accordance with the
terms of the contracts entered into between THINC and its customers listed on
Schedule G (the "Customer Contracts") and the Managed Care Transactions
Contracts entered into with the Current Payer-Members, except for certain
provisions of the Customer Contracts described on Schedule G, and (b) cause
THINC to perform in all material respects in accordance with the terms of each
contract entered into by Synetic on behalf of THINC.
2.3 Synetic Relationship Manager. Synetic will appoint a relationship manager to
manage the relationship established by this Agreement (the "Synetic Relationship
Manager") who will (a) coordinate and monitor Synetic's obligations under this
Agreement, and (b) serve as the primary liaison with the THINC Relationship
Manager.
2.4 Operating Plan. During the ninety (90) day period following the Effective
Date, Synetic will modify the preliminary Operating Plan attached as Schedule A
to this Agreement, as appropriate, to reflect information made available to it
during the Transition Period and other new information, and review such modified
Operating Plan with the Members. Synetic and each of the other Members will then
agree on a revised Operating Plan, which will replace such preliminary Operating
Plan. In the event that unanimous agreement of Synetic and such Members is not
reached, the Operating Plan attached as Schedule A to this Agreement shall
remain in effect unless and until it is modified pursuant to the terms of the
Operating Agreement. Thereafter, Synetic shall periodically review the Operating
Plan with the Board of Managers and in the event Synetic determines to amend the
Operating Plan, Synetic shall seek required approval of the Members, as provided
in the Operating Agreement.
2.5 Content and Messaging Services. Subject to the terms contained in this
Agreement, Synetic will provide THINC with access to and the right to use of the
Content and Messaging Services. Synetic and THINC will mutually agree upon the
timing of deployment of the Content and Messaging Services. Prior to such
deployment, and subject to the terms of this Agreement, Synetic will provide to
THINC any software and documentation necessary to allow physicians to access the
Content and Messaging
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Services.
2.6 Exclusive Use of THINC Network for Clinical Transaction Services. Synetic
will use the THINC Network, on an exclusive basis, to provide the Clinical
Transaction Services with the Current Payer-Members and other Payers in the New
York City metropolitan area, except to the extent that either (i) network
configurations of such Current Payer-Members and other Payers or third-party
distribution entities (e.g., physician office management or hospital information
systems (POMIS/HIS) vendors, pharmaceutical benefit managers, integrated
delivery networks, laboratory companies, other entities that provide software or
other online access to physician offices) make it impractical or prohibitively
expensive to use the THINC Network for such Clinical Transaction Services; or
(ii) such Current Payer-Members and other Payers or third-party distribution
entities will not permit Synetic to use the THINC Network after Synetic has used
its reasonable best efforts to cause such Current Payer-Members or other Payers
or third-party distribution entities to permit such use. Notwithstanding
exceptions (i) and (ii) set forth above, Synetic will not manage a network in
the New York City metropolitan area to conduct Clinical Transaction Services
that is competitive to the THINC Network.
2.7 Control of Services. The Services shall be under the exclusive control,
management and supervision of Synetic, subject to the terms and conditions of
the Operating Agreement. Synetic may, in its sole discretion (unless otherwise
expressly provided in the Operating Agreement): (a) enter into contracts and
other arrangements on behalf of THINC which are in the ordinary course of
THINC's business and in material accordance with the Operating Plan, (b) enter
into any other contracts and other arrangements on behalf of THINC, provided
that Synetic obtains approval from the Board of Managers of THINC; (c)
reengineer work functions and/or change locations where work functions are
performed; (d) perform its obligations through its subsidiaries or affiliates,
or through the use of Synetic-selected independent subcontractors; provided,
however, that Synetic shall not be relieved of its obligations under this
Agreement by use of such subsidiaries, affiliates or subcontractors, and
provided further, that Synetic shall not perform any material aspect of the
Management Services through independent subcontractors without the prior
approval of the Board of Managers; and (e) modify and/or replace work processes
and/or technology relating to the Services (except that Synetic shall not modify
or amend the Master Lease, dated February 12, 1997, between THINC and Sun Data,
Inc. (and related Master Lease Schedule Number 203528), without the prior
consent of each of GNYHA Management Corporation and the Current Payer-Members).
2.8 Personnel. Synetic will dedicate the qualified and competent personnel
necessary to perform its responsibilities hereunder. In connection therewith,
Synetic will provide part-time resources of members of its healthcare
communications management team. Synetic shall have the right to: (a) control and
supervise the activities of Synetic personnel who provide Services; (b)
determine which persons shall perform the Services; and (c) with respect to any
individual, reassign, promote, demote or terminate such individual, subject to
the provisions of the Operating Agreement relating to the right of the Board of
Managers to reasonably approve officer appointments. Synetic reserves the right
to determine the personnel assigned to perform the Services and to replace,
rotate or reassign such personnel during the Term of this Agreement.
2.9 THINC Employees. As soon as practicable after the Effective Date, Synetic
agrees to offer employment to all the THINC Employees listed on Schedule D. The
terms of such employment will be mutually agreed upon between Synetic and the
THINC Employees. In connection with the transition of the THINC Employees from
THINC to Synetic, Synetic shall request from each THINC Employee a general
release of all claims and liabilities arising out of such THINC Employee's
employment with THINC. The parties anticipate that, effective at the expiration
of the Transition Period, the THINC
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Employees will cease to be employees of THINC and become employees of Synetic
subject to Section 2.8. Synetic will appoint one of its officers as the contact
person to communicate regularly with the Board of Managers regarding performance
of the THINC Employees and other employees of Synetic who perform Services for
THINC. Following termination of this Agreement, THINC shall not be prohibited
from offering employment to those employees of Synetic who devote all or
substantially all of their time to providing Management Services under this
Agreement.
2.10 Minimization of Service Disruptions. Whenever conditions reasonably permit,
the parties will mutually agree on the scope, timing, frequency and duration of
any planned service interruptions or delays and will jointly attempt to minimize
their impact on THINC's business operations.
2.11 Books and Records. Synetic will keep full, true and accurate books,
accounts and records of THINC, which will be available for review by any Member;
provided however, that no Member shall be permitted to review the Confidential
Member Information of any other Member. Synetic shall maintain separate accounts
with one or more financial institutions on behalf of THINC and shall keep THINC
monies and funds separate from and shall not commingle such monies or funds with
monies or funds of Synetic.
3. THINC'S RESPONSIBILITIES
3.1 THINC Relationship Manager. The Members of THINC other than Synetic will
appoint a relationship manager to manage the relationship established by this
Agreement (the "THINC Relationship Manager") who will (a) coordinate and monitor
THINC's obligations under this Agreement, and (b) serve as the primary liaison
with the Synetic Relationship Manager.
3.2 Access to Information. THINC will provide to Synetic, during and after the
Transition Period, full access to and use of THINC's facilities, assets, books
and records and complete information relating to THINC's business so that
Synetic can perform its obligations under this Agreement. Such information will
include, without limitation, the following:
(a) Financial and accounting information;
(b) Equipment and other asset information;
(c) Employee and consultant information;
(d) Customer information;
(e) Market, strategic and related information;
(f) License and other contract information (including royalties
payable by or to THINC);
(g) Systems information; and
(h) Intellectual property information.
Synetic may accept as correct, accurate and reliable, without any further
inquiry, all information, data, documents and other records delivered, supplied
or made available to Synetic hereunder (i) on or prior to the Effective Date or,
(ii) after the Effective Date, that were generated or prepared without the
involvement of Synetic. Synetic shall have no responsibility or liability for
any error, inadequacy or omission which results from inaccurate or incomplete
information, data, documents or other records provided to Synetic hereunder.
3.3 Conduct of Business. During the Transition Period, THINC will conduct its
business in the ordinary course, consistent with past practice, and consult with
Synetic on all management and
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operational matters.
3.4 Exclusivity of Management Services. THINC agrees that Synetic will be the
exclusive provider to THINC of the Management Services.
3.5 Exclusivity of Clinical Transaction Services. THINC agrees that, during the
Term, Synetic will have the exclusive right to implement, deploy, deliver,
support, provide, maintain and make available any or all of the Clinical
Transaction Services, or any aspect of such services, on, through or in
conjunction with the THINC Network. THINC agrees not to, directly or indirectly,
endorse, advertise, promote, develop, implement, deploy, deliver, support,
provide, maintain, enhance, host, link to, license or make available any service
or software that implements, supports or mediates any aspect of the Clinical
Transaction Services or any transaction similar to any aspect of the Clinical
Transaction Services, either synchronously or asynchronously.
3.6 Exclusivity of Content and Messaging Services. THINC agrees that, during the
Term, Synetic will have the exclusive right to implement, deploy, deliver,
support, provide, maintain and make available any or all of the Content and
Messaging Services on, through or in conjunction with the THINC Network. THINC
agrees not to, directly or indirectly, endorse, advertise, promote, develop,
implement, deploy, deliver, support, provide, maintain, enhance, host, link to,
license or make available any service or software that implements, supports or
mediates any aspect of the Content and Messaging Services or any services
similar to any aspect of the Content and Messaging Services, either
synchronously or asynchronously.
3.7 Connectivity for Content and Messaging Services. THINC agrees to provide the
high speed telecommunications connections and supporting equipment required by
Synetic to maintain connectivity between the Synetic System and the THINC
Network and enable Synetic to provide the Content and Messaging Services.
Synetic and THINC will share equally the costs of such connections and
supporting equipment.
4. TRANSITION
4.1 Transition Period. During the Transition Period, Synetic and THINC will work
together to provide for the transition of management of THINC's operations from
THINC to Synetic.
4.2 THINC Supplied Assets. On the Effective Date, THINC shall permit Synetic to
use all of its owned or leased assets (the "THINC-Supplied Assets") to perform
the Services hereunder. THINC will retain financial responsibility for the
depreciation, funding, taxes and insurance expenses and other expenses
incidental to ownership of each of the THINC Supplied Assets.
4.3 THINC Facilities. As of the Effective Date, THINC shall provide to Synetic
the use and/or occupancy of THINC's owned and leased facilities (the "THINC
Facilities") which space is currently designated to be occupied by Synetic in
performing the Services. Synetic may attach equipment to and occupy any existing
THINC structures, office space or equipment space on THINC-controlled property
for any reasonable use consistent with this Agreement, and solely for the
purpose of providing the Services.
4.4 THINC Proprietary Materials. Subject to the terms of this Agreement, THINC
hereby grants to Synetic the right to access and use, during the Term and solely
for the purpose of enabling Synetic to perform its obligations under this
Agreement, including providing the Services, the THINC Network and
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any other THINC-owned or licensed systems and technology, software, proprietary
elements, documentation, records and other THINC-owned or licensed trade secrets
or know-how, including but not limited to all copyrights, trademarks, patents,
trade secrets and other intellectual property rights inherent therein or
appurtenant thereto (collectively the "THINC Proprietary Materials").
4.5 Third Party Consents. THINC shall be responsible, at its expense, to obtain,
and Synetic will cooperate with THINC in obtaining, any necessary consents,
licenses, sublicenses or approvals from third parties as are necessary to allow
Synetic to use and/or occupy the THINC Supplied Assets, THINC Facilities and the
THINC Proprietary Materials to enable Synetic to provide the Services hereunder,
which third party consents, licenses, sublicenses and approvals are listed on
Schedule C. In the event that THINC is not able to obtain any such consent,
license, sublicense or approval, THINC shall use and/or occupy the THINC
Supplied Assets, THINC Facilities or THINC Proprietary Materials covered
thereby, as directed by Synetic, to enable Synetic to provide the Services
hereunder.
5. FEES AND PAYMENT
5.1 Payment. Synetic shall invoice fees and costs set forth in Sections 5.2 and
5.3 for each month Services are provided hereunder. Invoices are payable within
thirty (30) days of the date invoices are delivered. All periodic charges under
this Agreement are to be computed on a calendar month basis, and shall be
prorated for any partial month.
5.2 Reimbursement of Costs for Management Services. THINC will reimburse Synetic
the actual costs of the Management Services it performs hereunder.
Notwithstanding the foregoing, Synetic shall not be reimbursed for any costs
incurred in any fiscal year costs in excess of the amount of aggregate budgeted
cost of sales, operating expenses and capital expenditures for such fiscal year
set forth in the Operating Plan, unless the incurrence of such excess costs was
approved by the Members, as provided in the Operating Agreement. The methodology
for calculation of charges payable by THINC for certain actual costs incurred by
Synetic in connection with the provision of Management Services is set forth in
Schedule E hereto. Synetic will provide to the Board of Managers of THINC
reasonable supporting documentation for these costs and, subject to Section 5.6,
an opportunity to review and audit such costs.
5.3 Fees for Content and Messaging Services. THINC will pay to Synetic set-up
fees in the amount of $30,000 per Payer to provide access to the Content and
Messaging Services and monthly maintenance fees of $1,000 per Payer thereafter.
Such set-up fees are associated with organizing, converting, publishing and
housing Payer's rules, reference materials and other content, and development of
necessary interfaces required to support Payer-specific messages, alerts and
advisories. The monthly maintenance fees are associated with ongoing maintenance
and refreshing of such files. In addition, THINC will bear the actual costs of
Synetic of any third-party licensed content provided to THINC as part of the
Content and Messaging Services in accordance with the Operating Plan. Except as
provided in this Section 5.3, Synetic and THINC shall bear their respective
costs relating to the provision of the Content and Messaging Services.
5.4 Reimbursement of Costs for Clinical Transaction Services. Synetic will
reimburse THINC for THINC's telecommunication and interface development costs
incurred in providing Synetic with network access for the Clinical Transaction
Services. Synetic will provide to the Board of Managers reasonable supporting
documentation for these costs and an opportunity to review and audit such costs
in accordance with the audit provisions contained in Section 5.6.
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5.5 Taxes. THINC shall bear all taxes, duties, levies, and other similar charges
(and any related interest and penalties), however designated, imposed as a
result of the existence or operation of this Agreement, except any income or
franchise taxes on profits which may be levied against Synetic.
5.6 Audits. The Board of Managers shall have the right to retain an independent
auditor to whom Synetic shall allow reasonable access to Synetic's applicable
books of account and other records reasonably relating to, and for the purpose
of, verifying the costs referred to in this Section 5.2. The information
disclosed by Synetic to such auditor in the course of performing such audit will
be kept confidential by the auditor. THINC may request such audits no more than
once in any six-month period. THINC shall bear the costs of any such audit;
provided, however, that in the event that such auditor determines that the costs
of Synetic reimbursed by THINC under Section 5.2 were in excess of one-hundred
and ten percent (110%) of the actual amounts payable under such Section 5.2
during the audit period, Synetic shall bear the reasonable out-of-pocket costs
incurred by THINC for the performance of such audit, including the costs of such
independent auditor. In the event that such auditor determines that the costs of
Synetic reimbursed by THINC under Section 5.2 exceeded the actual amounts
payable under such Section 5.2, Synetic shall reimburse THINC for such
overpayment. In the event that such auditor determines that the costs of Synetic
reimbursed by THINC under Section 5.2 were less than the actual amounts
otherwise payable under such Section 5.2, THINC shall pay to Synetic such
unreimbursed costs.
6. CONFIDENTIALITY
6.1 Confidentiality. Except as otherwise provided herein, THINC and Synetic each
acknowledge and agree that, in the case of Synetic, all information
communicated, orally or in writing, to THINC by Synetic in connection with or
containing any Synetic Proprietary Materials, and, in the case of THINC, all
information communicated, orally or in writing, to Synetic by THINC in
connection with or containing any THINC Proprietary Materials (in either case,
"Confidential Information"), shall be used only for purposes of, and in
accordance with, this Agreement, and that no such Confidential Information shall
be disclosed by either of the parties hereto, its agents or employees, without
the prior written consent of the other party, except as may be necessary by
reason of legal, accounting or regulatory requirements, including requirements
of independent auditors, insurance regulators and federal and state securities
commissions applicable to such party and its business. Except to the extent
otherwise required by applicable law or professional standards, the parties'
obligations under this Section 6.1 do not apply to information that: (a) is or
becomes generally available to the public through no fault of, or omission or
action by, the receiving party, (b) can be shown by documentation to have been
known to, or possessed by, the receiving party prior to disclosure by the
disclosing party, (c) THINC and Synetic agree from time to time to disclose, or
(d) is independently developed by the receiving party without resort to the
disclosing party's Confidential Information; provided, that the foregoing
exceptions to treatment of information as Confidential Information shall in no
event affect whether such information is or contains Proprietary Material of the
disclosing party. Each party shall be deemed to have met its nondisclosure
obligations under this Section 6.1 as long as it exercises the same level of
care to protect the other's information as it exercises to protect its own
confidential information, which in no event shall be less than a level of
reasonable care, except to the extent that applicable law or professional
standards impose a higher requirement. If either party receives a subpoena or
other validly issued administrative or judicial demand requiring it to disclose
the other party's Confidential Information, such party shall (i) assert the
privileged and confidential nature of the Confidential Information against the
third party seeking disclosure, (ii) cooperate fully with the disclosing party
in protecting against any such disclosure and/or obtaining a protective order
narrowing the scope of such disclosure and/or use of the Confidential
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Information and (iii) provide prompt written notice to the other party of such
demand. So long as the other party shall have received at least five (5)
business days written notice, and so long as the notifying party shall have
complied with the other requirements of the preceding sentence, the notifying
party shall thereafter be entitled to comply with such demand to the extent
required by law, subject to any protective order or the like that may have been
entered in the matter.
7. PROPRIETARY RIGHTS
7.1 THINC Proprietary Materials. The THINC Proprietary Materials will remain the
property of THINC or its licensors and Synetic will have no rights therein,
except as provided hereunder or as may be required for Synetic to perform its
obligations hereunder or as may be provided in other written agreement(s)
entered into by the parties. Any modifications or enhancements made by Synetic
to the THINC Proprietary Materials (as they exist as of the Effective Date)
during the Term, provided the costs for which were, or could have been, billed
to THINC under Section 5.2, will be the property of THINC. THINC Proprietary
Materials do not include any Synetic Proprietary Materials.
7.2 Synetic Proprietary Materials. The Synetic Proprietary Materials are and
will remain the property of Synetic or its licensors and THINC will have no
rights or interest therein, except as may be provided herein or in other written
agreement(s) entered into by the parties. Without limitation of the foregoing,
the parties recognize that circumstances may arise in which Synetic may develop,
specifically on behalf of or in conjunction with THINC, certain new systems,
software and communications capabilities, the ownership of which shall be agreed
upon by the parties in advance and in writing.
7.3 Return of Proprietary Materials. Upon the termination or expiration of this
Agreement for any reason, THINC shall, at Synetic's election, return such
Synetic Proprietary Materials in THINC's possession to Synetic, or certify to
Synetic that such Synetic Proprietary Materials have been destroyed. The THINC
Proprietary Materials are and will remain THINC's property and, upon the
termination or expiration of this Agreement for any reason, Synetic will, at
THINC's election, return such THINC Proprietary Materials in Synetic's
possession to THINC, or certify to THINC that such THINC Proprietary Materials
have been destroyed.
7.4 No License. Except as expressly set forth herein, no license is granted by
either party to the other with respect to any technical or business information,
including but not limited to the Synetic Proprietary Materials and THINC
Proprietary Materials, or with respect to rights in any patents, trademarks,
copyrights, mask work protection rights and other intellectual property rights.
8. TERM AND TERMINATION
8.1 Term. The term of this Agreement shall commence on the Effective Date and
continue until June 1, 2004, unless earlier terminated hereunder or extended
pursuant to Section 8.2 (the "Term").
8.2 Extension. Synetic shall notify THINC not less than nine (9) months prior to
the expiration of the Term, whether Synetic desires to renew this Agreement and
of the proposed terms to govern such renewal. Not less than six (6) months prior
to such expiration, THINC shall notify Synetic whether it desires to renew this
Agreement on the terms proposed by Synetic or on other terms as may be proposed
by THINC.
8.3 Termination for Breach. If either party materially breaches any of its
duties or obligations
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hereunder, and such breach is not cured within ninety (90) days after written
notice of the breach ("Cure Period"), then the nonbreaching party may terminate
this Agreement, provided that such non-breaching party provided written notice
of the breach within ninety (90) days following the date that it first became
aware of such breach. This termination right must be exercised during the thirty
(30)-day period beginning at the end of the Cure Period.
8.4 Termination for Fraud. In the event of fraud by a party, the other party may
terminate this Agreement. This termination right must be exercised during the
thirty (30)-day period beginning on the date such fraud is brought to the
attention of the other party.
8.5 Termination by Synetic. Synetic will have the right to terminate this
Agreement, upon ninety (90) days notice, in the event that two (2) Current
Payer-Members materially breach their obligations under a Clinical Transaction
Contract or a Managed Care Transaction Contract, and such breaches are not cured
within such notice period.
8.6 Termination by THINC Due to Missed Performance. Notwithstanding any other
provision of the Agreement, THINC will have the right to terminate this
Agreement in the event that Synetic fails to cause THINC to meet the Performance
Standards for either Physicians or Payers (as each such Performance Standard is
set forth in Schedule H) and such failure is not cured within ninety (90) days
after the measurement date set forth in Schedule H when such failure occurred
("Performance Cure Period"). This termination right must be exercised during the
thirty (30)-day period beginning at the end of the Performance Cure Period.
8.7 Termination by THINC Due to Acquisition. THINC will have the right to
terminate this Agreement if stock or assets of Synetic, Inc., Synetic Healthcare
Communications, Inc. or any of their respective affiliates is acquired by a
Health Plan Competitor such that such Health Plan Competitor, directly or
indirectly, owns more than fifty (50%) of the stock or assets of Synetic
Healthcare Communications, Inc. ("Change of Control"). This termination right
must be exercised by THINC during the ninety (90) day period following the date
that THINC first became aware of the occurrence of the Change of Control.
8.8 Termination for Insolvency. If either THINC or Synetic becomes or is
declared insolvent or bankrupt, then this Agreement shall be immediately
terminated, without the requirement of any notice to the insolvent or bankrupt
party. A party shall be deemed insolvent or bankrupt for purposes of this
Section if:
(a) a receiver, liquidator or trustee of a party is appointed by court
order and such order remains in effect for more than sixty (60) days, or a case
is commenced or a petition is filed against a party, and is not dismissed or
stayed within sixty (60) days, under any applicable liquidation,
conservatorship, bankruptcy, moratorium, insolvency, reorganization or similar
laws for the relief of debtors from time to time in effect and generally
affecting the rights of creditors (a "Debtor Relief Law"); or
(b) a party commences a voluntary case or voluntarily seeks, consents to,
or acquiesces in the benefit or benefits of any provision of any Debtor Relief
Law; consents to the filing of any petition against it under such Debtor Relief
Law; makes an assignment for the benefit of its creditors; admits in writing its
inability to pay its debts generally as they become due; or consents to the
appointment of a receiver, trustee, liquidator or conservator for it or any part
of its property.
8.9 Rights Upon Termination. As soon as practicable following the termination of
this Agreement
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for any reason, (a) THINC and Synetic shall pay all amounts due and payable
hereunder to the other party as soon as practicable; and (b) Synetic will
provide THINC with all files and records related to the performance by Synetic
of the Management Services. Synetic shall cooperate with THINC and its Members,
and take all reasonable steps necessary, to effect the transition of the
management of THINC from Synetic to THINC or a third-party designee of THINC.
THINC shall pay to Synetic its reasonable costs for such transition, unless such
transition is following a termination of this Agreement by THINC due to a
material breach of the Agreement by Synetic, as set forth in Section 8.3, or due
to fraud by Synetic, as set forth in Section 8.4, or due to an acquisition of
Synetic by a Health Plan Competitor, as set forth in Section 8.7.
8.10 No Effect. Synetic's equity ownership in THINC will not be affected
by a termination of this Agreement.
9. WARRANTIES
9.1 THINC Warranties. THINC represents and warrants that:
9.1.1 it is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of New York;
9.1.2 it has all requisite power and authority to execute this Agreement
and to perform its obligations hereunder and it shall perform its
obligations in a professional manner;
9.1.3 the execution, delivery and performance of this Agreement has been
duly authorized by THINC and will not violate the terms of any agreement to
which THINC is a party or is otherwise bound and this Agreement is a valid
and binding agreement enforceable against THINC in accordance with its
terms;
9.1.4 it has obtained, or will promptly obtain upon execution of this
Agreement, all third-party consents or licenses, or regulatory and
governmental approvals in all jurisdictions where the Services are to be
performed, to permit Synetic to perform the Services hereunder;
9.1.5 the documents, data and other information provided to Synetic and
relied on by Synetic to perform the Services are true, complete and
accurate in all material respects at the time provided;
9.1.6 THINC's performance of its obligations hereunder shall comply with
all applicable laws, rules and regulations;
9.1.7 the THINC Facilities and other THINC facilities used in connection
with performing the Services are in compliance with all applicable federal,
state and local laws governing environmental requirements; it owns or has
valid and binding leases or subleases on all THINC Facilities that are
leased or subleased by THINC; such leases and subleases are in full force
and effect and enforceable in accordance with their respective terms; and
there are no material defaults by THINC, and THINC knows of no material
default by any other party, under such leases and subleases;
9.1.8 the THINC Supplied Assets and THINC Proprietary Materials constitute
all of the rights, properties and assets necessary to permit Synetic to
provide the Services of a type and quality
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comparable to such services as rendered by THINC prior to the Effective
Date and as required hereby;
9.1.9 the THINC Proprietary Materials and THINC Supplied Assets do not and
shall not, and THINC shall perform its responsibilities under this
Agreement in a manner that does not, infringe, or constitute an
infringement or misappropriation of, any patent, invention, trade secret,
copyright, trademark, proprietary information, nondisclosure or other
proprietary right of any third party (collectively, "Third-Party Business
Property Rights"); no claims have been asserted or threatened by any third
party with respect to THINC's ownership or use of any of the THINC
Proprietary Materials, THINC Facilities and THINC Supplied Assets and there
is no valid basis for any such claim against such use or ownership by
THINC; and from and after the Effective Date, the use by Synetic in a
manner comparable to the use or ownership by THINC prior to the Effective
Date, of the THINC Proprietary Materials and THINC Supplied Assets does not
infringe, or constitute an infringement or misappropriation of, any
Third-Party Business Property Rights;
9.1.10 there are no pending or threatened claims, actions, suits,
proceedings or investigations before any court or any federal, state,
municipal or other government department, commission, board, agency,
instrumentality or authority, by or against, or otherwise materially
affecting THINC or the transaction contemplated by this Agreement;
9.1.11 true and complete copies of (a) the balance sheet of THINC as of
December 31, 1997, and the related statements of income and cash flows for
the year ended December 31, 1997, together with the report of independent
public accountants thereto (the "1997 Financial Statements"), and (b) the
unaudited consolidated balance sheet of THINC as of November 30, 1998, and
the related statements of income and cash flows for the eleven months ended
November 30, 1998 (the "Interim Financial Statements"), were provided to
Synetic prior to the Effective Date. The 1997 Financial Statements and the
Interim Financial Statements: (i) were prepared in accordance with the
books of account and other financial records of THINC, (ii) present fairly
the consolidated financial condition and results of operations of THINC as
of the dates thereof or for the periods covered thereby, (iii) have been
prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with the past practices of THINC, and (iv)
include all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation of the financial condition of THINC
and the results of the operations of THINC as of the dates thereof or for
the periods covered thereby; provided, however, that the Interim Financial
Statements do not include footnotes required by U.S. generally accepted
accounting principles and were or are subject to normal and recurring
year-end adjustments which were not and are not anticipated to be material
in amount.
9.1.12 the books of account and other financial records of THINC: (a)
reflect all items of income and expense and all assets and liabilities
required to be reflected therein in accordance with U.S. generally accepted
accounting principles applied on a basis consistent with the past practices
of THINC, (b) are in all material respects complete and correct, and do not
contain or reflect any material inaccuracies or discrepancies and (c) have
been maintained in accordance with good business and accounting practices;
9.1.13 there are no debts, liabilities or obligations, whether accrued or
fixed, absolute or contingent, matured or unmatured, or determined or
determinable ("Liabilities") of THINC, other than Liabilities (a) reflected
or reserved against on the Interim Financial Statements, and
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(b) in an aggregate amount not exceed $100,000 incurred since November 30,
1998 in the ordinary course of business, consistent with the past practice
of THINC. Reserves are reflected on the Interim Financial Statements and on
the books of account and other financial records of THINC against all
Liabilities of THINC in amounts that have been established on a basis
consistent with the past practices of THINC and in accordance with U.S.
generally accepted accounting principles;
9.2 Synetic Warranties. Synetic represents and warrants that:
9.2.1 it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware;
9.2.2 it has all requisite power and authority to execute this Agreement
and to perform its obligations hereunder;
9.2.3 the execution, delivery and performance of this Agreement has been
duly authorized by Synetic and will not violate the terms of any agreement
to which Synetic is a party or is otherwise bound and this Agreement is a
valid and binding agreement enforceable against Synetic in accordance with
its terms;
9.2.4 Synetic's performance of its obligations hereunder shall comply with
all applicable laws, rules and regulations;
9.2.5 such of Synetic's network, system and facilities as are used in
connection with performing the Services (collectively, the "Synetic
System") is in compliance with all applicable federal, state and local laws
governing environmental requirements;
9.2.6 the Synetic Proprietary Materials do not and shall not, and Synetic
shall perform its responsibilities under this Agreement in a manner that
does not, infringe, or constitute an infringement or misappropriation of,
any Third-Party Business Property Rights; no claims have been asserted or
threatened by any third party with respect to Synetic's ownership or use of
any of the Synetic Proprietary Materials, and there is no valid basis for
any such claim against such use or ownership by Synetic;
9.2.7 the Synetic System is or shall be Millennium Compliant. For purposes
of clarification, in no way shall the foregoing be deemed to include or
apply to the THINC Network or the THINC Proprietary Materials. For purposes
of this Agreement, as to any hardware, software or system, "Millennium
Compliant" shall mean the ability of that hardware, software or system to
provide the following functions: (a) consistently process date information
before, during and after January 1, 2000 including but not limited to
accepting date input, providing date output, performing calculations on
dates or portions of dates, and calculating leap years; and (b) function
accurately in accordance with its respective specifications and
documentation and without interruption before, during and after January 1,
2000 without any adverse change in operation, function or performance
associated with the advent of the new century; and (c) respond to two-digit
year date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (d) store and provide
output of date information in ways that are unambiguous as to century; and
(e) maintain interoperability with other hardware and software products
with which it must interact and exchange records, provided that such other
hardware and software products are themselves Millennium Complaint as set
forth in (a) - (d) above; and
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9.2.8 there are no pending or threatened claims, actions, suits,
proceedings or investigations before any court or any federal, state,
municipal or other government department, commission, board, agency,
instrumentality or authority, by or against, or otherwise materially
affecting Synetic or the transaction contemplated by this Agreement.
9.3 Disclaimer. EXCEPT AS PROVIDED IN THIS AGREEMENT, SYNETIC MAKES AND THINC
RECEIVES NO WARRANTIES HEREUNDER AND EXPRESSLY DISCLAIMS ANY AND ALL OTHER
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR ALLEGEDLY EXTENDED IN ANY
COMMUNICATION WITH THINC, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
MERCHANTABILITY, SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE OR
WARRANTY THAT THE PROVISION OF THE SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE.
10. LIMITATIONS AS TO AMOUNT AND TYPE OF LIABILITY
10.1 Limitation of Liability. Neither THINC nor Synetic will be liable for any
indirect, incidental, consequential, special or punitive damages arising under
this Agreement, including but not limited to loss of data, interest, anticipated
savings, revenues or profits, or interruption of business, even if such party
has been advised of the possibility of such losses or damages. The limitations
of liability in this Section shall apply regardless of the form of action,
whether in contract, tort (including negligence of any kind, whether active or
passive), warranty, strict liability or any other legal or equitable grounds.
Without limitation of the foregoing, but subject to Sections 11.2(ii)(b) and
11.2(ii)(c), Synetic's liability under this Agreement, if any, arising out of
the performance or non-performance of its obligations shall be limited to actual
direct money damages incurred as a result of Synetic's gross negligence or bad
faith, plus any unreimbursed telecommunication and interface development costs
of THINC actually incurred in providing access for the Clinical Transaction
Services.
10.2 Limitation Period. Neither party to this Agreement may assert against the
other party any claim for breach or nonperformance in connection with this
Agreement unless the asserting party has given the other party written notice of
the event giving rise to liability within three (3) years after the termination
of this Agreement, except this Section 10.2 shall not apply to any claim for
indemnification under Article 11 of this Agreement.
10.3 Definitions of Synetic and THINC. For the purposes of the limitations of
liability set forth in this Section 10, references to Synetic shall be deemed to
include its subsidiaries and their affiliates, and the directors, officers,
employees, agents, representatives, subcontractors and suppliers of any of them,
and references to THINC shall be deemed to include its subsidiaries and their
affiliates, and the directors, officers, employees, agents, representatives,
subcontractors and suppliers of any of them.
11. INDEMNITIES
11.1 Indemnification by THINC. THINC shall indemnify, defend and hold harmless
each of Synetic and its affiliates, and their respective officers, directors and
agents, and their respective successors and assigns, in accordance with the
procedures set forth in Section 11.3, from and against any and all Losses (as
defined in Section 11.4) arising out of or in connection with:
11.1.1 Any actions taken by THINC prior to the expiration of the Transition
Period, except to the extent such Losses were caused by Synetic's gross
negligence or bad faith;
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11.1.2 Synetic's provision of Management Services under this Agreement,
except to the extent such Losses were caused by Synetic's gross negligence
or bad faith, provided however that, subject to Section 8, this indemnity
shall not relieve Synetic of its obligations under this Agreement;
11.1.3 Any claims by third-party contracting entities to any of the
third-party agreements as a result of any third-party consents pursuant to
Section 4.5, relating to or arising out of THINC's failure to observe or
perform any duties or obligations required to be observed or performed
before or after the expiration of the Transition Period by THINC under or
with respect to any such agreements;
11.1.4 Any claims of infringement or misappropriation of any patent,
invention, trade secret, copyright, trademark, proprietary information
nondisclosure or other proprietary rights resulting from the use of any
THINC Supplied Assets or THINC Proprietary Materials by Synetic in the
performance of the Services;
11.1.5 The damage to or loss or destruction of any real or tangible
personal property in the possession or under the control of THINC or its
affiliates, except to the extent proximately caused by Synetic's gross
negligence or bad faith;
11.1.6 An act or omission by THINC or its employees (including without
limitation the THINC Employees) arising out of or relating to (a) federal,
state, or other laws or regulations for the protection of persons who are
members of a protected class or category of persons, (b) sexual
discrimination or harassment, (c) THINC employee benefits, (d) any
representations, oral or written, made by THINC to THINC's employees, and
(e) any other aspect of the employment relationship or the termination of
the employment relationship relating to the employees of THINC arising
prior to the date such employee becomes an employee of Synetic as
contemplated herein, if applicable, including but not limited to claims for
breach of an expressed or implied contract of employment and claims
relating to salaries, THINC employee benefit plans, severance, termination
liabilities, claims arising under the occupational health and safety or
other applicable federal, state or local laws or regulations, including
plant closing or mass layoff laws, the Employee Retirement Income Security
Act of 1974 or the related provisions of the Internal Revenue Code of 1986;
and
11.1.7 The death or bodily injury of any agent, employee, subcontractor,
customer, business invitee or business visitor of THINC or its affiliates,
except to the extent proximately caused by Synetic's gross negligence or
bad faith;
11.1.8 Any claim or action arising out of or relating to this Agreement
brought by or on behalf of a customer or agent of THINC or its affiliates,
except to the extent proximately caused by Synetic's gross negligence or
bad faith;
11.1.9 Any third-party claim or action arising out of or relating to a
breach by THINC of its representations and warranties set forth in Sections
9.1.3 through 9.1.13; and
11.1.10 Any third-party claim or action arising out of or relating to the
Content and Messaging Services, to the extent (a) caused by any negligent
action of a Payer or an end-user of such Content and Messaging Services,
(b) caused by any action of a Payer or an end-user of such Content and
Messaging Services other than in conformity with the Content and Messaging
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Services, or (c) arising out of or relating to any Payer's content,
messages, rules, guidelines or other information.
11.2 Indemnification by Synetic. Synetic shall indemnify, defend and hold
harmless THINC, in accordance with the procedures set forth in Section 11.3,
from and against any and all Losses: (i) caused by Synetic's gross negligence or
bad faith, or (ii) arising out of or in connection with any third-party claim or
action arising out of or relating to: (a) a breach by Synetic of its
representations and warranties set forth in Sections 9.2.3 through 9.2.6, and
Section 9.2.8; (b) the provision to a Payer by THINC of Content and Messaging
Services pursuant to a Managed Care Transaction Contract, except for Losses (w)
caused by any negligent action of a Payer or an end-user of such Content and
Messaging Services, (x) caused by any action of a Payer or an end-user of such
Content and Messaging Services other than in conformity with the Content and
Messaging Services, (y) arising out of or relating to any Payer's content,
messages, rules, guidelines or other information, or (z) arising out of or
resulting from the THINC Network to the extent the cause of such Losses was not
within Synetic's reasonable control as Contract Manager; (c) a breach by Synetic
of its representations and warranties set forth in Sections 9.2.7; and (d) use
by Synetic of any THINC Proprietary Materials other than for the purposes set
forth in Section 4.4.
11.3 Indemnification Procedures.
11.3.1 A party seeking indemnification under this Agreement (an
"Indemnified Party") for a claim by a third party shall promptly notify the
other party (the "Indemnifying Party") in writing of the commencement, or
threatened commencement, of any civil, criminal, administrative or
investigative action or proceeding involving a claim for indemnification
under this Agreement. The Indemnifying Party shall have sole control over
the defense and settlement of such claim, provided that, within thirty (30)
days after receipt of the above-described notice, the Indemnifying Party
notifies the Indemnified Party of its election to so assume full control.
The foregoing notwithstanding, the Indemnified Party shall be entitled to
participate in the defense of such claim and to employ counsel at its own
expense to assist in the handling of such claim. The Indemnifying Party
shall obtain the prior written approval of the Indemnified Party, which
shall not be unreasonably withheld, before entering into any settlement of
such claim or ceasing to defend against such claim if such settlement or
cessation would cause injunctive or other equitable relief to be imposed
against the Indemnified Party. A condition to any settlement by the
Indemnifying Party of a claim shall be that the Indemnified Party is fully
released from any liability related to the claim. After notice by the
Indemnifying Party to the Indemnified Party of its election to assume full
control of the defense of any such action, the Indemnifying Party shall not
be liable to the Indemnified Party for any legal expenses incurred by the
Indemnified Party in connection with the defense of that claim. If the
Indemnifying Party does not assume sole control over the defense of such
claim, the Indemnifying Party may participate in such defense and the
Indemnified Party shall have the right to defend the claim in such manner
as it may deem appropriate, at the cost and expense of the Indemnifying
Party. An Indemnifying Party shall not be required to indemnify an
Indemnified Party for any amount paid or payable by such Indemnified Party
in the settlement of any such claim which was agreed to without the written
consent of the Indemnifying Party, which shall not be unreasonably
withheld.
11.3.2 If a claim for indemnification hereunder involves a third party
claim, the Indemnifying Party may, at its sole cost, expense and ultimate
liability regardless of the outcome, and through counsel of its choice,
litigate, defend, settle or otherwise attempt to resolve such claim, except
that the Indemnified Party may elect, at any time and at its sole cost,
expense and ultimate
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<PAGE>
liability, regardless of the outcome, and through counsel of its choice, to
so resolve such claim, thereby waiving any right to indemnification under
this Agreement. In any event, each party shall fully cooperate with the
other and their respective counsel in connection with any such resolution,
and notwithstanding which party is defending any such third party claim,
the other party shall have the right to select co-counsel at its sole cost
and expense and to consult with counsel for the Indemnifying Party.
11.4 Losses. "Losses" shall mean all losses, liabilities, damages and claims and
all related costs and expenses, including reasonable legal fees and
disbursements.
12. DISPUTE RESOLUTION AND ARBITRATION
12.1 Dispute Resolution. Synetic and THINC will agree to use their best efforts
to resolve disputes informally and amicably. If, after negotiating for thirty
(30) days or for some longer period if the parties agree, no resolution of a
dispute is reached, Synetic and THINC will submit the dispute to binding
arbitration in New York, New York pursuant to the Commercial Arbitration Rules
of the American Arbitration Association ("AAA") and the procedures set forth in
Section 12.2.
12.2 Arbitration. All disputes that cannot be resolved pursuant to the internal
issue resolution process identified above, will be submitted to and settled by
final and binding arbitration. Any dispute which cannot be resolved as set forth
above, will be resolved by final and binding arbitration in New York, New York
by a panel of three (3) arbitrators in accordance with and subject to the
Commercial Arbitration Rules of the AAA then in effect. Following notice of a
party's election to require arbitration, each party will within thirty (30) days
select one arbitrator, and those two arbitrators will within thirty (30) days
thereafter select a third arbitrator. If the two arbitrators are unable to agree
on a third arbitrator within thirty (30) days, the AAA will within thirty (30)
days thereafter select such third arbitrator. Judgment upon the award rendered
in any such arbitration may be entered in any court of competent jurisdiction,
or application may be made to such court for a judicial acceptance of the award
and an enforcement, as the law of such jurisdiction may require or allow.
Notwithstanding the foregoing, either party may seek injunctive relief in a
court of competent jurisdiction, where appropriate, to protect its rights
pending the outcome of such arbitration.
12.3 Forbearance. The parties acknowledge that THINC shall not institute a
lawsuit, file any claim or cause of action at law or in equity, or bring legal
challenge or action in any forum against any GNYHA Member without giving GNYHA
sixty (60) days prior written notice, during which notice period GNYHA shall
have the right but not obligation to attempt to resolve any dispute between the
GNYHA Member and THINC, provided, however, that THINC shall not be subject to
such forbearance requirement if such delay would prejudice the rights of THINC.
13. GENERAL
13.1 Assignment. Neither Synetic nor THINC may assign this Agreement or any of
its rights or obligations hereunder without the consent of the other party
(which consent shall not be unreasonably withheld), provided that Synetic may
assign this Agreement and any of its rights and obligations, upon written notice
to THINC's Members, to a subsidiary of which Synetic owns, directly or
indirectly, a majority of the voting equity securities.
13.2 Force Majeure. Each of Synetic and THINC will be excused from performance
of its obligations
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<PAGE>
under this Agreement for any period and to the extent that performance is
prevented as a result of delays caused by fire, flood, changes in laws or
regulations, and other events beyond its reasonable control.
13.3 Entire Agreement. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof. There are no
representations, warranties, understandings or agreements relating to the
subject matter hereof which are not fully expressed in this Agreement. No
amendment, modification, waiver or discharge of this Agreement shall be valid
unless in writing and signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced.
13.4 Amendments. All changes in this Agreement or its Schedules require the
mutual written agreement of the parties.
13.5 No Waiver. No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of the same or
any other provisions hereof.
13.6 Severability. If any provision of this Agreement should be held invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby, and
such provision shall be deemed restated to reflect the original intention of the
parties as nearly as possible in accordance with applicable law.
13.7 Governing Law. This Agreement shall be governed by and construed in all
respects in accordance with the laws of the State of New York without regard to
its conflicts of law rules.
13.8 Binding Nature. This Agreement is binding on the parties hereto and
their respective successors and assigns.
13.9 Notices. Whenever one party is required or permitted to give notice to the
other, such notice shall be deemed given: when delivered by hand; one (1) day
after being given to an express courier with a reliable system for tracking
delivery; when telecopied or faxed and receipt confirmed; or three (3) days
after the day of mailing, when mailed through United States mail, registered or
certified mail, return receipt requested, postage prepaid, and addressed as
follows:
In the case of Synetic:
Synetic Healthcare Communications, Inc.
c/o Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Attention: General Counsel
With a copy to: Synetic Relationship Manager
In the case of THINC:
The Health Information Network Connection LLC
1155 Avenue of the Americas
New York, New York 10036
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<PAGE>
Attention: Chairman
With a copy to: THINC Relationship Manager
Either party may from time to time change its address for notification
purposes by giving the other thirty (30) days prior written notice of the new
address and the date upon which it shall become effective.
13.10 Publicity. Each of Synetic and THINC and their respective affiliates
(existing today and in the future) shall hold the contents of this Agreement in
strict confidence and not make any public statements with respect thereto,
except as may be required under applicable laws and regulations (including,
without limitation, federal securities laws) or with the consent of Synetic, in
the case of disclosure by THINC, or with the consent of THINC, in the case of
disclosure by Synetic, in each case which consent will not be unreasonably
withheld. Notwithstanding the foregoing, Synetic and THINC will issue a press
release announcing the execution of this Agreement. In addition, each of Synetic
and THINC shall be permitted to respond generally to inquiries regarding its
business, provided that it shall not disclose specific terms of this Agreement
(except as may be required under applicable laws and regulations).
13.11 Insurance. Each of THINC and Synetic will maintain general liability
insurance and such other insurance, as set forth on Schedule F.
13.12 Nonassumption of Liabilities. Unless specifically provided by this
Agreement, THINC does not assume or become liable for any of the existing or
future obligations, liabilities or debts of Synetic, and Synetic does not assume
or become liable for any of the existing or future obligations, liabilities or
debts of THINC.
13.13 No Third Party Beneficiaries. Except as expressly specified in this
Agreement, the parties do not intend, nor shall any clause be interpreted to
create in any third party, any obligations to, or right or benefit by, such
third party under this Agreement from either Synetic or THINC.
13.14 Relationship of Parties. Synetic is acting as an independent contractor in
providing the Services under this Agreement, with the sole right to supervise,
manage, control, direct, procure, perform, or cause to be performed, all
necessary work, duties or obligations under this Agreement. Except as otherwise
expressly provided herein, Synetic does not undertake by this Agreement or
otherwise to perform any obligations of THINC whether regulatory or contractual.
13.15 Approvals and Similar Actions. Where agreement, approval, acceptance,
consent or similar action by either party hereto is required by any provision of
this Agreement, such action shall not be unreasonably delayed or withheld. Each
party will cooperate with the other by, among other things, making available, as
reasonably requested by the other, management decisions, information, approvals
and acceptances in order that each party may properly accomplish its obligations
and responsibilities hereunder.
13.16 Survival. Notwithstanding any provisions of this Agreement to the
contrary, any provision of this Agreement that by its terms, nature or operation
of law should survive the termination or expiration of this Agreement will
survive.
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THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT AND AGREE
TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES RELATING
TO THIS SUBJECT SHALL CONSIST OF (1) THIS AGREEMENT AND (2) ITS SCHEDULES, EACH
AS AMENDED FROM TIME TO TIME. THIS STATEMENT OF THE AGREEMENT SUPERSEDES ALL
PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER NEGOTIATIONS
AND COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER DESCRIBED
IN THIS AGREEMENT.
THE HEALTH INFORMATION NETWORK SYNETIC HEALTHCARE
CONNECTION LLC COMMUNICATIONS, INC.
By: By:
---------------------------------- ------------------------------
Name: Name:
Title: Title:
Date: Date:
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THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED IN VIOLATION OF THE ACT, THE RULES AND
REGULATIONS THEREUNDER, ANY APPLICABLE STATE SECURITIES LAW OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: **81,081**
WARRANT
To Purchase Common Stock of
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
THIS IS TO CERTIFY THAT THE HEALTH INFORMATION NETWORK CONNECTION LLC, a
New York limited liability company, or its registered and permitted assigns, is
entitled, at any time during the Exercise Period (as hereinafter defined), to
purchase from SYNETIC HEALTHCARE COMMUNICATIONS, INC., a Delaware corporation
(the "Company"), Eighty-One Thousand Eighty-One (81,081) shares of Common Stock
(as hereinafter defined and subject to adjustment as provided herein), in whole
or in part, including fractional parts, at the Applicable Warrant Price (as
hereinafter defined and subject to adjustment as set forth herein), all on the
terms and conditions and pursuant to the provisions hereinafter set forth.
ARTICLE I
DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued or issuable (whether upon the exercise of warrants, Convertible
Securities or otherwise) by the Company after the Effective Date, other than
Warrant Stock.
"Affiliate" shall mean with respect to any person or entity, any other
person or entity directly or indirectly controlling, controlled by or under
direct or indirect common control with such person or entity. For purposes of
this definition, the term "control" (including correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
<PAGE>
policies of such Person, whether through ownership of voting securities, by
contract or otherwise.
"Applicable Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date. On any such date, such
price shall equal the following: (a) if there occurs an Initial Public Offering
of the Common Stock by such date, then the lesser of (i) the Initial Public
Offering Price of the Common Stock and (ii) the Non-IPO Price; or (b) if an
Initial Public Offering of the Common Stock does not occur by such date, then
the Non-IPO Price, in each case subject to adjustment as provided herein;
provided, however, that, notwithstanding anything to the contrary contained
herein, the Applicable Warrant Price shall not be less than the par value of a
share of Common Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Cashless Exercise" shall have the meaning set forth in Section 2.2(c).
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $.01 per share, of the Company, and any capital
stock into which such Common Stock may thereafter be changed, and shall also
include (a) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (b) shares of Common Stock of any successor or acquiring
corporation (as defined in Section 4.7) received by or distributed to the
holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7; provided, however, that this shall not include any shares of Common
Stock acquired by the exercise of this Warrant whether in full or in part.
"Company" shall have the meaning set forth in the introductory
paragraph hereof.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock, warrants, rights or other securities which are exercisable, convertible
or exchangeable, (including, but not limited to, Options) with or without
payment of additional consideration in cash or property, for Additional Shares
of Common Stock, either immediately or upon the occurrence of a specified date
or the happening of a specified event or both.
"Current Market Price" shall mean in respect of any share of Common Stock
on any date herein specified, the lower of (a) the average of the daily market
prices for 15
2
<PAGE>
consecutive Business Days commencing twenty-five (25) days before such date and
(b) the daily market price on the most recent Business Day prior to such date.
The daily market price for each such Business Day shall be the last reported
sale price on such day on the principal stock exchange on which such Common
Stock is then listed or admitted to trading or, if the Common Stock is not so
listed or admitted, the last reported sale price on such day on the National
Association of Securities Dealers, Inc. Automated Quotation National Market
System ("NASDAQ") or any other over-the-counter market or trading facility on
which such Common Stock is then listed; provided, however, that if no sale takes
place on such day on any such exchange, market or trading facility, the average
of the last reported closing bid and ask prices on such day as officially quoted
on such exchange, market or trading facility shall be the daily market price for
such Business Day; provided, further, that if the Common Stock is not listed or
admitted to trade on a stock exchange and is not quoted on NASDAQ, or any other
over-the-counter market or trading facility, the Current Market Price shall be
the Fair Market Value.
"Cut-Back Event" shall have the meaning set forth in Section 7.3(a).
"Demand Registration" shall have the meaning set forth in Section 7.2.
"Effective Date" shall mean January 1, 1999.
"Exercise Period" shall mean the date or period, as the case may be, on or
during which this Warrant is exercisable pursuant to Section 2.2; provided,
however, that such date or period shall be extended in order to permit the
Holder to comply as necessary with the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and to
obtain the consents of the United States Department of Justice and the United
States Federal Trade Commission to the exercise of this Warrant by the Holder.
"Expiration Date" shall mean January 1, 2006; provided, however, that if
the Management Services Agreement is terminated by THINC pursuant to Section 8.6
thereof due to a failure by the Company to meet certain performance standards,
then the Expiration Date shall be the one-hundred and eightieth (180th) day
following the date of such termination.
"Fair Market Value" shall mean in respect of a share of Common Stock on
any date herein specified, the fair value as determined in good faith by the
Board of Directors of the Company, subject to the provisions of Section 4.6(e).
"Healthcare Communications Business" shall mean the provision of on-line
prescription, laboratory and managed care transaction and messaging services
(the "Services") that connect physicians with healthcare payers, pharmacies and
laboratories, which shall include, without limitation, connection to, and
management of Services with, all pharmaceutical benefits management systems;
connection to, and management of Services with, all payer systems (including
third party payers and direct payers (e.g.,
3
<PAGE>
employers)); connection to, and management of Services with, all physicians and
other provider systems; connection to, and management of Services with,
healthcare suppliers (e.g., pharmacies, laboratories); connection to, and
management of Services with, consumers; and connection to, and management of
services with, other data switches (e.g., clearing houses).
"Holder" shall mean the Person in whose name this Warrant is registered on
the books of the Company maintained for such purpose.
"Incidental Registration" shall have the meaning set forth in Section
7.3.
"Initial Public Offering" means an initial underwritten public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act, in connection with which the Company's Common Stock
first becomes listed or admitted to trading on a national stock exchange, or
traded and quoted on NASDAQ or any other over-the-counter market or trading
facility.
"Initial Public Offering Price" shall mean the amount of consideration
paid by the public per share of Common Stock in connection with an Initial
Public Offering (not subtracting any commissions, discounts or other expenses
incurred in connection with the Initial Public Offering and any related
underwriting).
"Management Services Agreement" shall mean the Management Services
Agreement entered into concurrently herewith between the Company and Synetic
Healthcare Communications, Inc., a Delaware corporation, as such agreement may
be amended, supplemented and/or extended from time to time.
"Majority Holders" shall have the meaning set forth in Section 4.6(e).
"NASDAQ" shall have the meaning set forth in the paragraph hereof defining
"Current Market Price".
"Non-IPO Price" shall mean in respect of a share of Common Stock the price
equal to $200.00.
"Option" means any right, warrant or option to subscribe for or purchase
shares of Common Stock.
"Other Property" shall have the meaning set forth in Section 4.7.
"Outstanding" shall mean, when used with reference to the Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or its subsidiaries, and all shares issuable in respect
of outstanding scrip or any certificates representing fractional interests in
shares of Common Stock.
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"Parent" shall mean Synetic, Inc., the corporate parent of the Company.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof) and other
organizations, whether or not legal entities.
"Register" shall have the meaning set forth in Section 2.1.
"Registrable Shares" shall mean shares of Common Stock issued or issuable
upon the exercise of this Warrant.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Shareholders" shall mean Persons holding Common Stock of the
Company and entitled to register such Common Stock under the Securities Act
pursuant to a registration agreement with the Company, other than holders of
Registrable Shares.
"THINC" shall mean THE HEALTH INFORMATION NETWORK CONNECTION LLC, a New
York limited liability company.
"Warrants" shall mean this Warrant and all Warrants issued upon the
partial exercise, transfer, division or combination of, or in substitution for,
any thereof. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock for which
they may be exercised.
"Warrant Price" shall mean an amount equal to (a) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.2 multiplied by (b) the Applicable Warrant Price.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
Holder upon the exercise of this Warrant; provided that if under the terms
hereof there shall be a change such that the securities purchasable hereunder
shall be issued by an entity (other than the Company) or there shall be a change
in the type or class of securities purchasable hereunder, then the term shall
mean the securities issued or issuable upon the exercise of the rights granted
hereunder.
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ARTICLE II
REGISTRATION; EXERCISE OF WARRANT
2.1 Registration. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the "Register"), in the name of
the Holder of such Warrant. The Register shall include the Holder's name,
address (as provided to the Company by the Holder), the number of Warrants
registered in such Holder's name, and any other information pertaining to the
Warrants or the Holder that the Board of Directors of the Company reasonably
deems appropriate. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner thereof for the purpose of any exercise thereof or
any distribution to the Holder thereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
2.2 Manner of Exercise. (a) This Warrant may be exercised for all or any
part of the number of shares of Common Stock purchasable hereunder either (i)
before 5:00 P.M., New York City time, on any Business Day during the period from
the date that is one-hundred and eighty (180) days following the occurrence of
an Initial Public Offering (in which Parent is not selling any Common Stock
held, directly or indirectly, by Parent) which takes place on or prior to the
Expiration Date to the later of (A) the Expiration Date and (B) the date that is
one hundred eighty five (185) days following the date of such Initial Public
Offering; (ii) if an Initial Public Offering occurs in which Parent is selling
any Common Stock held, directly or indirectly, by Parent, then before 5:00 p.m.,
New York City time, on any Business Day during the period from the date of the
Initial Public Offering to the later of (A) the Expiration Date and (B) the date
that is five (5) days following the date of such Initial Public Offering; or
(iii) if an Initial Public Offering has not so occurred, then before 5:00 P.M.,
New York City time, on any Business Day during the fifteen (15)-day period
immediately following the Expiration Date.
(b) In order to exercise this Warrant, in whole or in part, the
Holder shall deliver to the Company at the office designated by the Company
pursuant to Section 12.8, (i) a written notice of the Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price in the manner provided
below, and (iii) this Warrant. Such notice shall be substantially in the form of
the subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by the Holder or its agent or attorney duly authorized in writing. Upon
receipt thereof, the Company shall, as promptly as practicable, execute or cause
to be executed and deliver or cause to be delivered to the Holder a certificate
or certificates representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as the Holder shall request in the notice and shall be registered
in the name of the Holder. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued and the
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Holder shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the cash or check or checks,
if any, and this Warrant, are received by the Company as described above and all
taxes required to be paid by the Holder, if any, prior to the issuance of such
shares, have been paid. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the unpurchased shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the sole discretion of the Company, appropriate
notation may be made on this Warrant and the same returned to the Holder. The
issuance of Warrant Stock shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Stock; provided the Holder provides the Company or its agent with any report,
document or certificate required by applicable law in order to avoid the
imposition of such taxes or other costs. Notwithstanding any provision herein to
the contrary, the Company shall not be required to register shares in the name
of any Person who acquired this Warrant (or part hereof) or any Warrant Stock
otherwise than in accordance with this Warrant. Payment of the Warrant Price
shall be made in same-day funds by certified or official bank check, or wire
transfer.
(c) If the Company's Common Stock is listed on a national securities
exchange or quoted on NASDAQ or any other over-the-counter market or trading
facility, the Holder may also exercise this Warrant during the Exercise Period
for all or any part of the number of shares of Common Stock purchasable
hereunder, in a "cashless" or "net-issue" exercise (a "Cashless Exercise") by
delivery to the Company at the office designated by the Company pursuant to
Section 12.8, (i) a written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, and (ii) this Warrant. Such notice shall be substantially in the form
of the cashless exercise form appearing at the end of this Warrant as Exhibit B,
duly executed by the Holder or its agent or attorney duly authorized in writing.
In the event of a Cashless Exercise, the Holder shall exchange this Warrant for
that number of shares of Common Stock determined by dividing (A) the product
received by multiplying that portion of the total number of shares of Common
Stock purchasable hereunder which the Holder elects to exercise in this Cashless
Exercise by the excess of (X) the Current Market Price over (Y) the Applicable
Warrant Price, and (B) the Current Market Price. The cashless exercise form
shall set forth the calculation upon which the Cashless Exercise is based.
2.3 Payment of Taxes. The Company shall pay all stock transfer taxes and
similar governmental charges that may be imposed with respect to the issuance of
Warrant Stock upon the exercise of this Warrant; provided, however, that the
Company shall not be required to pay any tax or other charge imposed in
connection with any transfer of this Warrant or the issuance or delivery of
certificates for shares of Warrant Stock or other securities in respect of the
shares of Warrant Stock upon the exercise of Warrants, to a person or entity
other than a then existing Holder of Warrants; provided,
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further, that the Company shall not be required to pay any income or other
similar tax levied on any Holder of Warrants.
2.4 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of this Warrant. As to any
fraction of a share which the Holder of this Warrant, the rights under which are
exercised in the same transaction, would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Current Market Price on
the date of notice of exercise. Payment of such amount shall be made in cash or
by check payable to the order of the Holder at the time of delivery of any
certificate or certificates arising upon such exercise.
2.5 Restrictive Legend. Each certificate for Warrant Stock issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER
(1) SUCH SHARES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF SUCH SHARES (WHICH COUNSEL IS
REASONABLY SATISFACTORY TO THE COMPANY) PROVIDES AN OPINION TO SUCH EFFECT
TO THE COMPANY."
The Company shall, upon the request of any holder of a stock certificate bearing
the foregoing legend and the surrender of such certificate, issue a new stock
certificate without such legend if such holder shall have delivered to the
Company a legal opinion reasonably satisfactory to the Company to the effect
that the restrictions set forth herein are no longer required or necessary under
the Securities Act or any applicable state law.
ARTICLE III
TRANSFERS
This Warrant and all rights hereunder are non-transferable, and may not be
sold, transferred, pledged, hypothecated, or assigned without the prior written
consent of the Company (which may be withheld in the Company's sole discretion),
except in connection with the distribution of all the assets of the Holder
pursuant to a liquidation, dissolution or winding up of the affairs of the
Holder, or the sale of all or substantially all of the Holder's assets or a
merger or consolidation of the Holder where the Holder is not the surviving
entity; provided, however, in no event may a Holder make any transfer to a
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direct competitor of the Company. Any such prohibited transfer made without the
Company's consent shall be void ab initio. Any permitted transferee shall agree
to be bound by all provisions of this Warrant.
ARTICLE IV
ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Article IV; provided, however, that, notwithstanding anything to the
contrary contained herein, the Applicable Warrant Price shall not be less than
the par value of a share of Common Stock. The Company shall give the Holder
notice of any event described below which requires an adjustment pursuant to
this Article IV as soon as practicable following the occurrence of such event,
which notice shall state the exercise price resulting from such adjustment
and/or the increase or decrease, if any, in the number of shares of Common Stock
or other stock or property issuable upon the exercise of this Warrant, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
4.1 Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) pay a dividend or make a distribution on its Common Stock in
Additional Shares of Common Stock (this adjustment will be deemed to occur
immediately after the record date);
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Applicable Warrant Price
shall be adjusted to equal (A) the Applicable Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares of
Common Stock for which this Warrant is exercisable immediately after such
adjustment.
4.2 Issuance of Additional Shares of Common Stock. (a) If at any time the
Company shall (except as hereinafter provided in Section 4.2(b)) issue or sell
any Additional Shares of Common Stock and such Additional Shares of Common Stock
are
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issued or sold for no consideration or for consideration in an amount per
additional share of Common Stock less than the Fair Market Value then the
Applicable Warrant Price shall be reduced to a price determined by multiplying
(i) the Applicable Warrant Price, by (ii) a fraction, (A) the numerator of which
is the sum of (1) the number of shares of Common Stock Outstanding immediately
prior to such issuance or sale, plus (2) an amount equal to the quotient arrived
at by dividing the aggregate consideration, if any, received by the Company upon
such issuance or sale, by the Fair Market Value per share of the shares so
issued or sold, and (B) the denominator of which is the number of shares of
Common Stock Outstanding immediately after such issuance or sale.
(b) The provisions of Section 4.2(a) shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided under
Sections 4.1 or 4.7. No adjustment of the number of shares of Common Stock for
which this Warrant shall be exercisable or the Applicable Warrant Price shall be
made under Section 4.2(a) upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Convertible Securities.
4.3 Issuance of Convertible Securities. If at any time the Company shall
issue or sell, any Convertible Securities, and the price per share for which
Common Stock issuable upon the exercise, conversion or exchange of such
Convertible Securities shall be less than the Fair Market Value in effect
immediately prior to the time of such issue or sale, then the Applicable Warrant
Price shall be adjusted as provided in Section 4.2(a) on the basis that (a) the
maximum number of Additional Shares of Common Stock issuable pursuant to all
such Convertible Securities shall be deemed to have been issued and outstanding,
(b) the price per share for such Additional Shares of Common Stock shall be
deemed to be the lowest possible price per share in any range of prices per
share at which such Additional Shares of Common Stock are available to such
holders, and (c) the Company shall have received all of the consideration
payable therefor, if any, as of the date of the actual issuance of such
Convertible Securities. No further adjustments of the Applicable Warrant Price
shall be made upon the actual issue of Additional Shares of Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
4.4 Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable shall
have been made pursuant to Section 4.3 as the result of any issuance of
Convertible Securities, and either
(a) the right of exercise, conversion or exchange for such
Convertible Securities, shall expire and all or a portion of such rights with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such Convertible Securities, shall be increased,
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then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such Convertible
Securities on the then outstanding Warrants, but not on any then outstanding
Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common Stock
theretofore actually issued or issuable pursuant to the previous exercise,
conversion or exchange, as having been issued on the date or dates of any such
exercise, conversion or exchange and for the consideration actually received and
receivable therefor, and
(d) treating any such Convertible Securities which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock are
issuable under such Convertible Securities.
4.5 Liquidation; Dissolution. If the Company shall dissolve, liquidate or
wind up its affairs, the Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up; provided that written notice of such intent to exercise is
delivered to the Company within ten (10) business days of the date that the
Holder receives written notice of the Company's intent to dissolve, liquidate or
wind up its affairs. If any such dissolution, liquidation or winding up results
in any cash distribution to the Holder in excess of the Applicable Warrant Price
for the shares of Common Stock for which this Warrant is exercised, then the
Holder may, at its option, exercise this Warrant without making payment of such
Applicable Warrant Price and, in such case, the Company shall, upon distribution
to the Holder, consider such Applicable Warrant Price to have been paid in full,
and in making such settlement to the Holder, shall deduct an amount equal to
such Applicable Warrant Price from the amount payable to the Holder.
4.6 Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable provided
for in this Article IV:
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Company therefor shall be the
amount of the cash received by the Company therefor, or, if such Additional
Shares of Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares of Common
Stock or Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued
dividends, but not subtracting any
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compensation, discounts or expenses paid or incurred by the Company for and in
the underwriting of, or otherwise in connection with, the issuance thereof). To
the extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined in good faith by the Board of Directors of
the Company. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Convertible Securities shall be the
consideration, if any, received by the Company for issuing such Convertible
Securities, plus the consideration paid or payable to the Company in respect of
the subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of such Convertible Securities. In case of the issuance
at any time of any Additional Shares of Common Stock or Convertible Securities
in payment or satisfaction of any dividends upon any class of stock other than
Common Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities consideration equal to the
amount of such dividend so paid or satisfied.
(b) When Adjustments Are Made. The adjustments required by this
Article IV shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable or of the Applicable Warrant
Price that would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in
Section 4.1) up to, but not beyond, the date of exercise if such adjustment
either by itself or with other adjustments not previously made adds or subtracts
less than one percent (1%) of the shares of Common Stock for which this Warrant
is exercisable or of the Applicable Warrant Price immediately prior to the
making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Article IV and not previously made, would result in a minimum
adjustment, but in no event later than the date of exercise of this Warrant. For
the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Article IV, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled. The adjustments pursuant to this
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Article IV shall not apply to: (i) any Convertible Securities which are issued
to officers, directors, employees, or consultants of the Company pursuant to a
bona fide plan or plans adopted in good faith by the Board of Directors of the
Company, to the extent such Securities may be exchanged for, converted into, or
exercised to acquire Additional Shares of Common Stock in an amount not
exceeding ten (10%) percent of the then outstanding Common Stock of the Company;
(ii) any Additional Shares of Common Stock issued to such officers, directors,
employees, or consultants of the Company upon the exchange, conversion or
exercise of the Convertible Securities described in the immediately preceding
clause (i), subject to the same limitation set forth therein; (iii) Additional
Shares of Common Stock issued to acquire, or in the acquisition of, all or any
portion of, or to invest in, a business, in an arm's-length transaction between
the Company and a third party which is not an Affiliate of the Company, whether
such acquisition or investment shall be effected by purchase of assets, exchange
of securities, merger, consolidation or otherwise, provided that the Company
shall have obtained a valuation or determination from any independent firm of
certified public accountants or investment banking firm, in either case of
recognized national standing, which indicates that such Additional Shares of
Common Stock were issued for consideration in an amount not less than fair
market value; (iv) Additional Shares of Common Stock issued in a bona fide
public offering pursuant to a firm commitment underwriting or sales at the
market pursuant to a continuous offering stock program; (v) Additional Shares of
Common Stock issued in any private placement or other transaction exempt from
the registration requirements of the Securities Act pursuant to a firm
commitment underwriting, provided that the Company shall have obtained a
valuation or determination from any independent firm of certified public
accountants or investment banking firm, in either case of recognized national
standing, which indicates that such Additional Shares of Common Stock were
issued for consideration in an amount not less than fair market value; (vi)
rights to purchase Additional Shares of Common Stock or issuance of Additional
Shares of Common Stock pursuant to a dividend reinvestment plan or other plan
hereafter adopted for the reinvestment of dividends or interest; (vii) a change
in the par value or no par value of the Common Stock (other than as a
consequence of an event described in Section 4.1(b), 4.1(c) or 4.7 for which an
adjustment to the number of Shares of Common Stock for which the Warrant is
exercisable is required pursuant to such Section 4.1(b), 4.1(c) or 4.7); or
(viii) non-stock dividends or distributions paid by the Company, except to the
extent otherwise provided in Section 4.9. In addition, to the extent that the
Warrants become exercisable for cash, no interest shall accrue on such cash.
(e) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Article IV, such determination may be
challenged in good faith by the Holders entitled to receive in excess of fifty
percent (50%) of the aggregate number of shares of Common Stock then purchasable
upon exercise of this Warrant, whether or not then exercisable (the "Majority
Holders"), and any dispute shall be resolved by an accounting or investment
banking firm of recognized standing selected by the Company and reasonably
acceptable to the Holders of a majority of the aggregate
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number of Shares of Common Stock then purchasable upon exercise of this Warrant.
Any such challenge must be made by delivery of written notice thereof to the
Company not later than fifteen (15) Business Days following the date that the
Company provides the Majority Holders written notice of such determination. For
the purposes of clarification and not limitation, no challenge may be made under
this Section 4.6(e) in respect of any of the events described in Section 4.6(d),
subject to the conditions in Section 4.6(d).
4.7 Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation, a reverse triangular merger in which
the Company is the surviving entity but the shares of the Company's Capital
Stock outstanding immediately prior to the merger are converted, by virtue of
the merger, into other property, whether in the form of cash, securities or
otherwise, or where there is a change in or distribution with respect to the
Common Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another Person and,
pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of Common Stock of any successor
or acquiring corporation or of the Company (as applicable), or any cash, shares
of stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
Common Stock of the successor or acquiring corporation or of the Company (as
applicable) ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then the Holder shall have the right
thereafter to receive, upon exercise of such Warrant, the number of shares of
Common Stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event; provided, however, that
this Section 4.7 shall not apply to the extent any action causes an adjustment
to be made pursuant to Sections 4.1, 4.2, or 4.3 hereof. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Article IV. For purposes of this Section 4.7 "Common Stock of any
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
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specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.7 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or dispositions of assets and to the stock or securities of any other
corporation that are at the time receivable by the Holders upon the exercise of
this Warrant.
4.8 Reclassifications. If the Company changes any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Applicable
Warrant Price therefore shall be appropriately adjusted.
4.9 Extraordinary Dividends. If the Company declares and pays an
extraordinary dividend (i.e., a dividend that is inconsistent with the Company's
dividend policy adopted by the board other than an initial dividend), and the
failure thereupon to make any adjustment pursuant to this Article IV would not
fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principles hereof, then, in such case, the Company
shall appoint a firm of independent certified public accountants of recognized
national standing (which may be the regular independent auditors of the Company)
or independent investment banking firm of recognized national standing, which
shall give their opinion upon the adjustment, if any, on a basis consistent with
the essential intent and principles established in this Article IV, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder of this Warrant and shall make the adjustment, if any, described
therein.
4.10 Other Notices. In case at any time:
(a) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation (other than a subsidiary of the Company in which the
Company is the surviving or continuing corporation and no change occurs in the
Company's Common Stock), or sale of all or substantially all of its assets to,
another corporation;
(b) there shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Company; or
(c) the Company shall declare any non-cash dividend on its Common
Stock;
then, in any one or more of said cases, the Company shall give written
notice, addressed to the Holder at the address of such Holder as shown on the
Register, of the date (or, if not then known, a reasonable approximation thereof
by the Company) on
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which such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, bankruptcy, assignment for the benefit of creditors,
winding up or other action or dividend, as the case may be, shall take place.
Such notice shall also specify (or, if not then known, reasonably approximate)
the date as of which the holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation merger, sale, dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, winding up, or
other action, or the date of such dividend, as the case may be. Such notice
shall be mailed to the Holder at least twenty days prior to the record date for
such action in the case of any action described in Subsection (a) or Subsection
(c) above, and in the case of any action described in Subsection (b) above, at
least twenty days prior to the date on which the action described is to take
place and at least twenty days prior to the record date for determining holders
of Common Stock entitled to receive securities and/or other property in
connection with such action.
As soon as practicable following any adjustment of the Applicable
Warrant Price and/or the number of shares of Common Stock purchasable upon
exercise of this Warrant, a certificate, signed by (i) the Company's President
or Chief Financial Officer, or (ii) any independent firm of certified public
accountants, or investment banking firm, in either case of recognized national
standing, which the Company selects at its own expense, setting forth in
reasonable detail the events requiring the adjustment and the method by which
such adjustment was calculated, shall be mailed to the Holder and shall specify
the adjusted Applicable Warrant Price and/or the number of shares of Common
Stock purchasable upon exercise of the Warrant after giving effect to the
adjustment.
4.11 No Impairment. The Company shall not, by amendment of its charter or
bylaws or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Article IV.
4.12 Determination Final. Subject to Section 4.6(e), any determination
that the Company or the Board of Directors of the Company shall make pursuant to
this Article IV shall be final, binding and conclusive.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the Effective Date, the Company hereby represents that:
5.1 Organization. It is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as it is now being
conducted and to execute,
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deliver and perform this Warrant and to consummate the transaction contemplated
hereby;
5.2 Title. The assets of the Company's Healthcare Communications Business
(the "Assets") are as set forth on Schedule I. The Assets (i) are subject to any
and all liabilities relating to such Assets; (ii) constitute substantially all
the properties and assets forming a part of, used, held, or intended to be
useful in, the conduct of the Healthcare Communications Business, except, in
each case, as would not reasonably be expected to materially and adversely
affect the Healthcare Communications Business; (iii) represent all of the
properties and amounts formerly held by Parent or Avicenna Systems Corporation
("Avicenna") and useful in connection with the Healthcare Communications
Business; and (iv) have been validly transferred and conveyed by Parent and
Avicenna to the Company such that the Company has all rights in respect of such
properties and assets that were formerly held by Parent and Avicenna (except
that certain software licenses may contain restrictions on assignment).
5.3 Conduct of Business. The Company will conduct the activities of the
Healthcare Communications Business through the Company or a wholly-owned
subsidiary of the Company.
5.4 Capitalization. The Company's authorized capital stock consists of:
10,000,000 shares of Common Stock, of which 1,000,000 shares are issued and
outstanding.
5.5 Options. Except pursuant to this Warrant there are no Options,
warrants or similar rights to acquire from the Company, or agreements or other
obligations by the Company, absolute or contingent, to issue or sell Common
Stock, whether on conversion or exchange of Convertible Securities or otherwise;
5.6 Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
5.7 Authority. The Company has the right and power, and is duly authorized
and empowered, to enter into, execute, deliver and perform its obligations under
this Warrant;
5.8 Binding Effect. This Warrant has been duly authorized, executed and
delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (b) general
principles of equity.
5.9 No Conflict. The execution, delivery and/or performance by the Company
of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the
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Company's charter or bylaws or contained in any agreement, instrument or
document to which the Company is a party or by which it is bound.
5.10 Consents. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body is
required for the valid issuance of the Warrant or for the performance of any of
the Company's obligations hereunder, except as may be required by federal or
state securities laws.
ARTICLE VI
COVENANTS
The Company covenants that from and after the Effective Date, the Company
shall at all times reserve and keep available for issue upon the exercise of
this Warrant such number of its authorized and unissued shares of Common Stock
as will be sufficient to permit such exercise in full. All shares of Common
Stock which shall be so issuable, when issued upon exercise of this Warrant and
payment therefor in accordance with the terms of this Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
ARTICLE VII
DEMAND AND INCIDENTAL REGISTRATION OF REGISTRABLE
SHARES
7.1 Registration. Neither this Warrant nor the Registrable Shares has been
registered under the Securities Act or applicable state securities laws. The
Holder, by acceptance hereof, represents that it is acquiring the Warrants to be
issued to it for its own account and not with a view to the distribution
thereof, and agrees not to sell, transfer, pledge or hypothecate any Warrants or
any Registrable Shares unless a registration statement is effective for such
Warrants or Registrable Shares under the Securities Act or in the opinion of
such Holder's counsel, which counsel must be acceptable to the Company (a copy
of which opinion shall be delivered to the Company) such transaction is exempt
from the registration requirements of the Securities Act and applicable state
securities laws.
7.2 Demand Registration. At any time after (i) the date that is two (2)
years after the Effective Date, unless prior thereto Parent has registered under
the Securities Act any of the Company's Common Stock held, directly or
indirectly, by Parent for sale to the public pursuant to an underwritten public
offering or continuous offering stock program; and (ii) the expiration of any
"lock-up period" during which the Company, in connection with an Initial Public
Offering, agrees with an underwriter not to sell Additional Shares of Common
Stock, then holders of not less than fifty percent (50%) of the then total
number of Registrable Shares, as to which Warrants have been exercised or are
then exercisable, may make a written request for registration under the
Securities Act of all or part of their Registrable Shares (the "Demand
Registration") for the public disposition of such Registrable Shares. The
Company shall, as soon as reasonably
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practicable after receipt of such written request, notify all other holders of
Registrable Shares, as to which Warrants have been been exercised or are then
exercisable, of the Company's receipt of such written request, and offer such
holders the opportunity to include their Registrable Shares, as to which
Warrants have been exercised or are then exercisable, in such Demand
Registration. The Company shall then use reasonable best efforts to register
under the Securities Act the Registrable Shares proposed to be sold by such
holders and to keep such Demand Registration open for ninety (90) days;
provided, however, that the Company shall not be obligated (i) to effect the
Demand Registration unless it has previously consummated an Initial Public
Offering, (ii) to effect the Demand Registration covering less than fifty
percent (50%) of the then total number of Registrable Shares, or (iii) to effect
more than one (1) Demand Registration under this Section 7.2; provided that if
the Registrable Shares proposed to be sold by such holders were not sold
pursuant to the Demand Registration, other than because such holders elected not
to sell their Registrable Shares, the holders of any number of Registrable
Shares shall be entitled to make a written request for additional Demand
Registrations in accordance with the procedures of this Section 7.2 until such
Registrable Shares initially proposed to be sold by such holders have been sold
(except that a request for an additional Demand Registration may not be made
until six (6) months after the effective date of the Registration Statement
effected in response to any previous Demand Registration); and provided,
further, that the Demand Registration shall be subject to the provisions of
Section 7.4 hereof. A request for the Demand Registration will specify the
number of Registrable Shares proposed to be sold. A registration will not count
as the Demand Registration until the registration statement relating thereto has
become effective and been kept open for not less than 90 days.
7.3 Incidental Registration. (a) If the Company proposes to register under
the Securities Act any Common Stock for sale to the public pursuant to a firm
commitment underwriting (other than in connection with an Initial Public
Offering in which Parent is not selling any of the Company's Common Stock held,
directly or indirectly, by Parent), the Company will give written notice at such
time to all holders of Registrable Shares, as to which Warrants have been been
exercised or are then exercisable, of its intention to do so. Upon the written
request of any such holder, given within thirty (30) days after receipt of any
such notice by the Company, to register any of its Registrable Shares, the
Company will use its reasonable best efforts to cause the Registrable Shares as
to which registration shall have been so requested, to be included in the
securities to be covered by such registration statement (the "Incidental
Registration"), all to the extent requisite to permit the sale or other
disposition by the holder (in accordance with its written request) of such
Registrable Shares so registered; provided, however, that nothing herein shall
prevent the Company from abandoning or delaying any such registration at any
time; and provided, further, that the Incidental Registration shall be subject
to the provisions of Sections 7.3(b) and 7.3(c), and Section 7.4 to the extent
indicated therein. Any request by a holder pursuant to this Section 7.3 to
register Registrable Shares shall specify the number of Registrable Shares to be
included in the underwriting and that such Registrable Shares are to be included
in the underwriting on the same terms and conditions as the shares of Common
Stock otherwise being sold through underwriters under such
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registration. If the managing underwriter or underwriters shall advise the
Company in writing that, in the view of such underwriters, such holders of
Registrable Shares shall have requested the registration of a number of
Registrable Shares that exceeds the maximum number of Shares that can be sold
without having a material adverse effect on the marketing of the Common Stock to
be sold under such registration statement, including the price at which such
Common Stock can be sold (an "Adverse Market Effect"), the Company shall not be
required to register Shares in excess of such maximum number, subject to the
provisions of Section 7.3(b) (a "Cut-Back Event").
(b) In the event of a Cut-Back Event arising in connection with an
Incidental Registration, the following provisions shall apply:
(i) if the registration of Common Stock giving rise to the
Incidental Registration is initiated by the Company, then the Company shall
include in such registration (A) first, all of the Common Stock which the
Company proposes to sell, and (B) second, the number of shares of Common Stock
validly requested by Selling Shareholders and holders of Registrable Shares to
be included in such registration that, in the opinion of the underwriters, can
be sold without having an Adverse Market Effect, such amount to be allocated
among all such Selling Shareholders and holders of Registrable Shares pro rata
on the basis of the respective number of shares of Common Stock each such
Selling Shareholder and holder of Registrable Shares has requested to be
included in such registration;
(ii) if a registration of Common Stock giving rise to an
Incidental Registration is initiated by any Selling Shareholder(s) (other than
the Parent), then there shall be included in such registration (A) if the
Company is not selling Common Stock in the registration, (I) first, all of the
Common Stock proposed to be sold by such Selling Shareholder(s) initiating such
registration, and (II) second, the number of shares of Common Stock of the
Company validly requested by all other Selling Shareholders and holders of
Registrable Shares to be included in such registration that, in the opinion of
the underwriters, can be sold without having an Adverse Market Effect, such
amount to be allocated among all such other Selling Shareholders and holders of
Registrable Shares pro rata on the basis of the respective number of shares of
Common Stock each such other Selling Shareholder and holder of Registrable
Shares has requested to be included in such registration; and (B) if the Company
is selling Common Stock in the registration (other than solely in connection
with the covering of an over-allotment option), (I) first, all of the Common
Stock proposed to be sold by the Company and such Selling Shareholder(s)
initiating such registration, and (II) second, the number of shares of Common
Stock of the Company validly requested by all other Selling Shareholders and
holders of Registrable Shares to be included in such registration that, in the
opinion of the underwriters, can be sold without having an Adverse Market
Effect, such amount to be allocated among all such other Selling Shareholders
and holders of Registrable Shares pro rata on the basis of the respective number
of shares of Common Stock each such other Selling Shareholder and holder of
Registrable Shares has requested to be included in such registration;
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(iii) if a registration of Common Stock giving rise to an
Incidental Registration is initiated by the Parent, then there shall be included
in such registration (A) if the Company is not selling Common Stock in the
registration, the number of shares of Common Stock of the Company validly
requested by the Parent and all holders of Registrable Shares to be included in
such registration that, in the opinion of the underwriters, can be sold without
having an Adverse Market Effect, such amount to be allocated among the Parent
and all such holders of Registrable Shares pro rata on the basis of the
respective number of shares of Common Stock the Parent and each holder of
Registrable Shares has requested to be included in such registration; and (B) if
the Company is selling Common Stock in the registration (other than solely in
connection with the covering of an over-allotment option), (I) first, all of the
Common Stock proposed to be sold by the Company in the registration, and (II)
second, the number of shares of Common Stock of the Company validly requested by
the Parent and all holders of Registrable Shares to be included in such
registration that, in the opinion of the underwriters, can be sold without
having an Adverse Market Effect, such amount to be allocated among the Parent
and the holders of Registrable Shares pro rata on the basis of the respective
number of shares of Common Stock the Parent and each holder of Registrable
Shares has requested to be included in such registration.
(c) Notwithstanding any other provision of this Warrant, it is
further agreed that, if any Selling Shareholder (other than the Parent) validly
exercises a right to request registration under the Securities Act of all or
part of its Common Stock, and, under the terms of any written agreement between
the Company and such Selling Shareholder with respect to such registration, no
Person is permitted to request an Incidental Registration in connection
therewith, and no other Selling Shareholder, Parent or the Company is permitted
to participate in such registration, then such prohibition shall also be binding
upon the holders of Registrable Shares; it being agreed however, that the
Company shall not grant such right of exclusivity more than one time to any
Selling Shareholder.
7.4 Discretion. Notwithstanding any other provision hereof to the
contrary,
(a) the Company shall be entitled, in its reasonable discretion, to
elect, once with respect to each Demand Registration which it may be requested
to effect hereunder, to delay the filing of a registration statement pursuant to
Section 7.2 for up to one hundred and twenty (120) days from the date of the
request therefor under Section 7.2 (or for such shorter period if the Company
files a registration statement under the Securities Act for the sale of Common
Stock to the public pursuant to an underwritten public offering or continuous
offering stock program), so long as the Board of Directors of the Company shall
have determined in good faith prior to effecting such delay that such delay
would be in the best interests of the Company,
(b) the Company shall have the right to select the managing
underwriter or underwriters for any offer or sale of the Registrable Shares to
which the
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Demand Registration or Incidental Registration relates; provided, however, that
in the case of a Demand Registration, the holders of a majority of the
Registrable Shares participating in the Demand Registration shall have the right
to approve such underwriters, such approval not to be unreasonably withheld or
delayed,
(c) in the event of a Cut-Back Event arising in connection with a
Demand Registration, the Company shall not be required to register Registrable
Shares in excess of the maximum number which can be sold without an Adverse
Market Effect; provided, however, that holders of Registrable Shares shall have
priority over any and all Selling Shareholders (including, but not limited to,
Parent and the Company) in determining whose shares of Common Stock shall be
included in the Registration,
(d) in connection with a Demand Registration, the holders of
Registrable Shares shall consult with the Company with respect to the method of
sale of such Registrable Shares; and in any event, such holders shall use their
best efforts to the effect that the sale of such Shares shall not have a
material adverse effect on the market price of the Common Stock,
(e) the Company shall pay all out-of-pocket expenses incident to the
Company's effectuation of a Demand Registration or an Incidental Registration,
including without limitation, all registration and filing fees (including filing
fees with respect to the National Association of Securities Dealers, Inc.), all
fees and expenses of complying with state securities or "blue sky" laws, all
printing expenses, all listing fees, all registrars' and transfer agents' fees,
the fees and disbursements of counsel for the Company and of its independent
certified public accountants, including the expenses of any special audits
and/or "comfort" letters required by or incident to such performance and
compliance; but excluding the fees and disbursements of counsel to the sellers
of the Registrable Shares, underwriting discounts and commissions, and
applicable transfer taxes, if any, which shall be borne by the sellers of the
Registrable Shares being registered in all cases, and
(f) such holders agree to cooperate fully to facilitate the Demand
Registration and the Incidental Registration, and offer and sale of Registrable
Shares covered thereby, including completing selling shareholder questionnaires,
entering into customary underwriting and other agreements, and furnishing
information for inclusion in any prospectus.
ARTICLE VIII
REGISTRATION PROCEDURES
If the Company is required by the provisions hereof to use commercially
reasonable efforts to effect the registration of any Registrable Shares under
the Securities Act, the Company will:
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(a) furnish to each seller of Registrable Shares and to any
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the intended disposition
of the Registrable Shares covered by such registration statement;
(b) use commercially reasonable efforts (i) to register or qualify
the Registrable Shares covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Shares or, in the case of an underwritten public offering, the
managing underwriter, reasonably shall request, (ii) to prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements, and take such other actions, as may be necessary to maintain such
registration and qualification in effect at all times for the period of
distribution contemplated thereby and (iii) to take such further action as may
be necessary or advisable to enable the disposition of the Registrable Shares in
such jurisdictions, provided, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(c) use commercially reasonable efforts to list the Registrable
Shares covered by such registration statement with any securities exchange on
which the Common Stock of the Company is then listed, or, if the Common Stock is
not then listed on a national securities exchange, use its best efforts to
facilitate the reporting of the Common Stock on NASDAQ;
(d) notify each seller of Registrable Shares and each underwriter
under such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect, includes
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and promptly amend or
supplement such registration statement to correct any such untrue statement or
omission;
(e) notify each seller of Registrable Shares of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose and make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time;
(f) if the offering is an underwritten offering, enter into a
written agreement with the managing underwriter selected in the manner herein
provided in such form and containing such provisions as are usual and customary
in the securities business for such an arrangement between such underwriter and
companies of the Company's size
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and investment stature, including, without limitation, customary indemnification
and contribution provisions;
(g) make available for inspection by each seller of Registrable
Shares at such seller's expense, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(h) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Shares not later than the effective date of the
registration statement; and
(i) take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any legend restricting the
sale or transfer of such securities) representing the Registrable Shares to be
sold pursuant to the registration statement and to enable such certificates to
be in such denominations and registered in such names as the investors or any
underwriters may reasonably request.
In connection with any registration hereunder, the sellers of Registrable
Shares will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
ARTICLE IX
INDEMNIFICATION AND CONTRIBUTION
9.1 Indemnification by Company. In the event of a registration of any of
the Registrable Shares under the Securities Act pursuant to the terms of this
Warrant, the Company will indemnify and hold harmless and pay and reimburse,
each seller of such Registrable Shares thereunder, each underwriter of such
Registrable Shares thereunder and each other person, if any, who controls such
seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, as and when incurred,
to which such seller, underwriter or controlling person may become subject under
the Securities Act or otherwise insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Shares were registered
under the Securities Act pursuant hereto or any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, 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, or any violation or alleged violation of the Securities
Act or any state securities or blue sky laws and will reimburse each such
seller,
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each such underwriter and each such controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon the Company's
reliance on an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus.
Notwithstanding the foregoing, the indemnity provided in this Section 9.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of such
indemnified party.
9.2 Indemnification of Company. In the event of a registration of any of
the Registrable Shares under the Securities Act pursuant hereto each seller of
such Registrable Shares thereunder, severally and not jointly, will indemnify
and hold harmless the Company, each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, as
and when incurred, to which the Company or such officer, director, underwriter
or controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon reliance on any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Shares were registered under the
Securities Act pursuant hereto or any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, 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 the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, that such seller will be liable
hereunder in any such case if and only 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 reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and provided, that the liability of each
seller hereunder shall be limited to the proceeds received by such seller from
the sale of Registrable Shares covered by such registration statement.
Notwithstanding the foregoing, the indemnity provided in this Section 9.2 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of such
indemnified party.
9.3 Notice of Action. Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a
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claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Article IX and shall only
relieve it from any liability which it may have to such indemnified party under
this Article IX if and to the extent the indemnifying party is materially
prejudiced by such omission. 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 in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Article IX for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded based upon written advise of its counsel that there
may be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
9.4 Contribution. In order to provide for just and equitable contribution
to joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Warrant, or any
controlling person of any holder, makes a claim for indemnification pursuant to
this Article IX but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Article IX provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any holder or any such
controlling person in circumstances for which indemnification is provided under
this Article IX; then, and in each such case, the Company and holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that
holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Shares offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, that, in any such case, (a) no holder will be required to
contribute any amount in excess of the public offering price of all such
Registrable Shares offered by it pursuant to such registration statement and (b)
no person or entity guilty of fraudulent misrepresentation
26
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(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
ARTICLE X
LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of this Warrant and indemnity reasonably satisfactory to the
Company and in case of mutilation upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
the Holder; provided, however, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company for
cancellation.
ARTICLE XI
NO STOCK RIGHTS
No Holder of this Warrant, as such, shall be entitled to vote or be deemed
the holder of Common Stock or any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything contained herein
be construed to confer upon the Holder of this Warrant, as such, the rights of a
stockholder of the Company or the right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, to exercise any preemptive right, to
receive notice of meetings or other actions affecting stockholders (except as
provided herein), or to receive dividends or subscription rights or otherwise
(except as provided herein), until the exercise of Warrants shall have occurred.
ARTICLE XII
MISCELLANEOUS
12.1 Limitation of Liability. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted the
Company or by creditors of the Company.
12.2 Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder or the Company
shall operate as a waiver of such right or otherwise prejudice the rights,
powers or remedies of the Holder or the Company. No single or partial waiver by
the Holder or the Company of any provision of this Warrant or of any breach or
default hereunder or of any right or remedy shall operate as a waiver of any
other provision, breach, default right or remedy or of the same provision,
breach, default right or remedy on a future occasion. The rights and remedies
provided in this Warrant are cumulative and are in addition to all rights and
27
<PAGE>
remedies which the Holder or the Company may have in law or in equity or by
statute or otherwise.
12.3 Modification; Severability
(a) If, in any action before any court or agency legally empowered
to enforce any term, any term is found to be unenforceable, then such term shall
be deemed modified to the extent necessary to make it enforceable by such court
or agency.
(b) If any term is not curable as set forth in Section 12.3(a), the
unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
12.4 Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
12.5 Amendment. This Warrant may not be modified or amended except by
written agreement of the Company and the Holder.
12.6 Headings. The headings of the Sections of this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
12.7 Meanings. Whenever used in this Warrant, any noun or pronoun shall be
deemed to include both the singular and plural and to cover all genders; and the
words "herein," "hereof" and "hereunder" and words of similar import shall refer
to this instrument as a whole, including any amendments hereto.
12.8 Notice Generally. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be deemed validly
given, made or served if in writing and delivered personally (as of such
delivery) or sent by certified mail, return receipt requested, postage prepaid,
(as of the date of receipt as noted on the delivery receipts), addressed, if to
the Holder, to the Holder at its last known address appearing on the Register,
and if to the Company, to the Company at c/o Synetic, Inc., 669 River Drive,
Center 2, Elmwood Park, New Jersey 07407, Attention: Chief Financial Officer, or
at such other address as shall be furnished in writing by the parties as herein
provided.
12.9 Successors and Assigns. Subject to the provisions of Article 3, this
Warrant and the rights evidenced hereby shall inure to the benefit of and be
binding upon the successors and assigns of the Company and the Holder.
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12.10 Survival of Rights and Duties. This Warrant shall terminate and be
of no further force and effect on the earlier of 5:00 P.M., New York City time,
on the last day of the Exercise Period or the date on which all of the Warrants
have been exercised, except that the provisions of Article II, Articles VII,
VIII and IX (if this Warrant was exercised), and Article XII shall continue in
full force and effect after such termination date.
12.11 Governing Law. In all respects, including all matters of
construction, validity and performance, this Warrant and the obligations arising
hereunder shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York applicable to contracts made and performed in
such state, without regard to the principles thereof regarding conflict of laws,
and any applicable laws of the United States of America.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: As of January 1, 1999
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
By:
----------------------------------------
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
30
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
THE HEALTH INFORMATION
NETWORK CONNECTION LLC
(A NEW YORK LIMITED LIABILITY COMPANY)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Definitions......................................................2
Section 1.1 Definitions..................................................2
ARTICLE II Formation......................................................10
Section 2.1 Formation...................................................10
Section 2.2 Name........................................................10
Section 2.3 Trade Name Affidavits.......................................10
Section 2.4 Foreign Qualification.......................................11
Section 2.5 Term........................................................11
ARTICLE III Offices.......................................................11
Section 3.1 Principal Office............................................11
Section 3.2 Other Offices...............................................11
ARTICLE IV Business and Powers............................................11
Section 4.1 Business....................................................11
Section 4.2 Powers......................................................11
ARTICLE V Interests in the Company........................................12
Section 5.1 Certificates of Interest....................................12
Section 5.2 General Rights..............................................12
Section 5.3 General Protective Provisions...............................13
Section 5.4 Other Protective Provisions.................................13
Section 5.5 Additional Protective Provisions............................14
Section 5.6 Actions Requiring Unanimous Approval of Members.............14
Section 5.7 Transactions with Affiliates................................15
Section 5.8 Member Voting...............................................15
ARTICLE VI Capital Contributions; Members.................................15
Section 6.1 Current Contributions.......................................15
Section 6.2 Additional Contributions....................................16
Section 6.3 Loans.......................................................16
Section 6.4 Additional Capital..........................................16
Section 6.5 Payer-Member Capital Credits................................18
Section 6.6 GNYHA Credits...............................................19
Section 6.7 Withdrawal of Capital.......................................20
Section 6.8 No Interest on Capital......................................20
Section 6.9 Admission of Members........................................20
Section 6.10 Capital Return.............................................21
Section 6.11 Resignation of Member......................................21
Section 6.12 Removal of Member for Cause................................21
Section 6.13 Effect of Event of Withdrawal..............................22
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Section 6.14 Outside Businesses.........................................22
Section 6.15 Power of Attorney..........................................22
Section 6.16 No Claims Among Members....................................23
ARTICLE VII Meetings......................................................23
Section 7.1 Annual Meetings.............................................23
Section 7.2 Special Meeting.............................................23
Section 7.3 Notice of Meetings..........................................23
Section 7.4 Record Date.................................................24
Section 7.5 List of Members.............................................24
Section 7.6 Quorum......................................................24
Section 7.7 Organization................................................24
Section 7.8 Order of Business...........................................25
Section 7.9 Voting......................................................25
Section 7.10 Action by Written Consent..................................25
Section 7.11 Action by Communication Equipment..........................26
Section 7.12 Proxies....................................................26
ARTICLE VIII Management...................................................27
Section 8.1 General Powers..............................................27
Section 8.2 Binding Authority...........................................27
Section 8.3 Number and Term of Office...................................27
Section 8.4 Resignation and Vacancies...................................28
Section 8.5 Meetings....................................................28
Section 8.6 Compensation; Expenses......................................30
Section 8.7 Duties of Managers..........................................30
Section 8.8 Committees..................................................30
Section 8.9 Budget......................................................30
ARTICLE IX Chairman and Officers..........................................31
Section 9.1 Chairman....................................................31
Section 9.2 Election, Appointment and Term of Office....................32
Section 9.3 Resignation, Removal and Vacancies..........................32
Section 9.4 Duties and Functions........................................32
ARTICLE X Contracts, Checks, Drafts, Bank Accounts, Proxies, Etc..........33
Section 10.1 Execution of Documents.....................................33
Section 10.2 Deposits...................................................33
Section 10.3 Proxies in Respect of Stock or Other Securities of Other
Companies................................................................33
ARTICLE XI Books and Records; Right of Inspection; Tax Matters............34
Section 11.1 Books And Records..........................................34
Section 11.2 Information................................................34
Section 11.3 Tax Returns................................................34
Section 11.4 Tax Elections..............................................34
Section 11.5 Tax Matters Partner........................................34
Section 11.6 No Partnership.............................................35
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Section 11.7 Title to Company Assets....................................35
ARTICLE XII Capital Accounts..............................................36
Section 12.1 Maintenance................................................36
Section 12.2 Adjustments................................................36
Section 12.3 Market Value Adjustments...................................36
Section 12.4 Transfer...................................................36
ARTICLE XIII Allocation of Income, Gain, Loss and Deduction...............37
Section 13.1 Determination..............................................37
Section 13.2 Allocation of Net Profits and Net Losses...................37
Section 13.3 Allocation in the Event of Property Distribution...........38
Section 13.4 Special Rules..............................................38
Section 13.5 Tax Allocations............................................40
ARTICLE XIV Distributions.................................................41
Section 14.1 Distributions..............................................41
Section 14.2 Withholding................................................42
Section 14.3 Offset.....................................................42
Section 14.4 Limitation Upon Distributions..............................42
ARTICLE XIV Indemnification...............................................42
Section 15.1 Indemnification............................................42
Section 15.2 Indemnification Not Exclusive..............................43
Section 15.3 Insurance on Behalf of Indemnified Party...................43
Section 15.4 Indemnification Limited by Law.............................44
ARTICLE XVI Accounting Provisions.........................................44
Section 16.1 Fiscal Year................................................44
Section 16.2 Accounting Method..........................................44
ARTICLE XVII Dissolution..................................................44
Section 17.1 Dissolution................................................44
Section 17.2 Events of Withdrawal.......................................44
Section 17.3 Bankruptcy.................................................45
Section 17.4 Continuation...............................................45
ARTICLE XVIII Liquidation.................................................45
Section 18.1 Liquidation................................................45
Section 18.2 Tax Termination............................................46
Section 18.3 Priority of Payment........................................46
Section 18.4 Timing.....................................................46
Section 18.5 Liquidating Reports........................................46
Section 18.6 Articles of Dissolution....................................46
ARTICLE XIX Transfer Restrictions.........................................47
Section 19.1 Restrictions on Transfer of Membership Interests...........47
Section 19.2 First Refusal Rights.......................................48
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Section 19.3 No Member Rights...........................................49
Section 19.4 Transferee Rights..........................................49
Section 19.5 Effect of Transfer.........................................50
Section 19.6 Secured Party..............................................50
ARTICLE XX General Provisions.............................................50
Section 20.1 Amendment..................................................50
Section 20.2 Waiver of Dissolution Rights...............................51
Section 20.3 Waiver of Partition Right..................................51
Section 20.4 Waivers Generally..........................................51
Section 20.5 Equitable Relief...........................................51
Section 20.6 Remedies for Breach........................................51
Section 20.7 Costs......................................................51
Section 20.8 Counterparts...............................................52
Section 20.9 Notice.....................................................52
Section 20.10 Date of Performance.......................................52
Section 20.11 Limited Liability.........................................52
Section 20.12 Partial Invalidity........................................52
Section 20.13 Entire Agreement..........................................53
Section 20.14 Benefit...................................................53
Section 20.15 Binding Effect............................................53
Section 20.16 Confidentiality...........................................53
Section 20.17 Further Assurances........................................53
Section 20.18 Headings..................................................54
Section 20.19 Terms.....................................................54
Section 20.20 Informal Dispute Resolution...............................54
Section 20.21 Arbitration...............................................54
Section 20.22 Governing Law; Consent to Jurisdiction....................54
Schedule I Initial Contributions............................................1
EXHIBIT 1...................................................................2
EXHIBIT 2...................................................................3
EXHIBIT 3...................................................................4
EXHIBIT 4...................................................................5
iv
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AMENDED AND RESTATED OPERATING AGREEMENT
OF THE HEALTH INFORMATION NETWORK CONNECTION LLC
This Amended and Restated Operating Agreement (the "Agreement"), dated as
of January 1, 1999, is entered into by and among THE HEALTH INFORMATION NETWORK
CONNECTION LLC (the "Company"), Empire Blue Cross and Blue Shield, a New York
non-for-profit company ("Empire"), GNYHA Management Corporation, a New York
corporation ("GNYHA"), Group Health Incorporated, a New York corporation
("GHI"), Health Insurance Plan of Greater New York, a New York non-for-profit
company ("HIP"), and Synetic Healthcare Communications, Inc., a Delaware
corporation ("Synetic").
W I T N E S S T H
WHEREAS, the Company, until the execution of this Agreement, has been
governed by that certain "Operating Agreement of The Health Information Network
Connection LLC" dated as of November __, 1996 (the "Operating Agreement"); and
WHEREAS, BRC Healthcare, Inc., an Oregon corporation, has withdrawn as a
Member of the Company pursuant to that certain "Consent of the Members to the
Withdrawal of a Member from The Health Information Network Connection LLC" dated
of even date herewith and attached hereto as Exhibit 1; and
WHEREAS, pursuant to the terms of Sections 5.5 and 6.5 of the Operating
Agreement, Synetic has been admitted as a Member pursuant to that certain
"Consent of the Members to the Admittance of a Member to The Health Information
Network Connection LLC" dated of even date herewith and attached hereto as
Exhibit 2; and
WHEREAS, in connection with the admittance of Synetic as a Member of the
Company, the Members desire to amend and restate the Operating Agreement in
order that the parties hereto may establish their respective economic and other
rights as Members of the Company and to provide regulations and procedures for
the governance of the Company.
NOW, THEREFORE, in consideration of the premises, the mutual promises and
obligations contained herein, and with the intent of being legally bound, the
parties hereto agree as follows:
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ARTICLE I
Definitions
Section 1.1 Definitions. For purposes of this Agreement, capitalized terms
used but not otherwise defined herein shall have the following meanings.
(a) "Adjusted Capital Account" shall mean, with respect to any Member,
the balance in such Member's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following adjustments:
(i) such Capital Account shall be deemed to be increased by any
amounts that such Member is obligated to restore to the Company (pursuant
to this Agreement or otherwise) or is deemed to be obligated to restore
pursuant to (A) the penultimate sentence of ss. 1.704-2(g)(1) of the
Regulations, or (B) the penultimate sentence of ss.1.704-2(i)(5) of the
Regulations; and
(ii) such Capital Account shall be deemed to be decreased by the
items described in ss.ss.1.704-1(b)(2)(ii)(d) of the Regulations and shall
be interpreted and applied consistently therewith.
The foregoing definition of Adjusted Capital Account is intended to comply
with the provisions of ss. 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted and applied consistently therewith.
(b) "Affiliate" of a party shall mean any entity which directly or
indirectly controls, is controlled by or is under the common control with such
party. The term "control" means the power to direct the affairs of such entity
by reason of ownership of equity securities, by contract, or otherwise.
(c) "Agreement" shall mean this Amended and Restated Operating
Agreement, also known as an operating agreement under the LLCL, as may be
further amended from time to time.
(d) "Articles of Organization" shall mean the Articles of Organization
of the Company, as amended from time to time.
(e) "Available Cash" shall mean, with respect to any fiscal quarter, all
cash receipts of the Company (excluding Capital Contributions, Warrant Proceeds
and proceeds from any borrowings) during such quarter plus cash available from
any reduction in the amount of any reserves of the Company during such quarter
less the sum of the following to the extent made from such cash receipts or
reserves:
(i) all cash expenditures of the Company made during such quarter
(except Distributions), including expenses and costs incurred in the
acquisition, ownership, or management of the Company's property; and
2
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(ii) funds set aside as reserves for contingencies, working capital,
debt service, taxes, insurance or other costs or expenses incident to the
conduct of the Company's business.
(f) "Bankruptcy" shall have the meaning set forth in Section 17.3.
(g) "Board of Managers" shall mean a committee of Managers comprised in
accordance with this Agreement and having the powers set forth herein.
(h) "Book Value" means, with respect to any asset of the Company, the
adjusted basis of such asset as of the relevant date for federal income tax
purposes, except as follows:
(i) the initial Book Value of any asset contributed by a Member to
the Company shall be the Fair Market Value of such asset;
(ii) the Book Values of all Company assets (including intangible
assets such as goodwill) shall be adjusted to equal their respective Fair
Market Values as of the following times:
(A) the acquisition of an additional interest in the Company
by any new or existing Member in exchange for more than a de minimis
Capital Contribution;
(B) the distribution by the Company to a Member of more than a
de minimis amount of money or Company property as consideration for
its interest in the Company (other than a distribution to a Member
pursuant to Sections 6.11 or 6.12 hereof); and
(C) the liquidation of the Company within the meaning of
ss.1.704-1(b)(2)(iv)(f)(5)(ii) of the Regulations; and
(iii) if the Book Value of an asset has been determined or adjusted
pursuant to clause (i) or (ii) above, such Book Value shall thereafter be
adjusted by the Depreciation taking into account with respect to such
asset for purpose of computing Net Profits and Net Losses and other items
allocated pursuant to Article XIII hereof.
The foregoing definition of Book Value is intended to comply with the
provisions of ss.1.704-1(b)(2)(iv) of the Regulations and shall be interpreted
and applied consistently therewith.
(i) "Breaching Member" shall mean any Payer-Member that materially
breaches its obligations under either the Managed Care Transaction Contract or
the Clinical Transaction Contract, and such Payer-Member has failed to cure such
breach as specifically provided in the applicable provisions of such contract.
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(j) "Business Day" shall mean any day other than Saturday, Sunday and
any other day on which banks in New York City are not open for business.
(k) "Capital Account" shall mean the capital account established and
maintained for each Member pursuant to Article XII hereof.
(l) "Capital Contributions" shall mean the amount of cash and the Fair
Market Value of any property (net of liabilities secured by such property that
the Company is considered to assume or take subject to under ss.752 of the Code)
contributed by a Member to the capital of the Company and any Company
liabilities assumed by the Member within the meaning of ss.1.704-1(b)(2)(iv)(c)
of the Regulations. The application of Payer-Member Capital Credits or GNYHA
Credits, and the issuance by Synetic to the Company of the Warrants shall not be
deemed to be Capital Contributions.
(m) "Claims" shall mean medical claims (i.e., claims of the type
submitted on Healthcare Finance Administration Form No. 1500) submitted by
physicians and other health care providers in standard electronic format to a
Payer-Member's data processing center for adjudication.
(n) "Clinical Transaction Contract" shall mean any of the contracts
entered into by Synetic and the Payer-Members on the date of this Agreement for
the provision by Synetic of Clinical Transaction Services.
(o) "Clinical Transaction Services" shall mean and include any or all of
Synetic's prescription and laboratory services which connect physicians, staffs
and patients, with payers, pharmacies, hospitals, laboratories, suppliers or
other organizations involved in the concurrent, retrospective or prospective
communications of information relating to or prompted by the selection or use of
a prescription drug or lab test (as applicable) by physicians on behalf of
patients, all as provided pursuant to the Clinical Transaction Contract.
(p) "Code" shall mean the Internal Revenue Code of 1986, as amended, or
any corresponding provisions of superseding federal revenue statute.
(q) "Company" shall have the meaning set forth in the preamble to
this Agreement.
(r) "Company Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Nonrecourse Liability of the Company,
that would be realized by the Company if it disposed of the Company property
subject to such liability in a taxable transaction in full satisfaction thereof
(and for no other consideration) and by aggregating the amounts so computed,
determined in accordance with ss.ss. 1.704-2(d) and (k) of the Regulations.
(s) "Company Notice" shall have the meaning set forth in Section
19.2(b).
(t) "Company Right" shall have the meaning set forth in Section
19.2(b).
(u) "Confidential Member Information" means information that Members
designate as confidential or proprietary at the time of providing such
information to the Company.
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(v) "Contract Manager" shall mean Synetic for so long as the Management
Services Agreement shall remain in effect, and thereafter, the Board of
Managers.
(w) "Contribution Notice" shall have the meaning set forth in
Section 6.4(a).
(x) "Contributing Member" shall have the meaning set forth in
Section 6.4(b).
(y) "Credit Maximum" shall have the meaning set forth in Section
6.5(b).
(z) "Credit Period" shall have the meaning set forth in Section
6.5(c).
(aa) "Deemed Capital Contributions" shall mean, for each Member, such
Member's total Capital Contributions plus the amount, if any, of Payer-Member
Capital Credits applied in lieu of additional Capital Contributions by such
Member pursuant to Section 6.5(c) and, in the case of GNYHA, the amount of GNYHA
Credits applied in lieu of additional Capital Contributions by GNYHA pursuant to
Section 6.6(b) and such Member's share of any adjustment to Book Value required
by Section 1.1(h)(ii), including any adjustment to Book Value that shall have
occurred as a result of Synetic becoming a Member.
(bb) "Depreciation" means, for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Book Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such
Fiscal Year, the depreciation, amortization or other cost recovery deduction for
such Fiscal Year or part thereof shall be an amount which bears the same ratio
to such Book Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such Fiscal Year or part thereof bears to such
adjusted tax basis and provided further that if the federal income tax
depreciation, amortization or other cost recovery deduction for such Fiscal Year
or part thereof is zero (0) or less, then the depreciation, amortization or
other cost recovery deduction shall be whatever the Contract Manager determines
is reasonable under the circumstances.
(cc) "Dissolution" shall mean the happening of any of the events set
forth in Section 17.1.
(dd) "Distribution" shall mean any cash and the Fair Market Value of any
property (net of liabilities secured by such property that the Member is deemed
to assume or take subject to under ss. 752 of the Code) distributed by the
Company to the Members in accordance with Section 6.11 or Article XIV or XVIII
of this Agreement.
(ee) "Effective Date" shall mean the date first above written.
(ff) "Empire" shall have the meaning set forth in the preamble to
this Agreement.
(gg) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
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(hh) "Event of Breach" shall mean any Payer-Member's material breach of
its obligations under either the Managed Care Transaction Contract or the
Clinical Transaction Contract, and such Payer-Member's failure to cure such
breach as specifically provided in the applicable provisions of such contract.
(ii) "Event of Withdrawal" shall mean, with respect to any Member, the
occurrence of such Member's Bankruptcy, death, insanity, adjudication of
incompetency, resignation, removal, expulsion, or any other event that
terminates the continued membership of such Person in the Company by operation
of law (including the dissolution of any Member that is not an individual).
(jj) "Fair Market Value" shall mean, with respect to any property
(including the Membership Interests), the value that would be obtained in an
arm's length transaction for ownership of such property for cash between an
informed and willing seller and an informed and willing purchaser, each with an
adequate understanding of the facts and under no compulsion to buy or sell.
(kk) "Fiscal Year" shall mean the fiscal and taxable year of the Company
which shall be the year ending December 31.
(ll) "GHI" shall have the meaning set forth in the preamble to this
Agreement.
(mm) "GNYHA" shall have the meaning set forth in the preamble to
this Agreement.
(nn) "GNYHA Contract" shall mean the contract entered into concurrently
herewith between the Company and GNYHA, and as such contract may be amended,
supplemented and/or extended from time to time, whereby GNYHA will perform
certain sales and marketing activities for the Company and provide the Company
with access to certain electronic business applications.
(oo) "GNYHA Credits" shall have the meaning ascribed to such term in
Section 6.6(a).
(pp) "GNYHA Nonrecourse Note" shall have the meaning ascribed to such
term in Section 6.1.
(qq) "GNYHA Recourse Note" shall have the meaning ascribed to such term
in Section 6.1.
(rr) "Health Plan Competitor" shall mean an organization that is engaged
primarily in the business of providing health insurance or health maintenance
organization services.
(ss) "HIP" shall have the meaning set forth in the preamble to this
Agreement.
(tt) "Indemnified Party" shall have the meaning set forth in Section
15.1.
(uu) "Indemnification Obligations" shall have the meaning set forth
in Section 15.1.
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(vv) "Internal Claims" shall mean Claims that either (i) originate from
an electronic source other than claims clearinghouses and are received directly
from a Payer-Member's data processing center or (ii) originate from an
electronic claims clearinghouse for which the Payer-Member does not pay the
clearinghouse any fee or other amount.
(ww) "Liquidation" shall mean the process of winding up and
terminating the Company after its Dissolution.
(xx) "LLCL" shall mean the New York Limited Liability Company Law, as
amended from time to time.
(yy) "Managed Care Services" shall mean and include any or all of the
Company's managed care transaction services, which include claims submission,
on-line (batch and real-time) eligibility, benefit plan detail, roster
distribution, remittance advice distribution, online claims inquiry, electronic
referral/pre-certification and authorization, and encounter submission, all as
provided pursuant to the Managed Care Transaction Contract.
(zz) "Managed Care Transaction Contract" shall mean any of the contracts
entered into by the Company and the Payer-Members on the date of this Agreement
for the provision by the Company of Managed Care Services.
(aaa) "Management Services Agreement" shall mean the Management Services
Agreement entered into concurrently herewith between the Company and Synetic and
which is attached hereto as Exhibit 3, and as such agreement may be amended,
supplemented and/or extended from time to time.
(bbb) "Managers" shall have the meaning set forth in Section 8.1(b).
(ccc) "Member" shall mean any Person which signs a counterpart of this
Agreement initially or which is admitted to the Company as a Member thereafter
in accordance with the terms of this Agreement.
(ddd) "Membership Interest" shall mean, with respect to each Member, all
of the interests in the Company held by such Member, including such Member's
rights to participate in Company votes and to receive Distributions and
allocations of Net Profits and Net Losses.
(eee) "Member Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Member Nonrecourse Debt, that would be
realized by the Company if it disposed of the Company property subject to such
Member Nonrecourse Debt in a taxable transaction in full satisfaction thereof
(and for no other consideration), determined in accordance with the provisions
of ss.ss. 1.704-2(i)(3) and (k) of the Regulations for determining a Member's
share of minimum gain attributable to a Member Nonrecourse Debt.
(fff) "Member Nonrecourse Debt" has the meaning ascribed to the term
"partner non-recourse debt" in ss. 1.704-2(b)(4) of the Regulations.
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(ggg) "Member Notice" shall have the meaning set forth in Section
19.2(c).
(hhh) "Member Right" shall have the meaning set forth in Section
19.2(c).
(iii) "Migration Period" shall have the meaning set forth in Section
6.5(a).
(jjj) "Net Losses" shall mean, with respect to any Fiscal Year, or part
thereof, the net losses of the Company for such period computed using Book
Values and applying the methods and principles of accounting used for federal
income tax purposes, including, as appropriate, each item of income, gain, loss,
deduction or credit entering into such determination, as determined by the
accountants of the Company.
(kkk) "Net Profits" shall mean, with respect to any Fiscal Year, or part
thereof, the net profits of the Company for such period computed using Book
Values and applying the methods and principles of accounting used for federal
income tax purposes, including, as appropriate, each item of income, gain, loss,
deduction or credit entering into such determination, as determined by the
accountants of the Company.
(lll) "Non-Breaching Members" shall have the meaning set forth in
Section 13.2(b)(ii).
(mmm) "Non-Contributing Member" shall have the meaning set forth in
Section 6.4(b).
(nnn) "Nonrecourse Liability" shall mean any Company liability (or portion
thereof) for which no Member bears the economic risk of loss for such liability
under ss. 1.752-2 of the Regulations.
(ooo) "Offer" shall have the meaning set forth in Section 19.2(a).
(ppp) "Operating Agreement" shall have the meaning set forth in the
first "WHEREAS" clause.
(qqq) "Operating Plan" shall mean the operating plan and budget for the
Company which is attached to the Management Services Agreement, as the same may
be amended from time to time pursuant to the terms of such Management Services
Agreement or this Agreement.
(rrr) "Option Notice" shall have the meaning set forth in Section
19.2(a).
(sss) "Outside Party" shall have the meaning set forth in Section
19.2(a).
(ttt) "Payer" shall mean an insurer or other payer of health related
claims.
(uuu) "Payer-Member" shall mean Empire, GHI and HIP.
(vvv) "Payer-Member Capital Credit" shall have the meaning set forth
in Section 6.5(a).
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(www) "Percentage Interest" shall mean the percentage held by such Member
set forth opposite the Member's name on Schedule I attached hereto, as such
percentage may be adjusted from time to time pursuant to the terms of this
Agreement.
(xxx) "Permitted Transfer" shall have the meaning set forth in Section
19.1(d).
(yyy) "Person" shall mean an individual, corporation, limited liability
company, partnership, trust or unincorporated organization, or other entity.
(zzz) "Put Right" shall have the meaning set forth in Section 6.5(a).
(aaaa) "Regulations" shall mean the Treasury Regulations (including
temporary or proposed regulations) promulgated and in effect under the Code, as
amended from time to time (including corresponding provisions of succeeding
regulations).
(bbbb) "Regulatory Allocations" shall have the meaning set forth in
Section 13.4(a)(vi).
(cccc) "Revenue Plan" shall mean the projected revenue recognized in
accordance generally accepted accounting principles for hospital contracts
entered into after August 1, 1998, (including extensions or renewals of current
hospital contracts) as agreed upon by the Company and GNYHA and attached hereto
as Exhibit 4.
(dddd) "Selling Holder" shall have the meaning set forth in Section
19.2(a).
(eeee) "Shortfall" shall have the meaning set forth in Section 6.4(b).
(ffff) "Synetic" shall mean Synetic Healthcare Communications, Inc., a
Delaware corporation.
(gggg) "Synetic Affiliate" shall mean any individual or entity which owns,
directly or indirectly, more than fifty percent (50%) in value of the
outstanding stock of Synetic or any entity in which Synetic owns, directly or
indirectly, more than fifty percent (50%) in value of the outstanding stock
thereof.
(hhhh) "Synetic Contingent Line of Credit" shall mean the indebtedness
which will be made available or arranged for by Synetic to the Company and
documented pursuant to the Synetic Contingent Credit Agreement entered into
concurrently herewith between the Company and Synetic, and as such agreement may
be amended, supplemented and/or extended from time to time.
(iiii) "Synetic Working Capital Line of Credit" shall mean the indebtedness
which will be made available or arranged for by Synetic to the Company and
documented pursuant to the Synetic Working Capital Credit Agreement entered into
concurrently herewith between the Company and Synetic, and as such agreement may
be amended, supplemented and/or extended from time to time.
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(jjjj) "ss.704(b) Regulations" shall have the meaning set forth in
Section 12.1.
(kkkk) "Tax Matters Partner" shall have the meaning set forth in
Section 11.5(a).
(llll) "Transfer" shall mean a sale, exchange, assignment, transfer,
pledge, hypothecation or other disposition of Membership Interests (whether
voluntary or involuntary) other than by operation of law.
(mmmm) "Warrants" shall mean rights to purchase shares of common stock of
Synetic as more completely described in the Warrant Agreement.
(nnnn) "Warrant Agreement" shall mean the agreement entered into
concurrently herewith between the Company and Synetic, and as such agreement may
be amended, supplemented and/or extended from time to time.
(oooo) "Warrant Income" shall mean each item of income or gain of the
Company attributable to the exercise or sale of the Warrants, as determined by
the accountants of the Company.
(pppp) "Warrant Proceeds" shall mean the proceeds to the Company
attributable to the exercise or sale of the Warrants, as determined by the
accountants of the Company.
All other capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned thereto in the LLCL. To the extent that a term
specifically defined in this Section 1.1 conflicts with a definition provided in
the LLCL, the specific definition set forth herein shall govern.
ARTICLE II
Formation
Section 2.1 Formation. The Company was formed on November __, 1996, by the
filing of the Articles of Organization with the Department of State of the State
of New York pursuant to the LLCL and on behalf of the Members of the Company.
Section 2.2 Name. The name of the Company is THE HEALTH INFORMATION NETWORK
CONNECTION LLC. The business of the Company will be conducted under such name or
such other trade names or fictitious names as may be adopted in accordance with
Section 2.3.
Section 2.3 Trade Name Affidavits. The Company will file such trade name or
fictitious name affidavits and other certificates as may be necessary or
desirable in connection with the formation, existence and operation of the
Company (including those filings required in any jurisdiction where the Company
owns property).
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Section 2.4 Foreign Qualification. The Company will apply for authority to
transact business in those jurisdictions where it is required to do so. The
Company will file such other certificates and instruments as may be necessary or
desirable in connection with its formation, existence and operation.
Section 2.5 Term. The Company shall continue in existence from the date of
filing of the Articles of Organization with the Secretary of State of the State
of New York until the Company is dissolved pursuant to this Agreement or the
LLCL.
ARTICLE III
Offices
Section 3.1 Principal Office. The principal office, place of business and
address of the Company shall be 1155 Avenue of the Americas, New York, New York
10016, and may be changed by the Board of Managers from time to time. In the
event that the business address of the Company is changed, prompt written notice
thereof shall be given to all Members.
Section 3.2 Other Offices. The Company may also have offices at other
places, either within or without the State of New York, as the Board of Managers
may from time to time determine in accordance with the terms of this Agreement
or as the business of the Company may require.
ARTICLE IV
Business and Powers
Section 4.1 Business. The business of the Company shall initially be to
establish a community health information network dedicated to improving the
quality and efficiency of the health care system in the New York metropolitan
area by increasing the electronic communication of administrative, financial and
clinical information and to conduct such other lawful activities or businesses
as those Members holding of record at least eighty percent (80%) of all votes
permitted hereunder may determine from time to time.
Section 4.2 Powers. The Company shall have all the powers permitted to a
limited liability company under the LLCL and which are necessary, convenient or
advisable in order for it to conduct its business.
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ARTICLE V
Interests in the Company
Section 5.1 Certificates of Interest. Every holder of record of a
Membership Interest shall be entitled to have a certificate certifying the class
and the Membership Interests owned by such Person in the Company. Each
certificate evidencing ownership of Membership Interests shall bear, and be
subject to, the following legend:
"THE MEMBERSHIP INTERESTS EVIDENCED HEREBY ARE SUBJECT TO AN AMENDED
AND RESTATED OPERATING AGREEMENT DATED AS OF JANUARY 1, 1999 (A COPY
OF WHICH MAY BE OBTAINED FROM THE COMPANY). SUCH OPERATING AGREEMENT
RESTRICTS THE SALE, PLEDGE, HYPOTHECATION AND TRANSFER OF THE
MEMBERSHIP INTERESTS AND CONTAINS PROVISIONS GOVERNING THE VOTING OF
THE MEMBERSHIP INTERESTS. BY ACCEPTING ANY INTEREST IN SUCH
MEMBERSHIP INTERESTS, THE PERSON ACCEPTING SUCH MEMBERSHIP INTERESTS
SHALL BE DEEMED TO AGREE TO, AND SHALL BECOME BOUND BY, ALL THE
PROVISIONS OF SUCH OPERATING AGREEMENT.
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE MEMBERSHIP INTERESTS EVIDENCED BY THIS
CERTIFICATE MAY BE MADE EXCEPT AS OTHERWISE PROVIDED IN SUCH
OPERATING AGREEMENT."
Each such certificate shall be signed in the name of the Company by the
Chairman, the President or a Vice President of the Company and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company.
In case any duly authorized individual who has signed, or whose facsimile
signature has been placed upon, a certificate while such individual was duly
authorized by this Agreement, ceases to be duly authorized before such
certificate is issued, the certificate may nevertheless be issued by the Company
with the same effect as if such individual were duly authorized by this
Agreement at the date of issue.
Section 5.2 General Rights. (a) Membership Interests shall not have a
stated value or, except as otherwise specifically provided herein, any rights to
Distributions unless the Board of Managers, pursuant to the terms hereof, shall
have declared such a Distribution out of funds legally available therefor.
(b) Except as expressly provided herein, no Member shall have priority
over any other Member whether for the return of a Capital Contribution or
Capital Account or for the Net Profits, Net Losses or a Distribution; provided,
however, that the foregoing shall not apply to loans, advances or other
indebtedness (as distinguished from a Capital Contribution) made by a Member to
the Company.
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(c) Except as otherwise expressly provided for in this Agreement, any
action requiring the vote or consent of the Members shall be approved by those
Members holding of record more than fifty percent (50%) of all votes permitted
hereunder at the time such vote is required.
Section 5.3 General Protective Provisions. Notwithstanding anything else to
the contrary contained herein or in the Management Services Agreement, without
first obtaining the written approval of those Members holding of record more
than fifty percent (50%) of all votes permitted hereunder, no Person shall cause
the Company to:
(a) make any material change proposed by the Contract Manager to the
Operating Plan for so long as the Management Services Agreement
shall remain in effect;
(b) admit any new Member (except as shall be provided in Sections 6.4(c)
and 6.9 of this Agreement) and amend this Agreement accordingly;
(c) issue additional Membership Interests in the Company (except as
provided in Section 6.4 of this Agreement) and amend this Agreement
accordingly;
(d) terminate the Management Services Agreement pursuant to the terms
thereof; provided, however, that in determining whether the
necessary percentage required for approval in this Section 5.3(d)
has been received, the vote of Synetic will not be included;
(e) exercise the Warrants and distribute the proceeds therefrom to the
Members; or
(f) amend the Management Services Agreement; provided, however, that in
determining whether the necessary percentage required for approval
in this Section 5.3(f) has been received, the vote of Synetic will
be included.
Section 5.4 Other Protective Provisions. Notwithstanding anything else to
the contrary contained herein or in the Management Services Agreement, without
first obtaining the written approval of those Members holding of record at least
eighty percent (80%) of all votes permitted hereunder (which must include the
approval of Synetic for so long as the Management Services Agreement remains in
effect) no Person shall cause the Company to:
(a) dissolve;
(b) sell all or substantially all of the Company's assets;
(c) merge or consolidate the Company with or into another entity;
(d) convert the Company into another form of business entity;
(e) change the rights or obligations relating to any Membership
Interest in the Company, such that (i) the rights or obligations
of Synetic, or the benefits that may accrue to
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Synetic, under any Clinical Transaction Contract is affected in a
manner adverse to Synetic in any material respect or (ii) the rights
or obligations of the Company, or the benefits that may accrue to
the Company, under any Managed Care Transaction Contract is
affected in a manner adverse to the Company in any material
respect;
(f) engage in any material transactions or activities not in the
ordinary course of the Company's business, such that (i) the
rights or obligations of Synetic, or the benefits that may
accrue to Synetic, under any Clinical Transaction Contract is
affected in manner adverse to Synetic in any material respect,
(ii) the rights or obligations of the Company, or the benefits
that may accrue to the Company, under any Managed Care
Transaction Contract is affected in a manner adverse to the
Company in any material respect, or (iii) such transactions or
activities expose the assets of the Company to risk or create
additional liabilities of the Company in any material respect;
(g) permit a Member to Transfer its Membership Interest in the Company
(except as provided in Section 19.1(d) of this Agreement);
(h) amend this Agreement (other than as described in Section 6.4 of
this Agreement), such that (i) the rights or obligations of
Synetic, or the benefits that may accrue to Synetic, under any
Clinical Transaction Contract is affected in a manner adverse to
Synetic in any material respect or (ii) the rights or
obligations of the Company, or the benefits that may accrue to
the Company, under any Managed Care Transaction Contract is
affected in a manner adverse to the Company in any material
respect; or
(i) make any changes proposed by a Member other than Synetic to the
Operating Plan for so long as the Management Services Agreement
shall remain in effect.
Section 5.5 Additional Protective Provisions. Notwithstanding anything else
to the contrary contained herein or in the Management Services Agreement,
without first obtaining the written approval of those Members holding of record
at least eighty percent (80%) of all votes permitted hereunder, no Person shall
cause the Company to:
(a) change the rights or obligations relating to any Membership Interest
in the Company (other than as described in Section 5.4(e) of this
Agreement);
(b) engage in any other material transactions or activities not in the
ordinary course of the Company's business (other than as described
in Section 5.4(f) of this Agreement); or
(c) amend this Agreement (other than as described in Sections 5.4(h) and
6.4 of this Agreement).
Section 5.6 Actions Requiring Unanimous Approval of Members.
Notwithstanding anything else to the contrary contained herein or in the
Management Services Agreement, without
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first obtaining the written approval of those Members holding of record one
hundred percent (100%) of all votes permitted hereunder, no Person shall cause
the Company to:
(a) enter into any agreement with any Member or Affiliate on terms that
are more favorable than those offered to all other Members; and
(b) permit any Member to resign and/or withdraw all or any portion of
its Capital Account (except in connection with the exercise of the
Warrants and the distribution of the proceeds from such exercise, as
provided in Section 5.3(e)).
Section 5.7 Transactions with Affiliates. Nothing in this Agreement shall
preclude transactions between the Company and a Member or any of their
Affiliates, employees or agents acting in and for his/her or its own account,
provided that all such transactions (other than Capital Contributions governed
by Article VI and the provisions of Section 5.3) shall be approved by those
Members holding of record at least fifty percent (50%) of all votes permitted
hereunder (excluding the vote of the interested Member for purposes of
determining such percentage). For purposes of this Section 5.7, the term
"transactions" shall include but not be limited to any modifications,
amendments, extensions, waivers of, or the enforcement of any rights under, any
contract between the Company and a Member or any of their Affiliates, employees
or agents acting in and for his/her or its own account. The Members hereby
acknowledge and agree that concurrently with the execution of this Agreement the
Company shall enter into: (i) the Management Services Agreement; (ii) an
agreement with Synetic to provide the Synetic Contingent Line of Credit; (iii)
an agreement with Synetic to provide the Synetic Working Capital Line of Credit;
(iv) the Warrant Agreement; (v) a Managed Care Transaction Contract with each of
the Payer-Members; and (vi) the GNYHA Contract. The Members further acknowledge
that concurrently with the execution of this Agreement Synetic shall enter into
a Clinical Transaction Contract with each of the Payer-Members.
Section 5.8 Member Voting. Notwithstanding anything contained in this
Article V to the contrary other than the required approval of Synetic in Section
5.4 and the provisions of Section 5.3(f), in determining whether the necessary
percentage required for approval hereunder has been received for any contract or
agreement between the Company and any Member, the vote of the interested Member
shall not be included. The Members hereby acknowledge and agree that neither
Synetic nor the Payer-Members shall be excluded from any vote solely by reason
of the Management Services Agreement, any Clinical Transaction Contract or any
Managed Care Transaction Contract.
ARTICLE VI
Capital Contributions; Members
Section 6.1 Current Contributions. The Capital Contributions made by each
Member as of the Effective Date are as set forth opposite the Member's name on
Schedule I attached hereto. The Members acknowledge that GNYHA has contributed
two (2) capital contribution notes dated of even date herewith but executed
prior hereto, one a recourse note in the amount of One Hundred Seventy Five
Thousand Dollars ($175,000) (the "GNYHA Recourse Note") and the second a
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nonrecourse note in the amount of Three Hundred Twenty Thousand Dollars
($320,000) (the "GNYHA Nonrecourse Note") which in part comprise the "Current
Contributions" of GNYHA stated on Schedule I and have been included in
determining the "01/01/99 Capital Account Balance" of GNYHA stated on Schedule
I. The Members agree that to the extent any amount is unpaid with respect to
these notes at the maturity dates provided thereby (which in the case of the
GNYHA Nonrecourse Note, notwithstanding anything to the contrary contained
therein, shall be immediately prior to the earlier of the date of withdrawal of
GNYHA from the Company and the date of liquidation of the Company), the Capital
Contributions and Capital Account of GNYHA will be reduced by the unpaid amount.
The Members further agree that, in the event that any amount remains unpaid at
maturity with respect to the GNYHA Recourse Note, GNYHA's Percentage Interest
shall be reduced by the percentage determined by dividing the amount of such
underpayment by One Million Seventy Thousand Dollars ($1,070,000) and the other
Members' Percentage Interests increased proportionately.
Section 6.2 Additional Contributions. Except as required by any provision
of the LLCL that cannot be overridden by agreement of the Members, no Member
will be required to make any additional Capital Contributions to, or restore any
deficit in, its Capital Account.
Section 6.3 Loans. For so long as each of the Management Services Agreement
and the Synetic Working Capital Loan remains in effect, in the event that the
Contract Manager shall determine in its reasonable discretion, at any time and
from time to time, that the Company requires additional funds solely to fund the
Company's cost of sales, operating expenses and capital expenditures as set
forth in the Operating Plan, the Contract Manager shall cause the Company to
borrow additional funds under the Synetic Working Capital Line of Credit.
Section 6.4 Additional Capital. (a) In the event that the Contract Manager
determines, in its reasonable discretion, that an additional Capital
Contribution is needed by the Company to fund its cost of sales, operating
expenses and capital expenditures as set forth in the Operating Plan or to
refinance any indebtedness of the Company at the maturity thereof and the
Company has exhausted all possible capital pursuant to the Synetic Working
Capital Line of Credit, then the Contract Manager shall give notice to each
Member (the "Contribution Notice") of the amount of the required additional
Capital Contribution. Subject to Section 6.4(d), each Member shall then have the
opportunity, but not the obligation, to fund their pro rata share (or any
portion thereof) of the additional Capital Contribution called for (in
proportion to the ratio of each Member's Percentage Interest to the aggregate of
all Members' Percentage Interests in the Company determined on the date the
Contribution Notice is given) no later than ninety (90) days following the date
the Contribution Notice is given.
(b) In the event that any Member fails to contribute (the
"Non-Contributing Member") its pro rata share of any such additional Capital
Contribution called for in Section 6.4(a) or GNYHA Credits are applied for a
portion of such additional Capital Contribution (collectively the "Shortfall"),
then the Contract Manager shall give notice to each of the Members of the
existence and the amount of the Shortfall. Each or all of the Members who funded
their pro rata share of the additional Capital Contribution called for pursuant
to Section 6.4(a) may, at their option, within five (5) business days of receipt
of such notice of Shortfall, make an additional Capital Contribution to
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the Company to fund their pro rata share of the Shortfall (in proportion to the
ratio of the Percentage Interest of each Member contributing to the Shortfall
(each a "Contributing Member") to the aggregate of the Percentage Interests for
all Contributing Members determined on the date the Contribution Notice is
given). The foregoing process shall be continued until either (i) the full
amount of the Shortfall has been contributed or (ii) no Member agrees to
contribute any additional funds to satisfy the Shortfall; provided, however,
that all contributions to such Shortfall must be made within ten (10) business
days following receipt of the original notice of such Shortfall. If there is a
Shortfall, the Percentage Interest of the Members shall be recalculated, and
Schedule I amended, to reflect the dilution of the Non-Contributing Member's
Percentage Interest and the increase of the Contributing Members' Percentage
Interests. Immediately following the receipt by the Company of all Deemed
Capital Contributions under Section 6.4(a) and this Section 6.4(b), the
Percentage Interest of each Member shall be determined by the ratio of the
aggregate Deemed Capital Contributions of each Member over the aggregate Deemed
Capital Contributions made by all Members. In determining the aggregate Deemed
Capital Contributions of the Members all Deemed Capital Contributions (other
than Deemed Capital Contributions made currently pursuant to Sections 6.4(a) and
(b) and Sections 6.5(c) and 6.6(b)) shall be accounted for and the aggregate
amount of such Deemed Capital Contributions shall be reallocated among the
Members in accordance with their then effective pre-contribution Percentage
Interests and each Member's current Deemed Capital Contribution made currently
pursuant to Sections 6.4(a) and (b) and Sections 6.5(c) and 6.6(b) shall be
added to such Member's reallocated Deemed Capital Contributions; provided,
however, that in calculating the aggregate Capital Contributions for Synetic and
the aggregate contributions of all Members, Synetic's Capital Contributions made
under Section 6.4(a) shall be reduced as appropriate to reflect the thirty
percent (30%) premium called for in Section 6.4(d) (e.g., a Capital Contribution
by Synetic of $130,000 pursuant to Section 6.4(a) will be credited for these
purposes as a Capital Contribution of $100,000).
(c) In the event that the Shortfall is not fully funded by the
Contributing Members pursuant to Section 6.4(b), the Contract Manager shall
retain an independent accounting firm or investment bank to provide a valuation
of the Company and determine the terms and conditions upon which the balance of
the Shortfall would be funded by a third party. The Contract Manager shall
notify the Members of such terms and conditions within five (5) business days
following receipt of the final valuation from such independent accounting firm
or investment bank requesting that the Members contribute the Shortfall on such
terms and conditions. The Members shall notify the Contract Manager of their
intention to contribute their pro rata share of the Shortfall within five (5)
business days following their receipt of the notice from the Contract Manager.
If any Member shall elect not to contribute on such terms and conditions, the
other Members shall be given an opportunity to contribute the remaining balance
of the Shortfall pro rata in accordance with their Percentage Interests. This
procedure shall be repeated until no Member elects to contribute the balance of
any Shortfall; provided that all Member contributions to the Shortfall shall be
fully funded within fifteen (15) business days from the date of the valuation of
the Company. If a Shortfall remains following completion of the foregoing
procedure, then notwithstanding anything in this Agreement to the contrary, the
Contract Manager shall be entitled to offer Membership Interests in the Company
to third parties on terms and conditions as necessary to fund the Shortfall,
admit such third parties as Members, and amend this Agreement accordingly, as
necessary; provided, however, that if the terms and conditions pursuant to which
such Membership Interests are proposed
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to be sold to third parties are in the aggregate more favorable than the terms
and conditions offered to existing Members pursuant to this Section 6.4(c), the
existing Members shall be given written notice of the terms and conditions
applicable to such third parties and may, by written notice delivered to the
Contract Manager within five (5) business days of receipt of notice of such
terms and conditions, elect to contribute all but not less than all such
additional Capital pro rata on the same terms and conditions offered to such
third parties. If any Member does not elect to contribute within such notice
period, the remaining Members may elect to contribute the amount necessary to
meet the Shortfall provided all such elections are made within ten (10) business
days of the initial notice. If the Members do not elect to contribute the entire
Shortfall within the foregoing notice period, the Contract Manager may sell the
Membership Interests to the third party.
(d) For purposes of Section 6.4(a) (and not Sections 6.4(b) and (c)),
Synetic will be required to participate in additional capital calls at a thirty
percent (30%) premium over its pro rata share, as determined herein, to maintain
its pre-contribution Percentage Interest in the Company provided, that after
taking into account Synetic's required premium, the total additional Capital
Contribution shall not exceed the amount set forth in the applicable
Contribution Notice.
(e) This Section 6.4 shall remain in effect only for so long as the
Management Services Agreement remains in effect; thereafter, any request for
additional Capital shall be made and approved by those Members holding of record
more than fifty percent (50%) of all votes permitted hereunder.
Section 6.5 Payer-Member Capital Credits. (a) For the first six (6) months
following the Effective Date of this Agreement, each Payer-Member shall have the
right to convert its Internal Claims to the Company's network ("Put Right"). The
Company shall provide each Payer-Member with a credit equal to $0.25 per Claim
(a "Payer-Member Capital Credit") submitted to the Company's network during the
Migration Period by physicians and other healthcare providers whose systems,
prior to the exercise of the Put Right, generated Internal Claims to such
Payer-Member. The "Migration Period" shall mean the period from the exercise of
the Put Right to the later of (1) June 1, 2001 and (2), if such Payer-Member has
performed its obligations under the Managed Care Transaction Contract, the date
that is twenty-four (24) months after the date that the Company has implemented,
tested, approved and placed into a production environment the processing of
Claims for such Payer-Member.
(b) The maximum amount of Payer-Member Capital Credits that can be
earned by a Payer-Member for each physician or other healthcare provider
converted to the Company's network shall be equal to the product of: (1) the
average monthly volume of Internal Claims for such Payer-Member conducted during
the twelve (12) months prior to the exercise of the Put Right by such physician
or healthcare provider multiplied by (2) the number of months that such
physician or healthcare provider submits claims through the Company's network
during the Migration Period (the "Credit Maximum"), but in any event shall be
limited to $1.5 million for all Payer-Members. A Payer-Member ceases to earn
Payer-Member Capital Credits when (i) the Credit Maximum for such Payer-Member
has been reached or (ii) $1.5 million of total credits has been earned by the
Payer-Members in the aggregate, whichever occurs first.
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(c) In the event that the Contract Manager makes a call for additional
Capital Contribution pursuant to Section 6.4(a) hereof, then during the three
and one-half (3.5) year period following the Effective Date (the "Credit
Period") the Payer-Members can apply their Payer-Member Capital Credits in lieu
of making cash Capital Contributions (including reimbursements thereof as
described below) in order to maintain their Percentage Interests in the Company
(in no event may a Payer-Member apply these credits to increase its Percentage
Interest in the Company or may a Payer-Member apply the same Payer-Member
Capital Credits more than once to maintain their Percentage Interest in the
Company). In the event that a Payer-Member has: (1) previously made an
additional cash Capital Contribution pursuant to Section 6.4(a) hereof, and (2)
at the time of such contribution had exercised its Put Right, then such
Payer-Member may apply its Payer-Member Capital Credits to be reimbursed for
such cash Capital Contributions subject to all the limitations set forth in this
Section 6.5.
(d) In the event that a Payer-Member applies its Payer-Member Capital
Credits pursuant to the terms of Section 6.5(c) hereof, then the Contract
Manager shall cause the Company to borrow additional capital pursuant to the
Synetic Contingent Line of Credit (or, in the event the Synetic Contingent Line
of Credit has expired, other debt financing) to fund the additional capital
foregone or reimbursed due to a Payer-Member's use of the Payer-Member Capital
Credits.
(e) Notwithstanding anything herein to the contrary, (1) upon expiration
of the Credit Period each Payer-Member shall forfeit all Payer-Member Capital
Credits held by such Payer-Member and shall not earn any additional Payer-Member
Capital Credits and (2) upon any Payer-Member becoming a Breaching Member, such
Breaching Member shall forfeit all Payer-Member Capital Credits held by such
Payer-Member and shall not earn any additional Payer-Member Capital Credits. In
addition, a Breaching Member shall pay to Synetic any outstanding balance of the
Synetic Contingent Line of Credit attributable to Payer-Member Capital Credits
applied by such Breaching Member pursuant to the terms of the Synetic Contingent
Line of Credit.
(f) Unless the Members unanimously agree otherwise, this Section 6.5
shall remain in effect only for so long as the Management Services Agreement
remains in effect.
Section 6.6 GNYHA Credits (a) GNYHA will receive capital credits (the
"GNYHA Credits") based on the Company's ability to meet its projected amount of
revenue recognized (as determined in accordance with generally accepted
accounting principles) for hospital contracts entered into after August 1, 1998,
(including extensions or renewals of current hospital contracts) as agreed to in
the Revenue Plan. The amount of such GNYHA Credits will be calculated as
follows:
(i) If the Company meets or exceeds the Revenue Plan for a Fiscal
Year after the Effective Date of this Agreement, GNYHA will
receive a GNYHA Credit equal to ten percent (10%) of the
revenue recognized on such contracts during such year.
(ii) If the Company achieves seventy percent (70%) of the Revenue
Plan for a Fiscal Year after the Effective Date of this
Agreement, GNYHA will receive
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a GNYHA Credit equal to two and one-half percent (2.5%) of
such revenue recognized on such contracts during such year.
(iii) If the Company achieves between seventy percent (70%) and one
hundred percent (100%) of the Revenue Plan for a Fiscal Year
after the Effective Date of this Agreement, GNYHA will receive
a GNYHA Credit equal to the sum of (i) two and one-half
percent (2.5%) of such revenue recognized on such contracts
during such year plus (ii) the product of (A) seven and
one-half percent (7.5%) of such revenue recognized on such
contracts during such year multiplied by (B) the percentage
obtained by dividing (x) the excess of the percentage of the
Revenue Plan achieved over seventy percent (70%), by (y)
thirty percent (30%).
(b) GNYHA will be entitled to apply such GNYHA Credit in lieu of making
additional Capital Contributions called for in Sections 6.4(a) and/or (b) hereof
in order to maintain its Percentage Interests in the Company. In no event will
GNYHA be entitled to apply such GNYHA Credit to increase its Percentage
Interests in the Company or may GNYHA apply the same GNYHA Credit more than once
to maintain its Percentage Interest in the Company. In accounting for the
applied GNYHA Credits, an amount equal to the applied GNYHA Credits will be
booked as a receivable, which will be repaid by GNYHA to the Company from
Distributions of Available Cash to which GNYHA is entitled hereunder, with a
corresponding credit reflected in a suspense account pending payment of the
receivable. At such time as the receivable is repaid (in whole or in part) a
book entry shall be made: (i) reducing the balance of the receivable in an
amount equal to the applied GNYHA Credits repaid by Distributions, (ii) reducing
the balance of the suspense account in an amount equal to the applied GNYHA
Credits repaid by Distributions, (iii) reducing GNYHA's Capital Account in an
amount equal to the applied GNYHA Credits repaid by Distributions, and (iv)
increasing GNYHA's Capital Account in an amount equal to the applied GNYHA
Credits repaid by Distributions.
(c) Unless the Members unanimously agree otherwise, this Section 6.6
shall remain in effect only for so long as the Management Services Agreement
remains in effect.
Section 6.7 Withdrawal of Capital. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all, or any part of, such
Person's Capital Contribution or Capital Account from the Company prior to the
Company's Dissolution and Liquidation. When such withdrawal is permitted, no
Member will be entitled to demand a Distribution of property other than money.
Section 6.8 No Interest on Capital. No Member will be entitled to receive
interest on such Member's Capital Account or any Capital Contribution.
Section 6.9 Admission of Members. Except as described in Section 6.4(c), a
Person shall be admitted to the Company as a Member only (a) upon the Company's
issuance of a Membership Interest to each Person or the Transfer (other than any
pledge or hypothecation) of any Membership Interest to such Person in accordance
with the provisions of Article XIX hereof, and (b) upon
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receiving the required approval of the Members as provided in Article V, and (c)
provided there has been compliance with the terms contained in Article XIX
hereof. Any new voting Member shall be entitled to appoint a Manager and,
accordingly, the Board of Managers shall be expanded by one.
Section 6.10 Capital Return. Any Member who has received the return of all
or any part of such Person's Capital Contribution pursuant to any Distribution
that has been wrongfully or erroneously made to such Person in violation of the
LLCL, the Articles of Organization or this Agreement, and who knew at the time
of the Distribution that the Distribution violated Section 508(a) of the LLCL,
will be required to return such Distribution to the Company if notice of an
obligation to return such amount is given to such Person within three (3) years
of the date of such return or Distribution; provided, however, that, if such
return of such Person's Capital Contribution or Distribution has occurred
without violation of the LLCL, the Articles of Organization or this Agreement,
the three (3) year obligation to return such Capital Contribution or
Distribution will apply only to the extent necessary to discharge the Company's
liability to its creditors who reasonably relied on such obligation in extending
credit prior to such return of capital.
Section 6.11 Resignation of Member. After giving thirty (30) days prior
written notice to the Board of Managers and upon receiving the unanimous
approval of the Members as required pursuant to Section 5.6(b) hereof, a Member
may resign as a Member from the Company. Any resigning Member who at the time of
such resignation is not in default of any covenant or obligation hereunder or
pursuant to any other agreement relating to the Company shall be entitled to
receive an amount in cash equal to the balance in such Member's Capital Account
in exchange for such Member's Membership Interests. Any such Distribution to a
resigning Member shall be paid to such Member, at the sole discretion of the
remaining Members, either in a lump sum or in monthly installments without
interest, over a period not to exceed sixty (60) months, commencing with the
first day of the second month following the effective date of such resignation;
provided, however, that the Company shall not be obligated to make any such
Distribution to a resigning Member for so long as in the sole opinion of the
remaining Members such Distribution would materially impact the Company's
ability to operate its business. Any Member that resigns as a Member will be
treated as resigning from any and all positions with the Company and shall
immediately cause any and all of its designees or representatives to resign
immediately from any and all positions held with the Company on the effective
date of such Member's resignation. The resignation of any Member as a Member
shall terminate all of such Member's rights and privileges hereunder.
Section 6.12 Removal of Member for Cause. Any Member may be removed as a
Member for Cause upon the unanimous consent of the Members entitled to vote
(other than the Member to be removed) by delivering a copy of such written
consent to such Member. As used herein, a removal for "Cause" shall mean that
the Member to be removed shall have (a) engaged in fraud or embezzlement, (b)
committed an act of dishonesty, gross negligence, willful misconduct, or
malfeasance, in its capacity as a Member, that has had a material adverse effect
on the Company or any other Member, or (c) been convicted of any felony. A
Member that has been removed for Cause pursuant to this Section 6.12 shall be
entitled to receive from the Company an amount in cash equal to eighty percent
(80%) of the balance in such Member's Capital Account in exchange for all of
such Member's Membership Interests; provided, however, that the Company may, in
the sole discretion of the remaining Members, pay such amount in up to sixty
(60) equal interest-free monthly
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installments, with the first such installment to be made on the first day of the
second month following the date of the written consent removing such Member and
the remaining payments to be made on the first day of each month thereafter.
Notwithstanding the Company's election to make monthly payments in accordance
with this Section 6.12, a Member that has been removed for Cause pursuant to
this Section 6.12 shall be deemed removed on the date of delivery of the written
consent and such removal shall immediately terminate all of such Member's rights
and privileges hereunder. Any Member removed pursuant to this Section 6.12 will
be treated as resigning from any and all positions with the Company and shall
immediately cause any and all of its designees or representatives to resign
immediately from any and all positions held with the Company on the effective
date of such Member's removal. The rights and remedies of the Members pursuant
to this Section 6.12 shall be in addition to and shall not in any way limit or
restrict any other rights or remedies at law or in equity of the Company or the
Members.
Section 6.13 Effect of Event of Withdrawal. Upon an Event of Withdrawal of
a Member, all property of the Company shall for accounting purposes be deemed
sold immediately prior to such withdrawal at the Fair Market Value of such
property. Any gain or loss resulting from such deemed sale shall be allocated
among the Capital Accounts of all Members immediately prior to such withdrawal
in accordance with Article XIII. Except as otherwise provided herein, if the
Company is continued pursuant to Section 17.4 upon an Event of Withdrawal, any
Member who ceases to be a Member upon such Event of Withdrawal other than
pursuant to Sections 6.11 or 6.12 and who at the time of such Event of
Withdrawal is not in default of any covenant or obligation hereunder or pursuant
to any other agreement relating to the Company shall be entitled to receive an
amount in cash equal to the balance in such Member's Capital Account in exchange
for such Member's Membership Interests. Any such Distribution to such Member
shall be paid to such Member, at the sole discretion of the remaining Members,
either in a lump sum or in monthly installments without interest, over a period
not to exceed sixty (60) months, commencing with the first day of the second
month following the effective date of such resignation; provided, however, that
the Company shall not be obligated to make any such Distribution to such Member
for so long as, in the sole opinion of the Board of Managers, such Distribution
would materially impact the Company's ability to operate its business. Any
Member who ceases to be a Member as a result of such Event of Withdrawal will be
treated as resigning from any and all positions with the Company and shall
immediately cause any and all of its designees or representatives to resign
immediately from any and all positions held with the Company on the effective
date of such Event of Withdrawal. The withdrawal of any Member as a Member shall
terminate all of such Member's rights and privileges hereunder.
Section 6.14 Outside Businesses. Any Member may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others. The Company and the Members shall have no rights by virtue of
this Agreement in and to such independent ventures, or the income or profits
derived therefrom, and the pursuit of any such venture shall not be deemed
wrongful or improper.
Section 6.15 Power of Attorney. (a) Each Member hereby appoints the Board
of Managers, and any duly appointed officer of the Company, as its true and
lawful representative and attorney-in-fact, in its name, place and stead to
make, execute, sign, acknowledge, swear to and file: (i) any and all
instruments, certificates, and other documents that may be deemed necessary or
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desirable to effect the Dissolution and/or Liquidation of the Company, (ii) any
business certificate, fictitious name certificate, amendment thereto, or other
instrument or document of a similar nature necessary or desirable to accomplish
the business, purpose and objectives of the Company, or required by any
applicable federal, state or local law; and (iii) all amendments or
modifications to this Agreement, provided that such amendment or modification
has been approved in accordance with Section 20.1.
(b) The power of attorney hereby granted by each Member is coupled with
an interest, is irrevocable, and shall survive, and shall not be affected by,
the subsequent death, disability, incapacity, incompetency, termination,
Bankruptcy or insolvency of such Member.
Section 6.16 No Claims Among Members. Each Member waives its right to
assert or institute any claim, action or proceeding against any other Member
with respect to the rights or obligations related to this Agreement. Nothing
contained in the preceding sentence shall be construed to limit the Company's
right to assert or institute any claim, action or proceeding against any Member
in accordance with this Agreement.
ARTICLE VII
Meetings
Section 7.1 Annual Meetings. A meeting of the Members shall be held
annually for the transaction of business as may properly come before the Members
at such meeting. The annual meeting shall be held at such place (within or
without the State of New York), date and hour as shall be designated in the
notice by the Company thereof, except that no annual meeting need be held if all
actions required by this Agreement to be taken at an annual meeting of Members
are taken by written consent in lieu of a meeting pursuant to Section 7.10.
Section 7.2 Special Meeting. Special meetings of the Members for any
purpose or purposes may be called by any Member or Members holding of record at
least twenty percent (20%) of the votes permitted hereunder, or by the Board of
Managers, the Contract Manager, the Chairman or the President, and held at such
place (within or without the State of New York), date and hour as shall be
designated in the notice thereof.
Section 7.3 Notice of Meetings. (a) Notice of each meeting of the Members
shall be given not less than ten (10) nor more than sixty (60) calendar days
before the date of the meeting to each Member by mailing such notice, postage
prepaid, to each Member at the address of such Member as it appears on the
records of the Company. Every such notice shall state the place, date, and hour
of the meeting and the purpose or purposes for which the meeting is called.
Except as provided in the immediately succeeding sentence, notice of any
adjourned meeting of the Members need not be given if the time and place thereof
is announced at the meeting at which the adjournment is taken. If the
adjournment is for more than thirty (30) calendar days or if, after the
adjournment, a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to
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each Member entitled to vote at such adjourned meeting in the manner and
containing the information set forth in the first and second sentences of this
Section 7.3(a), respectively.
(b) A written waiver of notice, signed by a Member entitled thereto,
whether before or after the notice period required by Section 7.3(a), shall be
deemed equivalent to notice of the meeting relating thereto. Attendance of a
Member in person or by proxy at a Members' meeting shall constitute a waiver of
notice to such Member of such meeting, except when such Member attends the
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not duly called or
convened.
Section 7.4 Record Date. For the purpose of determining the Members
entitled to notice of or to vote at any meeting of the Members or any
adjournment of such meeting, the date five (5) Business Days prior to the date
on which notice of the meeting is mailed shall be the record date for making
such a determination. When a determination of Members entitled to vote at any
meeting of the Members has been made pursuant to this Section 7.4, such
determination of Members shall also apply to any adjournment of the meeting. For
the purpose of determining the Members for any other purpose (excluding
entitlement to Distributions which shall be governed by the provision contained
in Article XIV), the date established by the Board of Managers as the record
date for making such determination shall be deemed to be the record date for
making such a determination.
Section 7.5 List of Members. It shall be the duty of the Secretary, or
other officer of the Company (or a duly qualified transfer agent authorized to
act on behalf of the Company) who shall have charge of the Company's records, to
prepare and keep a complete list of the Members, their addresses and ownership
interests. Such custodian shall make available for inspection such list in
accordance with the provisions of Section 11.2(a).
Section 7.6 Quorum. At each meeting of the Members, except as otherwise
required by law, Members holding of record a majority of the votes permitted
hereunder shall be present in person or by proxy to constitute a quorum for the
transaction of business. In the absence of a quorum at any such meeting or any
adjournment or adjournments thereof, a majority in voting interest of those
present in person or represented by proxy and entitled to vote thereat, or, in
the absence therefrom of all the Members, any officer entitled to preside at, or
to act as secretary of, such meeting may adjourn such meeting from time to time
until the requisite Members for a quorum shall be present in person or by proxy.
At any such adjourned meeting at which a quorum may be present, any business may
be transacted that might have been transacted at the meeting as originally
called.
Section 7.7 Organization. At each meeting of the Members, one of the
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(a) the Chairman;
(b) the Secretary;
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(c) if the Chairman and the Secretary shall be absent from such meeting,
any other officer of the Company designated by the Board of Managers to act as
chairman of such meeting and to preside thereat; or
(d) in the absence of any of the above, a Member who shall be chosen
chairman of such meeting by a majority in voting interest of the Members present
in person or by proxy and entitled to vote thereat.
The Secretary or, if the Secretary shall be presiding over the meeting in
accordance with the provisions of this Section 7.7 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary shall be present thereat) whom the chairman of such meeting shall
appoint, shall act as secretary of such meeting and keep the minutes thereof.
Section 7.8 Order of Business. The order of business at each meeting of the
Members shall be determined by the chairman of such meeting.
Section 7.9 Voting. (a) Each Member shall, with respect to all matters
requiring its vote, be entitled to one vote in person or by proxy for each
Percentage Interest registered in such Member's name on the transfer books of
the Company on the date fixed pursuant to the provisions of Section 7.4 as the
record date for the determination of Members who shall be entitled to receive
notice of and to vote at such meeting; provided, however, Synetic shall maintain
the voting rights of any interest transferred pursuant to Section 19.1(d)
hereof.
(b) Any vote held by Members may be given at any meeting of the Members
by the Members entitled to vote there at either in person or by proxy appointed
by an instrument in writing fulfilling the requirements of Section 7.12 and
delivered to the secretary of the meeting. The attendance at any meeting of a
Member who may theretofore have given a proxy shall not have the effect of
revoking such proxy unless the Member shall in writing so notify the secretary
of the meeting prior to the voting of the proxy. At all meetings of the Members,
all matters, except as otherwise provided by law or in this Agreement, shall be
decided by the vote of a majority of the votes cast by Members present in person
or by proxy and entitled to vote thereat, a quorum being present. Except as
otherwise expressly required by law, the vote at any meeting or the Members on
any matter need not be by ballot, unless so directed by the chairman of the
meeting. On a vote by ballot, each ballot shall be signed by the Member voting,
or by such Member's proxy, if there be such a proxy, and shall state the number
of votes cast.
Section 7.10 Action by Written Consent. Any action required or permitted to
be taken at any annual or special meeting of the Members may be taken without a
meeting, without prior notice and without a vote if a consent or consents in
writing setting forth the action so taken, shall be signed by the Members who
hold of record the minimum number of votes that would be necessary to authorize
or to take such action at a meeting at which all the Members required to vote
thereon were present and voted and shall be delivered to the Secretary or other
officer of the Company who shall have charge of its records. Every consent must
be signed and dated by the Member or its attorney-in-fact. Any consent given
under a power-of-attorney shall be presented together with the executed, dated
and notarized document granting such power upon the Person claiming the same.
Unless the
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minimum number of votes necessary to authorize the applicable action
shall have been obtained within thirty (30) days of the date of consent, no
consent shall be valid after the expiration of such thirty (30) day period.
Every consent shall be revocable at the pleasure of the Member executing it
until such time as there have been obtained the minimum number of votes
necessary to authorize the applicable action. In the event of conflicting
consents, the later dated consent shall govern.
Section 7.11 Action by Communication Equipment. The Members may participate
in a meeting of Members by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear or otherwise interactively communicate with each other, and
such participation shall constitute presence in person at such meeting.
Section 7.12 Proxies. (a) A Member may vote in person or by a proxy
executed in writing by the Member or by a duly authorized attorney-in-fact.
Every proxy must be signed and dated by the Member or its attorney-in-fact. Any
proxy given under a power-of-attorney shall be presented together with the
executed, dated and notarized document granting such power upon the Person
claiming the same. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Member executing it, except as
otherwise provided in this Section 7.12. In the event of conflicting proxies,
the later dated proxy shall govern.
(b) Except when other provisions shall have been made by written
agreement between the parties, the holder of record of a Membership Interest who
holds such Membership Interest as nominee, pledgee or otherwise as security
collateral, shall issue to the pledgor or to such owner of such Membership
Interest, if such pledgor or owner be a Member, upon demand therefor and payment
of necessary expenses thereof, a proxy to vote or take other action thereon.
(c) A proxy that is entitled "irrevocable proxy" and that states that it
is irrevocable, is irrevocable when it is held by (i) a pledgee; (ii) a Person
who has purchased or agreed to purchase the Membership Interest at issue, if
any; (iii) a creditor or creditors of the Company who extend or continue credit
to the Company in consideration of the proxy if the proxy states that it was
given in consideration of such extension or continuation of credit, the amount
thereof, and the name of the person extending or continuing credit; (iv) a
Person who has contracted to perform services as an officer of the Company, if a
proxy is required by the contract of employment, if the proxy states that it was
given in consideration of such contract of employment, the name of the employee
and the period of employment contracted for; (v) a Person designated by
agreement to vote the Membership Interests of one or more Members; or (vi) a
nominee duly empowered under a notarized power of appointment of any of the
Persons described in clauses (i)-(v) of this Section 7.12(c).
(d) Notwithstanding a provision in a proxy stating that it is
irrevocable, the proxy becomes revocable after the pledge is redeemed, or the
debt to which it relates is paid, or the period of employment provided for in
the contract of employment has terminated or the agreement referenced in Section
7.12(c)(v) has terminated and, in a case provided for in clause (i) or (ii) of
Section 7.12(c), becomes revocable three (3) years after the date of the proxy
or at the end of the period, if any, specified therein, whichever period is
less, unless the period of irrevocability is
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renewed from time to time by the execution of a new irrevocable proxy as
provided in this Section 7.12. This Section 7.12(d) does not affect the duration
of a proxy given under Section 7.12(a).
(e) A proxy relating to the voting of a particular Membership Interest
may be revoked, notwithstanding a provision making it irrevocable, by a
purchaser of such Membership Interest who, at the time of such purchase, was
without knowledge of the existence of such proxy.
ARTICLE VIII
Management
Section 8.1 General Powers. (a) Subject to the rights expressly granted to
the Members under the provisions of this Agreement, the Board of Managers and
the authorized officers of the Company shall have the exclusive authority and
responsibility to manage the business of the Company. Such authority and
responsibility as are set forth in the Management Services Agreement are hereby
delegated to the Contract Manager for so long as the Management Services
Agreement remains in effect.
(b) The members of the Board of Managers (the "Managers") shall be
"managers" within the meaning of the LLCL. Except as set forth in this
Agreement, the Board of Managers shall have power and authority, on behalf of
the Company, to take any and all lawful acts that the Board of Managers
considers necessary, advisable, and in the best interests of the Company in
connection with any business of the Company, including, without limitation: (i)
to authorize the purchase, lease or other acquisition, or the sale, lease or
other disposition, of any property; (ii) to open, maintain and close bank
accounts, draw checks or other orders for the payment of moneys and invest the
funds of the Company; (iii) to authorize the purchase of insurance on the
business and assets of the Company; (iv) to commence lawsuits and other
proceedings; (v) to authorize the Company to enter into any agreement,
instrument or other writing; (vi) to retain accountants, attorneys, consultants,
appraisers or other agents or advisors; and (vii) to appoint and remove officers
of the Company. Notwithstanding the foregoing, for so long as the Management
Services Agreement shall remain in effect, the Contract Manager, and not the
Board of Managers, shall have the power and authority, on behalf of the Company,
to take any such acts that are delegated to the Contract Manager pursuant to the
Management Services Agreement, subject to the ultimate power and authority of
the Board of Managers to provide strategic direction to the Company in
accordance with the Operating Plan.
Section 8.2 Binding Authority. Unless specifically authorized to do so by
this Agreement or the Management Services Agreement, no Member or other Person
shall have any power or authority to bind the Company, unless such Member or
other Person has been authorized by the Board of Managers in writing to act on
behalf of the Company.
Section 8.3 Number and Term of Office. The number of Managers constituting
the Board of Managers shall be initially six (6) subject to increase by action
of the Members as provided in Section 6.9. Each of the initial Members shall
have the right to designate in its sole discretion any one of its officers,
directors, or equity holders to be a Manager and its representative on the Board
of
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Managers and to remove and replace that Manager, in each case by written
notice to the Board of Managers. Each new voting Member shall have the right to
designate in its sole discretion any one of its officers, directors, or equity
holders (or, in the case of a Member that is an individual, any one individual)
to be a Manager and its representative on the Board of Managers and to remove
and replace that Manager, in each case by written notice to the Board of
Managers. In addition to the Managers described above, the President of the
Company shall be a non-voting Manager for so long as he shall hold such office.
Section 8.4 Resignation and Vacancies. (a) Any Manager may resign at any
time by giving written notice of his resignation to the Chairman, the President,
or the Secretary of the Company. Any such resignation shall take effect at the
time specified therein, or, if the time when it shall become effective shall not
be specified therein, when accepted by action of the Board of Managers. Except
as aforesaid, the acceptance of such resignation shall not be necessary to make
it effective.
(b) Any Manager that resigns or dies shall be replaced by any
individual, subject to the limitations in Section 8.3, designated by the Member
who had designated the Manager who had resigned or died such that each Member
(except as may otherwise be provided in any resolution admitting a new Member
pursuant to Sections 5.3(b) and 6.9) shall at all times have one designee on the
Board of Managers.
Section 8.5 Meetings.
(a) Annual Meetings. As soon as practicable after each annual meeting of
Members, the Board of Managers shall meet for the purpose of organization and
the transaction of other business.
(b) Regular Meetings. Regular meetings of the Board of Managers shall be
held at such times as the Board of Managers shall from time to time determine.
(c) Special Meetings. Special meetings of the Board of Managers shall be
held whenever called by the Chairman, the President or any Manager at the time
in office. Any and all business may be transacted at a special meeting that may
be transacted at a regular meeting of the Board of Managers.
(d) Place of Meeting. The Board of Managers may hold its meetings at
such place or places within or without the State of New York as the Board of
Managers may from time to time by resolution determine or as shall be designated
in the respective notices or waivers of notice thereof.
(e) Notice of Meetings. Notice of any regular, special, or adjourned
meeting of the Board of Managers shall be mailed or sent by telecopy, telegraph,
cable or other form of recorded communication or delivered via messenger by the
Secretary or an Assistant Secretary of the Company to each Manager, addressed to
such Person at such Person's residence or usual place of business, so as to be
received at least two (2) weeks before the day on which such meeting is to be
held. Such notice shall include the time and place of such meeting. However,
notice of any such meeting need not be given to any Manager if waived in writing
or by telecopy, telegraph, cable or
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other form of recorded communication, whether before or after such meeting shall
be held or if such Person shall be present at such meeting.
(f) Quorum and Manner of Acting. Except as otherwise provided by law or
this Agreement, at least eighty percent (80%) of the total number of voting
Managers shall be present at any meeting of the Board of Managers in order to
constitute a quorum for the transaction of business at such meeting. In the
absence of a quorum for any such meeting, the Managers present thereat shall
adjourn such meeting until a quorum shall be present thereat. Each Manager
(other than the President who shall be a non-voting Manager) shall, with respect
to all matters requiring a vote of the Board of Managers, be entitled to vote in
accordance with the percentage set forth on Schedule I (as amended from time to
time) next to the Member's name who appointed such Manager pursuant to Section
8.3. At all meetings of the Board of Managers, all matters, except as otherwise
provided by law or in this Agreement, shall be decided by the vote of a majority
of the votes cast by the Board of Managers, a quorum being present.
(g) Interested Member or Manager. Notwithstanding anything else in this
Agreement to the contrary, with regard to any Board of Managers vote on or
relating to a contract or agreement or proposed contract or proposed agreement
between the Company and a Member, Affiliate of a Member, or Manager
representative, the interested Member and the Manager representative designated
by such interested Member shall recuse themselves from such vote and any
meetings relating to such vote, and such vote shall be decided by the other
Board Managers and be given full effect notwithstanding the absence of vote and
participation by the interested Manager or Member.
(h) Action by Communication Equipment. The Managers may participate in a
meeting of the Board of Managers and members of a committee of the Board of
Managers may participate in a meeting of such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
(i) Action by Consent. Any action required or permitted to be taken by
the Managers or members of a committee of the Board of Managers, as the case may
be, may be taken without a meeting if the number of Managers that would be
necessary to authorize or take such action at a meeting of the Board of
Managers, or the number of members of a committee that would be necessary to
authorize or take such action at a meeting of the committee, as the case may be,
consent thereto in writing and such writing is filed with the minutes of the
proceedings of the Board of Managers or of the committee, as the case may be.
Any such consents must satisfy all of the requirements of Section 7.10 above.
(j) Organization. At each meeting of the Board of Managers, in the
absence of the Chairman, one of the following shall act as chairman of the
meeting and preside thereat, in the following order of precedence: (i) the
President, and (ii) any Manager chosen by a majority of the Managers present.
The Secretary or, in case of the Secretary's absence, any person (who shall be
an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom
the Chairman shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
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Section 8.6 Compensation; Expenses. (a) Managers, as such, shall not
receive any stated salary for their services, but by resolution of the Board of
Managers may receive a fixed sum for expenses incurred in performing the
functions of Manager, and such additional, reasonable compensation as the Board
of Managers may award from time to time. Nothing herein contained shall be
construed so as to preclude any Manager from serving the Company in any other
capacity and receiving compensation therefor.
(b) The Company shall be responsible for paying, and the Board of
Managers shall pay directly out of Company funds, all ordinary and necessary
costs and expenses incurred in connection with the business of the Company,
including, without limitation, any such expenses incurred by the Managers,
liability and other insurance premiums, expenses in the preparation of reports
to the Members and legal, accounting and other professional fees and expenses.
Section 8.7 Duties of Managers. Each Manager shall perform his duties as a
Manager in good faith and with that degree of care that an ordinarily prudent
person in a like position would use under similar circumstances. In performing
his duties, each Manager shall be entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by: (i) one or more agents or employees of
the Company; (ii) counsel, public accountants or other persons as to matters
that such Manager reasonably believes to be within such person's professional or
expert competence; or (iii) any other Manager duly designated in accordance with
this Agreement, as to matters within his designated authority, which the Manager
believes to merit confidence, so long as in so relying he shall be acting in
good faith and with such degree of care that an ordinarily prudent person in a
like position would use under similar circumstances; provided, however, that a
Manager shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause reliance on any of the
Persons listed above to be unwarranted. The provisions of this Agreement, to the
extent they restrict the duties and liabilities of a Manager otherwise existing
at law or in equity, are agreed by the parties hereto to replace such other
duties and liabilities of such Manager.
Section 8.8 Committees. The Board of Managers may, by unanimous vote,
establish one or more committees to consist of one or more persons, and each
such committee may be altered or dissolved by the Board of Managers in its sole
discretion. Each duly established committee shall have the powers and perform
such duties as may from time to time be assigned to it by the Board of Managers
and shall be subject to the limitations of this Agreement and applicable law.
Section 8.9 Budget. The Members shall establish an annual operating and
capital budget for the Company (the "Budget"). The Members hereby agree that the
initial Budget for the first five (5) Fiscal Years of the Company shall be as
set forth in the Operating Plan. The Budget as set forth in the Operating Plan
shall remain the Budget for the Company unless such Operating Plan and Budget
are revised or amended in accordance with the provisions of this Agreement. At
least sixty (60) days prior to the commencement of the third (3rd) Fiscal Year
of the Company (i.e., the Fiscal Year ending December 31, 2001), the Contract
Manager (or the Board of Managers if the Management Services Agreement shall no
longer be in effect) shall submit a proposed Budget for such third (3rd) Fiscal
Year of the Company setting forth in the aggregate the Company's estimated cost
of sales, operating expenses and capital expenditures for such Fiscal Year. Upon
the affirmative
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vote of those Members holding of record fifty percent (50%) or more of the votes
permitted hereunder, the Budget setting forth such aggregate cost of sales,
operating expenses and capital expenditures for such third (3rd) Fiscal Year
shall become effective; provided, however, that no Budget shall be effective
without the consent of the Contract Manager (for so long as the Management
Services Agreement shall remain in effect) unless the aggregate cost of sales,
operating expenses and capital expenditures reflected in such Budget are at
least equal to ninety percent (90%) of the aggregate of such amounts as
reflected in the initial Budget for such third (3rd) Fiscal Year as set forth in
the Operating Plan. Thereafter, the Contract Manager (or the Board of Managers
if the Management Services Agreement shall no longer be in effect) shall submit
a detailed Budget for such third (3rd) Fiscal Year based upon the aggregate
Budget approved by the Members. Upon the affirmative vote of those Members
holding of record fifty percent (50%) or more of the votes permitted hereunder
(which affirmative vote must include the Contract Manager for so long as the
Management Services Agreement shall be in effect), the detailed Budget for the
third (3rd) Fiscal Year shall become effective. At least sixty (60) days prior
to the commencement of the fourth (4th) and fifth (5th) Fiscal Years of the
Company, respectively, the Contract Manager (or the Board of Managers if the
Management Services Agreement shall no longer be in effect) shall submit a
proposed Budget for the fourth (4th) and fifth (5th) Fiscal Years of the
Company, respectively, setting forth in detail the Company's estimated Budget
for such Fiscal Year. Upon the affirmative vote of those Members holding of
record fifty percent (50%) or more of the votes permitted hereunder, the Budget
for such Fiscal Year shall become effective; provided, however, that no Budget
shall be effective without the consent of the Contract Manager (for so long as
the Management Services Agreement shall remain in effect) unless the aggregate
cost of sales, operating expenses and capital expenditures reflected in such
Budget are at least equal to ninety percent (90%) of the aggregate cost of
sales, operating expenses and capital expenditures reflected in the initial
Budget for such Fiscal Year as set forth in the Operating Plan. In the event
that the Members are unable to reach agreement and approve the proposed Budget
for the third (3rd), fourth (4th) or fifth (5th) Fiscal Years, the aggregate
Budget for such items for such Fiscal Year shall be equal to ninety percent
(90%) of the cost of sales, operating expenses and capital expenditures as
reflected in the initial Budget for such Fiscal Year as set forth in the
Operating Plan and such aggregate Budget shall be allocated among the applicable
detailed line items comprising the Budget in a manner reasonably consistent with
such prior Fiscal Year's Budget. Any Budget adopted pursuant to this Section 8.9
shall be substituted for and replace the applicable Fiscal Year's Budget as set
forth in the Operating Plan.
ARTICLE IX
Chairman and Officers
Section 9.1 Chairman. The Chairman shall be the Chairman of the Board of
Managers and the Chairman shall preside at all meetings of the Members and at
all meetings of the Board of Managers and shall perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board
of Managers. At each annual meeting of the Board of Managers at which a quorum
is present, the individual receiving the greatest number of votes shall be
Chairman until his successor is elected at the next annual Board of Managers
meeting or until his resignation or
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removal in accordance with Section 8.4(b) in which event his replacement shall
become Chairman for the remainder of his term.
Section 9.2 Election, Appointment and Term of Office.
(a) The officers of the Company shall be a President, Treasurer and
Secretary who shall be appointed by and hold office pursuant to this Article IX;
provided that the Contract Manager shall appoint any such officers, which
appointment shall be subject to the reasonable approval of the Board of
Managers, for so long as the Management Services Agreement shall remain in
effect. Any two (2) or more offices may be held by the same person. Each officer
shall hold office until the next annual meeting of the Board of Managers and
until his successor is appointed or until his earlier death, or his earlier
resignation or removal in the manner hereinafter provided.
(b) The Board of Managers, if the Management Services Agreement
shall not be in effect, or the Contract Manager, if the Management Services
Agreement shall be in effect, may appoint such other officers as it deems
necessary, including one or more Vice Presidents, Assistant Vice Presidents,
Assistant Treasurers and Assistant Secretaries; provided that any appointment by
the Contract Manager shall be subject to the reasonable approval of the Board of
Managers. Each such officer shall have such authority and shall perform such
duties as may be provided herein or as the Person who appointed such officer may
prescribe.
(c) If additional officers are elected or appointed during the year,
each of them shall hold office until the next annual meeting of the Board of
Managers and until his successor is appointed or until his earlier death,
resignation or removal.
Section 9.3 Resignation, Removal and Vacancies.
(a) Any officer may resign at any time by giving written notice to
the Board of Managers, and such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, when accepted by action of the Board of Managers. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.
(b) All officers elected or appointed under Section 9.2 shall be
subject to removal at any time by the Board of Managers, if the Management
Services Agreement shall not be in effect, or the Contract Manager, if the
Management Services Agreement shall be in effect, with or without cause.
(c) A vacancy in any office may be filled for the unexpired portion
of the term in the same manner as provided for election or appointment to such
office.
Section 9.4 Duties and Functions.
(a) President. The President shall be the chief executive officer of
the Company and shall have the supervision and control over, and responsibility
for, the day-to-day management
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of the operations of the Company, subject to any strategic direction provided by
the Board of Managers in accordance with the Operating Plan.
(b) Treasurer. The Treasurer shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounts of the properties and
business transactions of the Company, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
Membership Interests. The Treasurer shall disburse the funds of the Company as
may be ordered by the President, taking proper vouchers for such disbursements
and shall render to the Chairman, the Board of Managers and the President,
whenever they shall so request, an account of all of his transactions as
Treasurer and of the financial condition of the Company.
(c) Secretary. The Secretary shall give or cause to be given notice
of all meetings of the Board of Managers and the Members and keep the records of
all meetings of the Board of Managers and the Members. The Secretary shall be
custodian of all contracts, deeds, documents and all other indicia of title to
properties owned by the Company and of its other records and in general shall
have all powers incident to the office of Secretary and perform such duties as
may be prescribed by the President, under whose supervision he shall be.
ARTICLE X
Contracts, Checks, Drafts, Bank Accounts, Proxies, Etc.
Section 10.1 Execution of Documents. Subject to the terms of the Management
Services Agreement to the extent not inconsistent with any other provision
contained herein, the President and any other duly appointed officer of the
Company shall have the power to execute and deliver deeds, leases, contracts,
mortgages and other grants of security interests, bonds, debentures, notes and
other evidences of indebtedness, checks, drafts and other orders for the payment
of money and other documents for and in the name of the Company, and such power
may be delegated (including power to redelegate) by written instrument to
employees or agents of the Company.
Section 10.2 Deposits. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company or otherwise
in accordance with Company policy as approved by the Board of Managers.
Section 10.3 Proxies in Respect of Stock or Other Securities of Other
Companies. The President and any other duly appointed officers of the Company
shall have the authority (a) to appoint from time to time an agent or agents of
the Company to exercise in the name and on behalf of the Company the powers and
rights that the Company may have as the holder of stock or other securities in
any other company, (b) to vote or consent in respect of such stock or securities
and (c) to execute or cause to be executed in the name and on behalf of the
Company such written proxies, consents, powers of attorney or other instruments
as he may deem necessary or appropriate in order that the Company may exercise
such powers and rights.
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ARTICLE XI
Books and Records; Right of Inspection; Tax Matters
Section 11.1 Books And Records. The Company will keep accurate books and
records relating to transactions with respect to the assets of the Company based
on Book Values using federal income tax accounting principles. The Company will
also keep the following books and records at the Company's principal office: (i)
a current list of the full name and last known business, residence or mailing
address of each Member, (ii) a copy of the Articles of Organization and of this
Agreement (as well as any signed powers of attorney pursuant to which any such
document was executed); (iii) a copy of the Company's federal, state and local
income tax returns and reports, and annual financial statements of the Company,
for each of the most recent three (3) Fiscal Years; and (iv) minutes, or minutes
of action (or written consent without a meeting), of every meeting of the
Members or the Board of Managers or any committee thereof.
Section 11.2 Information. (a) Each Member has the right to the fullest
extent granted under the LLCL to obtain from the Company; (i) a current list of
the full name and last known business, residence or mailing address of each
Member, (ii) a copy of the Articles of Organization and of this Agreement (as
well as any signed powers of attorney pursuant to which any such document was
executed); (iii) a copy of the Company's federal, state and local income tax
returns and reports, and annual financial statements of the Company, for the
prior six (6) Fiscal Years; and (iv) minutes (or written consents without a
meeting), of every meeting (or action taken by consent) of the Members or the
Board of Managers or any committee thereof.
(b) The Company shall deliver to each Member, as soon as practicable,
but in any event within ninety (90) days after the end of each Fiscal Year of
the Company, audited financial statements, including an income statement of the
Company for such period and a balance sheet and statement of the Percentage
Interests held by each Member as of the end of such period.
Section 11.3 Tax Returns. The Company, at its expense, will cause the
preparation and timely filing (including extensions) of all tax and
informational returns required to be filed by the Company pursuant to the Code
as well as all other required state and local tax and informational returns in
each jurisdiction in which the Company owns property or does business. Within
ninety (90) days following the end of each Fiscal Year, the Company will provide
each Member with all necessary tax reporting information, a copy of the
Company's informational federal income tax return for such Fiscal Year and such
other information as is reasonably necessary to enable the Members to comply
with their tax reporting requirements.
Section 11.4 Tax Elections. The Company shall make and revoke such tax
elections as the Board of Managers may from time to time determine.
Section 11.5 Tax Matters Partner. (a) Synetic, for so long as the
Management Services Agreement shall remain in effect, shall be the tax matters
partner (the "Tax Matters Partner") under ss. 6231(a)(7) of the Code;
thereafter, those Members holding of record more than fifty percent (50%) of all
votes permitted hereunder shall appoint a successor Tax Matters Partner.
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(b) The Tax Matters Partner will be responsible for notifying all
Members of ongoing proceedings, both administrative and judicial, and will
represent the Company throughout any such proceeding. Each Member agrees, and
each holder of Membership Interests who is not a Member shall be deemed by
virtue of its ownership of Membership Interests to agree, that it will furnish
the Tax Matters Partner with such information as the Tax Matters Partner may
reasonably request in order to allow the Tax Matters Partner to provide the
Internal Revenue Service with sufficient information with respect to any such
proceedings.
(c) If an administrative proceeding with respect to a partnership item
under the Code has begun, and the Tax Matters Partner so requests, each Member
agrees, and each holder of Membership Interests who is not a Member shall be
deemed by virtue of its ownership of Membership Interests to agree, that it will
notify the Tax Matters Partner of its treatment of any partnership item on its
federal income tax return, if any, that is inconsistent with the treatment of
that item on the partnership return for the Company. Any settlement agreement
with the Internal Revenue Service will be binding upon the holder of Membership
Interests only as provided in the Code. The Tax Matters Partner will not bind
any other holder of Membership Interests to any extension of the statute of
limitations or to a settlement agreement without such holder's written consent.
Any holder of Membership Interests who enters into a settlement agreement with
respect to any partnership item will notify the other holders of Membership
Interests of such settlement agreement and its terms within thirty (30) days
from the date of settlement.
(d) If the Tax Matters Partners does not file a petition for
readjustment of partnership items in the Tax Court, Federal District Court or
Claims Court within the ninety (90) day period following a notice of a final
partnership administrative adjustment, any notice partner and 5-percent group
(as such terms are defined in the Code) may institute such action within the
following sixty (60) days. The Tax Matters Partner will timely notify the other
Members in writing of its decision. Any notice partner and 5-percent group will
notify any other Member of its filing of any petition for readjustment.
Section 11.6 No Partnership. The classification of the Company as a
partnership will apply only for federal (and, as appropriate, state and local)
income tax purposes. This characterization, solely for tax purposes, does not
create or imply a general partnership among the Members for state law or any
other purpose. Instead, the Members acknowledge the status of the Company as a
limited liability company formed under the LLCL.
Section 11.7 Title to Company Assets. Title to, and all right and interest
in, the Company's assets shall be acquired in the name of and held by the
Company, or, if acquired in any other name, be held for the benefit of the
Company.
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ARTICLE XII
Capital Accounts
Section 12.1 Maintenance. Each Member agrees that a single capital account
(each a "Capital Account") will be established and maintained for each Member
and will be credited, charged and otherwise adjusted as provided in this Article
XII and as required by the Regulations promulgated under ss.704(b) of the Code
(the "ss.704(b) Regulations"). The Capital Account of each Member as of January
1, 1999 is as set forth on Schedule 1 and will be:
(a) credited with (i) each Capital Contribution made by such Member,
(ii) such Member's allocable share of Net Profits and other items of income and
gain of the Company (including items of income and gain exempt from tax), and
(iii) all other items properly charged to the Capital Account of such Member as
required by the ss.704(b) Regulations; and
(b) charged with (i) each Distribution made to such Member by the
Company, (ii) such Member's allocable share of Net Losses and other items of
loss and deduction of the Company (including items of loss and deduction that
are not deductible for income tax purposes), and (iii) all other items properly
charged to the Capital Account of such Member as required by the ss.704(b)
Regulations.
Section 12.2 Adjustments. The Members intend to comply with the ss.704(b)
Regulations in all respects, and to agree to adjust their Capital Accounts to
the full extent that the ss.704(b) Regulations may apply (including, without
limitation, applying the concepts of the minimum gain chargebacks and qualified
income offsets). To this end, each Member agrees to make any Capital Account
adjustment that, in the opinion of tax counsel selected by the Board of
Managers, is necessary or appropriate to maintain equality between the aggregate
Capital Accounts of the Members and the amount of capital of the Company
reflected on its balance sheet (as computed for book purposes), as long as such
adjustments are consistent with the underlying economic arrangement of the
Members and are based on, wherever practicable, and consistent with federal tax
accounting principles.
Section 12.3 Market Value Adjustments. Each Member agrees to make
appropriate adjustments to the Capital Account of such Member upon any Transfer
of Membership Interests, including those that apply upon the constructive
liquidation of the Company under ss.708(b)(1) of the Code or the liquidation of
a Member's Membership Interests, all in accordance with the ss.704(b)
Regulations.
Section 12.4 Transfer. Each Member agrees that, if all or any part of its
Membership Interests are Transferred in accordance with this Agreement, except
to the extent otherwise provided in the ss.704(b) Regulations, upon admission of
the transferee as a Member, the Capital Account of the transferor that is
attributable to the Transferred Membership Interests will carry over to the
transferee.
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ARTICLE XIII
Allocation of Income, Gain, Loss and Deduction
Section 13.1 Determination. Each Member agrees that for each Fiscal Year,
Net Profits and Net Losses, including items of income, gain, loss and deduction
of the Company, will be determined based upon Book Values in accordance with
federal income tax accounting principles consistently applied (including the
ss.704(b) Regulations).
Section 13.2 Allocation of Net Profits and Net Losses. (a) Provided that an
Event of Breach has not occurred, the Net Profits and the Net Losses for each
Fiscal Year shall be allocated to each Member on a pro rata and pari passu basis
in proportion to their Percentage Interests registered on the Company's books in
such Member's name as of the date chosen as the determination date for such
allocation by the Board of Managers.
(b) If an Event of Breach has occurred, then the Net Profits and the Net
Losses for each Fiscal Year shall be allocated as follows:
(i) the Net Profits and the Net Losses, less any Warrant Income, for
each Fiscal Year shall be allocated to each Member on a pro rata and pari
passu basis in proportion to their Percentage Interests registered on the
Company's books in such Member's name as of the date chosen as the
determination date for such allocation by the Board of Managers.
(ii) Warrant Income shall first be divided, but not allocated, for
each Member on a pro rata and pari passu basis in proportion to their
Percentage Interests registered on the Company's books in such Member's
name as of the date chosen as the determination date for such allocation
by the Board of Managers. Each Member who is not a Breaching Member (the
"Non-Breaching Members") shall be allocated their share of Warrant Income
as determined in the preceding sentence. Each Breaching Member's share of
Warrant Income shall be forfeited by such Breaching Member and shall be
allocated as follows:
(I) FIFTY PERCENT (50%) to Synetic; and
(II) FIFTY PERCENT (50%) to the Non-Breaching Members
(including Synetic) on a pro rata basis in proportion to the ratio of each
Non-Breaching Member's Percentage Interest over the aggregate of all
Non-Breaching Members' Percentage Interests. Each Non-Breaching Members
Percentage Interest shall be such interest registered on the Company's
books in such Member's name as of the date chosen as the determination
date for such allocation by the Board of Managers.
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Section 13.3 Allocation in the Event of Property Distribution. In the event
that property other than cash is distributed to each Member, such property shall
be deemed sold at its Fair Market Value immediately prior to its Distribution,
and any gain or loss resulting from such deemed sale shall be allocated among
the Members in accordance with Section 13.2; provided, however, that if a
distribution of property is made to a Member pursuant to Section 18.3(c), any
gain or loss resulting from a deemed sale of such property shall be specifically
allocated to such Member.
Section 13.4 Special Rules. Notwithstanding the general allocation rules
set forth in Section 13.2 or the allocation rules set forth in Section 13.3, the
following special allocation rules shall apply under the circumstances
described.
(a) Deficit Capital Account and Nonrecourse Debt Rules.
(i) Limitation on Loss Allocations. The Net Losses allocated to any
Member pursuant to Section 13.2 with respect to any Fiscal Year shall not exceed
the maximum amount of Net Losses that can be so allocated without causing such
Member to have a deficit in its Adjusted Capital Account at the end of such
Fiscal Year. All Net Losses in excess of the limitation set forth in the
preceding sentence of this Section 13.4(a)(i) shall be allocated (1) first, to
the maximum extent permitted by the Code and the Regulations, pro rata among the
Members having positive balances in their Adjusted Capital Accounts (after
giving effect to the allocations required by Section 13.2) in the ratio obtained
by dividing (x) each such Member's Capital Account balance by (y) the sum of all
such Members' Capital Account balances and (2) second, any remaining amount to
the Members in the manner required by the Code and the Regulations.
(ii) Qualified Income Offset. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described in
ss.ss. 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and such
adjustment, allocation or distribution causes, or increases, a deficit in the
Adjusted Capital Account for such Member, then, before any other allocations are
made under this Agreement or otherwise, such Member shall be allocated items of
income and gain (consisting of a pro rata portion of each item of income,
including gross income and gain) in an amount and manner sufficient to eliminate
such deficit in the Adjusted Capital Account as quickly as possible.
(iii) Company Minimum Gain Chargeback. If there is a net decrease in
Company Minimum Gain during any Fiscal Year, each Member shall be allocated
items of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, an amount equal to the
portion of such Member's share of the net decrease in Company Minimum Gain
during such Fiscal Year, subject to the exceptions set forth in ss.ss.
1.704-2(f)(2), (3) and (5) of the Regulations; provided that, if the Company has
any discretion as to an exception set forth in ss. 1.704-2(f)(5), the Tax
Matters Partner (with the consent of the other Members) shall exercise such
discretion on behalf of the Company. The Tax Matters Partner shall, if the
application of this Section 13.4(a)(iii) would cause a distortion in the
economic arrangement among the Members, ask the Commissioner of the Internal
Revenue Service to waive the Company Minimum Gain Chargeback requirements
pursuant to ss. 1.704-2(f)(4) of the Regulations. To the extent that this
Section is inconsistent with ss. 1.704-2(f) or 1.704-2(k) of the Regulations or
incomplete with respect
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to such Sections of the Regulations, the Company Minimum Gain Chargeback
provided for herein shall be applied and interpreted in accordance with such
Sections of the Regulations.
(iv) Member Minimum Gain Chargeback. If there is a net decrease in
Member Minimum Gain during any Fiscal Year, each Member shall be allocated items
of income and gain for such Fiscal Year (and, if necessary, for subsequent
Fiscal Years) in proportion to, and to the extent of, an amount equal to such
Member's share of the net decrease in Member Minimum Gain during such Fiscal
Year, subject to the exceptions set forth in ss.ss.1.704-2(f)(2), (3), and (5)
of the Regulations as referenced by ss.1.704-2(i)(4) of the Regulations. The Tax
Matters Partner shall, if the application of this Section 13.4(a)(iv) would
cause a distortion in the economic arrangement among the Members, ask the
Commissioner of the Internal Revenue Service to waive the Member Minimum Gain
Chargeback requirement pursuant to ss.1.704-2(i)(4) of the Regulations. To the
extent that this Section 13.4(a)(iv) is inconsistent with ss.ss.1.704-2(i)(4) or
1.704-2(k) of the Regulations or incomplete with respect to such Sections of the
Regulations, the Member Minimum Gain Chargeback provided for herein shall be
applied and interpreted in accordance with such Sections of the Regulations.
(v) Member Nonrecourse Deductions. Member Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in which the
Members share the economic risk of loss for the Member Nonrecourse Debt that
gave rise to those deductions as determined under ss.1.752-2 of the Regulations.
This allocation is intended to comply with the requirements of ss.1.704-2(i) of
the Regulations and shall be interpreted and applied consistent therewith.
(vi) Limited Effect and Interpretation. The special rules set forth
in Sections 13.4(a)(i), (ii), (iii), (iv) and (v) (the "Regulatory Allocations")
shall be applied only to the extent required by applicable Regulations for the
resulting allocations provided for in this Section 13.4, taking into account
such Regulatory Allocations, to be respected for federal income tax purposes.
The Regulatory Allocations are intended to comply with the requirements of
ss.ss.1.704-1(b), 1.704-2 and 1.752-1 through 1.752-5 of the Regulations and
shall be interpreted and applied consistently therewith.
(vii) Curative Allocations. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide the Net
Profits, Net Losses and similar items. Accordingly, Net Profits, Net Losses and
other items will be reallocated among the Members in a manner consistent with
ss.ss.1.704-1(b) and 1.704-2 of the Regulations so as to negate as rapidly as
possible any deviation from the manner in which Net Profits, Net Losses and
other items are intended to be allocated among the Members pursuant to Sections
13.2 and 13.3 that is caused by the Regulatory Allocations.
(viii)Change in Regulations. If the Regulations incorporating the
Regulatory Allocations are hereafter changed or if new Regulations are hereafter
adopted, and such changed or new Regulations, in the opinion of independent tax
counsel for the Company, make it necessary to revise the Regulatory Allocations
or provide further special allocation rules in order to avoid a significant risk
that a material portion of any allocation set forth in this Article XIII would
not be
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respected for federal income tax purposes, the Members shall make such
reasonable amendments to this Agreement as, in the opinion of such counsel, are
necessary or desirable, taking into account the interests of the Members as a
whole and all other relevant factors, to avoid or reduce significantly such risk
to the extent possible without materially changing the amounts allocable and
distributable to any Member pursuant to this Agreement.
(b) Change in Member's Interests. If there is a change in any Member's
share of the Net Profits, Net Losses or other items of the Company during any
Fiscal Year, allocations among the Members shall be made in accordance with
their interests in the Company from time to time during such Fiscal Year in
accordance with ss. 706 of the Code, using the closing-of-the-books method,
except that Depreciation, amortization and similar items shall be deemed to
accrue ratably on a daily basis over the entire Fiscal Year during which the
corresponding asset is owned by the Company if such asset is placed in service
prior to or during the Fiscal Year.
(c) Special Allocation on Sale of Assets to Synetic or a Synetic
Affiliate. In the event of a sale of all or substantially all of the assets of
the Company to Synetic or a Synetic Affiliate, any resulting gain or loss shall
be allocated among the Members such that the ratio of each Member's Capital
Account balance to the aggregate Capital Account balance of all Members
following such allocation is equal to such Member's Percentage Interest at such
time.
Section 13.5 Tax Allocations (a) In General. Except as set forth in Section
13.4, allocations for tax purposes of items of income, gain, loss and deduction,
and credits and basis therefor, shall be made in the same manner as allocations
for book purposes as set forth in Sections 13.2 and 13.3. Allocations pursuant
to this Section 13.5 are solely for purposes of federal, state and local income
taxes and shall not affect, or in any way be taken into account in computing,
any Member's Capital Account or share of Net Profits, Net Losses, other items or
Distributions pursuant to any provision of this Agreement.
(b) Special Rules. (i) Elimination of Book/Tax Disparities. In
determining a Member's allocable share of the Company's taxable income, the
Member's allocable share of each item of Net Profits and Net Losses shall be
properly adjusted to reflect the difference between such Member's share of the
adjusted tax basis and the Book Value of the Company's assets used in
determining such item. With respect to Depreciation, in determining the taxable
income allocable to such Member, Net Profits and Net Losses allocable to such
Member shall be adjusted by eliminating Depreciation allocable to such Member
and substituting therefor tax depreciation allocatable to such Member determined
by reference to such Member's share of the tax basis of the Company's assets.
This provision is intended to comply with the requirements of ss. 704(c) of the
Code and ss. 1.704-1(b)(2)(iv)(f) of the Regulations and shall be interpreted
and applied consistently therewith.
(ii) Allocation of Items Among Members. Except as otherwise provided
in Section 13.5(a), each item of income, gain, loss and deduction and all other
items governed by ss. 702(a) of the Code shall be allocated among the Members in
proportion to the allocation of Net Profits and Net Losses set forth in Sections
13.2, provided that any gain recognized from any disposition of a Company asset
that is treated as ordinary income because it is attributable to the recapture
of any Depreciation or amortization shall be allocated among the Members in the
same
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ratio as the prior allocations of Net Profits, Net Losses or other items
that included such Depreciation or amortization, but not in excess of the gain
otherwise allocatable to each Member.
(iii) Tax Credits. All tax credits shall be allocated among the
Members in accordance with applicable law.
(c) Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 13.5 and hereby agree to be
bound by the provisions of this Section 13.5 in reporting their shares of the
Company's profits, gains, income, losses, deductions, credits and other items
for income tax purposes.
ARTICLE XIV
Distributions
Section 14.1 Distributions. (a) Except as otherwise provided in this
Agreement, the Board of Managers shall cause the Company to distribute Available
Cash to all Members in accordance with this Section 14.1, quarterly prior to
Dissolution to the Members on a pro rata and pari passu basis in proportion to
the Percentage Interests registered in each Member's name on the Company's books
as of the date chosen by the Board of Managers. For the purpose of determining
the Members entitled to receive payment of any Distribution, the resolution
declaring a Distribution as adopted by the Board of Managers shall declare a
record date for purposes of the Distribution, which date shall be at least five
(5) business days after the effective date of such resolution.
(b) Subject to the Member approval required pursuant to Section 5.3(e),
the Board of Managers shall cause the Company to distribute Warrant Proceeds as
follows:
(i) Provided that an Event of Breach has not occurred, as soon as
practicable following the receipt of Warrant Proceeds by the Company, the
Board of Managers shall cause the Company to distribute such Warrant
Proceeds to all Members in accordance with this Section 14.1 to the
Members on a pro rata and pari passu basis in proportion to the Percentage
Interests registered in each Member's name on the Company's books as of
the date chosen by the Manager.
(ii) If an Event of Breach has occurred, then the Board of Managers
shall cause the Company to distribute Warrant Proceeds in the following
manner. Warrant Proceeds shall first be divided into shares for each
Member on a pro rata and pari passu basis in proportion to their
Percentage Interests registered in each Member's name on the Company's
books as of the date chosen by the Board of Managers. Each Member who is a
Non-Breaching Member shall be distributed their share of Warrant Proceeds
as determined in the preceding sentence. Each Breaching Member's share of
Warrant Proceeds shall be forfeited by such Breaching Member and shall be
distributed as follows:
(I) FIFTY PERCENT (50%) to Synetic; and
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(II) FIFTY PERCENT (50%) to the Non-Breaching Members on a pro
rata basis in proportion to the ratio of each Non-Breaching Member's
Percentage Interest over the aggregate of all Non-Breaching Members'
Percentage Interests. Each Non-Breaching Member's Percentage
Interest shall be such interest registered on the Company's books in
such Member's name as of the date chosen by the Board of Managers.
Section 14.2 Withholding. (a) If required by the Code, or by state or local
law, the Company will withhold any required amount from Distributions to a
Member for payment to the appropriate taxing authority. Any amount so withheld
from a Member will be treated as a Distribution by the Company to such Member.
Each Member agrees to timely file any document that is required by any taxing
authority in order to avoid or reduce any withholding obligation that would
otherwise be imposed on the Company.
(b) To the extent any amount is required to be withheld with respect to
a Member and paid over to an appropriate taxing authority which amount is in
excess of the amounts distributed to such Member in respect of such withholding,
the amounts paid to the taxing authority in respect of such withholding shall be
treated as a Distribution to such Member and a corresponding Distribution shall
be made to each other Member in proportion to the number of Membership Interests
registered on the Company's books in such Member's name. To the extent that cash
is not available to make any of the Distributions required under this Section
14.2(b), such Distribution shall be delayed and paid out of the next Available
Cash.
Section 14.3 Offset. The Company may offset all amounts owing to the
Company by a holder of Membership Interests against any Distribution to be made
to such holder.
Section 14.4 Limitation Upon Distributions. No Distribution shall be
declared and paid to the extent that, at the time of the Distribution, after
giving effect to the Distribution, all liabilities of the Company (other than
liabilities to Members on account of their interest in the Company and
liabilities for which recourse of creditors is limited to specified property of
the Company) exceed the Fair Market Value of the assets of the Company (except
that the Fair Market Value of property that is subject to a liability for which
the recourse of creditors is limited shall be included in the assets of the
Company only to the extent that the Fair Market Value of such property exceeds
such liability). To the extent that any Distribution made pursuant to Section
14.2(b) would be limited by reason of this Section 14.4, the aggregate
Distributions under Section 14.2(b) which includes such Distribution shall be
treated as a loan to such Member that is payable on demand.
ARTICLE XV
Indemnification
Section 15.1 Indemnification. (a) The Company shall indemnify and hold
harmless each Manager and any representative, officer, shareholder, director,
agent, and independent contractor of
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each Manager (collectively, the "Indemnified Party"), in accordance with this
Article XV, from and against any and all losses, claims, damages, liabilities,
expenses (including legal and other professional fees and disbursements),
judgments, fines, settlements, and other amounts (collectively, the
"Indemnification Obligations") arising from any and all claims, demands,
actions, suits or proceedings (civil, criminal, administrative or
investigative), actual or threatened, in which such Indemnified Party may be
involved, as a party or otherwise, by reason of such Indemnified Party's service
to, or on behalf of, or management of the affairs of, the Company, or rendering
of advice or consultation with respect thereto, or which relate to the Company,
its properties, business or affairs, whether or not the Indemnified Party
continues to be a Manager, representative or officer at the time any such
Indemnification Obligation is paid or incurred, provided that such
Indemnification Obligation resulted from a mistake of judgment, or from action
or inaction of such Indemnified Party that did not constitute gross negligence,
willful misconduct or bad faith. The Company shall also indemnify and hold
harmless any Indemnified Party from and against any Indemnification Obligation
suffered or sustained by such Indemnified Party by reason of any action or
inaction of any employee, broker or other agent of such Indemnified Party,
provided, that such employee, broker or agent was selected, engaged or retained
by such Indemnified Party with reasonable care. The termination of a proceeding
by judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that such
Indemnification Obligation resulted from the gross negligence, willful
misconduct or bad faith of such Indemnified Party.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal and other professional fees and disbursements)
incurred by an Indemnified Party in defending any claim, demand, action, suit or
proceeding (including but not limited to proceedings relating to the performance
of a Manager's duties under Section 8.7(a)) shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the Manager to repay such amount if it shall be determined by a
court of competent jurisdiction having final or unappealed dispositive authority
over such matter that the Manager is not entitled to be indemnified as
authorized by this Article XV.
Section 15.2 Indemnification Not Exclusive. The indemnification provided by
this Article XV shall not be deemed to be exclusive of any other rights to which
each Indemnified Party may be entitled under any agreement, or as a matter of
law, or otherwise, both as to action in such Indemnified Party's official
capacity and to action in another capacity, and shall continue as to such
Indemnified Party who has ceased to have an official capacity for acts or
omissions during such official capacity or otherwise when acting at the request
of the Manager, or any Person granted authority thereby, and shall inure to the
benefit of the heirs, successors and administrators of such Indemnified Party.
Section 15.3 Insurance on Behalf of Indemnified Party. The Board of
Managers shall have the power, but not the obligation, to purchase and maintain
insurance on behalf of each Indemnified Party, at the expense of the Company,
against any liability which may be asserted against or incurred by it or him in
any such capacity, whether or not the Company would have the
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power to indemnify the Indemnified Parties against such liability under the
provisions of this Agreement.
Section 15.4 Indemnification Limited by Law. Notwithstanding any of the
foregoing to the contrary, the provisions of this Article XV shall not be
construed so as to provide for the indemnification of an Indemnified Party for
any liability to the extent (but only to the extent) that such indemnification
would be in violation of applicable law or to the extent that such liability may
not be waived, modified or limited under applicable law, but shall be construed
so as to effectuate the provisions of this Article XV to the fullest extent
permitted by law.
ARTICLE XVI
Accounting Provisions
Section 16.1 Fiscal Year. For income tax and financial accounting purposes,
the Fiscal Year of the Company will end on December 31 of each year (unless
otherwise required by the Code).
Section 16.2 Accounting Method. For income tax and financial accounting
purposes, the Company will use the accrual method of accounting.
ARTICLE XVII
Dissolution
Section 17.1 Dissolution. Dissolution of the Company will occur upon the
happening of any of the following events: (i) an Event of Withdrawal of a
Member, unless, after giving effect to such Event of Withdrawal, the Company is
continued as provided in Section 17.4; (ii) upon the sale of all or
substantially all of the Company's assets; (iii) the conversion of the Company
into a corporation or other Person, (iv) the vote of those members (which vote
must include Synetic for so long as the Management Services Agreement remains in
effect) holding at least eighty percent (80%) of all votes authorized hereunder;
or (v) the entry of a decree of judicial dissolution pursuant to Section 702 of
the LLCL.
Section 17.2 Events of Withdrawal. Within ten (10) days after the
occurrence of an Event of Withdrawal with respect to any Member, such Member (or
such Member's legal representative or other successor in interest) shall give
notice to the Company of the occurrence of such Event of Withdrawal. Absent such
notice, a Member's Event of Withdrawal will be deemed to occur upon the date any
other Member has actual notice of such Event of Withdrawal. Upon the occurrence
of a Event of Withdrawal with respect to any Member, such Member shall be
treated as having resigned as a Member pursuant to Section 6.11 with the
approval of the Members.
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Section 17.3 Bankruptcy. The bankruptcy ("Bankruptcy") of a Member will be
deemed to occur when (a) such Person shall commence any case, proceeding or
other action (i) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship
or relief of debtors seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (ii) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or such Person
shall make a general assignment for the benefit of its creditors; (b) there
shall be commenced against such Person any case, proceeding or other action of a
nature referred to in clause (a) above that (i) results in the entry of an order
for relief or any such adjudication or appointment or (ii) remains undismissed,
undischarged or unbonded for a period of sixty (60) days; or (c) there shall be
commenced against such Person any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets that results in the entry of
an order for any such relief that shall not have been vacated, discharged, or
stayed or bonded pending appeal within sixty (60) days from the entry thereof.
Section 17.4 Continuation. Upon the occurrence of an Event of Withdrawal
with respect to a Member pursuant to Section 17.2 hereof, the Company will be
continued if, (a) within ninety (90) days following such event, the remaining
Members holding of record more than fifty percent (50%) of all votes permitted
hereunder consent in writing to continue the Company's business as a limited
liability company under the LLCL and this Agreement and the Company and the
remaining Member(s) agree to indemnify the withdrawing Members against any
claims arising with respect to events occurring after the withdrawing Members'
withdrawal. If the business of the Company is so continued, such Event of
Withdrawal will not cause the Dissolution of the Company.
ARTICLE XVIII
Liquidation
Section 18.1 Liquidation. Upon Dissolution of the Company, the Company will
immediately proceed to wind up its affairs and liquidate. The Liquidation of the
Company will be accomplished in a businesslike manner by such Person or Persons
designated by the Board of Managers, which Person(s) shall be entitled to
reasonable compensation therefore. A reasonable time will be allowed for the
orderly Liquidation of the Company and the discharge of liabilities to creditors
so as to enable the Company to minimize any losses attendant upon Liquidation.
Any gain or loss on disposition of any Company assets in Liquidation will be
allocated among the Members and credited or charged to Capital Accounts in
accordance with the provisions of this Agreement. Until the filing of the
articles of dissolution under Section 18.6 and without affecting the liability
of Members and without imposing liability on the liquidating trustee, the Person
or Persons conducting the liquidation may settle and close the Company's
business, prosecute and defend suits, dispose of its property, discharge or make
provision for its liabilities, and make Distributions in accordance with the
priorities set forth in Section 18.3. The Members shall not be obligated to
restore any negative balances in their Capital Accounts on the liquidation of
the Company.
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Section 18.2 Tax Termination. In addition to termination of the Company
following its Dissolution, a termination of the Company will occur for federal
income tax purposes on the date the Company is terminated under ss.708(b)(1) of
the Code. Under current law, events causing such a termination include the sale
or exchange of fifty percent (50%) or more of the total interest in the capital
and profits of the Company within a 12-month period. Upon the occurrence of a
termination under ss.708(b)(1) of the Code, a constructive liquidation and
constructive reformation of the Company as a tax partnership will be deemed to
occur for federal income tax purposes. All adjustments and computations will be
made under this Agreement as if the constructive transactions had actually
occurred, and the Capital Accounts of the Members in such new tax partnership
will be determined and maintained in accordance with the ss.704(b) Regulations.
Section 18.3 Priority of Payment. The assets of the Company will be
distributed in Liquidation in the following order:
(a) To creditors, including Members who are creditors, by the
payment or provision for payment of the debts and liabilities of the Company
and the expenses of Liquidation;
(b) To the setting up of any reserves that are reasonably necessary
for any contingent or unforeseen liabilities or obligations of the Company;
and
(c) To the Members in proportion to their Capital Accounts; provided,
that if a Member made a Capital Contribution of property other than cash, then
such property (if still in the possession of the Company) may be distributed to
such Member, in the sole discretion of the Board of Managers, and the
distribution of such other property shall be reflected on the Company's books at
such property's then Fair Market Value and any gain or loss resulting therefrom
shall be allocated specifically to the Member receiving such property in
accordance with the provisions of Section 13.3.
Section 18.4 Timing. Final Distributions in Liquidation (except in the case
of a constructive Liquidation under Section 18.2) will be made by the end of the
Company's Fiscal Year in which such actual Liquidation occurs (or, if later,
within ninety (90) days after such event) in the manner required to comply with
the ss.704(b) Regulations. Payments of Distributions in Liquidation may be made
to a liquidating trust established by the Company for the benefit of those
entitled to payments under Section 18.3 in any manner consistent with this
Agreement and the ss.704(b) Regulations.
Section 18.5 Liquidating Reports. A report will be submitted with each
liquidating Distribution to the Members, showing the collections, disbursements
and Distributions during the period which is subsequent to any previous report.
A final report, showing cumulative collections, disbursements and Distributions,
will be submitted upon completion of the Liquidation process.
Section 18.6 Articles of Dissolution. Within ninety (90) days following the
Dissolution of the Company and the commencement of winding up of its business,
or at any other time there are no Members, the Company will file Articles of
Dissolution (to cancel the Articles of Organization) with
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the Secretary of State of the State of New York pursuant to the LLCL. At such
time, the Company will also file an application for withdrawal of its
certificate of authority in any jurisdiction where it is then qualified to do
business.
ARTICLE XIX
Transfer Restrictions
Section 19.1 Restrictions on Transfer of Membership Interests. (a) No
Person shall directly or indirectly Transfer any Membership Interest or any
interest therein except as may be expressly permitted by this Agreement.
(b) No Person shall Transfer any Membership Interest or any interest
therein without obtaining the approval of the Members required under Section
5.4(g) hereof.
(c) No Membership Interest or any interest therein may be Transferred
unless the transferee executes and delivers to the Board of Managers an
instrument pursuant to which he or it agrees to be bound by the terms of this
Agreement. No Transfer of a Membership Interest, or Transfer of an indirect
interest in the Company, or any portion of either thereof, shall be made if such
Transfer, or the transferee's, ownership as the case may be, of such Membership
Interest or indirect interest in the Company, would:
(i) result by itself, or in combination with any other previous
Transfers, in the termination of the Company as a partnership for federal
income tax purposes;
(ii) result in the violation of the Securities Act of 1933 or any
other applicable federal or state laws or local laws;
(iii) be a violation of or a default under (or an event that, with
notice or the lapse of time or both, would constitute a default), or
result in an acceleration of any indebtedness under, any note, mortgage,
loan agreement or similar instrument or document to which the Company is a
party;
(iv) result in or create a "prohibited transaction" or cause the
Company or a Member to be or become a "party in interest", as such terms
are defined in ss.3(3) of ERISA, or a "disqualified person", as defined in
ss.4975 of the Code, with respect to any "plan", as defined in ss.3(14) of
ERISA and/or ss.4975 of the Code; or result in or cause the Company or any
Member to be liable for tax under Chapter 42 of the Code;
(v) be a Transfer to an individual who is not legally competent or
who has not achieved his or her majority under the law of the state
(excluding trusts for the benefit of minors);
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(vi) cause the Company or any Member (other than the transferee) to
be subject to any excise tax pursuant to Chapter 42A of Subtitle D of the
Code; or
(vii) be a Transfer to a "tax-exempt entity" or a "tax-exempt
controlled entity" within the meaning of ss.ss.168(h)(2) and
168(h)(6)(F)(ii), respectively, of the Code.
The Company shall not transfer on its books any Membership Interest or issue any
certificate or other document representing a Membership Interest or any interest
in the Company unless, in the opinion of counsel to the Company, there has been
compliance with all of the material conditions hereof affecting the Membership
Interests and any such attempted Transfer in violation of this Agreement shall
be void and of no effect.
(d) Notwithstanding the general prohibition on Transfers contained in
this Section 19.1, Synetic shall be permitted to Transfer up to and including
two percent (2%) of the Membership Interests ("Permitted Transfer"); provided,
however, that any such transfer by Synetic shall not include a transfer of
related voting rights and Synetic shall maintain all voting rights associated
with such Permitted Transfer.
Section 19.2 First Refusal Rights. Subject to the approval required by
Section 5.4(g), (a) If any holder of Membership Interests shall receive a bona
fide offer or enters or intends to enter into an agreement (the "Offer") for the
sale of one or more of the Membership Interests held of record by such holder to
an independent third party (the "Outside Party"), such holder (the "Selling
Holder") shall have the Offer reduced to writing and shall give notice (the
"Option Notice") to the Company and the Members other than the Selling Holder
containing the name and address of the Outside Party and accompanied by a copy
of the Offer. The Membership Interests subject to the Offer are referred to
herein as the "Offered Membership Interests."
(b) Upon the giving of the Option Notice and subject to Section 19.2(d),
the Company, to the extent permitted by law, shall have the right, but not the
obligation (the "Company Right") to purchase, at an amount equal to the Offer
price, on such other terms and subject to the conditions specified in the Offer,
all or part of the Offered Membership Interests covered by the Option Notice.
Within thirty (30) days after the date of the Option Notice, the Company shall
notify the Selling Holder and all of the other Members (the "Company Notice")
whether and to what extent it intends to exercise the Company Right. Failure to
deliver the Company Notice within such period shall constitute a waiver of the
Company Right.
(c) In the event that the Company does not exercise the Company Right as
to all of the Offered Membership Interests and subject to Section 19.2(d), each
of the other Members shall have the right, but not the obligation (the "Member
Right") to purchase, at the price, on the terms and subject to the conditions
specified in the Offer, such Member's Percentage Interest of the Offered
Membership Interests by notifying the Selling Holder, the other Members and the
Company in writing (the "Member Notice") within thirty (30) days after the date
of the Option Notice whether and to what extent such Member intends to exercise
the Member Right. If any Member fails to exercise the Member Right as to all of
its Percentage Interest of the Offered Membership Interests, then any of the
other Members shall have the right to purchase all or part of the Offered
Membership
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Interests that such Member has elected not to purchase by amending
its respective Member Notice within five (5) days after the date that it
receives notice that any other Member has so declined to exercise the Member
Right in full. Failure to deliver the Member Notice within the applicable
periods shall constitute a waiver of such Member's purchase right as to the
Offered Membership Interests.
(d) In the event that all of the Offered Membership Interests are
covered by the Company Notice and/or the Member Notice, the Selling Holder shall
have the obligation to sell to the Company and/or the Members, as the case may
be, such portion of the Offered Membership Interests as are covered by the
Company Notice and the Member Notice. In the event that all of the Offered
Membership Interests are not covered by the Company Notice and/or the Member
Notice, the Selling Holder may sell such Offered Membership Interests to the
Outside Party on terms not more favorable to such Outside Party than those
contained in the Offer. In the event that such terms are more favorable or if
such sale to the Outside Party is not consummated within the time period
specified herein, the Offered Membership Interests shall again be subject to the
restrictions contained in this Agreement.
(e) The closing for any purchase of Offered Membership Interests by the
Company and/or any Members pursuant to this Section 19.2 shall be held at 10:00
A.M. (local time) at the offices of the Company on the seventieth (70th) day
after the date of the Option Notice or at such other time and place as the
parties shall agree. The closing of a purchase of one or more Offered Membership
Interests by an Outside Party shall occur within eighty (80) days after the
giving of the Option Notice. At the closing, the Company, the applicable Members
or the Outside Party, as the case may be, shall pay for the Offered Membership
Interests in accordance with the terms of the Offer. The Selling Holder shall
deliver certificates representing the Membership Interests being Transferred,
free and clear of all liens, charges and encumbrances and properly endorsed for
Transfer.
Section 19.3 No Member Rights. No Member, or holder of Membership Interests
which is not a Member has the right or power to confer upon any transferee the
attributes of a Member in the Company and no transferee of Membership Interests
shall be admitted as a Member except as provided in Section 6.9.
Section 19.4 Transferee Rights. Any transferee of Membership Interests who
is not admitted as a Member in accordance with Section 6.9 has no right (a) to
participate or interfere in the management or administration of the Company's
business or affairs or (b) to vote or agree on any matter affecting the Company
or any Member. The only rights of a transferee of Membership Interests who is
not admitted as a Member in accordance with this Agreement is to receive the
allocations of Net Profits and Net Losses and Distributions to which the
transferor would otherwise be entitled (to the extent of the Membership
Interests Transferred) and to obtain such information concerning the Company's
books and financial affairs as provided herein. However, each transferee of
Membership Interests will be subject to all of the obligations, restrictions and
other terms contained in this Agreement as if such transferee were a Member. To
the extent of any Membership Interests Transferred, the transferor Member shall
not possess any right or power as a Member or
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under the terms of this Agreement and may not exercise any such right or power
directly or indirectly on behalf of the transferee.
Section 19.5 Effect of Transfer. Any Member that makes a Transfer of all of
the Membership Interests held of record by such Member will be treated as
resigning from any and all positions with the Company and shall immediately
cause any and all of its designees and representatives to resign immediately
from any and all positions held with the Company on the effective date of such
Transfer. Any Member that makes a Transfer of part (but not all) of its
Membership Interests will continue as a Member (with respect to the interest
retained), and such partial Transfer will not constitute an Event of Withdrawal
of such Member. The rights and obligations of any resigning Member or of any
transferee of a Membership Interest will be governed by the other provisions of
this Agreement.
Section 19.6 Secured Party. Subject to the approval requirement of Section
5.4(g), the pledge or hypothecation of, or the granting of any security interest
in, or other lien or encumbrance against, the Membership Interests by any Person
shall be made only in accordance with this Agreement and will not cause the
occurrence of an Event of Withdrawal of such Member from the Company. In no
event will the Company have any liability or obligation to any Person by reason
of the Company's payment of a Distribution to any secured party as long as the
Company makes such payment in reliance upon written instructions from the holder
of record on whose behalf such Distributions are payable. Any secured party will
be entitled, with respect to the security interest granted, only to the
Distributions to which the holder of record granting the security interest is
entitled under this Agreement, and only if, as and when such Distribution is
made by the Company. Upon any foreclosure or other Transfer in lieu of
foreclosure of the Membership Interests to any secured party, the Transfer will
be subject to the other provisions of this Agreement.
ARTICLE XX
General Provisions
Section 20.1 Amendment. The terms and provisions of this Agreement may be
modified or amended at any time and from time to time by obtaining the approval
of the Members required under Section 5.4(h) or Section 5.5(c) hereof, as the
case may be; provided, however, that each of the following amendments shall not
be made with respect to such Member without such Member's consent: (i) any
amendment to this Agreement that requires such Member to make a Capital
Contribution or loan to the Company; (ii) any amendment to the provisions of
Article XIX that cause such provisions to be materially less favorable to such
Member than prior to the amendment; (iii) any amendment to Sections 5.2, 5.3,
5.4, 5.5, 5.6, 6.5, 6.6 and 6.14; (iv) any amendment to Section 8.4; (v) except
as otherwise provided in this Agreement, any amendment to Sections 14.1 or 14.2,
this Section 20.1 or Section 20.11 that, in each case, would cause such
provisions to be modified as they affect such Member; or (vi) any amendment to
this Agreement which alters the allocation for tax purposes of income, Net
Profits, Net Losses, deductions, or credits.
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Section 20.2 Waiver of Dissolution Rights. The Members agree that
irreparable damage would occur if any Member should bring an action for judicial
dissolution of the Company. Accordingly, each Member accepts the provisions
under this Agreement as such Member's sole entitlement on Dissolution of the
Company and waives and renounces such Member's right to seek a court decree of
dissolution or to seek the appointment by a court of a liquidator for the
Company. Each Member further waives and renounces any alternative rights which
might otherwise be provided by law upon the withdrawal or resignation of such
Member and accepts the provisions under this Agreement as such Member's sole
entitlement upon the happening of such event.
Section 20.3 Waiver of Partition Right. Each Member waives and renounces
any right that it may have prior to Dissolution and Liquidation to institute or
maintain any action for partition with respect to any property of the Company.
Section 20.4 Waivers Generally. No course of performance or other conduct
subsequently pursued or acquiesced in, and no oral agreement or representation
subsequently made, by the Members, whether or not relied or acted upon, and no
usage of trade, whether or not relied or acted upon, shall amend this Agreement
or impair or otherwise affect any Member's obligations pursuant to this
Agreement or any rights and remedies of a Member pursuant to this Agreement. No
delay in the exercise of any right will operate as a waiver of such right. No
single or partial exercise of any right will preclude its further exercise. A
waiver of any right on any one occasion will not be construed as a bar to, or
waiver of, any such right on any other occasion.
Section 20.5 Equitable Relief. If any Member proposes to Transfer all or
any part of its Membership Interests in violation of the terms of this
Agreement, the Company or any Member may apply to any court of competent
jurisdiction for an injunctive order prohibiting such proposed Transfer except
upon compliance with the terms of this Agreement, and the Company or any Member
may institute and maintain any action or proceeding against the Person proposing
to make such Transfer to compel the specific performance of this Agreement. Any
attempted Transfer in violation of this Agreement is null and void, and of no
force and effect. The Person against whom such action or proceeding is brought
waives the claim or defense that an adequate remedy at law exists, and such
Person will not urge in any such action or proceeding the claim or defense that
such remedy at law exists.
Section 20.6 Remedies for Breach. The rights and remedies of the Members
set forth in this Agreement are neither mutually exclusive nor exclusive of any
right or remedy provided by law, in equity or otherwise. The Members agree that
all legal remedies (such as monetary damages) as well as all equitable remedies
(such as specific performance) will be available for any breach or threatened
breach of any provision of this Agreement.
Section 20.7 Costs. If the Company or any holder of Membership Interests
retains counsel for the purpose of enforcing or preventing the breach or any
threatened breach of any provision of this Agreement or for any other remedy
relating to it, then the prevailing party will be entitled to be reimbursed by
the nonprevailing party for all costs and expenses so incurred (including
reasonable attorneys' fees, costs of bonds, and fees and expenses for expert
witnesses).
51
<PAGE>
Section 20.8 Counterparts. This Agreement may be signed in multiple
counterparts. Each counterpart will be considered an original, but all of them
in the aggregate will constitute one instrument.
Section 20.9 Notice. All notices under this Agreement will be in writing
and will be delivered or sent to a Member at the address or fax number listed on
Schedule I hereto, or at such other address or fax number as a Member may give
by notice to the Company and all other Members. Any notices given to any Member
in accordance with this Agreement will be deemed to have been duly given: (a) on
the date of receipt if personally delivered, (b) five (5) days after being sent
by mail, postage prepaid, (c) the date of receipt, if sent by registered or
certified mail, postage prepaid, (d) when sent by confirmed facsimile or
telecopier transmission, or (e) one (1) Business Day after having been sent by a
recognized overnight courier service.
Section 20.10 Date of Performance. Whenever this Agreement provides for any
action to be taken on a day which is not a Business Day, such action shall be
taken on the next following Business Day.
Section 20.11 Limited Liability. (a) The liability of each Member, holder
of Membership Interests who is not a Member, Manager, committee member, officer
or agent of the Company shall be limited as set forth in this Agreement, the
LLCL and other applicable laws. No Member, holder of Membership Interests who is
not a Member, Manager, committee member, officer or agent of the Company is
liable for any debts, obligations or liabilities of the Company or each other,
whether arising in tort, contract or otherwise, solely by reason of being a
Member, holder of Membership Interests, Manager, officer or agent of the
Company, or acting (or omitting to act) in such capacities or participating (as
an employee, consultant, contractor or otherwise) in the conduct of the business
of the Company, except that a holder of Membership Interests shall remain
personally liable for the payment of such holder's Capital Contribution and as
otherwise set forth in this Agreement, the LLCL and other applicable law.
(b) Notwithstanding the foregoing, each Manager shall perform such
Manager's duties in accordance with the provisions of Section 8.7(a). Each
Manager who so performs such duties shall not have any liability by reason of
being or having been a Manager. No Manager shall be liable to the Company or any
holder of Membership Interests for any loss or damage sustained by the Company
or any holder of Membership Interests, unless a judgment or other final
adjudication adverse to such Manager establishes that such Manager's acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that such Manager personally gained, in fact, a financial
profit or other advantage to which such Manager was not legally entitled or
that, with respect to a Distribution the subject of Section 14.4, such Manager's
acts were not performed in accordance with the duties of such Manager set forth
in Section 8.7(a). Without limiting the generality of the preceding sentence,
neither any Manager nor the Manager in any way guaranties the return of any
Capital Contribution to a holder of Membership Interests or a profit for the
holders of Membership Interests from the operations of the Company.
Section 20.12 Partial Invalidity. Wherever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law. However, if for
52
<PAGE>
any reason any one or more of the provisions of this Agreement are held to be
invalid, illegal or unenforceable in any respect, such action will not affect
any other provision of this Agreement. In such event this Agreement will be
construed as if such invalid, illegal or unenforceable provision had never been
contained in it.
Section 20.13 Entire Agreement. This Agreement contains the entire
agreement among the Members with respect to the subject matter of this
Agreement, and supersedes each course of conduct previously pursued or
acquiesced in, and each oral agreement and representation previously made by the
Members with respect thereto, whether or not relied or acted upon.
Section 20.14 Benefit. The contribution obligations of each Member will
inure solely to the benefit of the Members and the Company, without conferring
on any other Person any rights of enforcement or other rights.
Section 20.15 Binding Effect. This Agreement is binding upon, and inures to
the benefit of, the Members and their transferees, successors and assigns,
provided that any transferee will have only the rights specified in Section 19.4
unless admitted as an additional Member in accordance with this Agreement.
Section 20.16 Confidentiality. (a) The Company and the Members acknowledge
and agree that each Member and the Company's customers may from time to time
make certain of their confidential business information available to the Company
and that, except as provided in the Management Services Agreement, none of the
Members or their Manager designees shall have any right to access such
confidential business information. The Company and each Member agrees that it
shall not disclose to any third party any information concerning the customers,
trade secrets, methods, processes or procedures or any other confidential
business information of the Company or any Confidential Member Information which
it learns during the course of its performance of this Agreement, without the
prior written consent of such other party.
(b) No Member shall refer to the existence of this Agreement or its
business relationship with the Company in any press release, advertising or
materials distributed to prospective customers or other third parties, without
the prior consent (not to be unreasonably withheld) of the Board of Managers,
except that the Contract Manager shall make any such disclosures as necessary to
perform its obligations under the Management Services Agreement.
(c) The parties further acknowledge and agree that in the event of a
breach or threatened breach of this Section 20.16, the non-breaching party or
parties, as the case may be, may have no adequate remedy in money damages and,
accordingly, shall be entitled to appropriate injunctive relief against such
breach or threatened breach. The obligations contained in this Section 20.16
will survive the cancellation or other termination of this Agreement.
Section 20.17 Further Assurances. Each Member agrees, without further
consideration, to sign and deliver such other documents of further assurance as
may reasonably be necessary to effectuate the provisions of this Agreement.
53
<PAGE>
Section 20.18 Headings. Article and Section titles have been inserted for
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
Section 20.19 Terms. Terms used with initial capital letters will have the
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than in a limiting sense. The word day means a calendar day, unless
otherwise specified.
Section 20.20 Informal Dispute Resolution. The Members agree that any
dispute, controversy or claim arising out of or relating to this Agreement
between the Company and a Member (a "Dispute") shall be resolved in the
following manner. In the event of a Dispute, the Board of Managers and the
Member shall attempt to resolve such Dispute. If at any time a Dispute arises
that is not be resolved quickly and amicably through consultation and
negotiations among the Board of Managers and such Member, the Member involved in
such Dispute shall give written notice to all other Members identifying the
nature of such Dispute. Unless all of the Members agree otherwise, within thirty
(30) days of such written notice, all of the Members shall meet at a mutually
acceptable time and place in New York City in an effort to resolve such Dispute
amicably. If any party intends to be represented by an attorney at such meeting,
it shall give at least five (5) Business Days written notice to the other party
to that effect. If no amicable resolution of the Dispute is reached at this
meeting or any subsequent meeting which is agreed to by parties, the Dispute
shall be promptly arbitrated in accordance with the terms of Section 20.21
hereof.
Section 20.21 Arbitration. All disputes that cannot be resolved pursuant to
the internal issue resolution process identified above, other than those for
which injunctive relief is appropriate which either party may seek in a court of
competent jurisdiction, will be submitted to and settled by final and binding
arbitration. Any dispute which cannot be resolved as set forth above, will be
resolved by final and binding arbitration in New York, New York by a panel of
three (3) arbitrators in accordance with and subject to the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Following notice of a party's election to require arbitration, each party will
within thirty (30) days select one arbitrator, and those two arbitrators will
within thirty (30) days thereafter select a third arbitrator. If the two
arbitrators are unable to agree on a third arbitrator within thirty (30) days,
the American Arbitration Association will within thirty (30) days thereafter
select such third arbitrator. Judgment upon the award rendered in any such
arbitration may be entered in any court of competent jurisdiction, or
application may be made to such court for a judicial acceptance of the award and
an enforcement, as the law of such jurisdiction may require or allow.
Section 20.22 Governing Law; Consent to Jurisdiction. This Agreement will
be governed by, and construed in accordance with, the laws of the State of New
York (without giving effect to New York choice of law provisions). Any conflict
or apparent conflict between this Agreement and the LLCL will be resolved in
favor of this Agreement except as otherwise required by the LLCL. In any action
or proceeding arising out of, related to, or in connection with this Agreement,
the parties consent to be subject to the jurisdiction and venue of (a) the
Supreme Court of the State of New
54
<PAGE>
York in and for the County of New York, and (b) the United States District Court
for the Southern District of New York. Each of the parties consents to the
service of process in any action commenced hereunder by certified or registered
mail, return receipt requested, or by any other method or service acceptable
under federal law or the laws of the State of New York.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
55
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
By:
----------------------------------------------
Name:
Title:
EMPIRE BLUE CROSS AND BLUE SHIELD
By:
----------------------------------------------
Name:
Title:
GNYHA MANAGEMENT CORPORATION
By:
----------------------------------------------
Name:
Title:
GROUP HEALTH INCORPORATED
By:
----------------------------------------------
Name:
Title:
HEALTH INSURANCE PLAN OF GREATER NEW YORK
By:
----------------------------------------------
Name:
Title:
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
By:
----------------------------------------------
Name:
Title:
56
SERVICES AGREEMENT
SERVICES AGREEMENT, dated as of January 1, 1999 (this
"Agreement"), between SYNETIC, INC., a Delaware corporation ("Synetic"), and
SYNETIC HEALTHCARE COMMUNICATIONS, INC., a Delaware corporation (the "Company").
WHEREAS, Synetic, Avicenna Systems Corporation, a
Massachusetts corporation ("Avicenna"), and the Company are parties to a certain
Formation Agreement, dated as of January 1, 1999, pursuant to which Synetic and
Avicenna have transferred (the "Transfer") to the Company, substantially all of
Synetic's and Avicenna's assets and liabilities constituting Synetic's
healthcare communications business (the "Business");
WHEREAS, Synetic is engaged in a variety of businesses and
employs personnel, retains consultants and maintains staff departments to
provide management, operating and administrative services for such businesses;
WHEREAS, prior to the Transfer, the Business has relied on
Synetic and certain of its direct and indirect wholly owned subsidiaries for
certain management, operating and administrative services;
WHEREAS, the Company has requested the continuation of
certain management, operating and administrative services now provided by
Synetic or one of its subsidiaries to the Business; and
WHEREAS, subsequent to the date of this Agreement, Synetic is
willing to provide or cause to be provided to the Company for a limited period
of time certain management, operating and administrative services with respect
to the Business.
NOW THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE SERVICES
SECTION 1.01. Provision of Services. Subject to the terms and
conditions set forth in this Agreement, Synetic shall provide or cause to be
provided the administrative services to the Company currently provided by
Synetic to the Business, or as shall be necessary. Such services may include
payroll, accounting, tax, office, information processing and other similar
services.
<PAGE>
2
SECTION 1.02. Covered Services. Synetic shall be obligated to
make available the services described in Section 1.01 at the time of execution
and throughout the Term (as hereinafter defined) (such services being referred
to as the "Services").
SECTION 1.03. Term and Termination. Synetic shall continue to
make each Service available through the end of the Term or, if earlier, until
canceled by the Company by written notice to Synetic.
Notwithstanding the foregoing:
(a) this Agreement may be terminated:
(i) by Synetic, at any time, not less than 60 days
after delivery of notice to the Company, in the event that
the Company shall have defaulted on or breached any material
term of this Agreement and shall not have cured such breach
within 15 days after receiving notice from Synetic specifying
the nature of such default or breach; or
(ii) by the Company, at any time, not less than 60
days after delivery of notice to Synetic, in the event that
Synetic shall have defaulted on or breached any material term
of this Agreement and shall not have cured such breach within
15 days after receiving notice from the Company specifying
the nature of such default or breach; or
(iii) by either party, immediately upon delivery of
notice to the other party, in the event that such other party
(x) requires a composition or other similar arrangement with
creditors, files for bankruptcy or is declared bankrupt or
(y) shall have assigned or transferred to any third party any
of its rights or obligations hereunder except in accordance
with Section 4.07; or
(iv) by Synetic, at any time, if Synetic ceases to
own more than 50% of the voting stock of the Company; and
(b) this Agreement shall terminate five years from the date
of this Agreement (the "Term") and thereafter shall be of no further
force and effect, except nothing herein shall relieve either party
hereto from liability for any willful breach hereof.
SECTION 1.04. Reimbursement for Services. (a) In full
compensation for the Services, the Company shall reimburse Synetic for the
actual costs to Synetic of providing such Services quarterly within thirty (30)
days after receipt of Synetic's invoice therefor. Each invoice shall set forth
the calculation of the costs upon which the amount to be reimbursed is based,
broken down by the Services rendered during the quarter to which such invoice
relates. If
<PAGE>
3
the Company has any objection to the amount of any invoice, it shall
nevertheless pay such invoice in full, but may thereafter cause Synetic's
records with respect thereto to be audited in accordance with this Section.
Synetic shall cooperate fully in such audit by providing all appropriate records
and making its officers, employees, agents and consultants reasonably available
during regular business hours without charge to the Company as may be required
in connection with such audit. Following such audit, the parties shall endeavor
in good faith to resolve any disagreement with respect to charges hereunder.
Upon agreement of the parties, Synetic shall refund promptly to the Company any
amounts paid to Synetic in excess of the amounts required hereunder.
(b) Synetic shall maintain true and complete books of account
containing an accurate record of all data necessary for the proper computation
of all costs to be paid to Synetic by the Company under the terms of this
Agreement.
SECTION 1.05. Employees. From time to time, Synetic shall
designate such of its employees as it sees fit to perform the Services.
ARTICLE II
RESPONSIBILITY
SECTION 2.01. Relationship of the Parties. Nothing in this
Agreement shall be construed as (a) an assumption by Synetic of any obligation
to maintain or increase the sales or profits of the Company or otherwise to
assume responsibility for the Company's operations; (b) an assumption by Synetic
of any financial obligation of the Company; (c) the creation of any relationship
of employment or agency between the Company and employees or consultants of
Synetic, its subsidiaries or associated companies; (d) an assumption by Synetic
of any responsibility for the work performed by outside suppliers employed by
the Company at the suggestion or recommendation of Synetic; or (e) the
delegation of any function or authority of the Company to Synetic. In all
matters relating to this Agreement, each party hereto shall be solely
responsible for the acts of its own employees, and employees of one party shall
not be considered employees of the other party. Except as specifically permitted
by this Agreement, no party hereto or any of its employees shall have any
authority to negotiate, enter into any contract or incur any obligation, on
behalf of the other party.
SECTION 2.02. Limitation of Liability. Synetic shall have no
liability for any losses or damages that the Company may incur as a result of
the provision or non-provision of Services except to the extent caused by the
gross negligence or wilful misconduct of such person. In no event shall Synetic,
its officers, directors, employees, agents, independent contractors, affiliates
and stockholders be liable for any consequential or special damages
<PAGE>
4
suffered by the Company as a result of any representations, actions or inactions
by any person or entity in respect of its obligations hereunder.
ARTICLE III
FORCE MAJEURE
SECTION 3.01. No Default for Event of Force Majeure. Neither
party to this Agreement shall be considered in default in the performance of its
obligations under this Agreement or be liable in damages or otherwise for any
failure or delay in performance which is due to strikes, lockouts, concerted
acts of workers or other industrial disturbances, fires, explosions, floods or
other natural catastrophes, civil disturbance, riots or armed conflict (whether
declared or undeclared), which is beyond the control of the party affected (and
such event or occurrence, an "Event of Force Majeure"). Neither party to this
Agreement shall be required to make any concession or grant any demand or
request to bring to an end any strike or other concerted act of workers.
SECTION 3.02. Written Notice. A party can only claim an Event
of Force Majeure as an excuse from its performance hereunder if such claiming
party has given written notice to the other party of such claim and if the
claiming party makes a continuing and good faith effort to lessen or avoid the
effects of such event of force majeure on the other party. Notwithstanding any
other provision of this Agreement, a claiming party shall be liable for such
failure or delay in the performance of its obligations to the extent that such
failure or delay was caused by the fault or negligence of the claiming party.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
SECTION 4.02. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by telecopy or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 4.02):
<PAGE>
5
(a) if to Synetic:
Synetic, Inc.
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopy No.: (201) 703-3401
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
(b) if to the Company:
c/o Synetic, Inc.
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopy No.: (201) 703 3401
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Creighton O'M Condon, Esq.
SECTION 4.03. Public Announcements. Except as required by law,
governmental regulation or by the requirements of any securities exchange on
which the securities of a party hereto are listed, no party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written consent of the other
party, and the parties shall cooperate as to the timing and contents of any such
press release or public announcement.
<PAGE>
6
SECTION 4.04. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 4.05. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 4.06. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
with respect to the subject matter hereof.
SECTION 4.07. Assignment. This Agreement shall not be assigned
without the express written consent of the parties (which consent may be granted
or withheld in the sole discretion of any party) except that any party hereto
may assign its rights hereunder to an Affiliate of such party; provided,
however, that any such assignment shall not relieve the assigning party of its
obligations hereunder.
SECTION 4.08. No Third Party Beneficiaries. This Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 4.09. Relationship of the Parties. The parties hereto are
independent contractors and neither party is an employee, partner or joint
venturer of the other. Under no circumstances shall any of the employees of a
party hereto be deemed to be employees of the other party for any purpose.
Neither party shall have the right to bind the other to any agreement with a
third party nor to represent itself as a partner or joint venturer of the other.
SECTION 4.10. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, each of
the parties.
SECTION 4.11. Governing Law. This Agreement shall be governed
by the laws of the State of New York. All actions and proceedings arising out of
or relating to this Agreement shall be heard and determined in any New York
State or federal court sitting in the
<PAGE>
7
City of New York, County of Manhattan, and the parties hereto hereby irrevocably
submit to the exclusive jurisdiction of such courts in any such action or
proceeding and irrevocably waive any defense of an inconvenient forum to the
maintenance of any such action or proceeding.
SECTION 4.12. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 4.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 4.14. Waiver of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal action or
proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective authorized signatory thereunto duly
authorized as of the date first above written.
SYNETIC, INC.
By _____________________________________
Name:
Title:
SYNETIC HEALTHCARE COMMUNICATIONS, INC.
By _____________________________________
Name:
Title:
Employment Agreement (the "Agreement") dated as of January 23,
1997, by and between SYNETIC, INC., a Delaware corporation (the "Company"), and
David M. Margulies, M.D. ("Executive").
WHEREAS, the Company, Synternet Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of the Company, CareAgents, Inc., a
Massachusetts corporation ("CareAgents"), and certain shareholders of CareAgents
have entered into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), pursuant to which the Company will purchase (the
"Purchase") all of the issued and outstanding capital stock of CareAgents; and
WHEREAS, in connection with the Purchase, the parties desire
to enter into this Agreement, to be effective upon the Closing (as defined in
the Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in
this Agreement, the parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
1.1. Effectiveness of Agreement. This Agreement shall become
effective as of the Closing Date (as defined in the Merger Agreement). In the
event that the Closing is not consummated, this Agreement shall be null and
void.
1.2. Employment by the Company. The Company hereby employs
Executive and Executive hereby accepts such employment with the Company. The
Executive shall report to, and perform such duties and services for the Company,
CareAgents and their respective subsidiaries and affiliates (CareAgents and such
subsidiaries and affiliates collectively, "Affiliates"), and at such locations
as may be designated from time to time by, the Chief Executive Officer or the
Board of Directors of the Company (the "Board"), or the designee of either
thereof (it being understood that any change in location following the Closing
Date shall be requested by the Chief Executive Officer of the Company or the
Board, or the designee of either thereof, in good faith and for a valid business
purpose). Without limiting the generality of the foregoing, Executive hereby
acknowledges that the Company may from time to time pursue acquisitions of other
companies which may result in changes in the duties and responsibilities
assigned to the Executive. Executive shall use his best and most diligent
efforts to promote the interests of the Company and the Affiliates, and shall
conform to established business policies of the Company. The Executive shall
devote all of his business time and attention to his employment under this
Agreement.
1.3. Confidentiality. (a) Executive understands and
acknowledges that in the course of his employment, he will have access to and
will learn information proprietary to the Company and its Affiliates that
concerns the operation and methodology of the Company and its Affiliates,
including, without limitation, business plans, financial information, protocols,
<PAGE>
2
proposals, manuals, clinical procedures and guidelines, scientific data,
computer source codes, programs, software, knowhow and specifications,
copyrights, trade secrets, market information, Developments (as hereinafter
defined), data and customer information (collectively, "Proprietary
Information"). Executive agrees that, at all times (including following
termination of the Employment Period (as hereinafter defined)), he will keep
confidential and will not disclose directly or indirectly any such Proprietary
Information to any third party, except as required to fulfill his duties
hereunder, and will not misuse, misappropriate or exploit such Proprietary
Information in any way. The restrictions contained herein shall not apply to any
information which Executive can demonstrate by written record (a) was already
available to the public at the time of disclosure, or subsequently become
available to the public, otherwise than by breach of this Agreement, or (b) was
the subject of a court order to disclose. Upon any termination of the Employment
Period, Executive shall immediately return to the Company all copies of any
Proprietary Information in his possession.
(b) Executive agrees that at any time during the Employment
Period or thereafter, the Executive shall not make, or cause or assist any other
person to make, any statement or other communication to any third party which
impugns or attacks, or is otherwise critical of, the reputation, business or
character of the Company, its Affiliates or any of their respective officers,
employees, products or services.
1.4. Restrictions on Solicitation. During the period beginning
on the Closing Date and ending on the second anniversary of the date of
cessation of the employment of the Executive for any reason whatsoever,
Executive shall not, directly or indirectly, without the prior written approval
of the Company, solicit or contact any customer, or any prospective customer
with whom the Executive has had contact during the Employment Period, of the
Company or any of the Affiliates for any commercial pursuit that could be
reasonably construed to be in competition with the Company or any of the
Affiliates, or that is contemplated from time to time by the Company's or
CareAgents's business plan, or take away or interfere or attempt to interfere
with any custom, trade, business or patronage of the Company or any of the
Affiliates, or induce, or attempt to induce, any employees, agents or
consultants of or to the Company or any of the Affiliates to do anything from
which Executive is restricted by reason of this Agreement nor shall Executive,
directly or indirectly, offer or aid others to offer employment to or interfere
or attempt to interfere with any employees, agents or consultants of the Company
or any of the Affiliates.
1.5. Restrictions on Competitive Employment. During the period
beginning on the Closing Date and ending on the second anniversary (first
anniversary in the case of a termination by the Company without Cause or a
termination by the Company pursuant to Section 4.1 below) of the date of
cessation of the employment of Executive for any reason whatsoever, Executive
shall not (as principal, agent, employee, consultant or otherwise), anywhere in
the United States, Canada or Europe, directly or indirectly, without the prior
written approval of the Company, engage in activities for, or render services to
(including, without limitation, computer programming, data entry, sales or
product development), any
<PAGE>
3
firm or business (i) engaged in direct or indirect competition
with CareAgents, (ii) conducting a business of the type and character engaged in
by CareAgents (or contemplated by the Company's or CareAgents's business plan),
(iii) developing products or services competitive with those of CareAgents or
(iv) conducting any other business in which the Company or any of its Affiliates
is then engaged if Executive has engaged in activities for such business of the
Company or such Affiliates or obtained Proprietary Information with respect
thereto (all of the businesses in clauses (i), (ii), (iii) and (iv)
collectively, "Competitive Business"). Notwithstanding the foregoing, Executive
may have an interest consisting of publicly traded securities constituting less
than 1 percent of any class of publicly traded securities in any public company
engaged in a Competitive Business so long as he is not employed by and does not
consult with, or become a director of or otherwise engage in any activities for,
such company. Notwithstanding anything contained in this Section 1, Executive
agrees that Executive shall not, at any time during the period beginning on the
Closing Date and ending on the second anniversary of the date of cessation of
the Employment Period for any reason whatsoever, deliberately take any action
which (a) would interfere with any contractual or customer relationships of the
Company or its Affiliates, or any relationship with the employees of, or vendors
or contractors to, the Company or its Affiliates, (b) would result in a
diminution of business to the Company or its Affiliates or (c) is otherwise
detrimental to the best interests of the Company or its Affiliates.
1.6. Extension of Restricted Period. The period during which
the Executive is subject to the restrictions contained in Section 1.4 and 1.5
shall be extended by the length of any period during which Executive is in
breach of such restrictions.
1.7. Assignment of Developments. All Developments that are at
any time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "Developments" shall mean
all data, discoveries, findings, reports, designs, inventions, improvements,
methods, practices, techniques, developments, programs, concepts, and ideas,
whether or not patentable, relating to the present or planned activities, or
future activities of which Executive is aware, or the products and services of
the Company or any of the Affiliates.
<PAGE>
4
1.8. Disclosure of Information. During the Employment Period,
Executive shall use his best efforts to disclose to the Chairman of the Board or
the Chief Executive Officer of the Company any bona fide information known by
him that would have any material negative impact on the Company or an Affiliate.
1.9. Remedies. Executive acknowledges and agrees that damages
for a breach or threatened breach of any of the covenants set forth in this
Section 1 will be difficult to determine and will not afford a full and adequate
remedy, and therefore agrees that the Company, in addition to seeking actual
damages in connection therewith and the remedies described in the Escrow
Agreement (as defined below), may seek specific enforcement of any such covenant
in any court of competent jurisdiction, including, without limitation, by the
issuance of a temporary or permanent injunction.
2. Compensation and Benefits.
2.1. Salary. The Company shall pay Executive for services
during the Employment Period a base salary at the annual rate of $175,000. Any
and all increases to Executive's base salary shall be determined by the Board in
its sole discretion. Such base salary shall be payable in equal installments, no
less frequently than monthly, pursuant to the Company's customary payroll
policies in force at the time of payment, less any required or authorized
payroll deductions.
2.2. Benefits. During the Employment Period, Executive shall
be entitled to participate, on the same basis and at the same level as other
similarly situated employees of the Company, in any group insurance,
hospitalization, medical, health and accident, disability, fringe benefit and
tax-qualified retirement plans or programs of the Company now existing or
hereafter established to the extent that he is eligible under the general
provisions thereof.
2.3. Expenses. Pursuant to the Company's customary policies in
force at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. Employment Period.
Executive's employment under this Agreement shall commence as
of the Closing Date, and shall terminate on the fifth anniversary thereof (the
"Employment Period"), unless terminated earlier pursuant to Section 4. Unless
written notice of either party's desire to terminate the Employment Period has
been given to the other party prior to the expiration of the Employment Period
(or any one-month renewal thereof contemplated by this sentence), the Employment
Period shall be automatically renewed for successive one-month periods.
<PAGE>
5
4. Termination.
4.1. Termination by the Company During First Six Months. The
Employment Period may be terminated by the Company at any time during the
six-month period commencing on the Closing Date, if the Company determines in
its reasonable discretion that the performance, action or behavior of Executive
is incompatible with or disruptive to the ongoing or future operations and
business needs of the Company or any of its Affiliates. Upon such a termination,
the Company shall have no obligation to Executive other than the payment of
Executive's earned and unpaid compensation to the effective date of such
termination. Executive hereby acknowledges that such a termination would result
in a "Termination Event" for purposes of the Escrow Agreement dated as of
January 23, 1997, among the Executive, David H. Carney, Habib Khoury, Karen J.
Destefano, Mark A. Pearl, the Company and United States Trust Company of New
York, as escrow agent (the "Escrow Agreement"), which would have the
consequences set forth therein. Executive hereby further acknowledges that such
a termination will not be deemed to be a termination without "cause" for
purposes of the Option Agreement (as defined below) or any other employee
benefit plan or program of the Company or any of its Affiliates.
4.2. Termination by the Company for Cause. (a) The Employment
Period may be terminated at any time by the Company for Cause. Upon such a
termination, the Company shall have no obligation to Executive other than the
payment of Executive's earned and unpaid compensation to the effective date of
such termination. Executive hereby acknowledges that such a termination would
result in a "Termination Event" for purposes of the Escrow Agreement, which
would have the consequences set forth therein.
(b) For purposes of this Agreement, the term "Cause" shall
mean any of the following:
1. A willful failure of Executive to perform his
duties in any material respect which failure is not cured by Executive
within 10 days following written notice from the Company detailing such
failure (other than any such failure resulting from a Permanent
Disability (as hereinafter defined) of Executive);
2. Any willful misconduct by Executive relating,
directly or indirectly, to the Company or any of its Affiliates, or any
breach by Executive of any material policy of the Company or any of its
Affiliates, as reasonably determined by the Board, which breach, if
susceptible to cure, is not cured by Executive within 10 days following
written notice from the Company detailing such breach;
3. Any breach by Executive of any material provision
contained in Sections 1.2, 1.3, 1.4, 1.5, 1.7 and 1.8 of this
Agreement, as reasonably determined by the Board; or
<PAGE>
6
4. Any willful violation by Executive of any federal
or state law or regulation applicable to the business of the Company or
any of its Affiliates, or Executive's commission of a common law fraud
or conviction of a felony or crime involving moral turpitude.
4.3. Permanent Disability. If during the Employment Period,
(i) Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable regularly to perform the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician selected by the
Company with the reasonable approval of Executive determines that Executive is
mentally or physically disabled so as to be unable to perform regularly the
duties of his position and such condition is expected to be of a permanent
duration (a "Permanent Disability"), then the Company shall have the right to
terminate the Employment Period upon written notice to Executive. Upon a request
by the Company, Executive will submit to a medical examination to determine
whether Executive is Permanently Disabled. Upon such a termination, the Company
shall have no obligation to Executive other than (i) the payment of Executive's
earned and unpaid compensation to the effective date of such termination and
(ii) as provided in the Option Agreement.
4.4. Death. The Employment Period shall be deemed terminated
by the Company upon the death of Executive and the Company shall have no
obligation to Executive or Executive's estate other than (i) the payment of
Executive's earned and unpaid compensation to the effective date of such
termination and (ii) as provided in the Option Agreement.
4.5. Resignation by the Executive. If the Executive terminates
his employment during the Employment Period for any reason, the Company shall
have no obligation to Executive other than the payment of Executive's earned and
unpaid compensation to the effective date of such termination. Executive hereby
acknowledges that such a termination would result in a "Termination Event" for
purposes of the Escrow Agreement, which would have the consequences set forth
therein.
4.6. Termination by the Company Without Cause. The Employment
Period may be terminated at any time by the Company without Cause. If the
Company terminates the Employment Period without Cause, the Company shall have
no obligation to Executive other than other than (i) the payment of Executive's
earned and unpaid compensation to the effective date of such termination and
(ii) as provided in the Option Agreement.
4.7. Liquidated Damages. Executive acknowledges that any
payments or benefits under Section 4.6 resulting from a termination of the
Employment Period by the Company without Cause are in lieu of any and all claims
that the Executive may have against the Company other than benefits under the
Company's employee benefit plans that by their terms survive termination of
employment and benefits under the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, and represent liquidated damages (and not a
<PAGE>
7
penalty). The Company may request that the Executive confirm such
acknowledgement in writing prior to the receipt of such benefits.
4.8 Board Representation. If the Employment Period is
terminated for any reason prior to the appointment of Executive to the Board
pursuant to Section 4.04 of the Merger Agreement, the Company's obligations
under such Section 4.04 shall become null and void.
5. Options.
5.1. New Option Grant. Executive has been granted an option
(the "New Option") under the Parent Option Plan (as defined in the Merger
Agreement) to purchase shares of the Company's common stock, par value $.01 per
share, on the terms and conditions specified in the Stock Option Agreement (the
"Option Agreement") attached hereto as Exhibit A ("Exhibit A").
6. Notices. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
(a) if to the Company:
Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention.: General Counsel
(b) if to the Executive:
David M. Margulies, M.D.
59 Pine Ridge Road
Newton, MA 02168
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
<PAGE>
8
7. Miscellaneous.
7.1. Entire Agreement. This Agreement, Exhibit A and the
Escrow Agreement contain the entire understanding of the parties in respect of
their subject matter and supersede upon their effectiveness all other prior
agreements and understandings between the parties with respect to such subject
matter.
7.2. Amendment; Waiver. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
7.3. Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of any successor of the
Company by reorganization, merger or consolidation, or any assignee of all or
substantially all of the Company's business and properties. The Company may
assign its rights and obligations under this Agreement to any of its Affiliates
without the consent of the Executive. Executive's rights or obligations under
this Agreement may not be assigned by Executive, except that the rights
specified in Section 4.3 shall pass upon the Executive's death to Executive's
executor or administrator.
7.4. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
7.5. Governing Law; Interpretation. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy (other than conflict of laws principles) of the State of New York
applicable to contracts executed and to be wholly performed within such State.
Each party hereto (i) agrees that any legal suit, action or proceeding arising
out of or relating to this Agreement shall be instituted and heard exclusively
in any New York federal or state court in New York City, (ii) waives any
objection that such party may now or hereafter have to the laying of venue of
any such legal suit, action or proceeding and (iii) irrevocably submits to the
exclusive jurisdiction of any such court in any such legal suit, action or
proceeding.
7.6. Further Assurances. Each of the parties agrees to
execute, acknowledge, deliver and perform, and cause to be executed,
acknowledged, delivered and performed, at any time and from time to time, as the
case may be, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably necessary to carry out
the provisions or intent of this Agreement.
<PAGE>
9
7.7. Severability. The parties have carefully reviewed the
provisions of this Agreement and agree that they are fair and equitable.
However, in light of the possibility of differing interpretations of law and
changes in circumstances, the parties agree that if any one or more of the
provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SYNETIC, INC.
By:
--------------------------
Name:
Title:
EXECUTIVE
-----------------------------
EMPLOYMENT AGREEMENT
Employment Agreement (the "Agreement") dated as of November 3, 1997, by
and between AVICENNA SYSTEMS CORPORATION, a Massachusetts corporation (the
"Company"), and Paul M. Bernard ("Employee").
R E C I T A L S
In consideration of the mutual covenants in this Agreement, the parties
agree as follows:
1. Effectiveness of Agreement and Employment.
1.1 Effectiveness of Agreement. This Agreement shall become
effective as of the date hereof.
1.2 Employment by the Company. The company hereby employs and
Employee hereby accepts such employment with the Company. Employee shall report
to, and perform such duties and services for the Company, Synetic, Inc.
("Synetic") and their respective subsidiaries and affiliates (Synetic and such
subsidiaries and affiliates collectively, "Affiliates") as may be designated
from time to time by, the President or Senior Vice President of the Company or
his designee. Employee shall use his best and most diligent efforts to promote
the interests of the Company and the Affiliates, and shall devote all of his
business time and attention to his employment under this Agreement.
1.3 Confidentiality. Employee understands and acknowledges
that in the course of his employment, he will have access to and will learn
information proprietary to the Company and its Affiliates that concerns the
operation and methodology of the Company and its Affiliates, including, without
limitation, business plans, financial information, protocols, proposals,
manuals, clinical procedures and guidelines, scientific data, computer source
codes, programs, software, knowhow and specifications, copyrights, trade
secrets, market information, Development (as hereinafter defined), data and
customer information (collectively, "Proprietary Information"). Employee agrees
that, at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
explain such Proprietary Information in any way. The restrictions contained
herein shall not apply to any information which Employee can demonstrate by
written record (a) was already available to the public at the time of
disclosure, or subsequently become available to the public, otherwise than by
breach of this Agreement, or (b) was the subject of a court order to disclose.
Upon any termination of the Employment Period, Employee shall immediately return
to the Company all copies of any Proprietary Information in his possession.
1.4 Restrictions on Solicitation. During the period beginning
on the date hereof and (subject to the first sentence of Section 1.9) ending on
the second anniversary of the date of cessation of the employment of the
Employee for any reason whatsoever, Employee
<PAGE>
shall not, directly or indirectly, without the prior written approval of the
Company, solicit or contact any customer, or any prospective customer with whom
the Employee has had contact during the Employment Period, of the Company or any
of the Affiliates for any commercial pursuit that could be reasonably construed
to be in competition with the Company or any of the Affiliates, or that is
contemplated from time to time by the Company's or Synetic's business plan, or
take away or interfere or attempt to interfere with any custom, trade, business
or patronage of the Company or any of the Affiliates, or induce, or attempt to
induce, any employees, agents or consultants of or to the Company or any of the
Affiliates to do anything from which Employee is restricted by reason of this
Agreement nor shall Employee, directly or indirectly, offer or aid others to
offer employment to or interfere or attempt to interfere with any employees,
agents or consultants of the Company or any of the Affiliates.
1.5 Restrictions on Competitive Employment. During the period
beginning on the date hereof and (subject to the first sentence of Section 1.9)
ending on the second anniversary (first anniversary in the case of a termination
by the Company without Cause) of the date of cessation of the employment of the
Employee for any reason whatsoever, Employee shall not (as principal, agent,
employee, consultant or otherwise), directly or indirectly, without the prior
written approval of the Company, engage in activities for, or render services
to, any firm or business (i) engaged in direct or indirect competition with the
Company, (ii) conducting a business of the type and character engaged in by the
Company (or contemplated by the Company's business plan) at the time of
termination, (iii) developing products or services competitive with those of the
Company or (iv) conducting any other business in which Synetic or any of the
Affiliates is then engaged if Employee has engaged in activities for such
business of Synetic or such Affiliates or obtained Proprietary Information with
respect thereto (all of the businesses in clauses (i), (ii), (iii), and (iv)
collectively, "Competitive Business"). Notwithstanding the foregoing, Employee
may have an interest consisting of publicly traded securities constituting less
than 1 percent of any class of publicly traded securities in any public company
engaged in a Competitive Business so long as he is not employed by and does not
consult with, or become a director of or otherwise engage in any activities for,
such company.
1.6 Extension of Restricted Period. The Restricted Period
shall be extended by the length of any period during which Employee is in breach
of the terms of this Section 1.
1.7 Assignment of Development. All Developments that are at
any time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Employee's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Employee's part. During the Employees's
employment and, if such Developments were made, conceived or suggested by
Employee during or as a result of Employee's employment under this Agreement or
any prior employment with the Company or the Affiliates, thereafter, Employee
shall promptly make full disclosure of any such Developments to the Company and,
at the Company's cost and expense, do all acts and things (including, among
others, the execution and delivery under oath of patent and copyright
applications and instruments of assignment) deemed by the Company to be
necessary or desirable at any time in order to effect the full assignment to the
Company and the
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<PAGE>
Affiliates of Employee's right and title, if any, to such Developments. For
purposes of this Agreement, the term "Developments" shall mean all data,
discoveries, findings, reports, designs, plans, inventions, improvements,
methods, practices, techniques, developments, programs, concepts, and ideas,
whether or not patentable, relating to the present or planned activities, or
future activities of which Employee is aware, or the products and services of
the Company or any of the Affiliates.
1.8 Disclosure of Information. During the Employment Period,
Employee shall use his best efforts to disclose to the President and Senior Vice
President of the Company any bona fide information known by him that would have
any material negative impact on the Company or an Affiliate.
1.9 Remedies. Employee acknowledges and agrees that damages
for a breach or threatened breach of any of the covenants set forth in this
Section 1 will be difficult to determine and will not afford a full and adequate
remedy, and therefore agrees that the Company, in addition to seeking actual
damages in connection therewith, may seek specific enforcement of any such
covenant in any court of competent jurisdiction, including, without limitation,
by the issuance of a temporary or permanent injunction.
2. Compensation and Benefits.
2.1 Salary. The Company shall pay Employee for services during
the Employment Period a base salary at the annual rate of $125,000. Any and all
increases to Employee's base salary shall be determined by the Board of
Directors of the Company or the Board of Directors of Synetic (collectively, the
"Board") in its sole discretion. Such base salary shall be payable in equal
installments, no less frequently than monthly, pursuant to the Company's
customer payroll policies in force at the time of payment, less any required or
authorized payroll deductions. Employee shall be entitled to participate in any
bonus program of the Company and have the ability to earn up to 25% of his base
salary under such program based on performance and/or achievment of established
goals and objectives. Notwithstanding the foregoing, any and all bonuses under
any bonus program of the Company and and any and all discretionary bonuses shall
be determined by the Board in its sole discretion.
2.2 Benefits. During the Employment Period, Employee shall be
entitled to participate, on the same basis and at the same level as other
employees of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof.
2.3 Expenses. Pursuant to the Company's customary policies in
force at the time of payment, the Employee shall be promptly reimbursed, against
presentation of vouchers or receipts therefore, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
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<PAGE>
3. Employment Period.
Employee's employment under this Agreement shall commence as
of the date hereof, and shall terminate on the second anniversary thereof (the
"Employment Period"), unless terminated earlier pursuant to Section 4. Unless
written notice of either party's desire to terminate the Employment Period has
been given to the other party prior to the expiration of the Employment Period
(or any one-month renewal thereof contemplated by this sentence), the Employment
Period shall be automatically renewed for successive one-month periods.
4. Termination.
4.1 Termination by the Company for Cause. The Employment
Period may be terminated at any time by the Company for Cause. Upon such a
termination, the Company shall have no obligation to the Employee other than the
payment of Employee's earned and unpaid compensation to the effective date of
such termination. For purposes of this Agreement, the term "Cause" shall mean
any of the following:
1. A willful failure of the Employee to perform his duties;
2. Any willful misconduct by the Employee relating, directly
or indirectly, to the Company or any of its Affiliates, or any breach
by the Employee of any material policy of the Company or any of its
Affiliates, as reasonably determined by the Board;
3. Any breach by the Employee of any material provision
contained in Sections 1.2, 1.3, 1.4, 1.5, 1.7 and 1.8 of this
Agreement, as reasonably determined by the Board; or
4. Any willful violation by the Employee of any federal or
state law or regulation applicable to the business of the Company or
any of its Affiliates, or the Employee's commission of a common law
fraud or conviction of a felony crime involving moral turpitude.
4.2 Death. The Employment Period shall be deemed terminated by
the Company upon the death of the Employee and the Company shall have no
obligation to the Employee or the Employee's estate other than a continuation of
his base salary (at a rate equal to 100% of the rate in effect at the time of
such termination) for a period of six months following the date of termination,
payable in accordance with the third sentence of Section 2.1.
4.3 Resignation by the Employee. If the Employee terminates
his employment during the Employment Period for any reason, the Company shall
have no obligation to the Employee other than the payment of the Employee's
earned and unpaid compensation to the effective date of such termination.
4.4 Termination by the Company Without Cause. The Employment
Period may be terminated at any time by the Company without Cause. If the
Company terminates the Employment Period without Cause, the Company shall have
no obligation to the Employee other
-4-
<PAGE>
than a continuation of his base salary (at a rate equal to 100% of the rate in
effect at the time of such termination) for a period of six months following the
date of termination, payable in accordance with the third sentence of Section
2.1; provided, however, that such base salary continuation shall end on the
occurrence of any circumstance or event that would constitute Cause. Such base
salary continuation shall also end on the re-employment of Employee with the
Company or any of its Affiliates or employment of Employee with any other
employer if Employee's annual gross salary (base salary plus any anticipated
bonus) is equal to or greater than $125,000. If Employee's annual gross salary
from the Company, any of its Affiliates or such other employer is less than
$125,000, such base salary continuation shall be reduced by the amount of such
gross salary. In any case, in the event that the Company terminates Employee
without Cause, employee agrees to use his best and most diligent efforts to
obtain employment in which his annual gross salary would be equal to or greater
than $125,000.
4.5 Liquidated Damages. Employee acknowledges that any
payments under Section 4.4 resulting from a termination of the Employment Period
by the Company without Cause are in lieu of any and all claims that the Employee
may have against the Company or any of its Affiliates other than benefits under
the Company's employee benefit plans that by their terms survive termination of
employment and benefits under the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, and represent liquidated damages (and not a penalty).
5. Options. Employee has previously been granted options to
purchase shares of Synetic's common stock ("Synetic Common Stock"), par value
$.01 per share, set forth on Schedule A. The terms and conditions of such
options shall be governed by the Stock Option Agreements and plans relating to
such options.
6. Notices. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
(a) if to the Company:
Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attn: Chief Financial Officer
(b) if to the Employee, to the address set forth on the
signature page hereof.
Any notice shall be deemed given when actually delivered to such address, or two
days after such
-5-
<PAGE>
notice has been mailed or sent by overnight courier, whichever comes earliest.
Any person entitled to receive notice may designate in writing, by notice to the
other, such other address which notices to such person shall thereafter be sent.
7. Miscellaneous.
7.1 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of its subject matter and supersedes
upon its effectiveness all other prior agreements and understandings between the
parties with respect to such subject matter.
7.2 Amendment; Waiver. This Agreement may not be amended,
supplemented, canceled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
7.3 Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of any successor of the
Company by reorganization, merger or consolidation, or any assignee of all or
substantially all of the Company's business and properties. Employee's rights or
obligations under this Agreement may not be assigned by the Employee, except
that the right specified in Section 4.2 shall pass upon the Employee's death to
Employee's executor or administrator.
7.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7.5 Governing Law; Interpretation. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy (other than conflict of laws principles) of the State of
Massachusetts applicable to contracts executed and to be wholly performed within
such State.
7.6 Further Assurances. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
7.7 Severability. The parties have carefully reviewed the
provisions of this Agreement and agree that they are fair and equitable.
However, in light of the possibility of differing interpretations of law and
changes in circumstances, the parties agree that if any one or more of the
provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to
-6-
<PAGE>
duration, activity, geographic application or subject, it shall be construed, by
limiting or reducing it to the extent legally permitted, so as to be enforceable
to the extent compatible with then applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
AVICENNA SYSTEMS CORPORATION
By:
----------------------------------
Name:
Title:
EMPLOYEE
--------------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
-7-
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of November
6, 1997, by and between SYNETIC, INC., a Delaware corporation (the "Company"),
and ROGER C. HOLSTEIN ("Executive").
WHEREAS, the Company desires to employ the Executive on a
full-time basis, subject to the exception set forth below, and the Executive
desires to be so employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants in
this Agreement, the parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
1.1. Effectiveness of Agreement. This Agreement shall
become effective as the date hereof (the "Effective Date").
1.2. Employment by the Company. The Company hereby
employs Executive as an Executive Vice President of the Company and Executive
hereby accepts such employment with the Company. Executive shall report to the
Chairman of the Board or Chief Executive Officer of the Company, and perform
such duties and services for the Company and its subsidiaries and affiliates
(such subsidiaries and affiliates collectively, "Affiliates"), as may be
designated from time to time, by the Chairman of the Board of Directors or the
Chief Executive Officer of the Company. Executive shall use his best and most
diligent efforts to promote the interests of the Company and the Affiliates, and
shall devote all of his business time and attention to his employment under this
Agreement, subject to his obligation to perform certain services to Merck-Medco
Managed Care ("Medco") under his agreement with Medco, a copy of which has been
furnished to Synetic and subject to such other business activities which will
not interfere with the performance of the Executive's duties hereunder and which
Executive has received prior written permission from the Company, which
permission shall not be unreasonably withheld.
1.3. Confidentiality. Executive understands and
acknowledges that in the course of his employment, he will have access to and
will learn information that is proprietary to, or confidential to the Company
and its Affiliates that concerns the operation and methodology of the Company
and its Affiliates, including, without limitation, business strategy and plans,
financial information, protocols, proposals, manuals, clinical procedures and
guidelines, technical data, computer source codes, programs, software, knowhow
and specifications, copyrights, trade secrets, market information, Developments
(as hereinafter defined), and customer information (collectively, "Proprietary
Information"). Executive
<PAGE>
agrees that, at all times (including following termination of this Agreement),
he will keep confidential and will not disclose directly or indirectly any such
Proprietary Information to any third party, except as required to fulfill his
duties hereunder, and will not misuse, misappropriate or exploit such
Proprietary Information in any way. The restrictions contained herein shall not
apply to any information which Executive can demonstrate by written record (a)
was already available to the public at the time of disclosure, or subsequently
become available to the public, otherwise than by breach of this Agreement, (b)
was the subject of a court order for Executive to disclose, (c) information
which was in the possession of the Executive prior to his employment with the
Company or (d) information which is independently developed by the Executive and
which is outside of the scope of his employment or the business of the Company.
Upon any termination of this Agreement, Executive shall immediately return to
the Company all copies of any Proprietary Information in his possession.
1.4. Restrictions on Solicitation. During the period
beginning on the Effective Date and ending on the second anniversary of the date
of cessation of the employment of the Executive for any reason whatsoever (the
"Restricted Period"), Executive shall not, directly or indirectly, without the
prior written approval of the Company, solicit or contact any customer, or any
prospective customer (with whom the Executive has had contact during the last 12
months of the term of this Agreement), of the Company or any of the Affiliates
for any commercial pursuit which Executive knows, or should know, is in
competition with the Company or any of the Affiliates, or that is contemplated
from time to time by the Business Plan (as defined below) or take away or
interfere or attempt to interfere with any custom, trade, business or patronage
of the Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates. For purposes of this
Agreement, "Business Plan" shall mean, at any point in time, the then current
business plan of the Company and any business plans of the Company in effect
during the prior 18 months.
1.5. Restrictions on Competitive Employment. During the
Restricted Period, Executive shall not (as principal, agent, employee,
consultant or otherwise), anywhere in the United States, directly or indirectly,
without the prior written approval of the Company, (i) engage in direct or
indirect competition with the Company, (ii) conduct a business of the type and
character engaged in by the Company (or contemplated by the Business Plan), or
(iii) develop products or services competitive with those of the Company
(collectively, "Competitive Business"). Notwithstanding the foregoing, Executive
may have an interest consisting of publicly traded securities constituting less
than 5 percent of any class of publicly traded securities in any public company
engaged in a Competitive Business so long as he is not
2
<PAGE>
employed by and does not consult with, or become a director of or otherwise
engage in any activities for, such company.
1.6. Extension of Restricted Period. The Restricted
Period shall be extended by the length of any period during which Executive is
in breach of the terms of this Section 1.
1.7. Assignment of Developments. All Developments that
are at any time made, conceived or suggested by Executive, whether acting alone
or in conjunction with others, arising out of or as a result of Executive's
employment with the Company shall be the sole and absolute property of the
Company and the Affiliates, free of any reserved or other rights of any kind on
Executive's part. During Executive's employment and, if such Developments were
made, conceived or suggested by Executive during or as a result of Executive's
employment under this Agreement or any prior employment with the Company or the
Affiliates, thereafter, Executive shall promptly make full disclosure of any
such Developments to the Company and, at the Company's cost and expense, do all
acts and things (including, among others, the execution and delivery under oath
of patent and copyright applications and instruments of assignment) deemed by
the Company to be necessary or desirable at any time in order to effect the full
assignment to the Company and the Affiliates of Executive's right and title, if
any, to such Developments. For purposes of this Agreement, the term
"Developments" shall mean all data, discoveries, findings, reports, designs,
inventions, improvements, methods, practices, techniques, developments,
programs, concepts, and ideas, whether or not patentable, relating to the
present or planned activities, or future activities of which Executive is aware,
or the products and services of the Company or any of the Affiliates.
1.8 Conflicts of Interest. The Executive, during the
term of this Agreement, is also being employed as a part-time employee of, or
consultant to, Medco. The Executive and the Company endeavor to eliminate
certain conflicts of interest which may arise in the performance of the
Executive's services hereunder. In furtherance of such objective, the Executive
and the Company have established the following:
a) The Executive and Company will work together to avoid any conflicts
relating to his employment with Medco.
b) The Company will not solicit, nor will the Executive provide to the
Company, any information confidential or proprietary to Medco and its
affiliates in the course of the Executive's employment hereunder.
c) The Company will allow the Executive sufficient business time to
satisfy his employment obligations to Medco.
3
<PAGE>
1.9. Remedies. Executive acknowledges and agrees that
damages for a breach or threatened breach of any of the covenants set forth in
Sections 1.1 through 1.8 will be difficult to determine and will not afford a
full and adequate remedy, and therefore agrees that the Company, in addition to
seeking actual damages in connection therewith, may seek specific enforcement of
any such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction.
2. Compensation and Benefits.
2.1. Salary. The Company shall pay Executive for services
during the term of this Agreement a base salary at the annual rate of
$175,000.00 ("Base Salary"). Any and all increases to Executive's Base Salary
shall be determined by the Board of Directors in its sole discretion, provided
however, that when revenues from healthcare communications business exceeds
$30,000,000, then the Board of Directors will increase Executive's compensation
to a level commensurate with his contribution as determined in their reasonable
judgment. Such Base Salary shall be payable in equal installments, no less
frequently than monthly, pursuant to the Company's customary payroll policies in
force at the time of payment, less any required or authorized payroll
deductions.
2.2. Upon the signing of this Agreement, the Executive
shall receive a one time payment equal to $225,000.
2.3. Benefits. During the term of this Agreement,
Executive shall be entitled to participate, on the same basis and at the same
level as other similarly situated senior executives of the Company, in any group
insurance, hospitalization, medical, health and accident, disability, fringe
benefit and tax-qualified retirement plans or programs or vacation leave of the
Company now existing or hereafter established to the extent that he is eligible
under the general provisions thereof.
2.4. Expenses. Pursuant to the Company's customary
policies in force at the time of payment, Executive shall be promptly
reimbursed, against presentation of vouchers or receipts therefor, for all
authorized expenses properly and reasonably incurred by him on behalf of the
Company or its Affiliates in the performance of his duties hereunder.
3. Employment Period.
Executive's employment under this Agreement shall commence as
of the Effective Date, and shall terminate on the fifth anniversary thereof (the
"Initial Employment Period"), unless terminated earlier pursuant to Section 4.
Unless written notice of either party's desire to terminate this Agreement has
been given to the other party prior to the expiration of the
4
<PAGE>
Initial Employment Period (or any one-month renewal thereof contemplated by this
sentence), the term of this Agreement shall be automatically renewed for
successive one-month periods.
4. Termination.
4.1. Termination by the Company for Cause. (a) This
Agreement and Executive's employment with the Company may be terminated at any
time by the Company for Cause. Upon such a termination, the Company shall have
no obligation to Executive other than the payment of Executive's earned and
unpaid compensation to the effective date of such termination.
(b) For purposes of this section of the Agreement, the term
"Cause" shall mean any of the following:
1. A willful failure of Executive to perform his duties in
any material respect which failure is not cured by Executive within 30
days following written notice from the Company detailing such failure;
2. Any willful misconduct by Executive relating, directly
or indirectly, to the Company or any of its Affiliates, which breach, if
susceptible to cure, is not cured by Executive within 30 days following
written notice from the Company detailing such breach;
3. Any breach by Executive of any material provision
contained in this Agreement, which breach, if susceptible to cure, is not
cured by Executive within 30 days following written notice from the
Company detailing such breach; or
4. Executive's conviction of a felony or crime involving
moral turpitude.
4.2. Permanent Disability. If during the term of this
Agreement, Executive shall become ill, mentally or physically disabled, or
otherwise incapacitated so as to be unable regularly to perform the duties of
his position for a period in excess of 90 consecutive days or more than 120 days
in any consecutive 12 month period, then the Company shall have the right to
terminate this Agreement and Executive's employment with the Company upon
written notice to Executive. Upon such a termination, the Company shall have no
obligation to Executive other than (i) the payment of Executive's earned and
unpaid compensation to the effective date of such termination and (ii) as
provided in Section 5 below.
5
<PAGE>
4.3. Death. This Agreement shall be deemed terminated by
the Company upon the death of Executive and the Company shall have no obligation
to Executive or Executive's estate other than (i) the payment of Executive's
earned and unpaid compensation to the effective date of such termination and
(ii) as provided in Section 5 below.
4.4. Resignation by the Executive. If the Executive
terminates his employment with the Company for any reason, the Company shall
have no obligation to Executive other than the payment of Executive's earned and
unpaid compensation to the effective date of such termination.
4.5. Termination by the Company Without Cause. This
Agreement and Executive's employment with the Company may be terminated at any
time by the Company without Cause. If the Company terminates this Agreement and
Executive's employment without Cause (including upon notice of the Company
pursuant to Section 3 of its desire to not renew this Agreement), the Company
shall have no obligation to Executive other than (i) the payment of Executive's
earned and unpaid compensation to the effective date of such termination, (ii)
the payment of a monthly severance payment equal to one twelfth (1/12th) of his
then applicable Base Salary, less all required payroll deductions for a period
ending two (2) years from the date of such termination, or until the occurrence
of any circumstances or event that would constitute Cause under Section 4.1 of
this Agreement, if sooner, and (iii) as provided in Section 5 below.
4.6. Change of Control. In the event of a Change of
Control, the Executive may terminate his employment and this Agreement upon 30
days' written notice to the Company at any time after a 12 month period
following the occurrence of the Change of Control (or such shorter period to the
extent the acquiring company does not request the services of the Executive for
such 12 month period). In the event of such a termination by Executive, all
Existing Stock Options held by the Executive shall continue to vest and be
exercisable as provided in Section 5 below. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(a) both (i) any person, entity or group shall have acquired at least
50% of the voting power of the outstanding voting securities of the
company, excluding Martin J. Wygod and his affiliates, and (ii)
following such acquisition of 50% Voting Power, Martin J. Wygod
shall cease to hold one or more of the following positions: Chairman
of the Board or Chief Executive Officer of the Company or a senior
executive office of the acquirer of 50% Voting Power, in each case
with duties and responsibilities greater than or substantially
equivalent to those prior to such acquisition of 50% Voting Power;
or
(b) both (i) a reorganization, merger or consolidation or sale of other
disposition of all or substantially all of the assets of the Company
("Business Combination") shall
6
<PAGE>
have occurred and (ii) following such Business Combination, Martin
J. Wygod shall cease to be Chairman of the Board or Chief Executive
Officer of, or to hold a senior executive position in, the
corporation resulting from such Business Combination, with duties
and responsibilities greater than or substantially equivalent to
those prior to such Business Combination; or
(c) a complete liquidation or dissolution of the Company shall have
occurred.
4.7 Termination by the Executive For Cause. This
Agreement and Executive's employment with the Company may be terminated by the
Executive for Cause on 30 days written notice to the Company, which notice shall
detail the specific basis for such termination. The Company shall be given the
opportunity to cure the basis for such termination within such 30 days period.
For the purpose of this Section of this Agreement, the term "Cause" means any of
the following: (1) a material breach by the Company of its obligations to the
Executive under this Employment Agreement, which, if susceptible to cure,
remains uncured, (2) a material demotion of his position with the Company, and
(3) if Executive is required by the Company to relocate from his present
residence or is required to commute, on a regular basis, to the Company's
headquarters and such headquarters is outside of the New York City metropolitan
area. If the Executive terminates this Agreement and his employment under this
Section, the Executive shall receive (i) the payment of the Executive's earned
and unpaid compensation to the effective date of such termination, (ii) payments
of a monthly severance payment equal to one twelfth (1/12th) of his then
applicable Base Salary, less all required payroll deductions, for a period two
(2) years from the date of such termination, or until the occurrence of any
circumstance or events that would constitute Cause under Section 4.1 of this
Agreement, if sooner, and (iii) as provided in Section 5 below.
4.8 Termination by the Executive if Second Option Grant
not Approved. In the event (1) that the option grant described in paragraph B.
of Schedule A (the "Second Option Grant") is not approved by the Company's
shareholders at their next annual meeting (2) any alternative option grant made
by the Company to Executive in lieu of the Second Option Grant is not reasonably
satisfactory to Executive, this Agreement and Executive's employment with the
Company may be terminated by the Executive within the 30 day period following
the date of such alternative option grant on 30 days written notice to the
Company. If the Executive terminates this Agreement and his employment under
this Section, (i) Executive shall receive the payment of Executive's earned and
unpaid compensation to the effective date of such termination and (ii) the
two-year Restricted Period shall be reduced to equal six months for purposes of
Sections 1.4 and 1.5, provided that Section 1.6 shall remain in full force and
effect.
4.9 Liquidated Damages. Executive acknowledges that any
payments and benefits under Sections 4 and 5 resulting from a termination of
this Agreement and Executive's
7
<PAGE>
employment with the Company by the Company without Cause are in lieu of any and
all claims that the Executive may have against the Company (other than benefits
under the Company's employee benefit plans that by their terms survive
termination of employment and benefits under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended and rights to indemnification under
certain indemnification arrangements for officers of the Company), and represent
liquidated damages (and not a penalty). The Company may request that the
Executive confirm such acknowledgment in writing prior to the receipt of such
benefits.
5. Options.
Executive has previously been granted options (together with
any options to purchase the Company's common stock which the Company grants to
Executive during the term of this Agreement, the "Existing Company Options") to
purchase shares of the Company's common stock, par value $.01 per share, set
forth on Schedule A. Notwithstanding anything to the contrary contained in the
Company Option Plan or any applicable stock option agreement, (A) in the event
that this Agreement and Executive's employment with the Company is terminated
(i) by the Company without Cause (including upon notice of the Company pursuant
to Section 3 of its desire to not renew this Agreement) or (ii) by the Executive
for Cause pursuant to Section 4.7, any Existing Company Options shall remain
outstanding and continue to vest, and shall otherwise be treated for purposes of
the terms and conditions thereof, as if Executive remained in the employ of the
Company through the earlier of (i) the second anniversary of the date of
termination and (ii) the occurrence of any circumstance or event that would
constitute Cause under Section 4.1 of this Agreement and (B) in the event that
this Agreement and Executive's employment with the Company is terminated (i) by
the Executive after a Change of Control as provided in Section 4.7, (ii) due to
his permanent disability pursuant to Section 4.2 or (iii) due to his death
pursuant to Section 4.3, any Existing Company Options shall remain outstanding
and continue to vest, and shall otherwise be treated for the purposes of the
terms and conditions thereof, as if the Executive remained in the employment of
the Company through the earlier of (x) the later of November 6, 2002 and the
last actual vesting date with respect to any such options and (y) the occurrence
of any circumstances or events that would constitute Cause under such Section
4.1. For purposes of clarification, the "last actual vesting date" shall be,
with respect any grant of Existing Company Options, the last date on which such
options actually vest, not the last date on which all Existing Company Options
have actually vested.
6. Notices. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
8
<PAGE>
(a) if to the Company:
Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention: General Counsel
(b) if to the Executive at the address set forth below.
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
7. Miscellaneous.
7.1. Entire Agreement. This Agreement and the agreements
relating to the Existing Company Options contain the entire understanding of the
parties in respect of their subject matter and supersede upon their
effectiveness all other prior agreements and understandings between the parties
with respect to such subject matter.
7.2. Amendment; Waiver. This Agreement may not be
amended, supplemented, canceled or discharged, except by written instrument
executed by the party against whom enforcement is sought. No failure to
exercise, and no delay in exercising, any right, power or privilege hereunder
shall operate as a waiver thereof. No waiver of any breach of any provision of
this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision.
7.3. Binding Effect; Assignment. The rights and
obligations of this Agreement shall bind and inure to the benefit of any
successor of the Company by reorganization, merger or consolidation, or any
assignee of all or substantially all of the Company's business and properties.
The Company may assign its rights and obligations under this Agreement to any of
its Affiliates without the consent of the Executive. Executive's rights or
obligations under this Agreement may not be assigned by Executive, except that
the rights specified in Section 4.3 shall pass upon the Executive's death to
Executive's executor or administrator.
9
<PAGE>
7.4. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
7.5. Governing Law; Interpretation. This Agreement shall
be construed in accordance with and governed for all purposes by the laws and
public policy (other than conflict of laws principles) of the State of New
Jersey applicable to contracts executed and to be wholly performed within such
State.
7.6. Further Assurances. Each of the parties agrees to
execute, acknowledge, deliver and perform, and cause to be executed,
acknowledged, delivered and performed, at any time and from time to time, as the
case may be, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably necessary to carry out
the provisions or intent of this Agreement.
7.7. Severability. The parties have carefully reviewed
the provisions of this Agreement and agree that they are fair and equitable.
However, in light of the possibility of differing interpretations of law and
changes in circumstances, the parties agree that if any one or more of the
provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SYNETIC, INC.
By:
--------------------------
Name:
Title:
EXECUTIVE
-----------------------------
Roger C. Holstein
-----------------------------
Street
-----------------------------
City, State, Zip Code
-----------------------------
Telecopier No.
11
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 17, 1999 related to the consolidated financial statements of
CareInsite, Inc. and our report dated February 22, 1999 related to the financial
statements of Avicenna Systems Corporation included in or made part of this
registration statement and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 3, 1999
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
The Health Information Network Connection, LLC
We consent to the inclusion in this registration statement of CareInsite, Inc.
on Amendment No. 2 to Form S-1 of our report dated February 26, 1999 on our
audit of the financial statements of The Health Information Network Connection,
LLC as of December 31, 1998 and for the year then ended. We also consent to the
reference to our firm under the caption "Experts".
KPMG LLP
Melville, New York
May 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0001082000
<NAME> CAREINSITE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
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