<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1999
REGISTRATION NO. 333-90165
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
XCARE.NET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7374 85-0373486
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6400 S. FIDDLER'S GREEN CIRCLE, SUITE 540
ENGLEWOOD, CO 80111
(303) 488-2019
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LORINE R. SWEENEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
XCARE.NET, INC.
6400 S. FIDDLER'S GREEN CIRCLE, SUITE 540
ENGLEWOOD, CO 80111
(303) 488-2019
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ARTHUR F. SCHNEIDERMAN NORA L. GIBSON
HERBERT P. FOCKLER LAURA M. DE PETRA
RACHEL S. LOVEJOY ANGELA C. HILT
WILSON SONSINI GOODRICH & ROSATI BROBECK PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION SPEAR STREET TOWER
650 PAGE MILL ROAD ONE MARKET
PALO ALTO, CA 94304 SAN FRANCISCO, CA 94105
(650) 493-9300 (415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par
value....................... 5,750,000 $13.00 $74,750,000.00 $20,574.00(2)
- ----------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
(2) The Registrant previously paid a fee in the amount of $16,680.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 17, 1999
LOGO
5,000,000 SHARES
COMMON STOCK
XCare.net, Inc. is offering 5,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "XCAR." We anticipate that the initial
public offering price will be between $11.00 and $13.00 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price:...................................... $ $
Underwriting Discounts and Commissions:..................... $ $
Proceeds to XCare.net:...................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
XCare.net has granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
SG COWEN
E*OFFERING
ADVEST, INC.
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
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 A 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 TIME OF DELIVERY OF THIS PROSPECTUS
OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT BUY, SELL, OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 6
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 34
Management.................................................. 51
Certain Transactions with Related Parties................... 60
Principal Stockholders...................................... 63
Description of Capital Stock................................ 66
Shares Eligible for Future Sale............................. 68
Underwriting................................................ 70
Legal Matters............................................... 73
Change in Independent Accountants........................... 73
Experts..................................................... 73
Available Information....................................... 74
Index to Financial Statements............................... F-1
</TABLE>
------------------------------
XCare.net is a trademark of XCare.net, Inc. Trade names, trademarks and
service marks of other companies appearing in this prospectus are the property
of the respective holders.
i
<PAGE> 4
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including the financial statements and
related notes, before deciding to invest in shares of our common stock.
XCARE.NET, INC.
XCare.net is an electronic commerce service provider for health care
businesses. We have developed an Internet-based technology platform using
extensible mark-up language, or XML, that processes health care transactions and
provides related services for payers, providers and other health care industry
participants. We process transactions such as eligibility checking, claims
submission, referral processing, physician credentialling and appointment
scheduling. We also provide consulting services to define, develop and implement
Internet health care strategies as well as Web-site hosting, transaction support
and maintenance services for our customers. Our customers include providers such
as American Medical Pathways, Inc. and Asthma Management Services, Inc.; health
care payers such as Advica Health Resources, Employers Mutual, Inc. and
Brokerage Services, Inc.; and suppliers such as ADIS International Ltd.,
Nursefinders, Inc., Digital Medical Registrar, Delta Health Services, Quest
Diagnostics Incorporated and Methodist Care, Inc.
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into an Internet exchange to create a community. We use the
XCare.net platform to deliver a broad range of applications, services and
electronic product offerings that streamline and automate high-volume,
data-intensive transactions and processes. This automation reduces the need for
information exchange by telephone, facsimile or mail and redundant manual data
entry into multiple computer systems. We believe this will lead to improved
workflow efficiencies, reduced administrative costs and enhanced efficiency of
the health care delivery and payment system. In addition, we leverage our
XCare.net platform and network of collaborative relationships, which we call
Solution Channels, to create new revenue opportunities for our customers by
enabling them to also act as vendors of applications, services and products to
other XCare.net community participants.
Our XCare.net platform uses a proprietary set of search, filtering and
integration technologies, based on XML, an extensible mark-up language for
Internet programming, in conjunction with the Topic Navigation Mapping
publishing standard. Extensible mark-up language enables us to attach meaning to
a piece of data. For example, information in numerical format acquires meaning
once it is defined as representing a healthcare plan number, a social security
number, birth date or a zip code. Topic Navigation Mapping provides a standard
format for indexing and structuring the extensible mark-up language formatted
content. The resulting technology platform increases flexibility and
cost-effectiveness and enables a high degree of content integration from
different databases and applications, easier data manipulation and more
efficient searches. In addition, the technology platform enhances our ability to
present data in a dynamic, customized format tailored to the individual
performing a particular transaction or retrieving specific information.
MARKET OPPORTUNITY
The health care market is highly fragmented through geographic dispersion,
a large number of participants and significant differences in technology
infrastructure. Furthermore, health care is delivered in a marketplace which has
become increasingly complex given the transition to managed care, the data-
intensive nature of health care transactions, the lack of standard data formats,
the complicated procurement process and the pervasiveness of government
regulation. As a result of this fragmentation and complexity, health care market
participants are unable to cost-effectively manage, communicate and exchange
information in real-time.
1
<PAGE> 5
Although the Internet can speed and streamline transactions, we believe
that current, Internet-based health care transaction processing and information
retrieval systems are significantly limited in their ability to search,
structure, integrate and filter vast amounts of disparate data and dynamically
customize and display information in contexts relevant to particular users.
These limitations are particularly critical in the health care industry, where
streamlining data exchange between industry participants is necessary to reduce
process inefficiencies and costs. We believe the enhanced capabilities of our
XCare.net platform, applications, services and product offerings address these
limitations.
STRATEGY
Our objective is to become the leading provider of Internet-based solutions
to health care businesses to enable them to exchange information, process
transactions, conduct electronic commerce and communicate with each other. To
implement our strategy we will continue to:
- utilize our Solution Channels to deploy new applications, services and
electronic commerce product offerings developed by us or obtained through
customer and vendor relationships;
- pursue payer/third party administrator and at-risk provider customers,
which are well positioned to influence and drive change in health care
processes;
- identify new application development opportunities as Internet strategies
in the health care industry evolve and new relationships between
organizations develop;
- identify functions that are critical to particular industry participants
and develop solutions, services and products supporting these functions;
and
- aggressively pursue strategic relationships with leaders in key health
industry segments to increase our portfolio of applications, services and
product offerings, increase the scope of the community of users of our
technology platform and provide specialized industry expertise for new
solutions.
OUR HISTORY
We were incorporated in Delaware in March 1989 under the name Reilly Dike
Dosher Corporation, Inc. In December 1996, we changed our name to MPower
Solutions, Inc. In April 1999, we changed our name to XCare.net, Inc. We have
historically derived a significant portion of our revenue from sales of
mainframe and client-server software for managed health care systems and from
providing services to health care organizations seeking to outsource
administrative functions. In early 1998 we identified an emerging opportunity to
utilize the Internet to connect health care participants together into a
community structure. We saw this as an opportunity to provide a more efficient
service to health care and would enable us to offer our existing services, as
well as additional applications, services and products with a more efficient
delivery medium. Beginning in mid-1998, we began to focus on Internet-based
health care solutions. We intend to derive an increasing portion of our future
revenue from our Internet-based applications, services and product offerings.
We operate in a highly competitive market. We do not know whether our new
applications, services and product offerings will be accepted by health care
market participants. We started developing our Internet-based technologies in
early 1998 and first made them available to our customers during the third
quarter of 1999. As a result, we have a limited operating history as an Internet
company. We incurred losses of $7.3 million for fiscal 1997, $4.1 million for
fiscal 1998 and $2.2 million for the nine months ended September 30, 1999. For
the nine months ended September 30, 1999, sales to four customers accounted for
82% of our revenues. We are controlled by a limited number of investors. As of
September 30, 1999, our directors, officers and affiliated entities controlled
87.3% of our common stock and will continue to control 61.2% of our common stock
after completion of this offering, based on our outstanding capitalization on
that date.
Our principal executive office is located at 6400 S. Fiddler's Green
Circle, Suite 540, Englewood, CO 80111, and our telephone number at that office
is (303) 488-2019.
2
<PAGE> 6
THE OFFERING
Common stock offered by us...................... 5,000,000 shares
Common stock to be outstanding after the
offering........................................ 15,354,511 shares
Use of proceeds................................. General corporate purposes,
working capital and capital
expenditures for operations,
including for research and
development, sales and
marketing, hardware and
software purchases and
general and administrative
expenses.
Proposed Nasdaq National Market symbol.......... XCAR
The number of shares of our common stock to be outstanding after this
offering is based on shares outstanding as of September 30, 1999, and reflects a
one-for-ten reverse stock split that we expect will be effected in December
1999. It excludes 1,491,492 shares issuable upon exercise of outstanding options
at September 30, 1999, with a weighted average exercise price of $1.35 per
share, 541,345 shares reserved for future issuance under our stock plan, and
750,000 shares reserved for future issuance under our director plan and employee
stock purchase plan, both of which become effective upon the closing of the
offering. See "Capitalization," "Management -- Employee Benefit Plans" and notes
4, 6 and 9 of notes to the financial statements.
Generally, unless otherwise indicated in this prospectus, the number of
shares of common stock to be outstanding after the offering, pro forma and pro
forma as adjusted information gives effect to the conversion of all outstanding
convertible preferred stock to common stock, including convertible preferred
stock issuable upon the assumed exercise of all outstanding convertible
preferred stock warrants, and the assumed exercise of all outstanding common
stock warrants with exercise prices below an assumed initial public offering
price. Information in this prospectus also assumes no exercise of the
underwriters' over-allotment option.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $4,310 $7,708 $ 9,726 $ 5,984 $ 2,270 $ 1,564 $ 2,654
Total costs and expenses........ 4,120 6,083 10,523 14,641 5,915 4,215 4,680
Income (loss) from operations... 190 1,625 (797) (8,657) (3,645) (2,651) (2,026)
Total other income (expense).... (77) (42) 2,250 255 (437) (306) (150)
Income (loss) before income
taxes......................... 113 1,583 1,453 (8,402) (4,082) (2,957) (2,176)
Net income (loss)............... $ 113 $1,583 $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
Net income (loss) per common
share -- basic and diluted.... $ 0.19 $ 2.64 $ 0.53 $(18.92) $(10.64) $ (7.71) $ (5.09)
Weighted average common shares
outstanding -- basic and
diluted....................... 596 599 476 390 390 390 438
Pro forma:
Income before income taxes.... $ 113 $1,583
Net income.................... $ 65 $ 980
Pro forma net income (loss) per
common share -- basic and
diluted....................... $ 0.11 $ 1.64 $ (1.01) $ (0.32)
Pro forma weighted average
common shares
outstanding -- basic and
diluted....................... 596 599 4,058 6,715
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 11,031 $11,031 $65,331
Working capital...................................... 10,222 10,222 64,522
Total assets......................................... 13,523 13,523 67,823
Long-term debt....................................... 25 25 25
Mandatorily redeemable convertible preferred stock... 23,821 -- --
Stockholders' equity (deficit)....................... (12,586) 11,235 65,535
</TABLE>
- During 1996, a major customer terminated its contract with us and paid
$2.3 million to settle all claims arising under the termination. During
1997, another major customer terminated its contract with us and paid
$250,000 to settle all claims associated with the termination. These
amounts are included above in total other income (expense).
- As a result of the contract terminations referred to above, during 1997
we abandoned an operating lease and incurred impairment charges for
related fixed assets aggregating $887,000. This amount is included above
in total costs and expenses.
- Prior to January 1, 1996, XCare.net was an S corporation for federal and
state income tax purposes, and accordingly, our income was taxed directly
to our stockholders. Pro forma income before income taxes, pro forma net
income and pro forma net income per common share for the years ended
December 31, 1994 and 1995 give effect to pro forma adjustments that
reflect the estimated federal and state income taxes that would have been
recorded if XCare.net had been a C corporation prior to January 1, 1996.
4
<PAGE> 8
- See note 1 of notes to the financial statements for a description of the
method used to compute net income (loss) per common share and pro forma
net income (loss) per common share for all periods presented.
- Pro forma balance sheet data reflect the conversion of convertible
preferred stock, which will occur automatically upon the closing of this
offering, the assumed cashless exercise of all outstanding common stock
warrants and convertible preferred stock warrants with exercise prices
below an assumed initial public offering price, and the conversion of the
convertible preferred stock issued upon assumed exercise of the latter
warrants into common stock. See note 1 of notes to the financial
statements.
- Pro forma as adjusted balance sheet data reflect the receipt of the
estimated net proceeds from this offering at an assumed initial public
offering price of $12.00 per share, after deducting estimated
underwriting discounts and offering expenses. See "Capitalization" and
"Use of Proceeds."
5
<PAGE> 9
RISK FACTORS
You should carefully consider these risk factors, together with all of the
other information included in this prospectus, before you decide whether to
purchase shares of our common stock. The risks set out below may not be
exhaustive. If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed, the value of our
common stock could decline and you may lose all or part of your investment.
OUR BUSINESS AND PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE ARE IN A
TRANSITIONAL STAGE OF DEVELOPMENT
It is difficult to evaluate our business and our prospects because our
business model is new and unproven. We commenced operations in March 1989, but
we did not begin focusing on Internet-based health care solutions until early
1999. We have historically derived a significant portion of our revenue from
sales of maintenance and client/server software for managed health care systems
and from providing services to health care organizations seeking to outsource
administrative functions. We intend to derive an increasing portion of our
future revenue from our Internet-based applications, services and product
offerings. As a result, even though we have been in existence for over ten
years, we are prone to the risks and difficulties frequently encountered by
early stage companies, particularly companies in new and rapidly evolving
technology-related markets.
WE WILL HAVE DIFFICULTY PREDICTING OUR FUTURE RESULTS OF OPERATIONS
Due to our limited operating history in the Internet-based health care
market, it is difficult for us to predict with any accuracy our future results
of operations. For example, we cannot accurately forecast expenses based on our
historical results because our experience in our current market is limited, and
we are required to forecast expenses in part on future revenue projections. The
provision of services using Internet technology in the health care industry is a
developing business that is inherently riskier than business in industries where
companies have established operating histories. Accordingly, we believe that our
historical financial results are not necessarily indicative of our future
financial performance.
WE HAVE INCURRED LOSSES SINCE CHANGING OUR FOCUS TO INTERNET-BASED SOLUTIONS AND
WE MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY
We incurred net losses and losses from operations for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997. As of
September 30, 1999, we had an accumulated deficit of approximately $13.3
million. Since we began developing and marketing our Internet-based health care
products and services in early 1999, we have funded our business primarily by
borrowing funds and from the sale of our stock, not from cash generated by our
business. We expect to continue to incur significant sales and marketing,
research and development and general and administrative expenses. As a result,
we will experience losses and negative cash flows for the foreseeable future.
Factors which may prevent us from achieving or maintaining profitability and
cause our stock price to decline include the demand for and acceptance of our
products, product enhancements and services, and our ability to attract new
customers, as well as a number of other factors described elsewhere in this
"Risk Factors" section.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, CAUSING OUR
SHARE PRICE TO DECLINE
Our quarterly operating results have fluctuated significantly in the past
and are likely to fluctuate in the future depending on a number of factors
described below and elsewhere in this "Risk Factors" section of the prospectus,
including:
- any delay in the introduction of new applications, services and product
offerings and enhancements of existing solutions;
6
<PAGE> 10
- the loss of a major customer;
- reductions in the average selling prices of our applications, services
and product offerings;
- cost pressures from shortages of skilled technical employees, increased
product development and engineering expenditures; and
- changes in industry market conditions.
Due to the factors described above and other factors, our results of
operations could fluctuate substantially in the future, and quarterly
comparisons may not indicate reliable trends of future performance. If our
operating results do not meet the expectations of securities analysts and
investors, our share price is likely to decline.
IF WE FAIL TO DEVELOP STRATEGIC RELATIONSHIPS, WE MAY EXPERIENCE DELAYS IN THE
GROWTH OF OUR BUSINESS
Strategic relationships, especially with our customers and vendors, are
critical to our success. To date, we have established only a limited number of
strategic relationships, and these relationships are in the early stages of
development. Entering into strategic relationships is complicated because it
involves identifying opportunities and collaborating with a number of our
customers, vendors and competitors. In addition, we may not be able to establish
relationships with particular key participants in the health care industry if we
have established relationships with competitors, and therefore it is important
that we are perceived as independent of any particular customer or partner.
Moreover, many potential customers and vendors may resist working with us until
our applications, services and product offerings have been successfully
introduced and have achieved market acceptance. If we cannot successfully
establish relationships with key health care industry participants, our business
would grow slowly.
IF WE CANNOT MAINTAIN OUR STRATEGIC RELATIONSHIPS, OUR APPLICATIONS, SERVICES
AND PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE
Once we have established strategic relationships, we will depend on our
customers' and vendors' ability to assist us in generating increased acceptance
and use of our applications, services and product offerings. We have limited
experience in establishing and maintaining strategic relationships with health
care industry participants. Additionally, our partners may not view their
relationships with us as significant to their own business, and they may
reassess their commitment to us or decide to compete directly with us in the
future. We generally do not have agreements that prohibit our strategic partners
from competing against us directly or from contracting with our competitors. We
cannot guarantee that any strategic partner will perform its obligations as
agreed or contemplated or that we would be able to specifically enforce any
strategic agreement. Our arrangements with our strategic partners generally do
not establish minimum performance requirements, but instead rely on the
voluntary efforts of our strategic partners. Therefore, we cannot guarantee that
these relationships will be successful. If we were to lose any of these
strategic relationships, or if our strategic customers and vendors fail to
collaborate with us to pursue additional business relationships and
partnerships, we would not be able to execute our business plans and our
business would suffer significantly. Moreover, we may not experience increased
use of our applications, services and product offerings even if we establish and
maintain these strategic relationships.
For additional information regarding strategic relationships, see
"Business -- Strategy."
IF THE HEALTH CARE INDUSTRY DOES NOT ACCEPT THE NEED FOR A COMMON TECHNOLOGY
PLATFORM, OUR BUSINESS WOULD NOT GROW
To be successful and to grow, we must attract a significant number of
customers throughout the health care industry. To date, the health care industry
has been resistant to adopting new information technology applications, services
and product offerings. Electronic information exchange and transaction
7
<PAGE> 11
processing by the health care industry is still developing. We believe that
complexities in the nature of health care transactions and lack of a common
technology platform have hindered the development and acceptance of information
technology applications, services and product offerings by the industry. There
are currently hundreds of different incompatible hardware, software and database
components. If health care industry participants do not accept the need to
integrate pre-existing information technology components, the market for our
applications and services would not develop and our business would not grow.
IF PHYSICIANS AND OTHER HEALTH CARE PROVIDERS DO NOT ACCEPT INTERNET-BASED WORK
FLOW MODIFICATIONS THE MARKET FOR OUR PRODUCTS MAY NOT GROW.
Acceptance of Internet technology by physicians and other providers into
daily administrative and clinical workflow is a key factor in our ability to
meet our anticipated deployment levels for transaction services and process
automation components. However, without the acceptance by physicians and
providers of workflow modifications, new installation projects, such as our
applications, services and product offerings, may be stalled.
IF THE EXTENSIBLE MARK-UP LANGUAGE FAILS TO BECOME A STANDARD DATA EXCHANGE
PROTOCOL FOR THE INTERNET, THE MARKETABILITY OF OUR PRODUCTS MAY BE LIMITED
Our XCare.net platform operates with the extensible mark-up language, or
XML. The failure of extensible mark-up language to become well-accepted would
seriously impede the marketability of our products and force us to adapt our
products to other data exchange protocols. Any such adjustments may entail
substantial costs, may require substantial time and effort, and may not
necessarily lead to marketable and competitive products. In addition, if
incompatible versions of the extensible mark-up language standard are developed,
the market for extensible mark-up language-based applications may fail to grow
or grow more slowly than we anticipate. If we develop our applications, services
and product offerings based on a version of extensible mark-up language that
does not gain widespread acceptance, we may have to adapt our products to
another version of extensible mark-up language, which would cause delays in
shipments of our application and product offerings and impede our ability to
provide services.
OUR REVENUE IS CONCENTRATED IN A FEW CUSTOMERS, WHICH PUTS OUR REVENUE AT RISK
We receive a substantial majority of our revenue from a limited number of
customers. In 1998, sales to Employers Mutual, Inc. accounted for 29% of
revenue, sales to Brokerage Services, Inc. accounted for 20% of revenue, sales
to Quest Diagnostics Incorporated accounted for 12% of revenue and sales to ADIS
International accounted for 11% of revenue. For the nine months ended September
30, 1999, sales to Methodist Care, Inc. accounted for 29% of revenue, sales to
American Medical Pathways, Inc. a subsidiary of American Medical Response, Inc.,
accounted for 19% of revenue, sales to Quest Diagnostics Incorporated accounted
for 17% of revenue and sales to Brokerage Services Incorporated accounted for
17% of revenue. We expect that a significant portion of our revenue will
continue to depend on sales to a small number of customers. If we do not
generate as much revenue from these major customers as we expect to, or if we
lose any of them as customers, our total revenue will be significantly reduced.
We have a contract with American Medical Pathways, Inc., a wholly owned
subsidiary of American Medical Response, Inc., to provide third-party
administrative services in connection with its contracts to provide medical
transportation services. Our revenue under this contract accounted for 19% of
our revenue during the nine month period ended September 30, 1999. American
Medical Pathways, Inc. may terminate our contract on 120 days notice. In
addition, Laidlaw, Inc., the owner of American Medical Response, Inc., recently
announced its decision to seek a buyer for American Medical Response, Inc. A new
owner of American Medical Response, Inc. may not continue to provide the same
level of medical transportation services or may seek to terminate our contract.
Any termination of the contract or reduction in license fees earned under the
contract would reduce our revenue and could slow our
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growth. American Medical Response, Inc. is the largest provider of private
ambulance service in the United States. Therefore, if we lose revenue due to
termination of the contract or reduction in license fees, it will be difficult
to replace such revenue through contracts with other providers of medical
transportation services.
IF WE LOSE KEY LICENSES WE MAY BE REQUIRED TO DEVELOP OR LICENSE ALTERNATIVE
TECHNOLOGY, WHICH MAY CAUSE DELAYS, ADD CONSIDERABLE EXPENSE OR REDUCE SALES
We currently rely on software that we have licensed from Sinclair Montrose
Healthcare plc of London, England for our Match.Net Staffing and Scheduling. We
will integrate this software with our software applications, services and
product offerings to centralize the scheduling and staffing functions for health
care providers in a secure Internet environment. We currently have an exclusive
license to the software, although exclusivity may terminate if we are unable to
meet milestones. This license may not continue to be available to us on
commercially reasonable terms in the future. The loss of this license could
result in delays or reductions of shipments of our MatchNet Staffing &
Scheduling product until equivalent software could be identified, developed,
licensed and integrated. In addition, other products and services we may offer
in the future may rely on licensed software. The loss of any current or future
license could result in delays in the introduction of our products and services,
add additional expense, and reduce sales of our products and services until
equivalent software could be developed, identified, licensed and integrated.
IF OUR TRANSACTION AND DATA PROCESSING FACILITY FAILS, CUSTOMER SATISFACTION
COULD DECLINE
We currently process substantially all of our customer transactions and
data at our facility in Albuquerque, New Mexico. Although we have safeguards for
emergencies, we do not have back-up facilities to process information if this
facility is not functioning. The occurrence of a major catastrophic event or
other system failure at our Albuquerque, New Mexico facility could interrupt
data processing or result in the loss of stored data. In addition, we depend on
the efficient operation of Internet connections from customers to our systems.
These connections, in turn, depend on the efficient operation of Web browsers,
Internet service providers and Internet backbone service providers, all of which
have had periodic operational problems or experienced outages. Any system
delays, failures or loss of data, whatever the cause, could reduce customer
satisfaction with our applications, services and product offerings.
IF SECURITY OF OUR CUSTOMER AND PATIENT INFORMATION IS COMPROMISED, PATIENT CARE
COULD SUFFER, WE COULD BE LIABLE FOR DAMAGES AND OUR REPUTATION COULD DECLINE
We retain confidential customer and patient information in our processing
centers. Therefore, it is critical that our facilities and infrastructure remain
secure and that our facilities and infrastructure are perceived by the
marketplace to be secure. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors, attacks by third parties or similar disruptive problems. If
we fail to meet our clients' expectations, we could be liable for damages and
our reputation could suffer. In addition, patient care could suffer and we could
be liable if our systems fail to deliver correct information in a timely manner.
Our insurance may not protect us from this risk.
IF OUR TRANSACTION HOSTING SERVICES SUFFER INTERRUPTIONS, OUR BUSINESS AND
REPUTATION COULD BE HARMED
Our customers have in the past experienced some interruptions with our
transaction hosting services. We believe that these interruptions will continue
to occur from time to time. These interruptions could be due to hardware and
operating system failures. We expect a large portion of our revenue to be
derived from customers who use our transaction hosting services. As a result,
our business will suffer if we experience frequent or long system interruptions
that result in the unavailability or reduced performance of our hosting. We
expect to experience occasional temporary capacity constraints
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due to sharply increased traffic, which may cause unanticipated system
disruptions, slower response times, impaired quality and degradation in levels
of customer service. If this were to continue to happen, our business and
reputation could be seriously harmed.
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL APPLICATIONS, SERVICES AND PRODUCT OFFERINGS
Competition could seriously harm our ability to sell additional products
and services. Potential competitors fall primarily into three categories: health
care Internet companies focused on providing connectivity and transactions
within business-to-business and business-to-consumer frameworks; traditional
health care information system vendors who seek to extend the services of their
core products using Internet-based technology; and traditional managed care
information system and outsourcing vendors who are focusing on extending the
services of their core products to the Internet. In addition, from time to time
our customers may develop applications, services and product offerings
competitive with those offered by us.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. Our
competitors may develop and successfully market Internet-based health care
products and services in a manner that could have an adverse effect on our
business model. See "Business -- Competition."
IF WE CANNOT EXPAND OUR MANAGEMENT SYSTEMS AND NETWORK INFRASTRUCTURE, WE MAY
EXPERIENCE DELAYS IN THE GROWTH OF OUR BUSINESS
In order to grow, we intend to rapidly expand our management, product
development, testing, network operations, marketing, sales and customer service
personnel over the next year. This growth has and will continue to place a
significant strain on our managerial, operational, financial and information
systems resources. We may not be able to effectively manage expansion of our
operations, and our facilities, systems, procedures or controls may not be
adequate to support our operations. Moreover, our systems may not accommodate
increased use while maintaining acceptable overall performance.
As we grow, we will also need to expand and adapt our network
infrastructure to accommodate additional users, increased transaction volumes
and changing customer requirements. So far, we have processed a limited number
and variety of transactions over our network infrastructure and only a limited
number of health care participants use our infrastructure. Many of our service
agreements contain performance standards. If we fail to meet these standards,
our customers could terminate their agreements with us. The loss of any of our
service agreements would cause a decline in our revenues. 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.
IF OUR OPERATING RESULTS VARY SIGNIFICANTLY DUE TO THE LENGTHY SALES AND
IMPLEMENTATION CYCLES FOR OUR PRODUCTS AND SERVICES, OUR REVENUES MAY BE DELAYED
AND OUR RESULTS OF OPERATIONS AND SHARE PRICE MAY FLUCTUATE
Because our applications, services and product offerings have lengthy sales
and implementation cycles, it is difficult for us to forecast the timing and
recognition of revenues from sales of our applications, services and product
offerings. Since we are unable to control many of the factors that will
influence our customers' buying decisions, the lengthy sales cycle could cause
our operating results to be below the expectations of analysts and investors.
A key element of our strategy is to market our applications, services and
product offerings to large organizations with significant data management and
access needs. The sales process normally involves a significant evaluation
process, and commitment of budgets may be subject to delays due to a customer's
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internal procedures for approving new expenditures and deploying new
technologies. The period of time between initial customer contact and a purchase
order can span up to three months or more.
In addition, we often must provide a significant level of education to our
prospective customers regarding the use and benefit of our applications,
services and product offerings, which may cause additional delays during the
evaluation and acceptance process. General concerns regarding year 2000
compliance may further delay purchasing decisions by prospective customers. Our
long and unpredictable sales cycle can result in delayed revenues, difficulty in
matching revenues with expenses and increased expenditures, which together may
contribute to fluctuations in our results of operations and share price.
WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW APPLICATIONS, SERVICES AND PRODUCTS OR IF THESE SOLUTIONS DO NOT
KEEP PACE WITH TECHNOLOGICAL CHANGES
Internet technologies are evolving rapidly and the technology used by any
electronic commerce business is subject to rapid change and obsolescence. If we
are not able to maintain and improve our products and develop new products that
keep pace with competitive product introductions and technological developments,
satisfy diverse and evolving customer requirements and achieve market
acceptance, we may lose existing customers or be unable to attract new
customers. For example, we currently are developing Physician Credentialing,
Electronic Medical Record, Case Management, Medication and Medical Assessment
Inquiry Systems, Physician Practice Management, MD Pay Accelerator, Online Drug
Store, Medical Supply Product, Health and Medical Bookstore products. We may not
be successful in developing and marketing these or other product enhancements or
new products that respond to technological advances by others on a timely or
cost-effective basis. In addition, such applications, services and product
offerings may contain licensed components which may be difficult to integrate or
may cause the solutions to be ineffective. These products, if developed, may not
achieve market acceptance. Any delay or problems in the installation or
implementation of new products or services may cause customers to forego
purchases from us and could cause them to purchase from our competitors.
IF WE ARE REQUIRED TO COMMIT UNANTICIPATED RESOURCES TO COMPLETE FIXED-PRICE
CONTRACTS, OUR OPERATING RESULTS MAY DECLINE
We had historically derived a majority of our revenue from contracts that
were billed on a time-and-materials basis. Beginning in 1998, a significant
portion of our revenue has been derived from contracts that were billed on a
fixed-price basis. These contracts specify certain obligations and deliverables
to be met by us regardless of our actual costs incurred. We cannot assure you
that we can successfully complete these contracts on budget, and our inability
to do so could seriously harm our business, financial condition and results of
operations.
Our failure to accurately estimate the resources required for a fixed-price
contract could cause our operating results to decline. In the past, we have been
required to commit unanticipated additional resources to complete certain
project plans during the project to ensure that the project was completed on
schedule. We may experience similar situations in the future.
IF COMPLIANCE WITH GOVERNMENT REGULATION OF HEALTH CARE BECOMES COSTLY AND
DIFFICULT FOR US AND OUR CUSTOMERS, WE MAY NOT BE ABLE TO GROW OUR BUSINESS
Participants in the health care industry are subject to extensive and
frequently changing regulation under numerous laws administered by governmental
entities at the federal, state and local levels, some of which are, and others
of which may be, applicable to our business. Furthermore, our health care
service provider, payer and plan customers are also subject to a wide variety of
laws and regulations that could affect the nature and scope of their
relationships with us.
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Laws regulating health care providers, health insurance, health maintenance
organizations and similar organizations, employee benefit plans and governmental
health benefit programs cover a broad array of subjects, including but not
limited to licensing, billing, collection and reimbursement, advertising,
confidentiality, financial relationships with, and referral of services and
goods among and to, suppliers and providers, mandated benefits and grievance and
appeal procedures. Furthermore, the federal Health Insurance Portability and
Accountability Act of 1996 mandates the use of standard transactions, standard
identifiers, security and other provisions by the year 2000.
These laws 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 applications, services and product
offerings, or make them less cost effective for our customers. Furthermore, the
impact of regulatory developments in the health care industry is complex and
difficult to predict, and we cannot guarantee that we will not be adversely
affected by new regulatory requirements or interpretations.
Some computer applications and software are considered medical devices and
are subject to regulation by the United States Food and Drug Administration, or
FDA. We do not believe that our current applications, services or product
offerings are subject to FDA regulation. If we expand our applications, services
and product offerings into areas subject to FDA regulation, complying with these
regulations could be time consuming, burdensome and expensive and could delay
our introduction of new products. For more information on government regulation
affecting our business, see "Business -- Government Regulation."
BECAUSE WE PROVIDE UTILIZATION REVIEW SERVICES, WE MAY INCUR LIABILITY
One of the functions of our applications is automatic adjudication of
whether or not a claim for payment or service should be denied or whether
existing coverage should be continued based upon particular plans or contracts
and industry-standard, clinical-support criteria. Our payer customers are
ultimately responsible for deciding whether to deny claims for payment or
medical services. It is possible, however, that liability may be asserted
against us for denial of payment of medical claims or medical service. The
contractual protections included in our customer contracts and our insurance
coverage may not be sufficient to protect us against such liability.
IF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL DO NOT REMAIN WITH US IN THE FUTURE,
WE MAY EXPERIENCE DIFFICULTY IN ATTRACTING AND RETAINING QUALIFIED PERSONNEL
Our future success depends upon the continued service of our executive
officers and other key employees as well as our ability to hire a significant
number of new employees. In particular, it would be difficult for us to replace
the services of our President and Chief Executive Officer, Lorine Sweeney. In
addition, we are particularly dependent on the continued services of software
developers with programming skills in extensible mark-up language, Java and
Oracle. Competition for these individuals is intense, and we may not be able to
attract, assimilate or retain additional highly qualified personnel in the
future. None of our executive officers or key personnel have employment
agreements with us, except for standard agreements we have with all of our
employees providing for confidentiality and invention assignment obligations. We
plan to obtain "key-person" life insurance policies covering key executive
officers.
WE MAY FACE PRODUCT-RELATED LIABILITIES THAT COULD FORCE US TO PAY DAMAGES WHICH
WOULD HURT OUR REPUTATION
While we and our customers test our applications, services and product
offerings, they may contain defects or result in system failures. These defects
or problems could result in the loss of or delay in generating revenue, loss of
market share, failure to achieve market acceptance, diversion of development
resources, injury to our reputation or increased insurance costs.
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Our contracts limit our liability arising from our errors; however, these
provisions may not be enforceable and may not protect us from liability. While
we have general liability insurance that we believe is adequate, including
coverage for errors and omissions, we may not be able to maintain this insurance
on reasonable terms in the future. In addition, our insurance may not be
sufficient to cover large claims and our insurer could disclaim coverage on
claims. If we are liable for an uninsured or underinsured claim or if our
premiums increase significantly, our financial condition could be materially
harmed.
IF WE DO NOT ESTABLISH AND MAINTAIN THE XCARE.NET BRAND, OUR REPUTATION COULD BE
ADVERSELY AFFECTED
In order to increase our customer base and expand our online traffic, we
must establish, maintain and strengthen the XCare.net brand. For us to be
successful in establishing our brand, health care professionals must perceive us
as offering quality, cost-effective, communications, information and
administrative services. Our reputation and brand name could be adversely
affected if we experience difficulties in introducing new applications, services
and product offerings, if these applications, services and product offerings are
not accepted by customers, if we are required to discontinue existing
applications, services and product offerings or if our products and services do
not function properly.
OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE WERE UNABLE TO MEET OUR
FUTURE CAPITAL REQUIREMENTS
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 expect that we will continue to experience
negative cash flow in the near term. Accordingly, we may need to raise
additional capital to support expansion, develop new or enhanced applications,
services and product offerings, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities. We may need to raise additional funds by selling debt or equity
securities, by entering into strategic relationships or through other
arrangements. We cannot assure you that we will be able to raise any additional
amounts on reasonable terms, or at all, when they are needed.
ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND DILUTE
STOCKHOLDER VALUE
We expect to acquire technologies and other health care technology
companies to increase the number and variety of applications, services and
product offerings we offer and to increase our customer base. To be successful,
we will need to identify applications, technologies and businesses that are
complementary to ours, integrate disparate technologies and corporate cultures
and manage a geographically dispersed company. Acquisitions could divert our
attention from other business concerns and expose us to unforeseen liabilities
or risks associated with entering new markets. Finally, we may lose key
employees while integrating these new companies. Integrating newly acquired
organizations and technologies into XCare.net could be expensive, time consuming
and may strain our resources. In addition, we may lose our current customers if
any acquired companies have relationships with competitors of our customers.
Consequently, we may not be successful in integrating any acquired businesses or
technologies and may not achieve anticipated revenue and cost benefits. The
health care industry is consolidating and we expect that we will face
intensified competition for acquisitions, especially from larger, better-funded
organizations. If we fail to execute our acquisition strategy successfully for
any reason, our business will suffer significantly.
We intend to pay for some of our acquisitions by issuing additional common
stock and this could dilute our stockholders. We may also use cash to buy
companies or technologies in the future. If we do use cash, we may need to incur
debt to pay for these acquisitions. Acquisition financing may not be available
on favorable terms or at all. In addition, we may be required to amortize
significant amounts
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of goodwill and other intangible assets in connection with future acquisitions,
which would seriously harm our results of operations.
IF OUR PROPRIETARY TECHNOLOGY IS SUBJECTED TO INFRINGEMENT CLAIMS WE MAY HAVE TO
PAY DAMAGES OR SEEK A LICENSE FROM THIRD PARTIES, WHICH COULD DELAY SALES OF OUR
PRODUCTS, AND IF OUR PROPRIETARY TECHNOLOGY IS INFRINGED UPON, WE MAY EXPERIENCE
LOSSES
Our intellectual property is important to our business. We expect that we
could be subject to intellectual property infringement claims as the number of
our competitors grows and the functionality of our applications overlap with
competitive offerings. These claims, whether or not meritorious, could be
expensive and divert our attention from operating our company. If we become
liable to third parties for infringing their intellectual property rights, we
would be required to pay a substantial damage award and to develop noninfringing
technology, obtain a license or cease selling the applications that contain the
infringing intellectual property. We may be unable to develop noninfringing
technology or obtain a license on commercially reasonable terms, or at all. In
addition, we may not be able to protect against misappropriation of our
intellectual property. Third parties may infringe upon our intellectual property
rights, we may not detect this unauthorized use and we may be unable to enforce
our rights. See "Business -- Intellectual Property."
IF WE ARE NOT ABLE TO PROTECT AND ENFORCE OUR TRADENAMES, INTERNET ADDRESS AND
INTELLECTUAL PROPERTY RIGHTS, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAY SUFFER
We seek to protect our brand and our other intellectual property through a
combination of copyright, trade secret and trademark laws. Our XCare.net brand
is an important component of our business strategy. We have recently filed
federal trademark applications for "XCare.net," "XCare," "Solution Channels" and
"the Business to Business Platform for eHealth." We cannot guarantee that any of
these trademark applications will be granted. If we are unable to secure
registration of these marks or otherwise obtain the right to use these marks
under contract or common law, we may be required to stop using these marks. This
could cause confusion to our customers and in the marketplace and harm our
business, financial condition and results of operations.
In addition, our future success and ability to compete in our markets may
be dependent in part on our proprietary rights to products and services which we
develop. We rely on copyright, trademark and trade secret laws and contractual
restrictions. We also expect to rely on patents to protect our proprietary
technology and to rely on similar proprietary rights of any of our technology
providers. 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 customers and potential customers seeking proprietary
information, and limit access to and distribution of our software, documentation
and other proprietary information. We cannot assure you that the steps we take
or the steps such providers take would be adequate to prevent misappropriation
of our respective proprietary rights.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR PRODUCTS OR INTERNAL SYSTEMS MAY INVOLVE
SIGNIFICANT TIME AND EXPENSE AND MAY REDUCE OUR FUTURE SALES
Many currently installed computer systems and software products store dates
using only the last two digits of the calendar year. As a result, such systems
may not be able to distinguish whether "00" means 1900 or 2000, which may cause
system failures or erroneous results. Year 2000 problems could subject us to
liability claims and disrupt our customers' purchasing patterns, either of which
could harm our business.
Our applications, services and product offerings operate in complex network
environments and directly or indirectly interact with a number of other hardware
and software systems that we cannot
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adequately evaluate for year 2000 compliance. We may face claims based on year
2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system. Although we have not
been a party to any litigation or arbitration proceeding involving our solutions
related to year 2000 compliance issues, we may in the future be required to
defend our applications, services and product offerings in such proceedings, or
to negotiate resolutions of claims based on year 2000 issues. Defending and
resolving year 2000-related disputes, regardless of the merits of such disputes,
and any liability we have for year 2000-related damages, including consequential
damages, could be expensive to us. In addition, we believe that customers and
potential customers limit purchases of new applications, services and product
offerings due to year 2000 issues as companies expend significant resources to
correct or upgrade their current software systems for year 2000 compliance.
These expenditures may result in reduced funds available to purchase our
applications, services and product offerings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GOVERNMENT REGULATION OF INTERNET COMMUNICATIONS MAY IMPACT OUR BUSINESS BY
DIRECTLY OR INDIRECTLY INCREASING OUR COSTS
We provide Internet services, in part, through data transmissions over
public telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for wireline communications. We currently are not
subject to direct regulation by the Federal Communications Commission or any
other governmental agency, other than regulations applicable to businesses
generally.
However, in the future we could become subject to regulation by the Federal
Communications Commission or another regulatory agency as a provider of basic
telecommunications services. Changes in the regulatory environment relating to
the application of access charges and Universal Service Fund support payments to
Internet and Internet telephony providers, regulation of Internet services,
including Internet telephony, and other regulatory changes that directly or
indirectly affect costs imposed on Internet or Internet telephony providers,
telecommunications costs or increase in the likelihood or scope of competition,
could harm our business and financial results.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL
OVER US AND MAY APPROVE OR REJECT MATTERS CONTRARY TO OUR STOCKHOLDERS' VOTE
Our executive officers and directors, together with their affiliates, will
beneficially own an aggregate of approximately 61.2% of our outstanding common
stock following the completion of the offering. These stockholders, if acting
together, will be able to significantly influence all matters requiring approval
by our stockholders, including the election of directors and the approval of
mergers or similar transactions even if other stockholders disagree. See
"Principal Stockholders."
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY
Provisions of our certificate of incorporation, bylaws, other agreements
and Delaware law could make it more difficult for a third-party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock."
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND OUR INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
We intend to use the proceeds from the offering for general corporate
purposes, including working capital, capital expenditures and repayment of
long-term indebtedness, and may use a portion of proceeds to acquire other
businesses, products or technologies. Our management will have considerable
discretion in the application of the net proceeds of this offering, and you will
not have the opportunity, as part of your investment decision, to assess whether
the proceeds are being used appropriately. The net proceeds of this offering may
be used for corporate purposes that do not increase our results of
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operations or our market value. Pending any such uses, we plan to invest the net
proceeds of the offering in investment-grade, interest-bearing securities. We
cannot predict that such investments will yield a favorable return. See "Use of
Proceeds."
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
the offering. The initial public offering price may not be indicative of the
prices that will prevail in the public market after the offering, and the market
price of the common stock could fall below the initial public offering price. In
addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
technology companies and which have often been unrelated to the operating
performance of such companies. See "Underwriting."
WE MAY BE SUBJECT TO LITIGATION IF OUR COMMON STOCK PRICE IS VOLATILE
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against the company. The institution of class action litigation
against us could result in substantial costs to us and a diversion of our
management's attention and resources which would harm our business, financial
condition and results of operations. Any adverse determination in this
litigation could also subject us to significant liabilities.
SHARES ELIGIBLE FOR FUTURE SALE AFTER THE OFFERING COULD CAUSE OUR STOCK PRICE
TO FALL
If our stockholders sell substantial amounts of our common stock in the
public market following the offering, the market price of our common stock could
fall. Such sales also might make it more difficult for XCare.net to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Based upon the number of our shares outstanding as of September 30,
1999, upon completion of the offering, we will have outstanding 15,354,511
shares of common stock, assuming no exercise of the underwriters' option to
purchase additional shares and no exercise of outstanding options after
September 30, 1999. Of these shares, the 5,000,000 shares sold in the offering
will be freely tradable. The remaining 10,354,511 shares of common stock will be
available for sale in the public market 180 days after the date of this
prospectus or afterwards.
Based on the number of our shares outstanding as of September 30, 1999,
after the offering, the holders of approximately 9,797,348 shares of common
stock, which represents 64% of our outstanding stock after completion of the
offering, will be entitled to certain rights to have the resale of their shares
registered under the Securities Act of 1933. If these holders, by exercising
their registration rights, cause a large number of securities to be registered
and sold in the public market, such sales could materially and adversely affect
the market price for our common stock. In addition, if we were to include in a
registration statement shares held by these holders pursuant to the exercise of
their registration rights, such sales may impede our ability to raise needed
capital. See "Shares Eligible for Future Sale" and "Underwriting."
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. Investors
participating in the offering of our common stock will pay a price per share,
which substantially exceeds the value of our assets after subtracting our
liabilities. These investors will contribute 71.4% of the total amount paid to
fund us but will own only 32.6% of our outstanding shares. If the holders of
outstanding options or warrants exercise those options or warrants, you will
suffer further dilution. See "Dilution."
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IF OUR ACTUAL RESULTS DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS, OUR STOCK PRICE COULD FALL
This prospectus includes forward-looking statements based on our current
expectations and projections about future events. These statements are subject
to risks, uncertainties and assumptions about us, including, among other things:
- uncertainty of our future operating results;
- delays or losses of sales due to long sales and implementation cycles for
our products and services;
- actions of our competitors; and
- other factors discussed under "Risk Factors."
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USE OF PROCEEDS
The net proceeds to us from the sale of shares of our common stock in the
offering at an estimated initial public offering price of $12.00 per share,
after deducting estimated expenses of $1.5 million and underwriting discounts
and commissions, are estimated to be approximately $54.3 million (approximately
$62.7 million if the underwriters' over-allotment option is exercised in full).
We expect to use the net proceeds from this offering for general corporate
purposes, working capital and capital expenditures to fund our operations,
including to continue expanding and enhancing our sales and marketing operations
and to continue expanding our product offerings. We have not yet determined our
expected use of these proceeds, but we currently anticipate that we will incur
approximately $3 million in research and development expenses, $7 million in
sales and marketing expenses, $2 million in hardware and software purchases and
other capital expenditures and $6 million in general and administrative expenses
over the next 12 months. Actual expenditures may vary substantially from these
estimates. The amounts and timing of our actual expenditures will depend upon
numerous factors, including the status of our product development efforts,
marketing and sales activities, and the amount of cash generated by our
operations and competition. We may find it necessary or advisable to use
portions of the proceeds for other purposes.
A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies, although there are no current plans, negotiations or discussions
for any such transactions. Pending use of the net proceeds for the above
purposes, we intend to invest such funds in short-term, interest-bearing,
investment grade obligations.
DIVIDEND POLICY
Except for dividends declared in connection with our status as an S
corporation prior to January 1996, we have never declared or paid any cash
dividends on our common stock or other securities. We currently anticipate that
we will retain all of our future earnings for use in the expansion and operation
of our business and do not anticipate paying any cash dividends in the
foreseeable future.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
1999 on an actual, pro forma and pro forma as adjusted basis. The pro forma
capitalization reflects the automatic conversion of all outstanding shares of
our convertible preferred stock into common stock upon the closing of this
offering, the assumed cashless exercise of all outstanding common and
convertible preferred stock warrants with exercise prices below an assumed
initial public offering price, the conversion of the convertible preferred stock
issued upon the assumed exercise of the latter warrants into common stock, and
amendments to our certificate of incorporation effective after September 30,
1999. The pro forma as adjusted capitalization reflects our receipt of estimated
net proceeds from the sale of the 5,000,000 shares of common stock in this
offering (at an estimated initial public offering price of $12.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
(UNAUDITED)
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Long-term debt............................................. $ 25 $ 25 $ 25
-------- -------- --------
Series A mandatorily redeemable convertible preferred
stock, $0.01 par value; 6,000,000 shares authorized;
2,450,000 shares outstanding, actual; no shares authorized
or outstanding, pro forma and pro forma as adjusted........ 6,793 -- --
Series B mandatorily redeemable convertible preferred
stock, $0.01 par value; 75,000,000 shares authorized;
63,053,144 shares outstanding, actual; no shares
authorized or outstanding, pro forma and pro forma as
adjusted................................................. 16,944 -- --
Value ascribed to mandatorily redeemable convertible
preferred stock warrants................................. 84 -- --
-------- -------- --------
23,821 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, no shares authorized or
outstanding, actual; 5,000,000 shares authorized, no
shares outstanding, pro forma and pro forma as
adjusted.............................................. -- -- --
Common stock, $0.01 par value; 12,500,000 shares
authorized, actual; 100,000,000 shares authorized, pro
forma and pro forma as adjusted; 557,163 shares
outstanding, actual; 10,354,511 shares outstanding,
pro forma; 15,354,511 shares outstanding, pro forma as
adjusted.............................................. 6 104 154
Additional paid-in capital............................... 3,120 26,843 81,093
Unearned compensation.................................... (2,383) (2,383) (2,383)
Accumulated deficit...................................... (13,329) (13,329) (13,329)
-------- -------- --------
Total stockholders' equity (deficit)................ (12,586) 11,235 65,535
-------- -------- --------
Total capitalization................................ $ 11,260 $ 11,260 $ 65,560
======== ======== ========
</TABLE>
We expect to incur a charge to operations of approximately $116,000 that
will further increase the accumulated deficit and decrease unearned compensation
upon completion of this offering, representing the acceleration of the vesting
of an option granted to a consultant.
Outstanding shares in the above table excludes 1,491,492 shares issuable
upon exercise of outstanding options at September 30, 1999, with a weighted
average exercise price of $1.35 per share, 541,345 shares reserved for future
issuance under our stock plan after September 30, 1999, and 750,000 shares
reserved for future issuance under our director option plan and employee stock
purchase plan, both of which become effective upon the closing of the offering.
See "Management -- Employee Benefit Plans" and notes 4, 6 and 9 of notes to the
financial statements.
19
<PAGE> 23
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $10.6 million or $1.02 per share of common stock, after giving
effect to the conversion of our outstanding convertible preferred stock, the
assumed cashless exercise of all outstanding common and convertible preferred
stock warrants with exercise prices below an assumed initial public offering
price, and the conversion of the convertible preferred stock issued upon assumed
exercise of the warrants into common stock. Pro forma net tangible book value
per share represents total tangible assets less total liabilities, divided by
the number of outstanding shares of common stock after giving effect to the
transactions described in the previous sentence.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of the 5,000,000 shares
of common stock in this offering at an assumed initial public offering price of
$12.00 per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value at September 30, 1999 would have been approximately $64.9 million or $4.23
per share. This represents an immediate increase in net tangible book value to
existing stockholders of $3.21 per share and an immediate dilution to new public
investors of $7.77 per share. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of September
30, 1999.................................................... $1.02
Increase per share attributable to new public investors... 3.21
-----
Pro forma net tangible book value per share after
offering.................................................. 4.23
------
Dilution per share to new public investors.................. $ 7.77
======
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1999, the difference between the number of shares of common stock purchased from
us, the total consideration paid, and the average price per share paid by
existing stockholders and by new public investors before deducting estimated
underwriting discounts and commissions and offering expenses payable by us,
using an assumed initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 10,354,511 67.4% $24,085,569 28.6% $ 2.33
New public investors.......... 5,000,000 32.6 60,000,000 71.4 12.00
---------- ------ ----------- ------
Total.................... 15,354,511 100.0% $84,085,569 100.0%
========== ====== =========== ======
</TABLE>
As of September 30, 1999, we had outstanding options to purchase 1,491,492
shares of common stock at a weighted average exercise price of $1.35 per share.
In addition, we have reserved 541,345 additional shares for future issuance
under our stock plan at September 30, 1999, and 750,000 shares reserved for
future issuance under our director option plan and employee stock purchase plan,
both of which become effective upon the closing of the offering. To the extent
that any of these options or warrants are exercised, there will be further
dilution to new investors. See "Management -- Employee Benefit Plans" and notes
4, 6 and 9 of notes to the financial statements.
20
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, our financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus. The balance sheet data as of
December 31, 1997 and 1998 and statement of operations data for each of the
three years ended December 31, 1998 have been derived from our audited financial
statements and the notes thereto included elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1994 and 1995 and
the balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
our historical financial statements not included in this prospectus. The
unaudited statement of operations data for the nine-month periods ended
September 30, 1998 and 1999 and the balance sheet data as of September 30, 1999
are derived from unaudited financial statements included in this prospectus
which have been prepared on the same basis as the audited financial statements
and, in our opinion, include all adjustments, consisting only of normal
recurring adjustments, which are necessary to present fairly the results of
operations and financial position of XCare.net for the period in accordance with
generally accepted accounting principles. Historical results are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................... $4,310 $7,708 $ 9,726 $ 5,984 $ 2,270 $ 1,564 $ 2,654
------ ------ ------- ------- ------- ------- -------
Costs and expenses:
Cost of revenue........................... 1,450 2,593 3,744 4,575 2,086 1,440 2,421
Sales and marketing....................... 181 236 1,369 2,531 965 792 545
General and administrative................ 1,121 1,465 2,220 2,436 2,194 1,389 1,185
Research and development.................. 1,368 1,789 3,190 4,212 670 594 417
Impairment of long-lived assets and
abandonment of operating lease.......... -- -- -- 887 -- -- --
Stock compensation expense................ -- -- -- -- -- -- 112
------ ------ ------- ------- ------- ------- -------
Total costs and expenses........... 4,120 6,083 10,523 14,641 5,915 4,215 4,680
Income (loss) from operations............... 190 1,625 (797) (8,657) (3,645) (2,651) (2,026)
Settlements received from contract
terminations.............................. -- -- 2,250 250 -- -- --
Interest income (expense), net.............. (77) (42) -- 5 (437) (306) (150)
------ ------ ------- ------- ------- ------- -------
Income (loss) before income taxes........... 113 1,583 1,453 (8,402) (4,082) (2,957) (2,176)
Income tax (benefit) expense................ -- -- 1,200 (1,078) -- -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss)........................... $ 113 $1,583 $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
====== ====== ======= ======= ======= ======= =======
Net income (loss) per common share -- basic
and diluted............................... $ 0.19 $ 2.64 $ 0.53 $(18.92) $(10.64) $ (7.71) $ (5.09)
====== ====== ======= ======= ======= ======= =======
Weighted average common shares outstanding--
basic and diluted......................... 596 599 476 390 390 390 438
====== ====== ======= ======= ======= ======= =======
Pro forma:
Income before income taxes................ $ 113 $1,583
Net income................................ $ 65 $ 980
Pro forma net income (loss) per common
share -- basic and diluted................ $ 0.11 $ 1.64 $ (1.01) $ (0.32)
====== ====== ======= =======
Pro forma weighted average common shares
outstanding -- basic and diluted.......... 596 599 4,058 6,715
====== ====== ======= =======
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 123 $ 172 $1,394 $ 697 $ 198 $ 11,031
Working capital........................... 61 840 243 (952) (5,335) 10,222
Total assets.............................. 1,266 4,190 4,492 4,026 2,805 13,523
Long-term debt............................ 402 1,012 1,317 939 284 25
Mandatorily redeemable convertible
preferred stock......................... -- -- -- 6,728 6,827 23,821
Stockholders' equity (deficit)............ 347 1,770 842 (6,537) (10,620) (12,586)
</TABLE>
In reviewing the above data, you should consider the following:
- During 1996, a major customer terminated its contract with us and paid
$2.3 million to settle all claims arising from the termination. During
1997, another major customer terminated its contract with us and paid
$250,000 to settle all claims associated with the termination.
- As a result of the contract terminations referred to above, during 1997
we abandoned an operating lease and incurred impairment charges for
related fixed assets aggregating $887,000.
- Prior to January 1, 1996, XCare.net was an S corporation for federal and
state income tax purposes, and, accordingly, our income was taxed
directly to our stockholders. Pro forma income before income taxes and
pro forma net income and pro forma net income (loss) per common share for
the years ended December 31, 1994 and 1995 give effect to pro forma
adjustments that reflect the federal and state income taxes that would
have been recorded if XCare.net had been a C corporation prior to January
1, 1996.
- See note 1 of notes to the financial statements for a description of the
method used to compute net income (loss) per share and pro forma net loss
per common share for all periods presented.
- During June and July 1999, we completed a sale of Series B convertible
preferred stock with net proceeds totaling $13.8 million, of which $7.3
million was received in June 1999 and $6.5 million was received in July
1999.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in revenue,
gross margins and anticipated expense levels, as well as other statements
including words such as "anticipate," "believe," "plan," "estimate," "expect"
and "intend" and other similar expressions constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" as well as other risks and
uncertainties referenced in this prospectus.
OVERVIEW
Xcare.net is an electronic commerce service provider for health care
businesses. We have developed an Internet-based technology platform using
extensible mark-up language, or XML, to process health care transactions and
provide related services for payers, providers and other health care industry
participants. We process transactions such as eligibility checking, claims
submission, referral processing, physician credentialling, and appointment
scheduling. We also provide consulting services to define, develop and implement
Internet healthcare strategies as well as Web-site hosting, transaction support
and maintenance services for our customers.
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into a community to form an Internet exchange. We use the XCare.net
platform to deliver a broad range of applications, services and electronic
product offerings that streamline and automate high-volume, data-intensive
transactions and processes.
We commenced operations in March 1989, but we did not begin to focus on
Internet-based health care solutions until mid-1998. We have historically
derived a significant portion of our revenue from sales of mainframe and
client-server software for managed health care systems and from providing
services to health care organizations seeking to outsource administrative
functions. We intend to derive an increasing portion of our future revenue from
our Internet-based applications, services and product offerings. Due to our
limited operating history in the Internet-based health care market, it is
difficult for us to predict with any accuracy our future results of operations.
Accordingly, we believe that our historical financial results are not
necessarily indicative of our future financial performance.
At the end of the first quarter of 1996, our largest customer at the time,
who accounted for approximately 67% of 1996 revenue, changed its information
technology strategy and terminated its contract with us. In June 1996, the
customer paid approximately $2.3 million to settle all claims arising under the
termination.
In the first quarter of 1997, we obtained financing from new investors
through the issuance of Series A convertible preferred stock. This financing
enabled us to develop and pursue a new strategic plan to supplement our
mainframe-based business with client-server applications and services. In
pursuing this strategy, we increased our expenditures in marketing, research and
development, and general administration.
At the beginning of the third quarter of 1997, our largest customer at the
time, who accounted for approximately 74% of 1997 revenue, decided to pursue an
alternative software approach and terminated its contract with us. In August
1997, the customer paid $250,000 to settle all claims arising under the
termination. In response, we reduced total personnel by 40% and 26%, as well as
other expenditures, during the fourth quarter of 1997 and the first quarter of
1998, respectively.
Also at the end of 1997 and during the first quarter of 1998, we obtained
additional financing through the issuance of convertible promissory notes. This
financing allowed us to continue to license
23
<PAGE> 27
and implement our client-server based product to new customers and begin
development of our Internet-based applications and services. Notwithstanding
this financing, we had limited available working capital during the latter part
of 1998 through the first part of 1999, causing us to reduce our sales and
marketing, research and development, and general and administration expenditures
from 1997 levels.
At the end of 1998, we obtained additional financing from our existing
investors through the issuance of convertible promissory notes, and in June and
July 1999, we obtained financing through the issuance of Series B convertible
preferred stock. These financings have enabled us to add personnel and other
resources to facilitate the development and marketing of the new Internet-based
applications, services and product offerings.
For contracts entered into subsequent to January 1, 1998, we recognize
revenue in accordance with the provisions of Statement of Position 97-2,
"Software Revenue Recognition." We derive revenue from license fees and related
services under the terms of fixed price contracts. Maintenance revenue is
derived from agreements for supporting and providing periodic updates to
licensed software. Consulting revenue consists of revenue from consulting
services provided pursuant to time and materials contracts. Transaction
processing revenue is derived from outsourcing and transaction hosting services
and is recognized on a per-transaction basis as services are performed.
License fees and related services revenue is generally recognized from
fixed price contracts using the percentage-of-completion method of accounting
where collectibility of fees is probable. Where collectibility of fees is not
probable, we defer revenue and related costs as deferred contract costs and
recognize revenue and cost of revenue as cash is collected.
We may encounter budget and schedule overruns on fixed price contracts
caused by increased material, labor or overhead costs. Adjustments to cost
estimates are made in the periods in which the facts requiring such revisions
become known. Estimated losses, if any, are recorded in the period in which
current estimates of total contract revenue and contract costs indicate a loss.
We do not require collateral for our receivables and an allowance is maintained
for potential credit losses.
Maintenance revenue is recorded as unearned revenue and is recognized
ratably over the service period, which is generally 12 months. When maintenance
is bundled with the original license fee arrangement, its fair value is deferred
and recognized during the period such services are provided.
Revenue from consulting services provided pursuant to time-and-materials
contracts is recognized as the services are performed.
For contracts entered into prior to January 1, 1998, we recognized revenue
in accordance with Statement of Position 91-1, "Software Revenue Recognition."
Our revenue recognition for such pre-1998 contracts was substantially the same
as that discussed above.
For the nine months ended September 30, 1999, sales to Methodist Care, Inc.
accounted for 29% of revenue, sales to American Medical Pathways, Inc. accounted
for 19% of revenue, sales to Quest Diagnostics Incorporated accounted for 17% of
revenue and sales to Brokerage Services, Inc. accounted for 17% of revenue. If
we do not generate as much revenue from these major customers as we expect to,
or if we lose any of them as customers, our revenue will be significantly
reduced.
We incurred net losses and losses from operations for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997. As of
September 30, 1999, we had an accumulated deficit of approximately $13.3
million. Since we began developing and marketing our Internet-based health care
applications, services, and product offerings in early 1999, we have funded our
business primarily by borrowing funds and from the sale of convertible preferred
stock, not from cash generated by our business. We expect to continue to incur
significant sales and marketing, research and development and general and
administrative expenses. As a result, we will experience losses and negative
cash flows for the foreseeable future. Factors which may prevent us from
achieving or maintaining profitability and cause our stock price to decline
include the demand for and acceptance of
24
<PAGE> 28
our solutions, and our ability to attract new customers, as well as a number of
other factors described in the "Risk Factors" section.
During the nine months ended September 30, 1999, in connection with stock
options granted to certain employees under the stock plan, we have recorded
unearned stock compensation representing the difference between the exercise
price of the options and the deemed fair value of our common stock at the date
of grant. This unearned stock compensation will be amortized to expense over the
period during which the options or common stock subject to repurchase vest,
generally four years, using an accelerated method as described in Financial
Accounting Standards Board Interpretation No. 28. Subsequent to September 30,
1999, the Company granted additional options with exercise prices below the
deemed fair value of the Company's common stock at the date of grant and will
record unearned compensation of approximately $233,000 in the fourth quarter of
1999 to be amortized over the period of vesting. We also expect to incur a
charge to operations of approximately $116,000 that will further increase the
accumulated deficit and decrease unearned compensation upon completion of this
offering, representing the acceleration of the vesting of an option granted to a
consultant. Amortization of unearned stock compensation amounted to
approximately $112,000 during the nine months ended September 30, 1999. We
expect to recognize amortization expense related to unearned compensation for
the aforementioned grants of approximately $397,000 in the fourth quarter of
1999, $1.4 million in 2000, $538,000 in 2001, $243,000 in 2002 and $47,000 in
2003.
In September 1999 Laidlaw Inc., the Canadian parent company of American
Medical Response, Inc. announced its intention to divest its interest in that
company in order to focus on its transportation business. American Medical
Response, Inc. is the parent company of one of our customers, American Medical
Pathways, Inc. If such a sale is consummated, and the new owner decided to
terminate our agreement, there would likely be a material adverse impact on our
future earnings and cash flow.
RESULTS OF OPERATIONS
The following table sets forth financial data for the periods indicated as
a percentage of revenue.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -----------------
1996 1997 1998 1998 1999
----- ------ ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue............................ 38.5 76.5 91.9 92.1 91.2
Sales and marketing........................ 14.1 42.3 42.5 50.6 20.5
General and administrative................. 22.8 40.7 96.7 88.8 44.7
Research and development................... 32.8 70.4 29.5 38.0 15.7
Impairment of long-lived assets and
abandonment of operating lease.......... -- 14.8 -- -- --
Stock compensation expense................. -- -- -- -- 4.2
----- ------ ------ ------ -----
Total costs and expenses........... 108.2 244.7 260.6 269.5 176.3
----- ------ ------ ------ -----
Loss from operations......................... (8.2) (144.7) (160.6) (169.5) (76.3)
Settlements received from contract
terminations............................... 23.1 4.2 -- -- --
Interest income (expense), net............... -- 0.1 (19.2) (19.6) (5.7)
----- ------ ------ ------ -----
Income (loss) before income taxes............ 14.9 (140.4) (179.8) (189.1) (82.0)
----- ------ ------ ------ -----
Income tax (benefit) expense................. 12.3 (18.0) -- -- --
----- ------ ------ ------ -----
Net income (loss)............................ 2.6% (122.4)% (179.8)% (189.1)% (82.0)%
===== ====== ====== ====== =====
</TABLE>
25
<PAGE> 29
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue. Revenue increased 70% to $2.7 million for the nine months ended
September 30, 1999 from $1.6 million for the nine months ended September 30,
1998. This increase reflects revenue recognized from new customers coupled with
an increase in average total arrangement fees as compared to average total
arrangement fees in the nine months ended September 30, 1998 partially offset by
decreased transaction processing revenue, as two customers did not continue
their transaction processing arrangements after they completed implementation of
our software.
Cost of revenue. Cost of revenue includes personnel and related overhead
costs, payments to third party consultants who assist with implementation and
support services, facilities costs and equipment depreciation. Cost of revenue
increased 68% to $2.4 million for the nine months ended September 30, 1999 from
$1.4 million for the nine months ended September 30, 1998. This increase
reflects the cost of additional third party consultants utilized to support the
current license implementation contracts and custom development projects, as
well as the amortization of purchased software. Cost of revenue as a percentage
of revenue was relatively consistent between the two nine-month periods.
Sales and marketing. Sales and marketing expenses consist of personnel and
related overhead costs, including commissions and travel expenses, field sales
office expenses, and advertising and promotion costs. Sales and marketing
expenses decreased 31% to $545,000 for the nine months ended September 30, 1999
from $792,000 for the nine months ended September 30, 1998, representing 21% and
51% of revenue, respectively. The decrease in sales and marketing expenses in
absolute dollars and as a percentage of revenue reflects a 15% reduction in
sales force personnel, and other promotional marketing activities as a result of
the limited working capital available during the nine months ended September 30,
1999 as compared to the nine months ended September 30, 1998. During the third
quarter we began to expand our sales and marketing organization using the
proceeds from the issuance of the Series B convertible preferred stock received
in June and July 1999.
General and administrative. General and administrative expenses include
personnel and related overhead costs for our executive, administrative, finance
and human resources functions, as well as legal and accounting fees. General and
administrative expenses decreased 15% to $1.2 million for the nine months ended
September 30, 1999 from $1.4 million for the nine months ended September 30,
1998, representing 45% and 89% of revenue, respectively. General and
administrative costs in absolute dollars were relatively consistent in absolute
dollars in both periods. However, general and administrative expenses decreased
as a percentage of revenue reflecting the 70% increase in revenue, as discussed
above, during the nine months ended September 30, 1999.
Research and development. Research and development expenses include
personnel and related overhead costs for product development, enhancements to
existing applications and services, and quality assurance activities. Research
and development expenses decreased 30% to $417,000 for the nine months ended
September 30, 1999 from $594,000 for the nine months ended September 30, 1998,
representing 16% and 38% of total revenue, respectively. The decrease in
research and development expenses in absolute dollars and as a percentage of
revenue reflects a reduction in the number of third party consultants used
during the nine months ended September 30, 1999 as compared to nine months ended
September 30, 1998. During the nine months ended September 30, 1998, these
consultants assisted in the development of the XCare.net platform.
Stock compensation expense. During the third quarter of 1999, we recorded
aggregate unearned compensation of $2.4 million in connection with the grant of
certain stock options. Amortization of such compensation amounted to
approximately $112,000 during the nine months ended September 30, 1999.
Interest income (expense), net. Interest income (expense), net includes
interest expense on our convertible promissory notes and capital lease
obligations partially offset by interest income on cash and cash equivalent
balances. Interest expense, net of interest income, decreased 51% to $150,000
for the nine months ended September 30, 1999 from $306,000 for the nine months
ended September 30, 1998
26
<PAGE> 30
due to the conversion of the convertible promissory notes to Series B
convertible preferred stock in June 1999.
Provision for (benefit from) income taxes. No provision for federal and
state income taxes has been recorded for the nine months ended September 30,
1999 or 1998 as we have incurred net operating losses for each of these periods.
We believe that, based on the history of losses and other factors, the weight of
available evidence indicates that it is more likely than not that we will not be
able to realize our deferred tax assets, and thus a full valuation allowance has
been recorded against such assets as of September 30, 1999 and 1998.
Net income (loss). Net loss decreased 26% to $2.2 million for the nine
months ended September 30, 1999 from $3.0 million for the nine months ended
September 30, 1998, primarily due to a 70% increase in revenue, partially offset
by an increase in total costs and expenses as discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue. Revenue decreased 62% to $2.3 million for the year ended December
31, 1998 from $6.0 million for the year ended December 31, 1997. This decrease
reflects a significant reduction in consulting revenue due to the loss of a
major customer during July 1997 that accounted for approximately $4.4 million,
or 74%, of total 1997 revenue.
Cost of revenue. Cost of revenue decreased 54% to $2.1 million for the year
ended December 31, 1998 from $4.6 million for the year ended December 31, 1997.
As a percentage of revenue, cost of revenue increased to 92% in 1998 from 77% in
1997. The decrease in absolute dollars reflects a 55% reduction in the number of
employees who perform implementation services due to limited availability of
working capital in 1998. The increase in cost of revenue as a percentage of
revenue reflects decreased revenue associated with a major contract termination
in 1997 which was not completely offset by a decline in cost of revenue due to
certain fixed infrastructure costs which are included in cost of revenue.
Sales and marketing. Sales and marketing expenses decreased 62% to $965,000
for the year ended December 31, 1998 from $2.5 million for the year ended
December 31, 1997, representing 43% and 42% of revenue, respectively. The
decrease in absolute dollars reflects a 29% reduction in sales and marketing
personnel, and decreased travel and entertainment costs due to the loss of the
significant customer described above. In addition, we incurred higher costs for
marketing, consulting, advertising and promotion and attendance at trade shows
in 1997 as compared to 1998 in connection with our new strategic focus on
client-server applications and services, including various marketing studies and
analyst research projects on the client-server market.
General and administrative. General and administrative expenses decreased
10% to $2.2 million for the year ended December 31, 1998 from $2.4 million for
the year ended December 31, 1997, representing 97% and 41% of revenue,
respectively. The increase as a percentage of revenue is due to significantly
reduced revenue and losses on the disposal of fixed assets. The decrease in
absolute dollars reflects a 68% reduction in general and administrative
management personnel due to the loss of the significant customer described
above, which was partially offset by charges relating to the loss on disposal of
property and equipment referred to above.
Research and development. Research and development expenses decreased 84%
to $670,000 for the year ended December 31, 1998 from $4.2 million for the year
ended December 31, 1997, representing 30% and 70% of revenue, respectively. The
decrease in absolute dollars reflects management's decision to reduce research
and development staff by 96%, and support costs, as a result of the significant
decrease in revenue. In addition, during 1997, we had focused on developing and
maintaining two separate software applications, one for the mainframe market and
one for the client-server market, while in 1998 we were developing only the
client-server product.
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<PAGE> 31
Interest income (expense), net. Interest expense, net, significantly
increased to $437,000 for the year ended December 31, 1998 from $5,000 of
interest income for the year ended December 31, 1997, as a result of interest
expense incurred on the December 1997 and April 1998 convertible promissory
notes.
Provision for (benefit from) income taxes. No provision for federal and
state income taxes has been recorded for the year ended December 31, 1998, as we
incurred a net operating loss. We believe that based on the history of losses
and other factors, the weight of available evidence indicates that it is more
likely than not that we will not be able to realize our deferred tax assets, and
thus a full valuation allowance has been recorded as of December 31, 1998.
Net income (loss). Net loss decreased 44% to $4.3 million for the year
ended December 31, 1998 from $7.3 million for the year ended December 31, 1997,
primarily due to a 60% decrease in total costs and expenses as discussed above,
partially offset by a decrease in total revenue.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue decreased 38% to $6.0 million for the year ended December
31, 1997 from $9.7 million for the year ended December 31, 1996. This decrease
reflects a significant reduction in consulting revenue due to the loss of a
major customer, who accounted for approximately $6.5 million, or 67%, of 1996
revenue.
Cost of revenue. Cost of revenue increased 22% to $4.6 million for the year
ended December 31, 1997 from $3.7 million for the year ended December 31, 1996.
As a percentage of revenue, cost of revenue increased to 77% in 1997 from 39% in
1996. This increase in absolute dollars and as a percentage of revenue is due to
an increase in the use of third party consultants and travel expenses during
1997 and the decrease in revenue associated with a major contract termination
during 1997.
Sales and marketing. Sales and marketing expenses increased 85% to $2.5
million for the year ended December 31, 1997 from $1.4 million for the year
ended December 31, 1996, representing 42% and 14% of revenue, respectively.
After we received the proceeds from the issuance of convertible preferred stock
in the first quarter of 1997, we focused on increasing our marketing
expenditures in an attempt to bring in new customers. The increase in absolute
dollars and as a percentage of revenue reflects decreased revenue, an increase
of 115% in the number of sales and marketing employees, increased advertising
and promotional activities, and increased travel expenses during 1997.
General and administrative. General and administrative expenses increased
10% to $2.4 million for the year ended December 31, 1997 from $2.2 million for
the year ended December 31, 1996, representing 41% and 23% of revenue,
respectively. The increase in absolute dollars and as a percentage of revenue
reflects the decreased revenue during 1997 and a 28% increase in the number of
general and administrative employees during 1997, as several executive level
employees were hired and relocated to Albuquerque, New Mexico after we received
proceeds from the issuance of convertible preferred stock in the first quarter
of 1997.
Research and development. Research and development expenses increased 32%
to $4.2 million for the year ended December 31, 1997 from $3.2 million for the
year ended December 31, 1996, representing 70% and 33% of revenue, respectively.
During 1997, we increased research and development personnel by 23% to continue
development of our software applications after the issuance of convertible
preferred stock in the first quarter of 1997.
Impairment of long-lived assets and abandonment of operating
lease. Impairment of long-lived assets and abandonment of operating lease
increased 100% to $887,000 for the year ended December 31, 1997 from $0 for the
year ended December 31, 1996. During 1997, due to the loss of our largest
customer, we abandoned an operating lease and incurred impairment charges for
related fixed assets aggregating $887,000.
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Settlement received from contract termination. During 1996, our largest
customer terminated its contract with us and paid $2.3 million to settle all
claims arising under the termination. During 1997, another major customer
terminated its contract with us and paid $250,000 to settle all claims
associated with the termination.
Interest income (expense), net. Interest income (expense), net did not
change significantly in the year ended December 31, 1997 from the year ended
December 31, 1996.
Provision for (benefit from) income taxes. The 1997 tax benefit was
primarily due to net operating losses generated in 1997 which were partially
realized through a carryback of the net operating loss against income taxes paid
in 1996. The 1996 tax expense was related to taxable income generated in 1996.
The effective tax rate for 1997 was approximately 12.8% which was lower
than the Federal statutory rate primarily because of the effect of recording a
valuation allowance against all of our remaining deferred tax assets at December
31, 1997. The effective tax rate for 1996 was approximately 82.6% which was
higher than the Federal statutory rate primarily because of the effect of our
conversion to a taxable corporation on January 1, 1996.
Net income (loss). Net loss increased significantly to $7.3 million for the
year ended December 31, 1997 from net income of $253,000 for the year ended
December 31, 1996, primarily due to the loss of our most significant customer
during 1997 resulting in a reduction of revenue and decreased settlements
received from contract terminations as discussed above. Further, total expenses
increased by 39% during 1997 as discussed above.
QUARTERLY RESULTS OF OPERATIONS
We have experienced quarterly fluctuations in our operating and financial
results due to the timing and relative size of new custom software development
projects, cancellations of contracts, and fluctuations in costs, including
personnel, equipment and facilities costs. We expect quarterly results to
fluctuate in the future due to the timing and introduction of new applications
and services and other market factors. See "Risk Factors."
The following tables set forth unaudited statement of operations data for
each of the seven quarters ended September 30, 1999, as well as the percentage
of our revenue represented by each line item. This information has been derived
from our unaudited financial statements. The unaudited financial statements have
been prepared on the same basis as the audited financial statements contained in
this prospectus and include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of this
information. These unaudited quarterly results should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in the
prospectus. Our
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<PAGE> 33
operating results are expected to vary significantly from quarter to quarter and
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................... $ 521 $ 521 $ 522 $ 706 $1,311 $ 530 $ 813
Costs and expenses:
Cost of revenue......... 547 445 448 646 923 714 784
Sales and marketing..... 334 232 226 173 155 138 252
General and
administrative........ 612 431 346 805 144 282 759
Research and
development........... 396 150 48 76 104 57 256
Stock compensation
expense............... -- -- -- -- -- -- 112
------- ------- ------- ------- ------ ------- -------
Total costs and
expenses....... 1,889 1,258 1,068 1,700 1,326 1,191 2,163
------- ------- ------- ------- ------ ------- -------
Income (loss) from
operations.............. (1,368) (737) (546) (994) (15) (661) (1,350)
Interest Income (expense,)
net..................... (74) (106) (126) (131) (136) (122) 108
------- ------- ------- ------- ------ ------- -------
Loss before income
taxes................... (1,442) (843) (672) (1,125) (151) (783) (1,242)
Income tax (benefit)
expense................. -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net loss.................. $(1,442) $ (843) $ (672) $(1,125) $ (151) $ (783) $(1,242)
======= ======= ======= ======= ====== ======= =======
AS A PERCENT OF REVENUE:
Revenue................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue......... 105.0 85.4 85.8 91.5 70.4 134.7 96.4
Sales and marketing..... 64.1 44.5 43.3 24.5 11.8 26.0 31.0
General and
administrative........ 117.5 82.7 66.3 114.0 11.0 53.2 93.4
Research and
development........... 76.0 28.8 9.2 10.8 7.9 10.8 31.5
Stock compensation
expense............... -- -- -- -- -- -- 13.8
------- ------- ------- ------- ------ ------- -------
Total costs and
expenses....... 362.6 241.4 204.6 240.8 101.1 224.7 266.1
------- ------- ------- ------- ------ ------- -------
Income (loss) from
operations.............. (262.6) (141.4) (104.6) (140.8) (1.1) (124.7) (166.1)
------- ------- ------- ------- ------ ------- -------
Interest income (expense),
net..................... (14.2) (20.4) (24.1) (18.5) (10.4) (23.0) 13.3
------- ------- ------- ------- ------ ------- -------
Loss before income
taxes................... (276.8) (161.8) (128.7) (159.3) (11.5) (147.7) (152.8)
Income tax (benefit)
expense................. -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net loss.................. (276.8)% (161.8)% (128.7)% (159.3)% (11.5)% (147.7)% (152.8)%
======= ======= ======= ======= ====== ======= =======
</TABLE>
Revenue increased significantly during the quarter ended March 31, 1999 due
to the progress made in completing several custom software development projects.
Revenue for the quarter ended June 30, 1999 decreased relative to the prior
quarter as limited working capital available during the six months ended June
30, 1999 resulted in a reduction in our sales force personnel and other
promotional marketing activities, which impeded our ability to generate new
sales leads. Revenue for the quarter ended September 30, 1999 included $240,000
for the settlement of outstanding amounts owed by a customer relating to work
that had been performed in a prior quarter and for which the revenue had not
previously been recognized because collectibility of fees was not probable.
Cost of revenue as a percentage of revenue has varied from quarter to
quarter due to fluctuations in quarterly revenue and changes in associated
personnel costs. During the quarter ended March 31, 1999, cost of revenue
decreased as a percentage of revenue due to increased revenue from the
completion of several custom software development projects during the quarter.
During the quarter ended June 30, 1999, the increase in cost of revenue as a
percentage of revenue reflects the decreased revenue
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recognized during the quarter the utilization of third party consultants for
license implementation contracts and custom development projects, and the
amortization of purchased software.
During the quarter ended December 31, 1998, general and administrative
expense increased in absolute dollars and as a percentage of revenue due to an
approximate $360,000 loss on disposal of fixed assets. During the quarter ended
March 31, 1999, sales and marketing and general administrative expense declined
in both dollars and as a percentage of revenue due to substantial reductions of
personnel costs. During the quarter ended September 30, 1999, we increased
general and administrative personnel by 68%, and recruiting and relocation costs
increased by $192,000 reflecting costs associated with recruiting new employees.
Research and development expenses sharply declined following the quarter
ended March 31, 1998 due to reduction of research and development personnel
caused by limited working capital. During the quarter ended September 30, 1999,
we increased research and development employees by 266% reflecting our
commitment to enhance the XCare.net platform.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations through a combination of cash
flow from operations, private sales of common and convertible preferred stock,
and issuances of convertible promissory notes.
During March 1997, we completed a sale of Series A convertible preferred
stock for net proceeds of $6.6 million. From the period December 1997 through
December 1998, we issued $2.7 million of convertible promissory notes. During
June and July 1999, we completed a sale of Series B convertible preferred stock
with net proceeds totaling $13.8 million of which $7.3 million was received in
June 1999 and $6.5 million was received in July 1999. A portion of these
proceeds amounting to $438,000 was used to pay the majority of our capital lease
obligations during the third quarter of 1999 and $302,000 was used to repay debt
during that quarter.
At September 30, 1999, our principal sources of liquidity included $10.2
million in working capital with $107,000 in outstanding debt. Outstanding debt
at September 30, 1999 consists of a capital lease which is secured by the
underlying equipment and matures in December 2000.
Net cash used in operating activities was $1.9 million in the nine months
ended September 30, 1999, $2.2 million in 1998 and $6.6 million in 1997. Net
cash provided by operating activities was $2.8 million in 1996. Net cash used in
operating activities is primarily attributable to net losses.
Net cash used in investing activities was $109,000 in the nine months ended
September 30, 1999 and net cash provided by investing activities was $167,000 in
1998. Net cash used in investing activities was $318,000 in 1997 and $330,000 in
1996. Investing activities consist primarily of purchases of computer hardware
and software, office furniture and equipment, offset by proceeds from the sale
of property and equipment.
Net cash provided by financing activities was $12.8 million in the nine
months ended September 30, 1999, $1.5 million in 1998, and $6.2 million in 1997
and consists primarily of net proceeds from the issuance of convertible
preferred stock and convertible promissory notes. Net cash used in financing
activities was $1.3 million in 1996, which reflects principal payments on debt
and cash paid for the repurchase of common stock from former employees.
We anticipate that our cash and cash equivalents of $11.0 million at
September 30, 1999 will be sufficient to meet our working capital and
anticipated capital expenditure requirements for the next eighteen months. This
is regardless of whether or not the anticipated proceeds from this offering are
received and is based on and assuming our targets for cash flow are achieved.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes, and we may seek, even before such time, to
raise additional funds through public or private equity financing or from other
sources. Such additional financing may not be available at all or, if available,
on terms acceptable to us and that are not dilutive to our stockholders.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We recognize revenue in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," which provides guidance on recognizing revenue
from software transactions, as amended by SOP 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition." We applied the
provisions of SOP 97-2 on a prospective basis for new software transactions
entered into as of January 1, 1998. The adoption of this guidance did not have a
material impact on our financial condition or results of operations.
Further guidance was published during 1998 in SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions."
Additionally, the AICPA issued technical questions and answers on financial and
reporting issues related to SOP 97-2 in January 1999. The adoption of this
guidance is not expected to have a material impact on our financial condition or
results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We currently develop and market our products in the United States. As all
sales are currently made in U.S. dollars, a strengthening of the dollar could
make our product less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of U.S. interest rates. Due to the
short-term nature of our investments, we believe that there is no material risk
exposure. Based on the foregoing, no quantitative disclosures have been
provided.
YEAR 2000 ISSUES
We have completed our initial assessment of the potential overall impact of
the impending century change on our business, financial condition and operating
results. Based on our current assessment, we believe the current versions of our
applications are year 2000 ready -- that is, they are capable of adequately
distinguishing 21st century dates from 20th century dates. However, our
applications operate in complex network environments and directly or indirectly
interact with a number of other hardware and software systems that we cannot
completely evaluate for year 2000 readiness.
We may face claims based on year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system, although we have not been a party to any litigation or
arbitration proceeding or services involving our applications related to year
2000 readiness issues or services. We may in the future be required to defend
our applications or services in such proceedings, or to negotiate resolutions of
claims based on year 2000 issues. The costs of defending and resolving year
2000-related disputes, regardless of the merits of such disputes, and any
liability we have for year 2000-related damages, including consequential
damages, could harm our business. In addition, we believe that the purchasing
patterns of customers and potential customers may be affected by year 2000
issues, as companies expend significant resources to correct or upgrade their
current software systems for year 2000 readiness. These expenditures may result
in reduced funds available to purchase applications and services like those we
offer. To the extent year 2000 issues cause a significant delay in, or
cancellation of, decisions to purchase our applications, services or product
offerings, our business would suffer.
We have reviewed our internal management information and other critical
business systems to identify any year 2000 problems. We also have communicated
with the external vendors that supply us with material software and information
systems to determine their year 2000 readiness. Based on our vendors'
representations, we believe that the third-party hardware and software we use is
year 2000 ready.
To date, we have not incurred any material costs directly associated with
year 2000 readiness efforts, except for compensation expense associated with
salaried employees who have devoted some of their time to year 2000 assessment
and remediation efforts. As discussed above, we do not expect the total cost of
year 2000 problems to be material to our business, financial condition and
operating results.
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However, we will continue to evaluate new versions of our applications and
services, software and information systems provided by third parties, and any
new infrastructure systems that we acquire, to determine whether they are year
2000 ready. Despite our current assessment, we may not identify and correct all
significant year 2000 problems on a timely basis. Year 2000 readiness efforts
may involve significant time and expense and unremediated problems could harm
our business, financial condition and operating results. We currently have no
contingency plans to address the risks associated with unremediated year 2000
problems.
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BUSINESS
The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. This description
contains certain forward-looking statements that are based largely on our
current expectations and are subject to a number of risks and uncertainties. Our
actual results could differ significantly from the results discussed in the
forward-looking statements as a result of certain of the factors set forth below
and elsewhere in this prospectus.
OVERVIEW
XCare.net is an electronic commerce service provider for health care
businesses. We have developed an Internet-based technology platform using
extensible mark-up language, or XML, to process health care transactions and
provide related services for payers, providers and other health care industry
participants. We process transactions such as eligibility checking, claims
submission, referral processing, physician credentialling and appointment
scheduling. We also provide consulting services to define, develop and implement
Internet health care strategies as well as Web-site hosting, transaction support
and maintenance services for our customers.
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into a community to create an Internet exchange. We use the
XCare.net platform to deliver a broad range of applications, services and
electronic product offerings that streamline and automate high-volume,
data-intensive transactions and processes. The XCare.net platform is based on
extensible mark-up language, or XML, in conjunction with the Topic Navigation
Mapping standard. We believe that the enhanced capabilities of this platform are
well suited to meet the demands of health care industry participants. We expect
extensible mark-up language to be a predominant protocol for exchanging data for
electronic commerce in the future. Topic Navigation Mapping provides a standard
format for indexing and structuring the extensible mark-up language formatted
content. We take advantage of the benefits of both extensible mark-up language
and Topic Navigation Mapping technologies to process data trapped in usually
incompatible existing computer systems, allow for automation of health care
processes and integrate a wide variety of health care data including audio,
video and text.
The XCare.net platform has been adopted by health care providers, payers
and suppliers. Some of our customers include American Medical Pathways, Inc. and
Asthma Management Services, Inc. in the provider field, Advica Health Resources,
Employers Mutual, Inc. and Brokerage Services, Inc. in the health care payer
field and ADIS International Ltd, Nursefinders, Inc., Digital Medical Registrar,
Delta Health Services, Quest Diagnostic Incorporated and Methodist Care, Inc. in
the health care supplier field.
Health Care Market Overview
The U.S. Health Care Finance Administration estimates that health care
expenditures currently represent $1.2 trillion, or 14% of the U.S. economy, and
that these expenditures will increase to $2.0 trillion by 2007 due both to
rising health care costs and an aging population. Health care claims, which
totalled approximately 4.4 billion in 1998, generally are processed through
antiquated computer systems via paper, fax or phone. These systems can be
inefficient due to their inability to communicate with the systems of other
health care participants and lead to unnecessary and duplicative costs. We
believe that the provision of new, Internet-based, business-to-business
information exchange and electronic commerce services that effectively address
processing inefficiencies is one of the largest market opportunities in health
care today.
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The health care industry is currently one of the most complex markets due
to the numerous interrelationships among health care participants.
Marketing Participants Graphic
The payment for and delivery of health care requires that consistent,
accurate information be shared confidentially among health care participants
across a large and fragmented industry. Employers select health plans, determine
benefit levels, enroll employees and maintain employee eligibility data.
Individuals compare medical plans, choose physicians and submit claims for
reimbursement. Physicians, hospitals and other providers verify patient
eligibility, collect patient histories, order diagnostic tests and x-rays,
receive and interpret test results, render diagnoses, issue referrals and submit
claims to payers. Payers manage referrals, establish medical care protocols and
reimbursement policies and process claims. Laboratories analyze and process
patient samples or tests, provide results and submit claims for reimbursement.
Pharmacies fill prescriptions and submit claims for reimbursement. Medical
supply companies distribute medical devices and pharmaceutical supplies. These
health care transactions all are highly dependent on the collection and
communication of information, and each participant is dependent on the others
for portions of that information.
Market Characteristics
Market fragmentation. The health care market is highly fragmented with wide
geographic dispersion, a large number of participants and significant
differences in technology infrastructure.
- Geographic fragmentation. Because health care is delivered locally, there
are hundreds of thousands of market participants in different locations.
For example, there are approximately 750 HMOs in the United States,
644,000 active physicians and 6,200 hospitals. Additionally, there are
over 16,500 nursing homes, 8,000 home health agencies and 4,500
independent laboratories.
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- Technological fragmentation. Information technology investment has not
been coordinated among health care participants. Current technology
infrastructure in health care is characterized by numerous, incompatible
and, in many cases, antiquated computer systems. Consequently,
communication of information generally takes place via paper, fax and
telephone.
Complex processes. Health care is delivered in a marketplace which has
become increasingly complex given the transition to managed care, the
data-intensive nature of health care transactions, the lack of standard data
formats, the complicated procurement process and the pervasiveness of government
regulation.
- Transition to managed care. One of the most important changes in the U.S.
health care system since the 1980s has been the shift away from
fee-for-service indemnity plans to managed care organizations. Currently,
67.1% of the U.S. population is covered through some form of managed
care, and we believe that this proportion is likely to increase. As
managed care has become more prevalent and the number of payers has
increased, provider reimbursement and general administration has become
increasingly burdensome.
- Intensive data management. Upkeep of health care data is largely a
labor-intensive, paper-based and error-prone process in which data are
manually collected, authenticated, edited, categorized and updated. For
example, eligibility and plan information, which is basic information
about an individual and his or her dependents, is cumbersome to manage,
given that the data must be constantly updated to reflect any changes
affecting coverage status, such as marriage, child births and address
changes. However, this information is required at all points of health
care delivery.
- No standard data format or business rules. Data formats vary considerably
throughout the health care industry and typically are unique to each
particular health plan or provider. The data are stored in different
formats and health care participants often rely on proprietary business
rules for information such as plan coverage, eligibility and physician
co-payments.
- Complexity of procurement, purchasing and payment processes. There are
numerous types of health care transactions due to the large number of
both suppliers and buyers of care. In addition, there are multiple
payment mechanisms depending on who has assumed the health care coverage
risk. Payment mechanisms can range from fee-for-service to a fully
insured health care maintenance organization, known as an HMO, and may be
paid for by the individual, the individual's employer, the government, or
a combination of all three.
- Increasing government regulation. Numerous federal, state and local laws
and regulations govern the health care industry, which change frequently
depending on political and economic influences. For example, the Health
Insurance Portability and Accountability Act of 1996 has recently placed
substantial new administrative requirements on many health care
participants, including rules regarding compliance with industry
standards, data formats, portability of insurance and data security.
Current Health Care Market Issues
As a result of the fragmentation and complexity of the health care market,
participants are unable to cost-effectively manage, communicate and exchange
information in real-time. This fragmentation and complexity has resulted in
increasing dissatisfaction among health care participants.
- Inability to manage and exchange data. In order to achieve efficient
delivery of health care, information must flow within and between health
care participants. The enrollment and eligibility process requires shared
employee information among employers, health plans and provider groups.
The referral and authorization process involves physicians seeking
approval from health plans and patients scheduling appointments with
other physicians. To diagnose and treat patients, physicians need access
to clinical information, such as medical history data or lab results,
from various hospitals, laboratories or other providers. Prescription
services require communication of
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medication histories and payer rules among patients, physicians, pharmacy
benefit managers, pharmacies and payers. Finally, for the health care
supply chain to generate and fulfill transactions, medical supply vendors
and laboratories require information about the availability and pricing
of supplies. The inability to transfer information between participants
is exacerbated by the fact that several different data formats can exist
even within one health plan.
- Lack of real-time and secure communication. The current, paper-based
processes do not allow for automated, daily workflow or the secure
exchange of time-sensitive and critical information. This often results
in administrative inefficiencies related to the manual retrieval of
information, delivery of unnecessary care and the performance of
redundant tests and procedures.
- Rising costs. Despite payers' use of a number of techniques designed to
control the cost of care and administration -- such as lowering
reimbursement rates, shifting costs to providers and restricting coverage
for services -- health care costs are continuing to escalate. To
compensate for operating margin pressures, payers are raising premiums.
This, in turn, is increasing the costs of health care for individuals and
their employers.
Growth of the Internet and Applicability to Health Care
The Internet has emerged as the fastest growing communication medium in
history. International Data Corporation, an independent research firm, estimates
that the total number of Internet users worldwide will grow from 142 million at
the end of 1998 to 502 million by the end of 2003. The ubiquitous nature, low
cost and ability to scale of the Internet have created new opportunities for
conducting secure commerce. Recently, the widespread adoption of intranets and
the acceptance of the Internet as a business communications platform have
created a foundation for business-to-business electronic commerce that should
enable organizations to streamline complex processes, lower costs and improve
productivity.
We believe that business-to-business electronic commerce represents a
significantly larger opportunity than business-to-consumer or person-to-person
electronic commerce. We believe that the Internet can serve as a catalyst to
lower the cost of business-to-business commerce and bring market participants
across industry lines together in more efficient and productive relationships.
Forrester Research, Inc., an independent research firm, estimates that
business-to-business electronic commerce will grow from $43.1 billion in the
United States in 1998 to $1.3 trillion in 2003 while business-to-consumer
electronic commerce will grow from $7.8 billion in 1998 to $108.0 billion in
2003.
Although the Internet can speed and streamline transactions, we believe
that current Internet-based health care solutions are significantly limited in
their ability to search, structure, integrate and filter vast amounts of
disparate data and dynamically customize and display information in contexts
relevant to particular users. These limitations are particularly critical in the
health care industry, where information and transaction connectivity among all
participants is necessary to reduce process inefficiencies and costs. In order
for an Internet-based health care solution to be successful, we believe it must
contain the following key technology and business components:
- a common, secure and scaleable platform for structuring information
exchange and commerce among multiple market participants;
- an effective and cost-efficient interface with existing computer systems;
- automation of health care transaction processes to reduce paper, improve
work flow and streamline administration;
- integration of disparate data from a variety of multimedia sources such
as audio, video and written documents;
- ability to dynamically retrieve and update data in a view customizable
for each particular health care participant; and
- quick returns on investment to facilitate adoption by health care
participants.
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OUR SOLUTION
We are an electronic commerce services provider for health care businesses.
Using the XCare.net platform, we can customize Web-site portals to meet our
customers' needs in a flexible and cost-effective manner. Through these
customized portals, we deliver applications, services and electronic commerce
product offerings that are designed to improve workflow efficiencies, reduce
administrative costs and create new revenue opportunities for our customers. Our
applications consist of software modules facilitating health care transactions
such as eligibility checks, referrals and health plan enrollment. Our services
include formulating and implementing Internet strategies for our customers,
administering back office operations and operating and hosting their technology
environments in our electronic commerce operations center. Our electronic
commerce product offerings include drug store products, medical supplies and
credit cards with smart card technology for claims payment. We believe our
technology platform, applications, services and product offerings can enhance
the efficiency of the health care delivery and payment system. We believe that
our applications, services and product offerings have the following advantages:
Use of new standard for information exchange. The XCare.net platform and
associated applications and services are based on extensible mark-up language,
or XML. We expect extensible mark-up language to be a predominant protocol for
exchanging multimedia data for information exchange and electronic commerce on
the Internet in the future. Extensible mark-up language provides a document
structure that allows complex data from multiple sources to be dynamically
processed and displayed to users in personalized ways. We believe that these
capabilities are particularly applicable to the health care industry because
extensible mark-up language can process data trapped in pre-existing computer
systems, allow for automation of health care processes and integrate a wide
array of health care data including audio, video and text.
Ability to develop comprehensive customer strategies. We have developed a
step by step approach to assist our customers in designing a health care
Internet strategy, creating a customized portal and hosting their Internet
offerings and transactions in a secure and reliable data operations
infrastructure. The XCare.net platform is designed to provide a comprehensive
set of applications, services and product offerings while preserving previous
technology investments by integrating diverse multimedia content, including data
and information from large, existing and usually incompatible computer systems.
Value-added Solution Channels. Our business model is based on a
multi-faceted network of collaborative relationships, which we call Solution
Channels, among our company, our customers and our vendors. Our Solution
Channels leverage our customers' and vendors' core competencies to promote the
exchange of health care related services and products. XCare.net Solution
Channels create a community which enables our customers to also act as vendors
of applications, services and products to other XCare.net community
participants. Solution Channels allow us to:
- Create new revenue opportunities for others. Customers and vendors can
utilize our Solution Channels as distribution channels for existing as
well as new products and services that allow them to generate new sources
of incremental revenue. For example, we package our eXtensible CARE
applications system with medical management and third party
administration services provided by Employers Mutual, Inc. for
distribution to members of the XCare.net community such as American
Medical Pathways, Inc., a subsidiary of American Medical Response, Inc.
- Identify new revenue opportunities for us. Our customers can produce
complementary applications or services that operate on the XCare.net
platform and enhance the value of the specific applications, services and
product offerings we have developed. We can deliver these new
applications and services to the XCare.net community through our Solution
Channels, generating additional revenue for us. For example, we can
license credentialing applications from one existing customer, and then
resell these applications through our Solution Channels to other
community members.
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- Establish growing communities connected through the XCare.net
platform. Our customers can extend the scope and reach of the XCare.net
platform by distributing our applications, services and product offerings
to their customers. By leveraging our customer base as channels for wider
deployment of our solutions, we encourage increased usage of the
XCare.net platform as well as extend the community to new users.
STRATEGY
Our objective is to become the leading electronic commerce service provider
for health care businesses. Our strategy focuses on the following:
Cross-sell applications, services and electronic commerce product offerings
in our Solution Channels. We will sell additional applications, services and
product offerings to existing customers through our Solution Channels. We
believe that our Solution Channels represent an opportunity for deploying new
applications, services and electronic commerce product offerings that are either
internally developed or obtained through our growing number of customer and
vendor relationships. We believe this cross-selling approach simplifies the
sales process and may shorten our sales cycle and reduce our cost of sales.
Penetrate target market segments. We will continue to target customers in
the payer/third-party administrator, at-risk provider and health care supplier
market segments. We believe these potential customers are well positioned to
influence and drive change in health care processes. In addition, we believe
that they have both the funding to adopt new Internet-based process improvements
and the incentive to lower ongoing operating costs in order to improve their
margins. We estimate that there are more than 12,000 entities operating within
these market segments.
Develop new applications, services and product offerings. We will continue
to develop a variety of applications, services and product offerings to address
operational inefficiencies in the health care industry. As Internet strategies
in the health care and other industries evolve and new relationships between
organizations are formed, we intend to continue to identify new development
opportunities.
Leverage existing applications, services and product offerings. We seek to
identify key functions that are critical to particular industry participants and
develop solutions supporting these functions. We intend to regularly review
existing applications, services and product offerings to extend their
functionality, transaction capabilities and features as customer needs dictate.
In addition, we may modify existing solutions to pursue new market
opportunities. We plan to accomplish this by building extensible mark-up
language-based applications encompassing the identified functionality, by
acquiring businesses or technologies, by enabling industry-leading, third-party
applications to operate on our platform, and by increasing our product
offerings. We have initially targeted those needs we believe are most critical
to each business segment of the health care industry, offer the highest value to
health care participants and are readily adaptable to our XCare.net platform.
Form strategic relationships with leading health care participants. We are
aggressively pursuing strategic relationships with leaders in key health care
industry segments to increase our portfolio of applications, services and
product offerings, to increase the scope of our XCare.net community of users and
to provide specialized industry expertise for new solutions. We believe this
will result in accelerated market awareness and demand for our applications,
services and product offerings, through the influence of these partners both
directly, through their use of our solutions and sales efforts, and indirectly,
through their relationships with other potential customers.
TECHNOLOGY
Our XCare.net platform is based on an extensible mark-up language, or
XML-based infrastructure in conjunction with the Topic Navigation Mapping
standard. We believe that the enhanced capabilities of this platform are
well-suited to meet the demands of health care industry participants. Unlike the
current Internet standard, hypertext mark-up language, or HTML, extensible
mark-up language in combination
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with the Topic Navigation Mapping standard allows a higher degree of flexibility
for customized data exchange between health care participants. We expect
extensible mark-up language to be a predominant protocol for exchanging
multimedia data for information exchange and electronic commerce in the future.
Topic Navigation Mapping provides a standard format for indexing and structuring
the extensible mark-up language formatted content. We call the resulting indices
and structures Topic Maps. We take advantage of the benefits of both extensible
mark-up language and Topic Navigation Mapping technologies to process data
previously trapped in usually incompatible existing computer systems, allow for
automation of health care processes and integrate a wide variety of health care
data including data in audio, video and text form.
Extensible mark-up language is a method of writing programming instructions
which attaches invisible labels describing the objects contained in the web
page. As a result, for example, a number isn't just a number. A number on a Web
page can also be in a format specifying whether the number represents a price,
an invoice, a date or a zip code. This makes it easier to extract information
from a page to suit a particular use, and or increase the speed and accuracy of
Internet searches. It also enables users to select information from different
Web sites without having to re-enter the same information repeatedly. Topic Maps
are Web-based software tools used to organize information in a way that is
optimized for navigation. It addresses the problem of excess information and
provides a tool to filter and extract efficiently the kind of information which
is most relevant to the user.
We use a set of software applications, known as brokering components, to
find, integrate and present relevant, customized information to individual
users.
Graphic
Context Broker. The Context Broker acts as a user's personal information
manager and transaction assistant. It stores information about the user and
learns personal preferences. With each use, the
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Context Broker further refines a user's personal preferences, and, as a result,
the user's experience with the Web site is continually tailored to his or her
particular needs based on current and past sessions. As the user moves from one
transaction to another, the Context Broker also ensures that information is
carried through and remains consistent across multiple transactions.
DataFabric. The DataFabric is a map formed by linking data and weighting
relationships. This fabric filters out irrelevant information and allows for
more intelligent searching.
LogicFabric. The LogicFabric is a map assembled by the rules and workflow
associated with the data relationships. This fabric provides the order and
assembly instructions for the information.
Semantic Broker. The Semantic Broker is responsible for interpreting a
user's request and finding the relevant information. It does this by reading the
DataFabric and LogicFabric for interpretation, location and assembly
instructions. It then dispatches the Service Broker to obtain the information
from any location throughout the Web. The final integration of data may involve
multi-media content, transactions and associated rules and workflow.
Service Broker. The Service Broker is the gateway out to the Internet,
locating and collecting the information as specified by the Semantic Broker. The
Service Broker then returns the information to the Context Broker, which
presents the relevant information in a manner customized to individual users.
The technology components which comprise our platform are developed using
the Oracle 8i relational database management system, Enterprise JavaBeans
programming language and Object Store, a global object-oriented database
management system. To support the ability of our technology platform to enable
and facilitate electronic commerce, we have built and maintain an electronic
commerce operations center designed for high performance, scalability and
stability utilizing Sun Microsystems, Inc.'s Solaris operating system.
Our platform architecture was designed for use in highly confidential,
health care computing environments where security is a high priority. A Web
server authenticates the identity of the end-users to ensure only authorized
end-users have access to our Web applications. Users are authenticated by a
valid user identification and password, a security token or a digital
certificate, or a certificate authority. We address data security using digital
certificate technology signed with private keys and verified with public keys.
Our facilities and operations utilize redundancy and back-up to minimize
exposure to systems failure. Telecommunications and server infrastructures
support redundant processing and data back-up capabilities. Our routine back-up
procedures are performed incrementally on a daily basis with a full system
back-up performed monthly. In addition, we use RAID5 systems which provide
real-time back-up of data. All back-ups are maintained in fire proof storage
with critical support information. Technical and operations support staff are
available on a 24-hours-a-day, seven-days-a-week basis to assist with any
critical processing incidents or failures.
The XCare.net platform provides our customers with the capability to scale
their applications, services, and product offerings as their business grows.
This ability to scale can extend these solutions across multiple organizations
in diverse geographic settings supporting high volumes of users. Our flexible
technology architecture can also accommodate high volumes of transactions and
dynamic customization for the multiple participants within the health care
marketplace.
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APPLICATIONS, SERVICES AND PRODUCT OFFERINGS
We provide a range of applications, services and product offerings that
support the management of health care data and facilitate health care business
connectivity, information exchange and electronic commerce among health care
industry participants. Our applications, services and product offerings, which
may incorporate licensed components, are designed to enable our customers to
preserve investments in existing computer systems while integrating new
Internet-based products and services.
<TABLE>
------------------------------------------------------------------------------------------
APPLICATION DESCRIPTION
<S> <C>
------------------------------------------------------------------------------------------
eXtensible CARE System Provides back-office processing for managed care
transactions by health plan payers and at-risk provider
organizations.
- -------------------------------------------------------------------------------------------
eXtensible CARE Transactions Facilitates submission, adjudication, remittance and
verification transactions for a variety of managed care
functions such as claims, capitation, authorizations,
referrals, eligibility, enrollment, and benefits.
- -------------------------------------------------------------------------------------------
MatchNet Staffing & Scheduling Facilitates staffing, scheduling, management and reporting
transactions.
- -------------------------------------------------------------------------------------------
Physician Credentialing Stores physician credentialing data with the ability to
automatically populate fields of associated managed care
applications.
- -------------------------------------------------------------------------------------------
Electronic Medical Record Facilitates the data collection and review of
patient-level medical conditions based on access to
disease, allergy, medication and other related historical
data and clinical observations.
- -------------------------------------------------------------------------------------------
Medication and Medical Provides comprehensive patient-level information on
Assessment Inquiry Systems prescription and over-the-counter medications, as well as
common medical conditions.
- -------------------------------------------------------------------------------------------
Physician Practice Management Automates physician practice management functions
including patient scheduling, third-party billing,
contract maintenance, receivables management, accounting
and reporting.
- -------------------------------------------------------------------------------------------
Provider and Payer Profiling Provides access to a national provider database of
and Report Cards* demographic, clinical and National Committee for Quality
Assurance-specific information, as well as a national
payer database containing Health Plan Employer Data and
Information Set ratings and National Committee for Quality
Assurance accreditation status.
- -------------------------------------------------------------------------------------------
Document Management* Automates various paper-based processes through a
Web-based workflow combining document imaging, storage and
retrieval by authorized users.
- -------------------------------------------------------------------------------------------
Decision Support System* Web-enabled ad-hoc reporting system for mining and
analysis of data from managed care information system
sources.
- -------------------------------------------------------------------------------------------
Remote Patient Monitoring* Combines an external monitoring device with a Web-based
workflow engine to facilitate communication of test
results from patient to physician for chronic disease
management.
- -------------------------------------------------------------------------------------------
</TABLE>
*We are currently marketing these applications but have not yet recognized
revenue from sales.
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<TABLE>
------------------------------------------------------------------------------------------
SERVICES DESCRIPTION
<S> <C>
------------------------------------------------------------------------------------------
eHealth Development Discipline Provides a framework for development and design of
Internet strategies.
- -------------------------------------------------------------------------------------------
Custom Portal Integration & Provides professional services and operations management
Hosting for customers through the analysis of business,
operational and technology needs, including next
generation information and transaction portal
customizations for virtual health care organizations.
- -------------------------------------------------------------------------------------------
Third-Party Administration/ Provides outsourcing services for health care
Management Service organizations not utilizing internally managed information
Organization Outsourcing systems, including back- office administration,
Services timesharing services and additional service bureau
functions.
- -------------------------------------------------------------------------------------------
eHealth Operations Management Provides a secure, 24 hours a day, seven days a week
environment for Internet hosting of transactions and
multi-media content, application maintenance and customer
service.
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------
PRODUCT OFFERINGS DESCRIPTION
<S> <C>
------------------------------------------------------------------------------------------
MDPay Accelerator* Links eligibility verification, claims submission, co-pay
collection and receivables management within the
physician's or hospital's point-of-service environment.
- -------------------------------------------------------------------------------------------
Online Drug Store* Facilitates the purchase of brand-name pharmaceutical and
personal health care products, as well as access to
decision-making resources.
- -------------------------------------------------------------------------------------------
Medical Supply Product* Provides Internet-based medical supply ordering service
for use by health care buyers and suppliers.
- -------------------------------------------------------------------------------------------
</TABLE>
* We are currently marketing these product offerings but have not yet
recognized revenue from sales.
We are actively developing new applications, services and product
offerings, and from time to time, we license technology necessary for such
development. Nonetheless, new applications, services and product offerings may
not be introduced as scheduled, and we may not be able to enter into needed
licensing arrangements in a timely manner or at all.
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CUSTOMERS
The following is a representative list of our customers that have purchased
applications or services:
<TABLE>
<CAPTION>
MARKET SEGMENT CUSTOMERS
-------------- ---------
<S> <C>
Health Care Providers American Medical Pathways, Inc., a subsidiary of American
Medical Response, Inc.
Asthma Management Services, Inc.
Delta Health Systems
Methodist Care, Inc.
Provider Services Incorporated
Quest Diagnostics Incorporated
University of Southern California -- Doheny Eye Institute
Health Care Payers Advica Health Resources
Community Health Electronic Clearing House
Employers Mutual, Inc., a wholly owned subsidiary of Florida
Physicians Insurance Company, and Brokerage Services, Inc.,
a division of Employers Mutual, Inc.
Provider Services, Inc.
Health Care Suppliers ADIS International Ltd
Clinical Solutions LLC
Digital Medical Registrar
NotifyMD, Inc.
Nursefinders, Inc.
</TABLE>
In 1998, sales to Employers Mutual, Inc. accounted for 29% of revenue,
sales to Brokerage Services, Inc. accounted for 20% of revenue, sales to Quest
Diagnostics Incorporated accounted for 12% of revenue and sales to ADIS
International Ltd accounted for 11% of revenue. For the nine months ended
September 30, 1999, sales to American Medical Pathways, Inc. accounted for 19%
of revenue, sales to Methodist Care, Inc. accounted for 29% of revenue, sales to
Quest Diagnostics Incorporated accounted for 17% of total revenues, and sales to
Brokerage Services, Inc. accounted for 17% of revenue.
SALES AND MARKETING
Sales. We sell our applications, services and product offerings through our
direct sales and business development groups, targeting the payer/third-party
administrator, risk-bearing provider and health care supplier market segments.
Our sales office is located at our principal offices in Englewood, Colorado. The
direct sales process involves the generation of sales leads through direct
marketing, tele-prospecting, public relations, Web advertising and promotion,
attendance and presentations at major health care and technology-oriented trade
shows and industry conferences. The time between initial customer contact and an
actual sales order may span three months or more. See "Risk Factors -- If our
operating results vary significantly due to the lengthy sales and implementation
cycles for our products and services, our revenues may be delayed and our
results of operations and share price may fluctuate."
In addition, our direct sales and business development groups use our
Solution Channels to cultivate strategic relationships with our customers and
vendors to encourage them to provide value-added applications, services and
products for redistribution through the network of users of the XCare.net
platform.
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Marketing. Our primary marketing initiatives include public relations,
direct mail and outreach programs to customers and vendors. We use our Web site,
www.xcare.net, to establish our market presence, generate leads and extend our
program offerings to health care industry participants.
As of September 30, 1999, we had 11 employees in sales and marketing
functions.
CUSTOMER SUPPORT
We believe that a high level of customer support is necessary to achieve
wide acceptance of our applications, solutions and product offerings. We provide
a range of customer support services through our staff of customer service
personnel, multiple call centers and an e-mail help desk all of which are
available 24 hours a day, seven days a week and are frequently updated to
improve existing information and to support new services. We also employ
technical support personnel who work directly with our direct sales force and
customers of our applications and services. We provide our customers with the
ability to purchase maintenance for our applications and services, which
includes technical support and upgrades. We also provide training programs for
our customers. As of September 30, 1999, we had 22 employees in addition to one
independent contractor in customer support functions.
RESEARCH AND DEVELOPMENT
As of September 30, 1999, our development and engineering group consisted
of 11 employees divided into extensible mark-up language, Topic Navigation
Mapping and infrastructure groups. For the years ended December 31, 1996, 1997
and 1998, we incurred $3.2 million, $4.2 million and $670,000 in research and
development expenses respectively. In addition, for the nine month period ended
September 30, 1999, we had incurred $417,000 in research and development
expenses. We believe that timely development of new and enhanced applications
and technology is necessary to remain competitive in the marketplace.
Accordingly, we intend to continue recruiting and hiring experienced development
personnel and to make investments in development and engineering.
COMPETITION
The emerging Internet-based health care market is undergoing rapid
technological change. The ubiquitous reach of the Internet, coupled with the
availability and acceptability of new Internet-based technologies, has created
significant opportunities in health care for both traditional and new Internet-
based system vendors. Potential competitors fall primarily into three
categories: health care Internet companies focused on providing connectivity and
transactions within business-to-business and business-to-consumer frameworks;
traditional health care information system vendors who seek to extend the
services of their core products using Internet-based technology; and traditional
managed care information system and outsourcing vendors who are focusing on
extending the services of their core products to the Internet. In addition, from
time to time our customers may develop products and services competitive with
those offered by us.
We believe that our main competitors currently are CareInsite, Inc.,
Healtheon Corporation, IDX Systems Corporation, iXL Enterprises, Inc., McKesson
HBOC Inc., and Razorfish, Inc. and that the principal competitive factors in the
Internet-based health care market are the:
- ability of technology to integrate data from existing computer systems
and other multimedia content;
- timeliness and price of new applications, services and electronic
commerce product offerings;
- degree of customer service offered to purchasers of Internet health care
solutions;
- scope of industry knowledge and familiarity with needs of health care
market participants; and
- size and scope of a solution's user base.
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INTELLECTUAL PROPERTY
We seek to protect our software, documentation and other written materials
primarily through a combination of trade secret, trademark and copyright laws,
confidentiality procedures and contractual provisions. For example, we license
rather than sell our software applications and require licensees to enter into
license agreements that impose certain restrictions on the licensees' ability to
utilize the software code. In addition, we seek to avoid disclosure of our trade
secrets, by, among other things, requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code.
We intend to file patent applications in the United States with respect to
certain aspects of our content brokering technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult. While we are unable to
determine the extent to which piracy of our products exists, software piracy can
be expected to be a persistent problem, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as in the United
States.
From time to time, we may be involved in intellectual property disputes. We
have not been notified that any of our products infringe the proprietary rights
of third parties. However, in the future, third parties may claim infringement
against us with respect to current or future products. We expect that providers
of Internet health care solutions will increasingly be subject to infringement
claims as the number of products and competitors in our industry grows and
traditional suppliers of health care data and transaction solutions begin to
offer Internet-based products. See "Risk Factors -- If our proprietary
technology is subjected to infringement claims, we may have to pay damages or
seek a license from third parties, which could delay sales of our products, and
if our proprietary technology is infringed upon, we may experience losses."
We rely upon software we have licensed from Sinclair Montrose Healthcare
PLC to perform key functions of our MatchNet Staffing & Scheduling product. We
currently have an exclusive license to the software, although exclusivity may
terminate if we are unable to meet milestones. This license may not continue to
be available to us on commercially reasonable terms. The loss of this license
could result in delays or reductions of shipments of the MatchNet Staffing &
Scheduling application until equivalent software could be identified, developed,
licensed and integrated. See "Risk Factors -- If we lose key licenses we may be
required to develop or license alternative technology which may cause delays, at
considerable expense or reduce sales."
GOVERNMENT REGULATION
Standards
The Health Insurance Portability and Accountability Act of 1996 mandates
the use of standard transactions, standard identifiers, security and other
provisions by the year 2000. We are designing our XCare.net platform and
applications, services and product offerings to enable compliance with the
proposed regulations. However, until such regulations become final, they could
change, which could require us to expend additional resources to comply with the
revised standards. In addition, the success of our compliance efforts may be
dependent on the success of health care participants in dealing with the
standards.
Confidentiality
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Additional legislation governing the dissemination of medical
record information has been
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proposed at both the state and federal level. This legislation may require
holders of such information to implement security measures that may require
substantial expenditures by us. Changes to state or federal laws may materially
restrict the ability of health care providers to submit information from patient
records using our applications.
We utilize an architecture that incorporates a secured socket layer
encryption which surpasses required security protection. Additionally the use of
firewalls and other security schemes assure customers of a compliant and secure
computing environment. Additionally, we utilize a formal, authority-based use of
digital certificates to assure the identity of electronic trading partners. For
support of identification requirements we utilize an exchange of passwords and
identities by U.S. certified mail or telephonic identification. If unauthorized
persons were to gain access to patient records notwithstanding our efforts to
maintain their security, this could result in our liability for these security
breaches and damage to our reputation.
Third Party Administration and Utilization Review Licensure and Registration
Certain of the administrative services we provide health plans, payers and
providers, including our third-party administration and utilization review
operations, are regulated by the statutes and regulations of various states and
require that we obtain appropriate licensure or registration. We believe that we
are in substantial compliance with the licensing and registration laws of each
state in which we conduct business.
False Claims Act
Under the federal False Claims Act, liability may be imposed on any
individual or entity who knowingly submits or participates in submitting claims
for payment to the federal government which are false or fraudulent, or which
contain false or misleading information. Liability may also be imposed on any
individual or entity who knowingly make or use a false record or statement to
avoid an obligation to pay the federal government. Various state laws impose
liability for similar acts. Claims under the federal False Claims Act may be
brought by the federal government or private whistleblowers. If we are found
liable for a violation of the federal False Claims Act, or any similar state
law, it may result in substantial civil and criminal penalties. In addition, we
could be prohibited from processing Medicaid or Medicare claims for payment.
Prompt Payment Laws
Various states have passed laws regarding the prompt payment of medical
claims by health plans. If a claim is brought against us and we are found to
have violated a law regarding the prompt processing of claims for payment, we
may incur civil or other penalties.
Government Investigations
There is increasing scrutiny by law enforcement authorities, the U.S.
Department of Health and Human Services Office of Inspector General, the courts
and Congress of agreements between health care providers and suppliers or other
contractors which have a potential to increase utilization of government health
care resources. In particular, scrutiny has been placed on the coding of claims
for payment and contracted billing arrangements. Investigators have demonstrated
a willingness to look beyond the formalities of business arrangements to
determine the underlying purposes of payments between health care participants.
Although, to our knowledge, neither we nor any of our customers is the subject
of any investigation, we cannot tell whether we or our customers will be the
target of governmental investigations in the future.
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Regulation of the Practice of Medicine and Other Health Care Professions
The practices of medicine, nursing and pharmacology are generally defined
by state law and vary from state to state. These practices require a license
under state law and, depending on state law, practicing without a license can be
a civil or criminal violation. We have endeavored to structure our existing
operations to be in substantial compliance with state health care professional
licensing requirements. However, the application of this area of the law to
Internet services such as ours is new. Also, we have not conducted a state by
state survey of licensing requirements and policies. Accordingly, a state
regulatory authority and/or one or more licensed professionals or advocacy
groups or consumers may allege that one or more elements of our business
requires a license to practice under existing or future laws or statutes. Any
application of professional practice regulations to our business could
negatively impact our business. Further, liability based on a determination that
we engaged in a professional practice without a license may cause us to be
excluded from coverage under the terms of our current general liability
insurance policy and may also subject us to a higher standard of care than would
be applicable to activities which do not require a professional license.
Regulation of Pharmacy Prescription Drug Activities
The business of providing prescription drugs and other medical products is
subject to federal, state and local regulations, many of which are specific to
pharmacies. In addition, the Federal Trade Commission and many state agencies
regulate advertising and product performance claims for prescription drugs.
Pharmacy operations are subject to federal, state and local licensing and
registration regulations with respect to the Controlled Substances Act and
federal Drug Enforcement Agency regulations, as well as related state and local
laws and regulations relating to pharmacy operations, including registration,
security, recordkeeping, and reporting requirements related to the purchase,
storage and dispensing of controlled substances, prescription drugs and certain
over-the-counter drugs.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, especially focusing on those who prescribe drugs online and
pharmacies that fill invalid prescriptions, including those that are written
online. The committee on commerce requested that the General Accounting Office
undertake a formal review of a number of issues pertaining to online pharmacies,
including an assessment of mechanisms to ensure that online pharmacies are
obeying the various state and federal regulations for the industry. In addition,
various state legislatures are considering new legislation related to the
regulation of nonresident pharmacies. The inclusion of prescription drugs as a
Medicare benefit has been the subject of numerous bills in the U.S. Congress.
Should we commence providing prescription drugs to consumers, we will be
required to comply with many of the laws, regulations and initiatives described
above. These efforts may require the commitment of additional resources by us.
Federal and State Anti-Kickback Laws
Provisions of the Social Security Act, which are commonly known as the
Federal Anti-Kickback Law, prohibit knowingly or willfully, directly or
indirectly, paying or offering to pay, or soliciting or receiving, any
remuneration in exchange for the referral of patients to a person participating
in, or for the order, purchase or recommendation of items or services that are
subject to reimbursement by, Medicare, Medicaid and similar other federal or
state healthcare programs. Violations may result in civil and criminal sanctions
and penalties. Applications, services or product offerings. If any of our health
care communications or electronic commerce activities were deemed to be
inconsistent with the Federal Anti-Kickback Law or with state anti-kickback or
illegal remuneration laws, we could face civil and criminal penalties or be
barred from such activities. Further, we could be required to restructure our
existing or planned sponsorship compensation arrangements and electronic
commerce activities in a manner which could harm our business.
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Regulation of the Sale of Over-the-Counter Drugs, Nutritional Supplements,
Cosmetics and Medical Devices
The U.S. Food and Drug Administration and Federal Trade Commission and
similar state agencies regulate drug and cosmetic advertising and promotion,
including direct-to-consumer advertising, done by or on behalf of drug and
cosmetic manufacturers and marketers. In addition, the Federal Trade Commission
regulates product safety for nutritional supplements as well as over-the-counter
drugs, medical devices and prescription drugs. In the event that we provide such
products or services, we will be subject to U.S. Food and Drug Administration
and Federal Trade Commission regulation and enforcement for false advertising
and misleading advertising, including overstatements regarding product
performance, especially regarding nutritional supplements. While we have rights
against the manufacturer as to adulteration issues and product claims to the
extent we have received the claims from the manufacturer, we may have liability
if the manufacturer cannot or will not indemnify us in a specific situation.
FDA Regulation of Medical Devices
The FDA is responsible for assuring the safety and effectiveness of medical
devices under the Federal Food, Drug and Cosmetic Act. Computer applications and
software are considered medical devices and subject to regulation by the FDA
when they are indicated, labeled or intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body. We
do not believe that any of our current applications, services or product
offerings are subject to FDA jurisdiction or regulation; however, we may expand
our applications, services and offerings into areas that may subject it to FDA
regulation. We have no experience in complying with FDA regulations and
compliance with FDA regulations could prove to be time consuming, burdensome and
expensive, which could impede our ability to introduce new applications,
services or product offerings in a timely manner.
Please see "Risk Factors -- If compliance with government regulation of
health care becomes costly and difficult for us and our customers, we may not be
able to grow our business" for more information regarding the risks government
regulation pose for our business.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against us. We could become
involved in litigation from time to time relating to claims arising out of our
ordinary course of business.
EMPLOYEES
As of September 30, 1999, we had a total of 57 employees, of whom 22 are
engaged in professional services and customer support functions, 11 in product
development, seven in the electronic commerce operations center, 11 in sales and
marketing and six in management, finance and administration. None of our
employees is represented by a labor union. We have not experienced any work
stoppages, and we consider our relations with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. Our future success also
depends on our continued ability to attract, integrate, retain and motivate
highly qualified sales, technical and managerial personnel. Competition for such
qualified personnel is intense. See "Risk Factors -- If our executive officers
and key personnel do not remain with us in the future, we may experience
difficulty in attracting and retaining qualified personnel."
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FACILITIES
Our principal executive and corporate offices are located in Englewood,
Colorado, in approximately 7,812 square feet of subleased office space under a
sublease that expired on November 30, 1999 as to 3,667 square feet and December
2002 as to 4,145 square feet. The expired sublease has been extended on a
month-to-month basis until January 31, 2000. We have entered into a new sublease
for 21,978 square feet of office space in the same building as our Englewood,
Colorado corporate offices. This sublease expires December 30, 2001. We also
maintain an electronic commerce operations center in Albuquerque, New Mexico, in
6,800 square feet of subleased office space under a lease that expires in
January 2000. We have recently entered into a lease for a new 5,240 square foot
facility for our Albuquerque electronic commerce operations center. This lease
commences in January 2000 and expires in January 2005. We believe our space is
adequate for our current operations and that additional leased space can be
obtained on commercially reasonable terms if needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors as of September 30, 1999, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lorine R. Sweeney........................ 42 President and Chief Executive Officer, Director
Peter H. Cheesbrough..................... 47 Senior Vice President, Finance and Chief
Financial Officer
Lawrence S. Dike......................... 52 Senior Vice President and Chief Scientist
Mark Rangell............................. 36 Senior Vice President, Marketing and Product
Management
Thomas M. Pianko......................... 39 Senior Vice President, Sales and Business
Development
Tammy McLaren............................ 33 Vice President, Professional Services
Jon B. Wisda............................. 33 Vice President, Product Development
Jeffrey M. Krauss(1)..................... 42 Chairman of the Board of Directors
J. Andrew Cowherd(2)..................... 46 Director
James B. Hoover(2)....................... 44 Director
Daniel J. Mitchell(1).................... 42 Director
William F. Reilly(1)..................... 57 Director
Robert Tsao(2)........................... 27 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Lorine R. Sweeney. Ms. Sweeney has been President, Chief Executive Officer
and a director of XCare.net since October 1997. From November 1994 until
September 1997, Ms. Sweeney was Vice President of Software Development and
Technology and Vice President of the UltiMedex Business Unit of Micromedex,
Inc., an international supplier of clinical reference information to the health
care and environmental industries. From August 1993 until November 1994, Ms.
Sweeney was a Managing Consultant for Microsoft Consulting Services, the
management consulting division of Microsoft Corporation. Ms. Sweeney has over 19
years of executive leadership experience in the commercial software, CD-ROM,
online information services, consulting and systems integration industries. Ms.
Sweeney received her B.S. degree in Engineering from the University of Arizona
and her M.B.A. from the University of Phoenix.
Peter H. Cheesbrough. Mr. Cheesbrough has been Senior Vice President,
Finance and Chief Financial Officer of XCare.net since September 1999. From
April 1993 until August 1999, Mr. Cheesbrough was Senior Vice President of
Finance and Chief Financial Officer of Echo Bay Mines, Ltd., a gold mining and
exploration company. Mr. Cheesbrough is a director of HealthGrades.com, Inc., an
Internet company that provides online health care ratings and information. Mr.
Cheesbrough was educated in England and qualified as a Chartered Accountant
(equivalent to the CPA designation) in the United Kingdom in 1974 and in Canada
in 1977.
Lawrence S. Dike. Mr. Dike was one of three founders of Reilly Dike Dosher
Corporation, XCare.net's predecessor company. From April 1989 until April 1999,
Mr. Dike was Senior Vice President of Technology Platforms and a director of
Reilly Dike Dosher Corporation. Mr. Dike received his B.S. degree in Mathematics
and his M.S. degree in Computing Science from the University of New Mexico.
Mark Rangell. Mr. Rangell has been Senior Vice President, Marketing and
Product Management since December 1999 and was previously Senior Vice President
of Sales and Marketing of XCare.net since January 1998. From May 1997 until
December 1997, Mr. Rangell was Vice President of Marketing at GreenPages Data
Services, LLC, a development stage organization focused on building an
electronic commerce network for pharmaceutical contracting and negotiation. From
January 1996 until
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May 1997, Mr. Rangell was Director of Marketing for the Ultimedex Business Unit
of Micromedex, Inc. From November 1992 until December 1995, Mr. Rangell was
Product Manager at Medical Economics Co., a publisher/database supplier to
pharmaceutical, medical device and health care delivery sectors. Mr. Rangell
received his B.S. degree in Computer Information Systems and Economics at New
York University and his M.S. degree in Marketing and Corporate Strategy at the
MIT Sloan School of Management.
Thomas M. Pianko. Mr. Pianko has been Senior Vice President, Sales and
Business Development of XCare.net since December 1999. From December 1998 to
December 1999 Mr. Pianko was Vice President of Sales, Information Technology
Business, Enterprise Sales -- Intermountain Region and from February 1996 to
December 1998 he was Regional Director and Sales Executive with McKesson HBOC
Inc., a health information technology and supply services corporation. Mr.
Pianko was the Regional Accounts Manager for Eli Lilly & Co., a company engaged
in the business of ethical pharmaceutical development and sales. Mr. Pianko
received his M.B.A. in finance and marketing from the Simon School of Business
at the University of Rochester and his B.S. degree in physiology and immunology
from Cornell University.
Tammy McLaren. Ms. McLaren has been Vice President, Professional Services
of XCare.net since July 1998. From January 1998 until June 1998, Ms. McLaren was
a Manager in the management consulting branch of Ernst & Young, L.L.P. From May
1996 until January 1998, Ms. McLaren was a Program Manager for Commercial
Software at Micromedex, Inc. From January 1989 until May 1996, Ms. McLaren was a
Manager of Business Systems at AtlanticRichfield Corporation, a natural resource
company. Ms. McLaren received her B.A. in Computer Information Systems from the
University of Texas.
Jon B. Wisda. Mr. Wisda has been Vice President, Product Development of
XCare.net since February 1999. From February 1995 until February 1999, Mr. Wisda
was Director of Information Technology for Toxicology and Environmental Health
at Micromedex, Inc. From August 1994 until February 1995, Mr. Wisda was a Senior
Consultant at Raymond James Consulting Inc., an information systems consulting
firm. Mr. Wisda received his B.S. in Engineering and Mathematics from Colorado
School of Mines.
Jeffrey M. Krauss. Mr. Krauss has been Chairman of the Board of Directors
of XCare.net since March 1997. Since May 1990, Mr. Krauss has been a General
Partner of Nazem & Company, a venture capital firm. From January 1983 until
April 1990, Mr. Krauss was an attorney with the law firm of Simpson Thatcher &
Bartlett. Mr. Krauss is a director of Tegal Corporation, a publicly traded
company engaged in the manufacture of semi-conductor capital equipment. Mr.
Krauss received his B.S. in Accounting from the State University of New York and
his J.D. from Harvard Law School.
J. Andrew Cowherd. Mr. Cowherd has been a director of XCare.net since March
1997. Since July 1996, Mr. Cowherd has been a Managing Member of the general
partner of Atlantic Medical Capital, L.P., a venture capital firm that is
managed by Atlantic Medical Management, L.L.C. From April 1991 until January
1993, Mr. Cowherd was a Managing Director in the Global Merchant Banking Group
at BT Securities, a division of Bankers Trust Company. From September 1977 until
March 1991, Mr. Cowherd was an investment banker at Salomon Brothers, where he
served as Managing Director in Corporate Finance from January 1989 until March
1991. Mr. Cowherd is a director of Nursefinders, Inc., a privately-held company
providing health care staffing and home health care services and NotifyMD, a
privately-held company providing unified messaging and other communications
services to physicians. Mr. Cowherd received his A.B. in History from Princeton
University and his M.B.A. from the Graduate School of Business at Stanford
University.
James B. Hoover. Mr. Hoover has been a director of XCare.net since June
1999. Mr. Hoover is the Managing Member of Dauphin Capital Partners I, L.P., a
venture capital firm that he founded in June 1998. From November 1992 until June
1998, Mr. Hoover was a General Partner of Welsh, Carson, Anderson & Stowe, a
private equity firm specializing in the acquisition of healthcare and
information services businesses. Prior to joining Welsh, Carson, Anderson &
Stowe, Mr. Hoover was a General
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Partner of Robertson, Stephens & Company from February 1984 until October 1992.
From June 1977 until February 1984, Mr. Hoover was a Vice President of Citibank
N.A. Mr. Hoover is a director of Centennial Healthcare, New American Healthcare
and U.S. Physical Therapy, three publicly traded health care companies. Mr.
Hoover received his B.S. in Business Administration from Elizabethtown College
and his M.B.A. from the Graduate School of Business at Indiana University.
Daniel J. Mitchell. Mr. Mitchell has been a director of XCare.net since
August 1999. Since January 1997, Mr. Mitchell has been a Manager of Sequel
Venture Partners, LLC, a venture capital firm. Since June 1992, Mr. Mitchell has
been a General Partner of Capital Health Venture Partners, a venture capital
firm. From July 1981 until August 1985, Mr. Mitchell was an investment officer
at Institutional Venture Capital Fund at the First National Bank of Chicago. Mr.
Mitchell received his B.S. degree in Finance from the University of Illinois at
Urbana-Champaign and his M.B.A. in Finance from the Haas School of Business at
the University of California -- Berkeley.
William F. Reilly. Mr. Reilly has been a director of XCare.net since May
1989. Mr. Reilly was one of the three founders of Reilly Dike Dosher
Corporation, XCare.net's predecessor company. From May 1989 until October 1997,
Mr. Reilly was President and Chief Executive Officer of XCare.net. Since June
1998, Mr. Reilly has been an independent consultant. Mr. Reilly received his
A.B. degree in Philosophy from Stonehill College and his M.B.A. from Harvard
University.
Robert Tsao. Mr. Tsao has been a director of XCare.net since June 1999.
Since August 1997, Mr. Tsao has been an Investment Manager at Vertex Management,
Inc., a venture capital firm. From July 1995 until July 1997, Mr. Tsao was a
Corporate Finance Analyst at SoundView Technology Group, Inc., an investment
banking firm. Mr. Tsao received his B.A. degree in Physics and Economics from
the University of California -- Berkeley.
BOARD OF DIRECTORS AND COMMITTEES
Following the offering, XCare.net's board of directors will consist of
seven directors divided into three classes with each class serving for a term of
three years. At each annual meeting of stockholders, directors will be elected
to succeed those directors whose terms are expiring. Daniel J. Mitchell is the
Class I director whose term expires in 2000. William F. Reilly, James B. Hoover
and Robert Tsao are Class II directors whose terms will expire in 2001. Jeffrey
M. Krauss, J. Andrew Cowherd and Lorine R. Sweeney are Class III directors whose
terms will expire in 2002.
The board of directors has a compensation committee and an audit committee.
The compensation committee, which is comprised of James B. Hoover, J. Andrew
Cowherd and Robert Tsao, administers the stock option plan and all matters
concerning executive compensation. The audit committee, which is comprised of
Daniel J. Mitchell, Jeffrey M. Krauss and William F. Reilly, approves the
selection of XCare.net's independent auditors, reviews the results and scope of
annual audits and other accounting related services, and evaluates our internal
audit and control functions. Each of these committees was established in July
1999.
DIRECTOR COMPENSATION
We do not pay any cash compensation to directors for serving in that
capacity. The board has the discretion to grant options to non-employee
directors pursuant to the director plan. In September 1999, each director other
than Lorine R. Sweeney, our President and Chief Executive Officer, was granted
an option to purchase 10,000 shares of common stock. See "Management -- 1999
Director Option -- Director Plan" and "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is currently comprised of Messrs. Hoover,
Cowherd and Tsao. None of these individuals has at any time been an officer or
employee of XCare.net. Prior to formation of the
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compensation committee, all decisions regarding executive compensation were made
by the full board. No interlocking relationship exists between the board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be held personally liable for monetary damages for
breach of their fiduciary duties as directors, except for breaches of the
director's duty of loyalty to XCare.net or its stockholders, acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions, and transactions from which a director
derives an improper personal benefit.
Our bylaws provide that we must indemnify our directors and executive
officers and may indemnify our other officers and employees and agents to the
fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to obtain insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and officers, in
addition to indemnification provided for in our bylaws. These agreements, among
other things, provided that we will indemnify each of our directors and officers
for various expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by them in any action or proceeding, including any action by or
arising out of their services as one of our directors or officers, any
subsidiaries or any other company or enterprise to which he or she provides
services at our request. In addition, we intend to obtain directors' and
officers' insurance providing indemnification for our directors and officers. We
believe that these provisions, agreements and insurance are necessary to attract
and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during the year ended December 31, 1998 to our Chief Executive Officer
and the only other executive officers whose salary and bonus exceeded $100,000
during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- --------- -------- ---------------
<S> <C> <C> <C>
Lorine R. Sweeney.................................. $175,000 $30,000 $2,909
President and Chief Executive Officer
Lawrence S. Dike................................... 135,000 -- 2,785
Senior Vice President and Chief Scientist
Mark Rangell....................................... 135,000 -- 3,167
Senior Vice President, Sales and Marketing
Tammy McLaren...................................... 115,000 -- 1,101
Vice President, Professional Services
</TABLE>
- -------------------------
(1) Consists of premiums we paid for life insurance, dental insurance, health
insurance and long-term disability insurance for each executive officer.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted in 1998 to each of the officers named in the above table,
including the potential realizable value over the ten-year term of the options,
based on assumed rates of stock appreciation of 5% and 10%, compounded annually.
These assumed rates of appreciation comply with the rules of the Securities and
Exchange Commission and do not represent our estimate of our future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION -----------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney............ 431,900 38.5% $0.25 07/14/08 $175,880 $280,059
Lawrence S. Dike............. -- -- -- -- -- --
Mark Rangell................. 172,900 15.4 0.25 07/14/08 70,409 112,115
Tammy McLaren................ 6,000 0.5 0.25 11/11/08 2,443 3,891
</TABLE>
In 1998, we granted options to purchase an aggregate of 1,120,600 shares to
employees, directors and consultants. All options were granted under our stock
option plan at exercise prices equal to the fair market value of our common
stock on the date of grant, as determined in good faith by our board of
directors, based on our financial results and prospects and at the share prices
paid in arms-length transactions. All options typically vest over four years and
are exercisable for up to ten years. In July 1999, we amended our option
agreements so that all options are immediately exercisable upon grant; however,
any unvested shares are subject to repurchase by us at their cost in the event
of the optionee's termination of employment.
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the named officers information
concerning exercisable and unexercisable options held as of December 31, 1998.
The value of in-the-money options is based on
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a value of $0.25 per share, the fair market value of our common stock at
December 31, 1998, as determined by our board, and net of the option exercise
price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE DECEMBER 31, 1998 AT DECEMBER 31, 1998
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney............ -- -- 431,900 -- $ 0 --
Lawrence S. Dike............. -- -- -- -- -- --
Mark Rangell................. -- -- 172,900 -- 0 --
Tammy McLaren................ -- -- 6,000 -- 0 --
</TABLE>
The number of unexercised options at December 31, 1998 which are
exercisable reflects an amendment to the option agreements effected in July 1999
such that all options are immediately exercisable upon grant, although the
shares issued upon exercise are subject to our right to repurchase them upon
termination of employment, which right lapses progressively over time.
EMPLOYMENT AGREEMENTS
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon termination
the employee will not work for a competitor and may not solicit our customers
and employees. At the time of commencement of employment, our employees also
generally sign offer letters specifying basic terms and conditions of
employment. Each of Lorine R. Sweeney, Mark Rangell and Tammy McLaren have
signed offer letters with of this type, see "Certain Transactions -- Offers of
Employment."
1997 STOCK PLAN
Our stock plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, officers,
directors and consultants. The stock plan was adopted by our board of directors
in March 1997 and approved by the stockholders in March 1997. The board of
directors approved amendments to the stock plan to increase the number of shares
reserved under the stock plan in December 1997, April 1998, July 1998, May 1999
and September 1999. The stockholders also approved these amendments to the stock
plan in December 1997, April 1998, July 1998, May 1999 and September 1999.
As of September 30, 1999 a total of 2,200,000 shares of our common stock
has been reserved for issuance under the stock plan. As of September 30, 1999,
options to purchase 1,491,492 shares of common stock were outstanding under the
stock plan and 541,345 were available for future issuance.
Unless terminated sooner, the stock plan terminates in 2007.
The administrator of our stock plan has the power to determine among other
things:
- the terms of the options or stock purchase rights granted, including
exercise price;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the stock plan, so long as no such action affects any shares
previously issued or any option previously granted under the
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stock plan. During any fiscal year, no optionee may be granted options to
purchase more than 1,050,000 shares, although, in connection with an optionee's
initial employment with us, such optionee may be granted an option covering an
additional 1,050,000 shares.
Options and stock purchase rights granted under our stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the stock plan must generally be exercised within three
months after the end of the optionee's status as an employee, director or
consultant of XCare.net, or within 12 months after termination by death or
disability, but in no event later than the expiration of the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, we retain a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment or consulting relationship
with XCare.net for any reason, including death or disability. The repurchase
price is the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to XCare.net. The repurchase
option shall lapse at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the stock
plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options and stock
purchase rights is determined by the administrator, but for nonstatutory stock
options intended to qualify as "performance-based compensation" under Section
162(m) of the Internal Revenue Code, the exercise price must be at least equal
to the fair market value of our common stock on the date of grant. For any
participant who possesses more than 10% of the voting power of all classes of
the our outstanding stock, the exercise price of any incentive stock option must
be at least equal to 110% of the fair market value on the grant date and the
term of the incentive stock option must not exceed five years. The term of all
other options granted under the stock plan may not exceed ten years.
The stock plan provides that if we merge with another corporation, or sell
substantially all our assets, each option and stock purchase right will be
assumed or an equivalent option will be substituted by the successor
corporation. If the outstanding options and stock purchase rights are not
assumed or substituted for, the optionees will become fully vested in and have
the right to exercise their options or stock purchase rights in full. In such
case, the administrator will notify the optionees that their options or stock
purchase rights are fully exercisable for a period of 15 days from the date of
the notice, and the options or stock purchase rights will terminate upon the
expiration of that period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted by our board of directors in
October 1999, and will be submitted to our stockholders for approval in December
1999, although it will not become effective until the date of this offering. A
total of 500,000 shares of our common stock has been reserved for issuance under
the 1999 purchase plan.
The employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains consecutive, overlapping, 12
month offering periods. Each offering period includes two six-month purchase
periods. The offering periods generally start on the first trading day on or
after November 1 and May 1 of each year, except for the first offering period,
which commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before April 30, 2001.
Employees are eligible to participate if they are customarily employed by
us for at least 20 hours per week and more than five months in any calendar
year. However, employees may not participate in the employee stock purchase plan
if at the beginning of a purchase period, they own 5% or more of the total
combined voting power or value of all classes of our stock. In addition, no
employee may
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participate in the employee stock purchase plan at a rate which would exceed
$25,000 worth of stock in any calendar year.
The employee stock purchase plan permits employees to purchase our common
stock through payroll deductions of up to 15% of the employee's "compensation."
Compensation is defined as the employee's base straight time gross earnings and
commissions, but excluding payments for overtime, profit sharing payments, shift
premium payments, incentive compensation and bonuses. The maximum number of
shares a participant may purchase during a single purchase period is 10,000
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased is generally 85% of the lower of the fair market value of our common
stock either at the beginning of the offering period or at the end of that
purchase period. In the event the fair market value at the end of a purchase
period is less than the fair market value at the beginning of the offering
period, all participants will be withdrawn from the current offering period
following exercise and automatically re-enrolled in a new offering period. The
new offering period will use the lower fair market value as of the first date of
the new offering period to determine the purchase price for future purchase
periods.
Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. Participation
ends automatically upon termination of employment.
Rights granted under the employee stock purchase plan are not transferable
by a participant other than by will, the laws of descent and distribution, or as
otherwise provided under the employee stock purchase plan. The employee stock
purchase plan provides that, in the event we merge with another corporation or
sell substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set.
The employee stock purchase plan will terminate in 2009. Our board of
directors has the authority to amend or terminate the employee stock purchase
plan, except that no such action may adversely affect any outstanding rights to
purchase stock under the employee stock purchase plan.
1999 DIRECTOR OPTION PLAN
All non-employee directors are entitled to participate in our director
option plan. The director option plan was adopted by our board of directors in
October 1999 and will be submitted to our stockholders for their approval in
December 1999, although it will not become effective until the date of this
offering. The director option plan has a term of ten years, unless terminated
sooner by our board of directors. A total of 250,000 shares of our common stock
have been reserved for issuance under the 1999 director option plan.
The director option plan generally provides for an automatic initial grant
of an option to purchase 25,000 shares of our common stock to each non-employee
director on the date that person first becomes a non-employee director. After
the initial grant, a non-employee director will automatically be granted
subsequent options to purchase 10,000 shares of our common stock each year on
the date of our annual stockholder's meeting, if on such date he or she has
served on our board of directors for at least six months. Each initial option
grant and each subsequent option has a term of 10 years. Each initial option,
vests as to 25% of the shares subject to the option on each anniversary of the
date of grant, and each subsequent option grant vests as to 100% of the shares
subject to the option on the first anniversary of the date of grant. The
exercise price of all options will be 100% of the fair market value of our
common stock on the date of grant.
The director option plan provides that if we merge with another
corporation, or sell substantially all our assets, each option will become fully
vested and exercisable for a period of thirty days from the date our board of
directors notifies the optionee of the option's full exercisability, after which
period the option will terminate. Options granted under the director option plan
must be exercised within three
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<PAGE> 62
months of the end of the optionee's tenure as a director of the Company, or
within 12 months after termination by death or disability, but in no event later
than the expiration of the option's ten year term. Options granted under the
director option plan are not transferable by the optionee other than by will or
the laws of descent and distribution, and each option is exercisable, during the
lifetime of the optionee, only by the optionee.
401(K) PLAN
We have a 401(k) plan covering full-time employees located in the United
States who are at least 21 years of age. The 401(k) plan is intended to qualify
under Section 401(k) of the Internal Revenue Code. Contributions to the 401(k)
plan by employees or by us, and the investment earnings on these contributions,
are not taxable until withdrawn from the 401(k) plan. Employees may elect to
reduce their pre-tax earnings up to a statutorily prescribed annual limit, which
was $10,000 in 1999, and to have the amount of that reduction contributed to the
401(k) plan. The 401(k) plan permits, but does not require, additional matching
contributions by us on behalf of all participants in the 401(k) plan. To date,
we have not made any contributions to the 401(k) plan.
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<PAGE> 63
CERTAIN TRANSACTIONS WITH RELATED PARTIES
Since January 1996, there has not been nor is there currently proposed any
transaction or series of similar transactions to which we were or are to be a
party in which the amount involved exceeds $60,000 and in which any of our
directors, executive officers, holders of more than five percent of our stock or
any member of their immediate families had or will have a direct or indirect
material interest other than compensation agreements and other arrangements,
which are described where required in "Management," and the transactions
described below.
EQUITY INVESTMENT TRANSACTIONS
On March 12, 1997, we sold an aggregate of 2,450,000 shares of our Series A
convertible preferred stock at a price per share of $2.86. In June and July
1999, we sold an aggregate of 63,053,144 shares of our Series B convertible
preferred stock at a price per share of $0.27, including 11,867,959 shares of
Series B convertible preferred stock issued upon conversion of convertible
promissory notes. Upon the closing of this offering, all shares of preferred
stock will be converted into shares of common stock. The holders of Series A
convertible preferred stock are entitled to convert their shares into an
aggregate of 2,802,800 shares of common stock, based on a conversion price of
$2.50 per common share. The holders of Series B convertible preferred stock are
entitled to convert their shares into an aggregate of 6,305,322 shares of common
stock, based on a conversion price of $2.70 per common share. Listed below are
those directors, executive officers and stockholders who beneficially own five
percent or more of our securities who participated in the preferred stock
financings. We believe that the shares issued in these transactions were sold at
the then fair market value and that the terms of these transactions were no less
favorable than we could have obtained from unaffiliated third parties.
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE AGGREGATE
STOCKHOLDER PREFERRED PREFERRED CONSIDERATION
----------- -------------------- -------------------- --------------
<S> <C> <C> <C>
Atlantic Medical Capital, L.P. ............. 1,225,000 6,401,921 $5,232,019
C.B. Healthcare Fund, L.P. ................. -- 11,111,111 3,000,000
Dauphin Capital Partners I, L.P. ........... -- 9,259,259 2,500,000
Entities Affiliated with Nazem & Company IV,
L.P. ..................................... 1,225,000 11,422,335 6,587,530
Entities affiliated with Sequel Venture
Partners II, LLC.......................... -- 11,111,111 3,000,000
Vertex Technology Fund (II) Ltd. ........... -- 11,111,111 3,000,000
</TABLE>
J. Andrew Cowherd, one of our directors, is a member of Atlantic Medical
Management LLC. Atlantic Medical Management LLC is the Management Services
Company for Atlantic Medical Capital L.P. James B. Hoover, one of our directors,
is a Managing Member of Dauphin Capital Partners I, L.P. The shares purchased by
entities affiliated with Nazem & Company IV, L.P. include 5,555,556 shares of
Series B convertible preferred stock purchased by Transatlantic Venture Fund
C.V. Jeffrey M. Krauss, one of our directors, is a general partner of Nazem &
Company IV, L.P. Mr. Krauss is also an investment manager of Transatlantic
Venture Fund C.V. The Series B convertible preferred stock purchased by entities
affiliated with Sequel Venture Partners II, LLC includes 10,740,741 shares
purchased by Sequel Limited Partnership II and 370,370 shares purchased by
Sequel Entrepreneurs Fund II, L.P. Daniel J. Mitchell, one of our directors, is
a manager of Sequel Venture Partners II, LLC. Robert Tsao, one of our directors,
is an investment manager with Vertex Technology Fund.
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of these shares. See
"Description of Capital Stock -- Registration Rights."
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<PAGE> 64
LOAN AND WARRANT AGREEMENTS
On December 29, 1997, we entered into a loan agreement pursuant to which,
during 1997 and 1998, we borrowed $750,000 from Atlantic Medical Capital, L.P.
at an interest rate of 12% per year. In connection with the loan, Atlantic
Medical Capital, L.P. received warrants to purchase 131,119 shares of Series A
convertible preferred stock at an exercise price of $0.50 per share. On April
10, 1998, we entered into a loan agreement pursuant to which we borrowed
$500,000 from Atlantic Medical Capital, L.P. at an interest rate of 12% per
year. In connection with the loan, Atlantic Medical Capital, L.P. received
warrants to purchase 87,412 shares of Series A convertible preferred stock at an
exercise price of $0.25 per share. Also in connection with the April 10, 1998
loan, the exercise price of the warrants issued on December 29, 1997 was
decreased from $0.50 to $0.25 per share. On November 20, 1998, we entered into a
loan agreement pursuant to which we borrowed $150,000 from Atlantic Medical
Capital, L.P. at an interest rate of 12% per year. In connection with the loan,
Atlantic Medical Capital, L.P. received warrants to purchase 100,000 shares of
common stock at an exercise price of $0.10 per share. On June 4, 1999, Atlantic
Medical Capital, L.P. converted all principal and accrued interest into
6,001,180 shares of Series B convertible preferred stock. J. Andrew Cowherd, one
of our directors, is a member of Atlantic Medical Management LLC, the management
services company of Atlantic Medical Capital, L.P.
On December 29, 1997, we entered into a loan agreement pursuant to which,
during 1997 and 1998, we borrowed $750,000 from Nazem & Company IV, L.P. at an
interest rate of 12% per year. In connection with the loan, Nazem & Company IV,
L.P. received warrants to purchase 131,119 shares of Series A convertible
preferred stock at an exercise price of $0.50 per share. On April 10, 1998, we
entered into a loan agreement pursuant to which we borrowed $500,000 from Nazem
& Company IV, L.P. at an interest rate of 12% per year. In connection with the
loan, Nazem & Company IV, L.P. received a warrant to purchase 87,412 shares of
Series A convertible preferred stock at an exercise price of $0.25 per share.
Also in connection with the April 10, 1998 loan, the exercise price of the
warrants issued on December 29, 1997 was decreased from $0.50 to $0.25 per
share. On November 20, 1998, we entered into a loan agreement pursuant to which
during 1998 and 1999 we borrowed $115,000 from Nazem & Company IV, L.P. at an
interest rate of 12% per year. In connection with the loan, Nazem & Company IV,
L.P. received a warrant to purchase 100,000 shares of common stock at an
exercise price of $0.10 per share. On June 4, 1999, Nazem & Company IV, L.P.
converted all principal and accrued interest into 5,866,779 shares of Series B
convertible preferred stock. Jeffrey M. Krauss, one of our directors, is a
general partner of Nazem & Company IV, L.P.
OPTION GRANTS TO DIRECTORS
On September 1, 1999, we granted an option to purchase 10,000 shares of
common stock to each of Jeffrey M. Krauss, Robert Tsao, and William F. Reilly,
each of whom is one of our directors. In addition, on September 1, 1999, we
granted an option to purchase 10,000 shares of common stock to each of Atlantic
Medical Management LLC, with which J. Andrew Cowherd, one of our directors, is
affiliated; to Sequel Venture Partners II, LLC, with which Daniel J. Mitchell,
one of our directors, is affiliated; and to Dauphin Management L.L.C., with
which James B. Hoover, one of our directors, is affiliated. The options each
have an exercise price of $2.70 per share. Twenty-five percent of the shares
subject to each option vests on September 7, 2000, and 1/48th of the shares
subject to each option vests at the end of each month after September 7, 2000,
subject to the continued services of the particular individual as a director.
OFFERS OF EMPLOYMENT
Ms. Lorine R. Sweeney, our President and Chief Executive Officer, is a
party to an offer letter dated September 27, 1997. Pursuant to the offer letter,
Ms. Sweeney received an annual salary of $175,000, a bonus of $30,000 payable on
the first anniversary of her employment with XCare.net, and an option to
purchase 3% of our then outstanding shares.
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<PAGE> 65
Mr. Mark Rangell, our Senior Vice President of Sales and Marketing, is a
party to an offer letter dated December 12, 1997. Pursuant to the offer letter,
Mr. Rangell received an annual salary of $135,000, sales commissions based on
achieving planned sales objectives and an option to purchase 2.5% of our then
outstanding shares.
Ms. Tammy McLaren, our Vice President of Professional Services, is a party
to an offer letter dated June 12, 1998. Pursuant to the offer letter, Ms.
McLaren received an annual salary of $95,000, which has since been increased to
$115,000.
OTHER TRANSACTIONS
We have entered into an indemnification agreement with each of our
executive officers and directors.
We have granted options to certain of our executive officers. See
"Management -- Option Grants in Last Fiscal Year."
------------------------------
XCare.net believes that all related-party transactions described above were
on terms no less favorable than could have been otherwise obtained from
unrelated third parties. All future transactions between XCare.net and its
principal officers, directors and affiliates will be approved by a majority of
the independent and disinterested members of the Board and will be on terms no
less favorable that could be obtained from unrelated third parties.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of September 30, 1999, as adjusted to reflect
the sale of common stock in this offering, the conversion of our outstanding
convertible preferred stock, including convertible preferred stock issuable upon
the assumed exercise of all outstanding convertible preferred stock warrants,
and the exercise of all outstanding common stock warrants with exercise prices
below an assumed initial public offering price. Information is given for:
- each person who is known by us to beneficially own more than five percent
of our common stock;
- each of our directors;
- each of our officers; and
- all of our directors and officers as a group.
Percentages of the outstanding shares of common stock are based on
10,354,511 shares outstanding as of September 30, 1999, plus all shares of
common stock issuable on exercise of options within 60 days of September 30,
1999 held by the particular beneficial owner.
All percentages assume no exercise of the underwriter's over-allotment
option. The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the individual or entity has voting power or investment power and any shares
which the individual has the right to acquire within 60 days of September 30,
1999 through the exercise of any stock option or other right. Except pursuant to
applicable community property laws or as indicated in the footnotes to this
table, to our knowledge, each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by such stockholder.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o XCare.net, Inc., 6400 South Fiddler's Green Circle,
Suite 540, Englewood, Colorado 80111.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OWNED BENEFICIALLY OWNED
PRIOR TO THE ---------------------------------
NAME OF BENEFICIAL OWNER OFFERING BEFORE OFFERING AFTER OFFERING
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
Entities affiliated with Nazem & Company IV,
L.P.(1)....................................... 2,898,247 28.0% 18.9%
Jeffrey M. Krauss
645 Madison Avenue, 12th Floor
New York, New York 10022-1010
Atlantic Medical Capital, L.P.(2)............... 2,396,206 23.1 15.6
J. Andrew Cowherd
156 West 56th Street, Suite 1605
New York, New York 10019-3800
Entities affiliated with Sequel Venture
Partners II, LLC(3)........................... 1,121,112 10.8 7.3
Daniel J. Mitchell
4430 Arapahoe Avenue, Suite 220
Boulder, Colorado 80303
Vertex Technology Fund (II) Ltd.(4)............. 1,121,112 10.8 7.3
Robert Tsao
3 Lagoon Drive, Suite 220
Redwood City, California 94065
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OWNED BENEFICIALLY OWNED
PRIOR TO THE ---------------------------------
NAME OF BENEFICIAL OWNER OFFERING BEFORE OFFERING AFTER OFFERING
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
CB Healthcare Fund, L.P......................... 1,111,112 10.7 7.2
One Boston Place, Suite 4010
Boston, MA 02108
Dauphin Capital Partners I, L.P.(5)............. 935,926 9.0 6.1
James B. Hoover
108 Forest Avenue
Locust Valley, New York 11560
Lorine R. Sweeney(6)............................ 868,726 7.8 5.4
Peter H. Cheesbrough(7)......................... 100,000 1.0 *
Lawrence S. Dike................................ 120,000 1.2 *
Tammy McLaren(8)................................ 100,000 1.0 *
Mark Rangell(9)................................. 300,000 2.8 1.9
William F. Reilly(10)........................... 205,000 2.0 1.3
Jon B. Wisda(11)................................ 80,000 * *
All directors and officers as a group (12
persons)(12).................................. 10,246,329 87.3 61.2
</TABLE>
- -------------------------
* Represents less than one percent of the total.
(1) Represents 2,332,691 shares held by Nazem & Company IV, L.P., 555,556
shares held by Transatlantic Venture Fund C.V. and 10,000 shares subject to
stock options exercisable within 60 days of September 30, 1999 held by
Jeffrey M. Krauss. Mr. Krauss, one of our directors, is a general partner
of Nazem & Company IV, L.P. Nazem & Company IV, L.P. has four general
partners, each of whom shares voting and investment power over the shares
held by Nazem & Company IV, L.P. Mr. Krauss is also an investment manager
of Transatlantic Venture Fund C.V. Transatlantic Venture Fund C.V.'s
investment managers each shares voting and investment power over the shares
held by Transatlantic Venture Fund C.V. Mr. Krauss disclaims beneficial
ownership of the shares held by these entities except to the extent of his
proportionate pecuniary interest.
(2) Represents 2,386,206 shares held by Atlantic Medical Capital, L.P. and
10,000 shares subject to stock options exercisable within 60 days of
September 30, 1999 held by Atlantic Medical Management, LLC. J. Andrew
Cowherd, one of our directors, is a member of Atlantic Medical Management
LLC. Atlantic Medical Management LLC is the management services company of
Atlantic Medical Capital L.P. Atlantic Medical Management LLC has three
members, each of whom shares voting and investment power over the shares
held by Atlantic Medical Capital, L.P. Mr. Cowherd disclaims beneficial
ownership of the shares held by that entity except to the extent of his
proportionate pecuniary interest.
(3) Represents 1,074,075 shares held by Sequel Limited Partnership II, 37,037
shares held by Sequel Entrepreneurs Fund II, L.P. and 10,000 shares subject
to stock options exercisable within 60 days of September 30, 1999 held by
Sequel Venture Partners II, L.L.C. Sequel Venture Partners II, L.L.C., the
general partner of Sequel Limited Partnership II and Sequel Entrepreneurs
Fund II, L.P., has five managers, including Daniel J. Mitchell, one of our
directors. Each of these managers shares voting and investment power over
the shares held by Sequel Limited Partnership II and Sequel Entrepreneurs
Fund II, L.P. Mr. Mitchell disclaims beneficial ownership of the shares
held by these entities except to the extent of his proportionate pecuniary
interest.
(4) Represents 1,111,112 shares held by Vertex Technology Fund (II) Ltd. and
10,000 shares subject to stock options exercisable within 60 days of
September 30, 1999 held by Robert Tsao. Mr. Tsao, one of our directors, is
an Investment Manager with Vertex Technology Fund. Mr. Tsao disclaims
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<PAGE> 68
beneficial ownership of the shares held by that entity except to the extent
of his proportionate pecuniary interest.
(5) Represents 925,926 shares held by Dauphin Capital Partners I, L.P. and
10,000 shares subject to stock options exercisable within 60 days of
September 30, 1999 held by Dauphin Management, L.L.C. James B. Hoover, one
of our directors, is a Managing Member of Dauphin Capital Partners I, L.P.
Mr. Hoover disclaims beneficial ownership of the shares held by that entity
except to the extent of his proportionate pecuniary interest.
(6) Includes 788,726 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(7) Includes 100,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(8) Includes 80,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(9) Includes 277,200 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(10) Includes 10,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(11) Includes 80,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(12) Includes 1,385,926 shares subject to stock options exercisable within 60
days of September 30, 1999, as described in the above footnotes.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of
preferred stock, $0.01 par value.
The following summary of provisions of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our certificate of incorporation, which is included as an
exhibit to the registration statement of which this prospectus is a part, and by
the provisions of Delaware law.
COMMON STOCK
After giving effect to the conversion of all previously outstanding
preferred stock into shares of common stock, the assumed cashless exercise of
all outstanding common stock warrants and convertible preferred stock warrants
with exercise prices below an assumed initial public offering price, and the
conversion into common stock of the convertible preferred stock issued upon the
assumed exercise of the latter warrants, as of September 30, 1999, there were
10,354,511 shares of common stock outstanding held of record by approximately 35
stockholders. There will be 15,354,511 shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after September 30, 1999, after giving effect to the sale
of common stock in this offering.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably any dividends
declared by the board of directors out of funds legally available for the
payment of dividends. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of XCare.net, the holders of common stock are entitled
to share ratably in all assets, subject to prior distribution rights of the
preferred stock, if any, then outstanding. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued in the offering will
be fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of the offering, each share of convertible preferred
stock outstanding prior to this offering will automatically convert into common
stock. The Series A convertible preferred stock will each convert into 11.44
shares of common stock. The Series B convertible preferred stock will each
convert into one share of common stock. Pursuant to our certificate of
incorporation, after the offering our board of directors has the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges, which may be greater than the rights of the common
stock. The board, without stockholder approval, can issue preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
XCare.net or to make removal of management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock. At present, we have no plans to issue any preferred stock.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of an aggregate of
approximately 9,797,348 shares of common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933. Under the terms of the registration rights agreements, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, the holders of registration rights are entitled to notice of
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<PAGE> 70
such registration and are entitled to include shares of common stock in the
registration. The rights are subject to conditions and limitations, among them
the right of the underwriters of the offering subject to the registration to
limit the number of shares included in such registration. Holders of these
rights may also require us to file a registration statement under the Securities
Act at our expense with respect to their shares of common stock, and we are
required to use our best efforts to effect that registration, subject to
conditions and limitations. Furthermore, stockholders with registration rights
may require us to file additional registration statements on Form S-3, subject
to conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Delaware Anti-Takeover Statute. We are subject to Section 203 of the
Delaware General Corporation Law. In general, these provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which
the person became an interested stockholder is approved in a manner presented in
Section 203 of the Delaware General Corporation Law. Generally, a "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years, did own, 15% or more of a corporation's voting stock.
Certificate of Incorporation. In October 1999, our board approved
amendments to our certificate of incorporation, to provide:
- That the board of directors may issue, without further action by the
stockholders, up to 5,000,000 shares of undesignated preferred stock
- That any action to be taken by our stockholders must be effected at a
duly called annual or special meeting and not by a consent in writing
- For the division of the board of directors into three classes, with each
class serving for a term of three years
- That vacancies on the board, including newly created directorships, can
be filled only by a majority of the directors then in office
- That directors may be removed only for cause
Bylaws. In October 1999, our board approved amendments to our bylaws to
provide that special meetings of our stockholders may be called only by the
chairman of the board, the president or the board.
We have submitted the amendments to our certificate of incorporation and
our bylaws to our stockholders for their consent. We expect that the amendments
will be effected in December, 1999. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the board and in
the policies formulated by the board and to discourage certain types of
transactions that may involve an actual or threatened change of control of
XCare.net. These provisions also are designed to reduce our vulnerability to an
unsolicited proposal for a takeover of XCare.net that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for the
restructuring or sale of all or part of XCare.net. These provisions, however,
could discourage potential acquisition proposals and could delay or prevent a
change in control of XCare.net. They may also have the effect of preventing
changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services L.L.C.
LISTING
Application has been made to have our common stock approved for quotation
on the Nasdaq National Market under the trading symbol "XCAR." We have not
applied to list our common stock on any other exchange or quotation system.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering as a result of contractual and legal restrictions on resale, sales
of substantial amounts of common stock in the public market after the
restrictions lapse could cause the prevailing market price of our common stock
to fall and impede our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding an aggregate of
15,354,511 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after September 30,
1999. Of these outstanding shares, the 5,000,000 shares sold in the offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933 unless purchased by "affiliates" of XCare.net as that
term is defined in Rule 144 under the Securities Act. The remaining 10,354,511
shares of common stock outstanding upon completion of the offering will be
"restricted shares," as that term is defined in Rule 144 under the Securities
Act. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below, or
another exemption. Sales of the restricted shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
our common stock.
We have has agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of FleetBoston Robertson Stephens Inc. In addition, all officers,
directors and certain other holders of common stock have entered into
contractual "lock-up" agreements providing that they will not offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of shares
of common stock owned by them or that could be purchased by them through the
exercise of options for a period of 180 days after the date of this prospectus
without the prior written consent of FleetBoston Robertson Stephens Inc. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
- No shares of common stock will be eligible for sale as of the effective
date of the offering
- No additional shares will be eligible for sale beginning 90 days after
the effective date of the offering
- 10,354,511 additional shares will be eligible for sale beginning 180 days
after the effective date of the offering, subject in some cases to
certain volume limitations
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:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 154,000 shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
68
<PAGE> 72
Sales under Rule 144 are also subject to certain other requirements regarding
the manner of sale, notice filing and the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally 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, notice filing, 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.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the date of this offering in reliance on Rule 144, without having to comply with
certain restrictions, including the holding period, contained in Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options (including exercises after this offering). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this offering, may be sold by persons other than "affiliates," as defined in
Rule 144, subject only to the manner of sale provisions of Rule 144. Securities
issued in reliance on Rule 701 may be sold by "affiliates" under Rule 144
without compliance with its one year minimum holding period requirement.
Registration on Form S-8
We intend to file a registration statement under the Securities Act
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1997 stock option plan, employee stock purchase plan and
the director option plan. This registration statement is expected to be filed as
early as the effectiveness of the registration statement covering the shares of
common stock offered in this offering and will automatically become effective
upon filing. Shares registered under this registration statement will, subject
to Rule 144 volume limitations applicable to affiliates and the expiration of
any 180-day contractual lockup period, be available for sale in the open market,
except to the extent that these shares are subject to vesting restrictions.
69
<PAGE> 73
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., SG Cowen Securities Corporation, E*OFFERING
Corp. and Advest, Inc., have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
Advest, Inc. ...............................................
----------
Total............................................. 5,000,000
==========
</TABLE>
We have been advised by the representatives that the underwriters propose
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 of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No reduction shall change the amount of proceeds to be
received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
offered under this prospectus will be determined through negotiations between us
and the representatives. Among the factors to be considered in such negotiations
are prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential and the present state of
our development.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to additional
shares of common stock at the same price per share as we will receive for the
shares that the underwriters have agreed to purchase. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the shares offered under this
prospectus. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the shares are being sold. We
will be obligated, pursuant to the option, to sell shares to the extent the
option is exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered under this
70
<PAGE> 74
prospectus. If such option is exercised in full, the total public offering
price, underwriting discounts and commissions and proceeds to us will be
$ , $ and $ , respectively.
Discounts and Commissions
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price......................................
Underwriting discounts and commissions.....................
Proceeds, before expenses, to us...........................
</TABLE>
The underwriting fee will be an amount equal to the offering price to the
public of the common stock, less the amount paid by the underwriters to
XCare.net per share of common stock. The underwriting fee will be determined
through an arms length negotiation between XCare.net and the representatives.
The expenses of the offering are estimated at $1,500,000 and are payable
entirely by us. FleetBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements
Each of our executive officers, directors and shareholders and
substantially all of optionholders have agreed with the representatives, for a
period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the lock-up agreements. There are no agreements
between the representatives and any of our shareholders providing consent by the
representatives to the sale of shares prior to the expiration of the period of
180 days after this prospectus.
Future Sales
In addition, we have agreed that during the period of 180 days after this
prospectus, we will not, subject to certain exceptions, without the prior
written consent of FleetBoston Robertson Stephens Inc.:
- consent to the disposition of any shares held by shareholders prior to
the expiration of the period of 180 days after this prospectus; or
- issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock.
71
<PAGE> 75
Directed Share Program
The underwriters have reserved up to 250,000 shares of our common stock to
be issued by us and offered for sale in this offering, at the initial public
offering price, to directors, officers, employees, business associates and
persons otherwise connected to XCare.net. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase reserved shares. Any reserved shares which are not
purchased will be offered by the underwriters to the general public on the same
bases as the other shares offered in this offering.
Listing
We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "XCAR."
Stabilization
The representatives have advised us that, pursuant to Regulation M under
the Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. The representatives may also impose a "penalty
bid" on underwriters and selling group members if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock. The representatives may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Electronic Prospectuses
E*OFFERING Corp. is the exclusive Internet underwriter for this offering.
E*OFFERING Corp. has agreed to allocate a portion of the shares that it
purchases to E*TRADE Securities, Inc. E*OFFERING Corp. and E*TRADE Securities
Inc. will allocate shares to their respective customers in accordance with usual
and customary industry practices. A prospectus in electronic format, from which
you can link to a "Meet the Management" Presentation through an embedded
hyperlink, Iclick here for "Meet the Management" PresentationJ, is being made
available on the Web site maintained by E*OFFERING Corp., www.eoffering.com.
Other than the prospectus in electronic format, the information that is
identified as being a part of the prospectus and any other information that
references XCare.net, the information on E*OFFERING Corp.'s Web site and any
information provided in any other Web site maintained by E*OFFERING Corp. is not
part of this prospectus and has not been approved or endorsed by XCare.net and
should not be relied upon by prospective investors.
Certain Definitions
In this prospectus, references to "underwriters" means any person who
purchases shares of common stock directly from us in connection with the
distribution of shares in this offering. References to "representatives" means
FleetBoston Robertson Stephens Inc., SG Cowen Securities Corporation, E*Offering
Corp., and Advest, Inc. who will enter into an agreement with us and are acting
on behalf of the underwriters in the offering. In connection with this offering,
a "dealer" is an agent, broker or principal who buys our common stock from the
underwriters to sell to others. Dealers will not buy directly from us. "Selling
group members" and "syndicate members" are the group of dealers who sell our
securities to the public.
72
<PAGE> 76
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Arthur F. Schneiderman and Rachel S. Lovejoy, a member and
associate, respectively, of Wilson Sonsini Goodrich & Rosati, beneficially own
an aggregate of 15,483 shares of our common stock. Legal matters in connection
with this offering will be passed upon for the underwriters by Brobeck, Phleger
& Harrison LLP, San Francisco, California.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 1, 1999, PricewaterhouseCoopers LLP was engaged as our
independent accountants and replaced KPMG LLP, who were dismissed as our
independent accountants on August 25, 1999. The decision to change accountants
was approved by our Board of Directors. The audit reports of KPMG LLP for the
years ended December 31, 1997 and 1996 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle, except that the audit report issued by KPMG
LLP for the year ended December 31, 1997 included an explanatory paragraph
citing factors that raised substantial doubt surrounding our ability to continue
as a going concern. In connection with its audits through December 31, 1997 and
through August 25, 1999, there were no disagreements with KPMG LLP on any matter
of accounting principles or practices, financial statements disclosure or
auditing scope or procedures, which disagreements, if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement. KPMG LLP has not audited or
reported on any of the financial statements or information included in this
prospectus. For purposes of this filing, the financial statements for the years
ended December 31, 1997 and 1996 as well as the financial statements for the
year ended December 31, 1998 have been audited by PricewaterhouseCoopers LLP.
Prior to September 1, 1999, we had not consulted with PricewaterhouseCoopers LLP
on items that involved our accounting principles or the form of audit opinion to
be issued on our financial statements.
EXPERTS
The financial statements as of December 31, 1997 and 1998, and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
73
<PAGE> 77
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. 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 XCare.net and the
shares we are offering pursuant to this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The Securities and Exchange Commission's World Wide Web
address is www.sec.gov. The Securities and Exchange Commission's phone number is
1-800-SEC-0330.
We intend to furnish holders of our common stock annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as we may determine or as may be
required by law.
74
<PAGE> 78
XCARE.NET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Changes in Stockholders' Equity (Deficit)...... F-5
Statement of Cash Flows..................................... F-6
Notes to the Financial Statements........................... F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of XCare.net, Inc.
The stock split described in the last paragraph of Note 9 to the financial
statements has not been consummated at December 17, 1999. When it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of XCare.net,
Inc. at December 31, 1997 and 1998 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
Broomfield, Colorado
October 22, 1999
F-2
<PAGE> 80
XCARE.NET, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 697 $ 198 $ 11,031
Accounts receivable, net of allowance of $0, $50 and $75
at December 31, 1997 and 1998 and September 30, 1999
(unaudited), respectively............................... 453 703 275
Income taxes receivable................................... 617 -- --
Other current assets...................................... 177 78 1,179
------- -------- --------
Total current assets.................................... 1,944 979 12,485
Property and equipment, net................................. 2,082 691 401
Purchased software, net..................................... -- 850 637
Deferred contract costs..................................... -- 285 --
------- -------- --------
$ 4,026 $ 2,805 $ 13,523
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 239 $ 727 $ 887
Accrued liabilities....................................... 1,117 1,590 1,150
Unearned revenue.......................................... 188 500 144
Current portion of long-term debt and capital lease
obligations............................................. 1,352 3,497 82
------- -------- --------
Total current liabilities............................... 2,896 6,314 2,263
Long-term debt.............................................. 939 284 25
------- -------- --------
Total liabilities....................................... 3,835 6,598 2,288
------- -------- --------
Commitments and contingencies (Note 8)
Series A mandatorily redeemable convertible preferred stock,
$.01 par value; 5,000,000, 6,000,000 and 6,000,000 shares
authorized as of December 31, 1997, 1998 and September 30,
1999, respectively; 2,450,000 shares issued and
outstanding............................................... 6,677 6,743 6,793 $ --
Series B mandatorily redeemable convertible preferred stock,
$.01 par value; 0, 0 and 75,000,000 shares authorized as
of December 31, 1997, 1998 and September 30, 1999,
respectively; 63,053,144 issued and outstanding at
September 30, 1999........................................ -- -- 16,944 --
Value ascribed to mandatorily redeemable convertible
preferred stock warrants.................................. 51 84 84 --
------- -------- -------- --------
6,728 6,827 23,821 --
------- -------- -------- --------
Stockholders' equity (deficit):
Common stock, $.01 par value; 3,500,000, 5,000,000 and
12,500,000 shares authorized as of December 31, 1997,
1998 and September 30, 1999, respectively; 390,000
shares issued and outstanding as of December 31, 1997
and 1998, respectively; 557,163 shares issued and
outstanding as of September 30, 1999; 10,354,511 pro
forma shares issued and outstanding (unaudited)......... 4 4 6 104
Additional paid-in capital................................ 530 529 3,120 26,843
Unearned compensation..................................... -- -- (2,383) (2,383)
Accumulated deficit....................................... (7,071) (11,153) (13,329) (13,329)
------- -------- -------- --------
Total stockholders' equity (deficit).................... (6,537) (10,620) (12,586) $ 11,235
------- -------- -------- --------
Total liabilities and stockholders' equity (deficit).... $ 4,026 $ 2,805 $ 13,523
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 81
XCARE.NET, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue............................... $ 9,726 $ 5,984 $ 2,270 $ 1,564 $ 2,654
------- ------- ------- ------- -------
Costs and expenses:
Cost of revenue..................... 3,744 4,575 2,086 1,440 2,421
Sales and marketing................. 1,369 2,531 965 792 545
General and administrative.......... 2,220 2,436 2,194 1,389 1,185
Research and development............ 3,190 4,212 670 594 417
Impairment of long-lived assets and
abandonment of operating lease... -- 887 -- -- --
Stock compensation expense.......... -- -- -- -- 112
------- ------- ------- ------- -------
10,523 14,641 5,915 4,215 4,680
------- ------- ------- ------- -------
Loss from operations.................. (797) (8,657) (3,645) (2,651) (2,026)
Settlements received from contract
terminations........................ 2,250 250 -- -- --
Interest income (expense), net........ -- 5 (437) (306) (150)
------- ------- ------- ------- -------
Income (loss) before income taxes..... 1,453 (8,402) (4,082) (2,957) (2,176)
Income tax (benefit) expense.......... 1,200 (1,078) -- -- --
------- ------- ------- ------- -------
Net income (loss)..................... $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
======= ======= ======= ======= =======
Net income (loss) per common
share -- basic and diluted.......... $ 0.53 $(18.92) $(10.64) $ (7.71) $ (5.09)
======= ======= ======= ======= =======
Weighted average common shares
outstanding -- basic and diluted.... 476 390 390 390 438
======= ======= ======= ======= =======
Pro forma net loss per common share
basic and diluted (unaudited)....... $ (1.01) $ (0.32)
======= =======
Pro forma weighted average common
shares basic and
diluted -- (unaudited).............. 4,058 6,715
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 82
XCARE.NET, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
---------------- PAID-IN UNEARNED EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) TOTAL
------ ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... 1 $-- $ 20 -- $ 1,750 $ 1,770
Repurchase and retirement of
common stock.................... (0) -- (7) -- (1,096) (1,103)
Dividends declared.............. -- -- -- -- (78) (78)
Reclassification of accumulated
earnings upon conversion from
non-taxable to taxable
status........................ -- -- 576 -- (576) --
Net income...................... -- -- -- -- 253 253
--- --- ------ ------- -------- --------
Balance at December 31, 1996.... 1 -- 589 -- 253 842
Stock split..................... 389 4 (4) -- -- --
Accretion of mandatorily
redeemable convertible
preferred stock............... -- -- (55) -- -- (55)
Net loss........................ -- -- -- -- (7,324) (7,324)
--- --- ------ ------- -------- --------
Balance at December 31, 1997.... 390 4 530 -- (7,071) (6,537)
Accretion of mandatorily
redeemable convertible
preferred stock............... -- -- (66) -- -- (66)
Other........................... -- -- 65 -- -- 65
Net loss........................ -- -- -- -- (4,082) (4,082)
--- --- ------ ------- -------- --------
Balance at December 31, 1998.... 390 4 529 -- (11,153) (10,620)
Common stock issued upon
exercise of options
(unaudited)................... 167 2 40 -- 42
Accretion of mandatorily
redeemable convertible
preferred stock (unaudited)... -- -- (54) -- -- (54)
Unearned compensation, net...... -- -- 2,495 $(2,383) -- 112
Other........................... 110 -- -- 110
Net loss (unaudited)............ -- -- -- -- (2,176) (2,176)
--- --- ------ ------- -------- --------
Balance at September 30, 1999
(unaudited)................... 557 $ 6 $3,120 $(2,383) $(13,329) $(12,586)
=== === ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 83
XCARE.NET, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................... $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 733 918 815 695 535
(Gain) loss on impairment and disposal of assets...... 914 408 (11) 5
Deferred income tax provision......................... 451 (451) -- -- --
Stock options issued for services..................... -- -- -- -- 110
Amortization of unearned compensation................. -- -- -- -- 112
Other................................................. -- -- 99 113 119
Change in assets and liabilities:
Accounts receivable, net............................ 986 756 (250) (109) 428
Other current assets................................ (91) (17) 99 92 (1,101)
Income taxes receivable............................. -- (617) 617 617 --
Purchased software.................................. -- -- (850) -- --
Long-term deferred contract costs................... -- -- (285) (312) 285
Accounts payable.................................... (198) (367) 488 284 160
Accrued liabilities................................. 691 (565) 473 (425) (1)
Unearned revenue.................................... -- 188 312 (72) (356)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities................................... 2,825 (6,565) (2,156) (2,085) (1,880)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment...................... (330) (348) (19) (18) (113)
Proceeds from sale of property and equipment............ -- 30 186 49 4
------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities................................... (330) (318) 167 31 (109)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt.......................... 363 533 2,230 1,967 205
Principal payments on debt.............................. (1,128) (618) (166) (164) (425)
Principal payments under capital leases................. (49) (351) (574) (424) (740)
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net...................... -- 6,622 -- -- 13,740
Proceeds from issuance of common stock.................. -- -- -- -- 42
Cash paid for repurchase of common stock................ (381) -- -- -- --
Dividends paid.......................................... (78) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................... (1,273) 6,186 1,490 1,379 12,822
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents.... 1,222 (697) (499) (675) 10,833
Cash and cash equivalents at beginning of period........ 172 1,394 697 697 198
------- ------- ------- ------- -------
Cash and cash equivalents at end of period.............. $ 1,394 $ 697 $ 198 $ 22 $11,031
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid........................................... $ 83 $ 148 $ 127 $ 198 $ 303
Income taxes paid (refunded)............................ 213 -- (615) -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING TRANSACTIONS
Capital lease obligations for purchase of equipment..... $ 378 $ 1,217 $ -- $ -- $ --
Note issued for repurchase of common stock.............. 722 -- -- -- --
Conversion of convertible promissory notes and accrued
interest to Series B mandatorily redeemable
convertible preferred stock........................... -- -- -- -- 3,204
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 84
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
XCare.net, Inc. (the "Company") develops, deploys and supports
business-to-business software solutions for the health care industry. The
Company's proprietary XML-based platform and professional services allow it to
create customizable transaction-based application solutions that are designed to
address the complex administrative processing requirements of health care
companies. In addition, the Company provides outsourcing and transaction hosting
services that improve workflow processes and reduce administrative costs for
customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
For contracts entered into subsequent to January 1, 1998, the Company
recognizes revenue in accordance with the provisions of Statement of Position
97-2, "Software Revenue Recognition". The Company derives revenue from license
fees and related services under the terms of fixed price contracts. Maintenance
revenue is derived from agreements for supporting and providing periodic updates
to licensed software. Consulting revenue consists of revenue from consulting
services provided pursuant to time and materials contracts. Transaction
processing revenue is derived from outsourcing and transaction hosting services
and is recognized on a per-transaction basis as services are performed.
License fees and related services revenue is generally recognized from
fixed price contracts using the percentage-of-completion method of accounting
where collectibility of fees is probable. Where collectibility of fees is not
probable, the Company defers revenue and related costs as deferred contract
costs and recognizes revenue and cost of revenue as cash is collected.
The Company may encounter budget and schedule overruns on fixed price
contracts caused by increased material, labor or overhead costs. Adjustments to
cost estimates are made in the periods in which the facts requiring such
revisions become known. Estimated losses, if any, are recorded in the period in
which current estimates of total contract revenue and contract costs indicate a
loss. The Company does not require collateral for its receivables and an
allowance is maintained for potential credit losses.
Maintenance revenue is recorded as unearned revenue and is recognized
ratably over the service period, which is generally 12 months. When maintenance
is bundled with the original license fee arrangement, its fair value is deferred
and recognized during the period such services are provided.
Revenue from consulting services provided pursuant to time-and-materials
contracts is recognized as the services are performed.
For contracts entered into prior to January 1, 1998, the Company recognized
revenue in accordance with Statement of Position 91-1, "Software Revenue
Recognition." The Company's revenue recognition for such pre-1998 contracts was
substantially the same as that discussed above.
F-7
<PAGE> 85
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. All cash equivalents are
carried at cost, which approximates fair value.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable,
prepaids, accounts payable and accrued liabilities. The carrying amounts of
financial instruments approximate fair value due to their short maturities.
Additionally, based upon the borrowing rates currently available to the Company
for debt agreements with similar terms and average maturities, management
believes the carrying amount of its debt approximates fair value.
Concentration of Credit Risk
The Company performs ongoing evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. All such
customers operate in the health care industry.
The Company had the following customers which accounted for greater than
10% of each respective period's revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
CUSTOMER 1996 1997 1998
- -------- ------ ------ ------
<S> <C> <C> <C>
A 67% -- --
B 10% 74% --
C -- -- 29%
D -- -- 20%
E -- -- 12%
F -- -- 11%
</TABLE>
At December 31, 1998, customer's D, E and F accounted for 20%, 23% and 10%
of accounts receivable, respectively. Two other customers accounted for 27% and
13% of accounts receivable at December 31, 1998.
Property and Equipment
Property and equipment are recorded at cost and depreciated using
straight-line methods over the estimated useful lives of the related assets,
ranging from two to five years. Equipment under capital lease arrangements as
well as leasehold improvements are amortized over the shorter of their useful
lives or the terms of the related leases.
Long-Lived Assets and Impairments
The Company periodically evaluates the carrying value of long-lived assets,
including, but not limited to, purchased software, property and equipment, and
other assets, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately indentifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the long-lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Loss on long-lived assets to be
F-8
<PAGE> 86
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
disposed of is determined in a similar manner, except that fair values are
reduced for the cost to dispose.
Unaudited Pro Forma Stockholders' Equity
In accordance with the requirements of the Securities and Exchange
Commission ("SEC"), which provide that the total redemption value of Series A
and B mandatorily redeemable convertible preferred stock (the "Convertible
Preferred Stock") be excluded from stockholders' equity (deficit), the
redemption value of the Convertible Preferred Stock has been reflected in the
accompanying balance sheet as mandatorily redeemable convertible preferred
stock.
The board of directors has authorized management of the Company to file a
registration statement with the SEC permitting the Company to sell shares of its
common stock to the public. If the Company's initial public offering (the "IPO")
is consummated under the terms currently anticipated, all outstanding shares of
Convertible Preferred Stock will convert into 9,108,115 shares of common stock
of the Company. Unaudited Pro Forma Stockholders' Equity as of September 30,
1999, as set forth in the accompanying balance sheet, is adjusted to reflect
such conversion, the assumed "cashless exercise" of all outstanding common stock
warrants and Series A mandatorily redeemable convertible preferred stock
warrants with exercise prices below the assumed initial public offering price,
and the conversion of the Series A mandatorily redeemable convertible preferred
stock issued upon the assumed exercise of the latter warrants into common stock,
resulting in the issuance of 9,797,348 additional shares of common stock.
Research and Development
Research and development expense includes costs incurred by the Company to
develop and enhance the Company's software. Research and development costs are
charged to expense as incurred.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 1996, 1997 and 1998 were approximately $98,000,
$433,000 and $66,000, respectively.
Software Development Costs
Software development costs are required to be expensed until the point that
technological feasibility of the product is established, after which time such
costs are capitalized until general availability of the product. The period
between achieving technological feasibility and the general availability of such
software has historically been short. Consequently, costs otherwise
capitalizable after technological feasibility have historically been immaterial
and therefore expensed as incurred.
Purchased software
Purchased software is held for resale under an exclusive license and is
capitalized and amortized ratably over a three-year estimated life. Accumulated
amortization was $0 and $213,000 (unaudited) as of December 31, 1998 and
September 30, 1999, respectively. See Note 8.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce
F-9
<PAGE> 87
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
Stock Option Compensation
Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
Net Income (Loss) Per Share
Net income (loss) per common share is calculated in accordance with SFAS
No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss)
per common share is computed by dividing the net income (loss) for the period by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed by dividing the net
income (loss) for the period by the weighted average number of common and
potential shares outstanding during the period if their effect is dilutive.
Potential common shares consist of incremental common shares issuable upon the
exercise of stock options and warrants and upon conversion of the Convertible
Preferred Stock and convertible promissory notes.
Unaudited Pro Forma Net Income (Loss) Per Common Share
The Company has computed unaudited pro forma basic net loss per common
share in accordance with the methodology in SFAS No. 128. The Company's
historical capital structure is not indicative of its prospective structure due
to the automatic conversion of all shares of Convertible Preferred Stock into
common stock concurrent with the closing of the Company's anticipated IPO.
Accordingly, historical basic net income (loss) per common share should not be
used as an indicator of future earnings per common share.
Unaudited pro forma basic net loss per common share is computed using the
weighted average number of common shares outstanding during the period. The
Company has assumed the conversion of all outstanding Convertible Preferred
Stock issued into common stock for all periods presented on a weighted average
share basis and the assumed "cashless exercise" of all outstanding common stock
warrants and Series A mandatorily redeemable convertible preferred warrants with
exercise prices below the assumed initial public offering price, and the
conversion of the Series A mandatorily redeemable convertible preferred stock
issued upon the assumed exercise of the latter warrants into common shares as if
such transactions occurred at the beginning of the respective period or at the
date of original issuance, if later.
F-10
<PAGE> 88
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of the numerators and
denominators in the basic, diluted and pro forma net income (loss) per common
share calculations for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)........................ $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
Accretion of mandatorily redeemable
convertible preferred stock........... -- (55) (66) (50) (54)
------ ------- ------- ------- -------
Net income (loss) available to common
stockholders.......................... $ 253 $(7,379) (4,148) $(3,007) (2,230)
====== ======= =======
Effect of pro forma conversion of
securities:
Accretion of mandatorily redeemable
convertible preferred stock......... 66 54
------- -------
Pro forma net loss available to common
stockholders (unaudited)............ $(4,082) $(2,176)
======= =======
Denominator
Weighted average common shares
outstanding -- basic and diluted...... 476 390 390 390 438
====== ======= ------- ======= -------
Weighted average effect of pro forma
securities:
Series A mandatorily redeemable
convertible preferred stock......... 2,821 3,294
Series B mandatorily redeemable
convertible preferred stock......... 824 2,785
Common stock warrants................. 23 198
------- -------
Pro forma weighted average common shares
outstanding -- basic and diluted
(unaudited).............................. 4,058 6,715
======= =======
</TABLE>
Potentially dilutive securities totaling 1,782,855 and 5,737,091 for the
years ended December 31, 1997 and 1998, respectively, and 5,421,061 and
11,311,855 for the nine month periods ended September 30, 1998 and 1999,
respectively, were excluded from historical basic and diluted loss per common
share because of their anti-dilutive effect.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income includes all changes in equity during a period from
non-owner sources. During each of the three years ended December 31, 1998, and
the nine-month periods ended September 30, 1998 and 1999, the Company has not
had any significant transactions that are required to be reported as adjustments
to determine comprehensive income.
Unaudited Interim Financial Statements
The accompanying interim financial statements as of and for the nine-month
periods ended September 30, 1998 and 1999 are unaudited. In the opinion of the
Company, the unaudited interim financial statements have been prepared on the
same basis as the audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of
F-11
<PAGE> 89
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
the results of the interim periods. The financial data and other information
disclosed in these notes to financial statements for the related periods are
unaudited. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for any future periods.
Stock Split
On March 15, 1997, the Company effected a 600-for-one split of its common
stock. All references to shares, share prices and per share amounts have been
adjusted to reflect the stock split.
Recent Accounting Pronouncements
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," which provides guidance on
recognizing revenue from software transactions, as amended by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition." The Company applied the provisions of SOP 97-2 on a prospective
basis for new software transactions entered into as of January 1, 1998. The
adoption of this guidance did not have a material impact on the Company's
financial condition or results of operations.
Further guidance was published during 1998 in SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions."
Additionally, the AICPA issued technical questions and answers on financial and
reporting issues related to SOP 97-2 in January 1999. The adoption of this
guidance will not have a material impact on the Company's financial condition or
results of operations.
2. BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
ACCRUED LIABILITIES
Accrued payroll.................................... $ 518 $ 171 $ 183
Operating lease obligation payable................. 461 203 74
Accrued interest................................... 18 269 10
Accrued license fee payable........................ -- 850 650
Other.............................................. 120 97 233
------ ------ ------
$1,117 $1,590 $1,150
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment......................... $ 879 $ 301
Computer hardware......................................... 2,241 1,435
Computer software......................................... 755 257
------- -------
3,875 1,993
Less accumulated depreciation and amortization.............. (1,793) (1,302)
------- -------
$ 2,082 $ 691
======= =======
</TABLE>
F-12
<PAGE> 90
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Assets underlying capital leases included above were approximately
$1,525,000 and $1,192,000 as of December 31, 1997 and 1998, respectively.
Accumulated amortization of assets under capital leases was approximately
$322,000 and $614,000 as of December 31, 1997 and 1998, respectively.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Unsecured convertible promissory notes payable to preferred
stockholders, net of debt discount of $51 and $50 at
December 31, 1997 and 1998, respectively; interest rate at
12%; principal and interest due at maturity on September
30, 1999.................................................. $ 449 $ 2,680
Note payable to bank, as modified on April 22, 1997;
principal and interest payable in monthly installments of
$11,165 until December 22, 1998; interest on the note is
at the prime rate plus 1.0% (9.5% as of December 31,
1997); secured by equipment and intellectual property
rights.................................................... 62 --
Unsecured notes payable to former employees; interest rates
ranging from 5.73% to 6.84%; principal and interest due in
equal annual installments with maturity dates through
2000...................................................... 290 246
Unsecured notes payable to software vendors for software
licenses; interest rate at 10.5%; principal and interest
were payable on January 1, 1998........................... 86 44
Unsecured notes payable to landlord for leasehold
improvements; interest rate at 9.5%; principal and
interest payable in monthly installments of $1,207 until
February 1, 2000.......................................... 33 16
Capitalized lease obligations............................... 1,371 795
------- -------
Total long-term debt................................... 2,291 3,781
Less current portion........................................ (1,352) (3,497)
------- -------
Long-term debt, excluding current portion.............. $ 939 $ 284
======= =======
</TABLE>
Maturities of long-term debt, including future minimum lease payments under
capitalized lease obligations, at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITALIZED OTHER TOTAL LONG-TERM
LEASES DEBT DEBT COMMITMENTS
----------- ------ -----------------
<S> <C> <C> <C>
1999....................................... $614 $2,984 $3,598
2000....................................... 242 52 294
---- ------ ------
856 $3,036 $3,892
====== ======
Less: Amount representing interest......... (61)
----
Present value of capitalized lease
obligations (including $564 classified as
current)................................. $795
====
</TABLE>
Certain equipment financing agreements recorded as capital lease
obligations are subject to restrictive covenants contained in the credit
agreement that require XCare.net to maintain certain financial ratios. XCare.net
was not in compliance with the covenants as of December 31, 1998 and obtained a
waiver of compliance for all covenants through September 30, 1999. The capital
lease obligations under the financing agreements that included the restrictive
covenants were paid off during September 1999.
F-13
<PAGE> 91
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
On December 29, 1997 and April 10, 1998, the Company entered into bridge
loan agreements with related parties who were the holders of all the Company's
then outstanding preferred stock. The loan agreements provided for commitments
for $2,500,000 of financing (the "1997 Convertible Promissory Notes"), of which
$500,000 was received in 1997. The remaining $2,000,000 was received throughout
1998. In June 1999, the 1997 Convertible Promissory Notes plus accrued interest
aggregating approximately $2,924,000 converted at $0.27 per share into
10,831,800 shares of Series B mandatorily redeemable convertible preferred stock
in conjunction with the sale of Series B mandatorily redeemable convertible
preferred stock. In connection with the 1997 Convertible Promissory Notes, the
Company issued warrants to purchase 437,062 shares of the Company's Series A
mandatorily redeemable convertible preferred stock at $0.25 per share. The
warrants expire in 2002 through 2003 or upon an IPO, if earlier. The value
assigned to the warrants of $84,000, determined using a Black-Scholes option
pricing model, resulted in additional debt discount which is being amortized to
interest expense over the period that the Convertible Promissory Notes are
outstanding.
In November 1998, the Company entered into a second bridge loan agreement
with related parties who were the holders of all the Company's then outstanding
preferred stock. The loan agreement provided for $265,000 financing of which
$230,000 was received in 1998 and $35,000 was received in 1999 (the "1998
Convertible Promissory Notes"). In June 1999, the 1998 Convertible Promissory
Notes plus accrued interest aggregating approximately $280,000 converted at
$0.27 per share into 1,036,159 shares of Series B mandatorily redeemable
convertible preferred stock in conjunction with the sale of Series B mandatorily
redeemable convertible preferred stock. In connection with the 1998 Convertible
Promissory Notes, the Company issued warrants to purchase 200,000 shares of the
Company's common stock at $0.10 per share. The warrants expire in 2003 or upon
an IPO, if earlier. The value assigned to the warrants of $43,000 resulted in
additional debt discount which is being amortized to interest expense over the
period that the Convertible Promissory Notes are outstanding.
4. STOCKHOLDERS' EQUITY
Mandatorily Redeemable Convertible Preferred Stock
In March 1997, the Company issued 2,450,000 shares of $.01 par value Series
A mandatorily redeemable convertible preferred stock and received proceeds net
of issuance costs totaling approximately $6,622,000.
In June 1999, the Company issued 27,111,111 shares of $.01 par value Series
B mandatorily redeemable convertible preferred stock and received proceeds net
of issuance costs totaling $7,320,000. Concurrently, outstanding Convertible
Promissory Notes plus accrued interest of approximately $3,204,000 in the
aggregate were converted into an additional 11,867,959 shares of Series B
mandatorily redeemable convertible preferred stock.
In July 1999, the Company issued 24,074,074 shares of $.01 par value Series
B mandatorily redeemable convertible preferred stock and received proceeds net
of issuance costs totaling $6,500,000.
The holders of the Convertible Preferred Stock have the following rights
and preferences:
Voting Rights
The holders of the Convertible Preferred Stock and the common stock, voting
together as a single class, are entitled to vote upon any matter submitted to
the shareholders. The holders of the Convertible Preferred Stock are entitled to
one vote for each share of common stock that such holder would be entitled to
receive if the Convertible Preferred Stock were converted into common stock. The
holders of common stock have one vote per share of common stock.
F-14
<PAGE> 92
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Dividends
The holders of the Series A mandatorily redeemable convertible preferred
stock are entitled to receive, out of funds legally available, dividends payable
at amounts equal to the equivalent per share dividend declared on the common
stock. Holders of Series B mandatorily redeemable convertible preferred stock
are entitled to receive noncumulative dividends at the per annum rate of
$0.00216 per share, when and if declared by the board of directors. No dividends
have been declared to date.
Liquidation
In the event of any sale, liquidation, dissolution or winding up of the
Company, the holders of Series A and Series B mandatorily redeemable convertible
preferred stock are entitled to receive up to five times their original cost.
The holders of Series A mandatorily redeemable convertible preferred stock are
entitled to receive an amount of $2.86 per share plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of
common stock. The holders of the Series B mandatorily redeemable convertible
preferred stock are entitled revise to receive an amount of $0.27 per share plus
any declared but unpaid dividends prior to and in preference to any distribution
to the holders of common stock. The remaining assets, if any, shall be
distributed ratably among the holders of common stock and the holders of
Convertible Preferred Stock on an as-converted basis. The holders of the
Convertible Preferred Stock stop participating in the remaining assets once they
have recovered five times their original cost.
Conversion
The 2,450,000 outstanding shares of Series A mandatorily redeemable
convertible preferred stock are convertible at the option of the holder into
2,802,800 shares of common stock. The original conversion ratio of the Series A
mandatorily redeemable convertible preferred stock into common stock was
one-for-one. This conversion ratio was adjusted during 1997 and 1998 to
one-for-11.44. The 63,053,144 shares of Series B mandatorily redeemable
convertible preferred stock are convertible at the option of the holders into
6,305,314 shares of common stock. Each share of Convertible Preferred Stock
automatically converts into common stock upon the closing of a public offering
at a per share price of at least $9.50 with gross proceeds of greater than
$15,000,000.
Redemption Rights
As of January 1, 2002, 2003 and 2004, each holder of the Convertible
Preferred Stock has the individual right to require the Company to redeem the
holder's shares by paying in cash $2.86 per share of Series A Convertible
Preferred Stock and $0.27 per share of Series B Convertible Preferred Stock, for
up to a maximum on each such date of one-third of the total shares of
Convertible Preferred Stock outstanding. The difference between the recorded
value and the redemption value of the mandatorily redeemable convertible
preferred stock is being accreted ratably over the period from issuance to
redemption dates which approximates the effective interest method.
Stock Warrants
In conjunction with the Series A mandatorily redeemable convertible
preferred stock offering, the Company issued warrants to purchase a total of
12,250 shares of common stock for $31.46 per share. The value assigned to these
warrants using a Black-Scholes option pricing model was immaterial. The warrants
are exercisable immediately and expire in 2005 or upon an IPO, if earlier.
In connection with the issuance of the 1997 Convertible Promissory Notes,
warrants to purchase 437,062 shares of the Company's Series A mandatorily
redeemable convertible preferred stock at
F-15
<PAGE> 93
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
$0.25 per share were issued to the promissory noteholders. The exercise price of
262,238 of these warrants was repriced from $0.50 to $0.25 in April 1998. The
warrants expire December 2002 through April 2003 or upon an IPO, if earlier.
In connection with the issuance of the 1998 Convertible Promissory Notes,
warrants to purchase 200,000 shares of the Company's common stock at $0.10 per
share were issued to the promissory noteholders. The warrants expire November
and December of 2003 or upon IPO, if earlier.
As of September 30, 1999, all warrants remain outstanding.
5. CONTRACT TERMINATIONS AND RELATED CHARGES
During 1996, a major customer terminated its contract with the Company and
paid $2.3 million to settle all claims arising from the termination. During
1997, another major customer terminated its contract with the Company and paid
$250,000 to settle all claims associated with the termination.
As a result of these contract terminations, during 1997, the Company
abandoned an operating lease and incurred impairment charges for related fixed
assets aggregating $887,000.
6. EMPLOYEE BENEFIT PLANS
Stock Options
During 1997, the Company adopted a stock option plan (the "Plan") which
provides for the grant of stock options to directors, key employees, and
consultants. As of September 30, 1999, a total of 2,200,000 shares of common
stock are reserved for issuance under the Plan. The Plan provides for the
granting of incentive stock options to employees and nonqualified options to
employees, directors and consultants.
Stock options are granted with an exercise price not less than fair market
value of the common stock on the date of the grant, as determined by the board
of directors. The vesting period is determined by the board of directors and is
generally four years. The options generally expire ten years after the date of
grant. During February 1998, the board of directors reduced the exercise price
of 14,026 options from $2.80 to $0.50 and in July 1998, they reduced the
exercise price for 1,850 options from $0.50 to $0.25.
The Company records compensation expense related to stock options granted
to employees using the intrinsic value based method and includes a pro forma
disclosure in the footnotes for compensation value measured using the fair value
accounting treatment. Options granted to consultants are accounted for based on
the fair value of the consideration received or the fair value of the options
issued, whichever is more reliably measurable. For the fair value disclosure
below, compensation value is estimated for each option grant under the Plan on
the date of grant using a Black-Scholes-type option pricing model. The following
assumptions were used for grants in 1997 and the 1998: risk-free rates
corresponding to government securities with original maturities similar to the
expected option lives of 6.3% to 6.8% in 1997 and 4.5% to 5.6% for 1998;
expected dividend yield of 0% for both periods; volatility factor of zero; and
expected lives of approximately one year beyond vesting dates for all periods.
Based on calculations using a Black-Scholes-type minimum value option
pricing model, the weighted-average fair value of options at grant date was
$0.80, $0.10 and $0.50 in 1997 1998, and for the nine months ended September 30,
1999, respectively. The pro forma impact on the Company's net loss and net loss
per share had compensation cost been recorded as determined in accordance with
F-16
<PAGE> 94
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 123, "Accounting for Stock-Based Compensation" is shown below (in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Net loss:
As reported............................................... $(7,324) $(4,082)
Pro forma................................................. (7,333) (4,089)
Net loss per common share:
As reported............................................... $(18.92) $(10.64)
Pro forma................................................. (18.94) (10.65)
</TABLE>
Total stock options outstanding and exercisable under the Plan as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ---------------------------------------------------------------- ---------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICES SHARES EXERCISE PRICES
- --------------- --------- ---------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.25 1,118,450 9.5 $0.25 413,218 $0.25
2.80 11,667 8.3 2.80 11,667 2.80
--------- -------
$0.25 - 2.80 1,130,117 9.5 $0.25 424,885 $0.25
========= =======
</TABLE>
Total stock options outstanding and exercisable under the Plan as of
September 30, 1999 are as follows (unaudited):
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ---------------------------------------------------------------- ---------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- --------- ---------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.25 820,400 9.2 $0.25 820,400 $0.25
2.70 659,425 9.9 2.70 659,425 2.70
2.80 11,667 7.5 2.80 11,667 2.80
---------
$0.25 - 2.80 1,491,492 1.35
=========
</TABLE>
F-17
<PAGE> 95
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Activity of the Plan is summarized in the following table:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF AVERAGE OPTIONS AVERAGE
SHARES EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1996...... -- $ -- -- $ --
Options granted............................. 94,701 2.80
Less: options forfeited..................... (62,833) 2.80
----------
Options outstanding, December 31, 1997...... 31,868 2.80 31,868 2.80
Options granted............................. 1,120,600 0.30
Less: options forfeited..................... (22,351) 1.10
----------
Options outstanding, December 31, 1998...... 1,130,117 0.25 1,130,117 0.25
Options granted (unaudited)................. 1,029,825 1.80
Less: options exercised (unaudited)......... 167,163 0.25
Less: options forfeited (unaudited)......... (501,287) 0.25
----------
Options outstanding, September 30, 1999
(unaudited)............................... 1,491,492 1.35 1,491,492 1.35
==========
</TABLE>
401(k) Plan
The Company has adopted an employee savings and retirement plan (the
"401(k) Plan") covering substantially all of the Company's employees. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the statutory prescribed limit and have the amount of such
reduction contributed to the 401(k) Plan. The Company may make contributions to
the 401(k) Plan on behalf of eligible employees. The Company has not made any
contributions to the 401(k) Plan.
7. INCOME TAXES
Prior to January 1, 1996, the Company elected to be taxed under Subchapter
S of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly the
stockholders were responsible for payment of taxes on income earned by the
Company, and the Company distributed to stockholders annually an amount equal to
the estimated tax liability arising from operations. On January 1, 1996, the
Company revoked its election to be taxed under Subchapter S of the Code and
elected to be taxed under Subchapter C of the Code. In connection with the
change in status, the Company reclassified accumulated earnings of $576,000 to
additional paid-in capital to reduce accumulated earnings to zero as of the date
of the conversion. At December 31, 1998, the Company had net operating loss
("NOL") carryforwards of approximately $9.4 million which may be used to offset
future taxable income. These carryforwards expire beginning in 2012. The Code
contains provisions that may limit the NOL available for use in any given year
upon the occurrence of certain events, including significant changes in
ownership interest. A change in ownership of a company of greater than 50%
within a three-year period results in an annual limitation on the Company's
ability to utilize its NOL carryforwards from tax periods prior to the ownership
change. The Company's NOL carryforwards as of September 30, 1999 are subject to
annual limitations due to changes in ownership occurring in March 1997 and in
June 1999. Approximately $1,080,000 are limited to annual utilization of
approximately $60,000 and NOL carryforwards of approximately $9,000,000 are
limited to annual utilization of approximately $600,000, subject to adjustment
for realization of any built-in gains or losses. Future ownership changes could
further limit the utilization of the Company's NOLs.
F-18
<PAGE> 96
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The provision for (benefit from) income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ 623 $ (627) $ --
State............................................. 126 -- --
Deferred:
Federal........................................... 374 (383) --
State............................................. 77 (68) --
------ ------- -------
Total............................................... $1,200 $(1,078) $ --
====== ======= =======
</TABLE>
The components of the Company's deferred income tax assets and liabilities
under FAS 109 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred revenue.......................................... $ -- $ 50
Impairment and exit cost accruals......................... 339 355
Employee benefits......................................... 77 57
Other..................................................... -- 35
Net operating loss carryforwards.......................... 2,122 3,681
Deferred tax liabilities:
Cash to accrual Section 481(a)............................ (375) (281)
Fixed asset sale and depreciation......................... (27) (187)
Amortization.............................................. -- (57)
Less: Valuation allowance................................... (2,136) (3,653)
------- -------
Net deferred tax asset.................................... $ -- $ --
======= =======
</TABLE>
The Company's deferred tax assets represent unrecognized future tax
benefit. A valuation allowance has been established for the entire tax benefit,
and no benefit for income taxes has been recognized in the accompanying
statement of operations as the realization of the potential assets is not more
likely than not.
The benefit for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 34% to loss before income taxes as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Federal income tax benefit at 34%................... $ 494 $(2,856) $(1,388)
State income tax, net of federal benefit............ 135 (381) (166)
Effect of conversion to taxable status.............. 600 -- --
Change in valuation allowance....................... -- 2,136 1,517
Other............................................... (29) 23 37
------ ------- -------
Income tax expense (benefit)........................ $1,200 $(1,078) $ --
====== ======= =======
</TABLE>
F-19
<PAGE> 97
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office space under various long-term
non-cancelable operating leases that expire in 2002. The following is a schedule
by year of future minimum lease payments under operating leases, at December 31,
1998 (in thousands):
<TABLE>
<S> <C>
1999..................................... $ 542
2000..................................... 106
2001..................................... 100
2002..................................... 100
-----
848
Less: sublease income.................... (169)
-----
$ 679
=====
</TABLE>
Total rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $288,000, $356,000 and $438,000, respectively.
In December 1998, the Company purchased an exclusive license for certain
software to be resold. This arrangement requires the Company to pay a royalty of
17.5% of all of its sales of the software. In the event the Company does not
satisfy specified minimum sales levels through June 30, 2000, the Company may
forfeit the exclusive rights to resell this software.
The Company has entered into another arrangement with a customer that
provides for a 10% royalty payment to the customer in the event the Company
resells the proprietary module developed for this customer.
9. SUBSEQUENT EVENTS
In July 1999, the board of directors amended all existing stock option
agreements under the Plan. The amendment provided that all options are
immediately exercisable. However, any shares acquired upon exercise are subject
to repurchase by XCare.net over a reverse vesting period that entitles the
optionee to exactly the same vesting schedule as the original grant. The
repurchase price is equal to the exercise price of the options.
During the nine months ended September 30, 1999, the Company issued stock
options to certain employees under the Plan with exercise prices below the
deemed fair value of the Company's common stock at the date of grant. The
Company has recorded unearned stock compensation for the difference between the
exercise price of the stock options and the deemed fair value of the Company's
common stock at the date of grant. This unearned stock compensation will be
amortized to expense over the period during which the options or common stock
subject to repurchase vest, generally four years, using an accelerated method as
described in Financial Accounting Standards Board Interpretation No. 28. As of
September 30, 1999, the Company has recorded unearned compensation related to
these options in the amount of $2,400,000, of which $112,000 has been amortized
to expense during the nine months ended September 30, 1999. Subsequent to
September 30, 1999, the Company granted additional options with exercise prices
below the deemed fair value of the Company's common stock at the date of grant
and will record unearned compensation of approximately $233,000 in the fourth
quarter of 1999 to be amortized over the period of vesting.
Additionally, during September 1999, the Company granted an option to a
non-employee for 20,000 common shares with a strike price of $2.70 which vests
over twelve months or upon occurrence of an IPO, if earlier. The Company expects
to record a charge related to this option during the vesting period or at the
time of closing the IPO. As of September 30, 1999, the Company has recorded
F-20
<PAGE> 98
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
unearned compensation of $82,000 which will be amortized during the
aforementioned vest period and is subject to variable stock option accounting.
In September 1999, the board of directors increased the number of common
shares reserved for issuance under the Plan to 2,200,000.
In October 1999, the board of directors adopted an employee stock purchase
plan (the "Employee Stock Purchase Plan,") subject to shareholder approval which
will become effective immediately on the effective date of the IPO. A total of
500,000 shares of common stock have been reserved for issuance under the
Employee Stock Purchase Plan. The Employee Stock Purchase Plan permits eligible
employees to purchase common stock totaling up to 15% of an employee's
compensation through payroll deductions. The Employee Stock Purchase Plan for
U.S. employees is intended to qualify under Section 423 of the Internal Revenue
Code and contains consecutive overlapping twelve-month offering periods. Each
offering period includes two six month purchase periods. The price of common
stock to be purchased will be 85% of the lower of the fair market value of the
common stock either at the beginning of the offering period or at the end of
that purchase period.
In October 1999, the board of directors adopted the Director Option Plan,
subject to shareholder approval, which will become effective immediately on the
effective date of the IPO. A total of 250,000 shares of common stock have been
reserved for issuance under the Director Option Plan. Members of the board of
directors who are not employees of XCare.net are eligible to participate in the
Director Option Plan. The Director Option Plan provides for an automatic initial
grant of an option to purchase 25,000 shares of common stock (the "Initial
Grant") upon the later of the effective date of the Director Option Plan or the
date a person first becomes a non-employee director. After the Initial Grant, a
non-employee director will automatically be granted options to purchase 10,000
shares of common stock ("Subsequent Grant") each year on the date of XCare.net's
annual stockholder's meeting, if such director has served as a member of the
board for at least six months. The term of such options is ten years, provided
that they will terminate three months following the date the director ceases to
be a director of XCare.net or twelve months if the termination is due to death
or disability. Each Initial Grant will vest as to 25% of the shares on each
anniversary date of the date of grant and each Subsequent Grant will vest as to
100% of the shares on the anniversary date of the date of grant.
In October 1999, the board of directors approved an amendment to the
Company's certificate of incorporation, subject to shareholder approval,
whereby, after the IPO, the board of directors will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the designations, powers, preferences,
privileges, which may be greater than the rights of the common stock.
In October 1999, the board of directors approved an amendment to the
Company's certificate of incorporation, subject to shareholder approval, to
increase the number of authorized common shares to 100,000,000, as adjusted for
the pending one-for-ten reverse stock split.
The Company intends to effect a one-for-ten reverse stock split of its
common stock. All references in the financial statements to shares, share
prices, and per share amounts have been adjusted retroactively for all periods
presented to reflect the stock split.
F-21
<PAGE> 99
IFOR E*OFFERING ONLINE PROSPECTUS ONLYJ
"MEET THE MANAGEMENT" PRESENTATION FOR
XCARE.NET
Prospective investors will be able to log on to a Web site maintained by
E*OFFERING Corp. at www.eoffering.com, where a prospectus is available for
review. Within designated sections of the prospectus, including the Underwriting
Section of the prospectus, an embedded hyperlink Iclick here for "Meet the
Management" PresentationJ will provide exclusive access to the "Meet the
Management" Presentation. This presentation highlights selected information
contained elsewhere in the prospectus. This presentation does 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"
and our financial statements and notes to those financial statements, before
making an investment decision.
Visual 1: Disclaimer
Imagery: Company logo.
Visual Text: The "Meet the Management" Presentation is part of our
prospectus. This presentation highlights selected information contained
elsewhere in this prospectus. This presentation does 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" and
our financial statements and notes to those financial statements, before making
an investment decision.
Script: (Lorine Sweeney) The "Meet the Management" Presentation is part of
our prospectus. This presentation highlights selected information contained
elsewhere in this prospectus. This presentation does 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" and
our financial statements and notes to those financial statements, before making
an investment decision.
Visual 2: Introduction
Imagery: See Description of Artwork on page 110 of the Registration
Statement for a description of the image located on the inside front cover of
the prospectus.
Script: (Lorine Sweeney) Welcome to the "Meet the Management" Presentation
for XCare.net. I'm Lorine Sweeney, President and CEO. I would like to introduce
you to Peter Cheesbrough, our Chief Financial Officer. We would like to talk to
you about XCare.net, an electronic commerce service provider for health care
businesses. At XCare.net, we have developed an Internet-based technology
platform using extensible mark-up language, or XML, that processes health care
transactions and provides related services for payers, providers and other
health care industry participants.
Visual 3: Health Care: Market Opportunities
Imagery: Border and Company logo. There is a horizontal bar chart depicting
growth in U.S. health care expenditures.
Visual Text: Title: Health Care: Market Opportunity. Subheading: "Total
U.S. Health Care Expenditures." Footnote at the bottom with the caption,
"Source: U.S. Health Care Finance Administration."
Script: (Lorine Sweeney) (see "Business--Overview--Health Care Market
Overview"): The U.S. Health Care Finance Administration estimates that health
care expenditures currently represent $1.2 trillion, or 14% of the U.S. economy,
and that these expenditures will increase to $2.0 trillion by 2007 due both to
rising health care costs and an aging population. Health care claims, which
totaled approximately 4.4 billion in 1998, generally are processed through
antiquated computer systems via paper, fax or phone. These systems can be
inefficient and lead to unnecessary and duplicative costs.
A-1
<PAGE> 100
Visual 4: Health Care: Industry Participants
Imagery: Border and Company logo. See Description of Artwork on page 105
of the Registration Statement for a description of the image located on page 35
of the prospectus.
Visual Text: Title: Health Care: Industry Participants.
Script: (Lorine Sweeney) (see "Business -- Overview -- Health Care Market
Overview"): The health care industry is currently one of the most complex
markets due to the numerous interrelationships among health care participants.
The payment for and delivery of health care requires that consistent, accurate
information be shared confidentially among health care participants across a
large and fragmented industry. For instance, individuals compare medical plans,
choose physicians and submit claims for reimbursement. Physicians, hospitals and
other providers verify patient eligibility, collect patient histories, order
diagnostic tests and x-rays, render diagnoses and submit claims to payers. And
payers manage referrals, establish medical care protocols and reimbursement
policies and process claims. These health care transactions all are highly
dependent on the collection and communication of information, and each
participant is dependent on the others for portions of that information.
Visual 5: Market Characteristics and Issues
Imagery: Border and Company logo. On the top left there will be a box with
the caption "Market Fragmentation" with bulleted text underneath.
Visual Text: Title: Health Care: Market Characteristics and Issues. Within
the "Market Fragmentation" box, bullets will read:
- Geographic fragmentation
- Technological fragmentation
Script: (Lorine Sweeney) (see "Business -- Overview -- Market
Characteristics"): The health care market is highly fragmented. Because health
care is delivered locally, there are hundreds of thousands of market
participants in different locations. Current technology infrastructure in health
care is characterized by numerous incompatible and, in many cases, antiquated
computer systems.
Visual 6: Market Characteristics and Issues (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. On the top left there will be a box with the caption "Market
Fragmentation" with bulleted text underneath. On the bottom left there will be a
box with the caption "Complex Processes" with bulleted text underneath.
Visual Text: Title: Health Care: Market Characteristics and Issues. Within
the "Market Fragmentation" box, bullets will read:
- Geographic fragmentation
- Technological fragmentation
Within the "Complex Processes" box, bullets will read:
- Transition to managed care
- Intensive data management
- No standard data format or business rules
- Complexity of procurement, purchasing and payment processes
- Increasing government regulation
Script: (Lorine Sweeney) (see "Business -- Overview -- Market
Characteristics"): Furthermore, health care is delivered in a marketplace which
has become increasingly complex given the transition to
A-2
<PAGE> 101
managed care, the data-intensive nature of health care transactions, the lack of
standard data formats, the complicated procurement process and the pervasiveness
of government regulation.
Visual 7: Market Characteristics and Issues (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. On the top left there will be a box with the caption "Market
Fragmentation" with bulleted text underneath. On the bottom left there will be a
box with the caption "Complex Processes" with bulleted text underneath. An arrow
connecting the two boxes on the left side of the slide will point to the right
side of the slide, which will have a box with the caption "Inefficiencies" with
bulleted text underneath.
Visual Text: Title: Health Care: Market Characteristics and Issues. Within
the "Market Fragmentation" box, bullets will read:
- Geographic fragmentation
- Technological fragmentation
Within the "Complex Processes" box, bullets will read:
- Transition to managed care
- Intensive data management
- No standard data format or business rules
- Complexity of procurement, purchasing and payment processes
- Increasing government regulation
Within the "Inefficiencies" box, bullets will read:
- Inability to manage and exchange data
- Lack of real-time and secure communication
- Rising costs
Script: (Lorine Sweeney) (see "Business -- Overview -- Current Health Care
Market Issues" and "-- Health Care Market Overview"): As a result of the
fragmentation and complexity of the health care market, participants are unable
to cost-effectively manage, communicate and exchange information in real-time.
This fragmentation and complexity has resulted in increasing dissatisfaction
among health care participants. We believe that the provision of new,
Internet-based, business-to-business information exchange and electronic
commerce services that effectively address processing inefficiencies is one of
the largest market opportunities in health care today.
Visual 8: XCare.net Solution
Imagery: Border and Company logo. See Description of Artwork on page 110
of the Registration Statement for a description of the image located on the
inside front cover of the prospectus labeled "Solution Model."
Visual Text: Title: XCare.net Solution.
Script: (Lorine Sweeney) (see "Summary" and "Business -- Our Solution"):
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into an Internet exchange to create a community. We use the
XCare.net platform to deliver a broad range of applications, services and
electronic product offerings that streamline and automate high-volume,
data-intensive transactions and processes. This automation reduces the need for
information exchange by telephone, facsimile or mail and redundant manual data
entry into multiple computer systems. We believe this will lead to improved
workflow efficiencies, reduced
A-3
<PAGE> 102
administrative costs and enhanced efficiency of the health care delivery and
payment system. We believe that our solutions have the following advantages:
Visual 9: XCare.net Solution (con't)
Imagery: Border and Company logo. One arrow on the left of the page
pointing to the right.
Visual Text: Title: XCare.net Solution. To the right of the arrow will
appear the caption "Use of new standard for information exchange."
Script: (Lorine Sweeney) (see "Business -- Our Solution"): The XCare.net
platform and associated applications and services are based on extensible
mark-up language, or XML. Extensible mark-up language provides a document
structure that allows complex data from multiple sources to be dynamically
processed and displayed to users in personalized ways. We believe that these
capabilities are particularly applicable to the health care industry because
extensible mark-up language can process data trapped in pre-existing computer
systems, allow for automation of health care processes and integrate a wide
array of health care data including audio, video and text.
Visual 10: XCare.net Solution (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. Two arrows on the left of the page pointing to the right.
Visual Text: Title: XCare.net Solution. To the right of the first arrow
will appear the caption "Use of new standard for information exchange." To the
right of the second arrow will appear the caption "Ability to develop
comprehensive customer strategies."
Script: (Lorine Sweeney) (see "Business -- Our Solution"): We have
developed a step by step approach to assist our customers in designing a health
care Internet strategy, creating a customized portal and hosting their Internet
offerings and transactions in a secure and reliable data operations
infrastructure. The XCare.net platform is designed to provide a comprehensive
set of applications, services and product offerings while preserving previous
technology investments by integrating diverse multimedia content, including data
and information from large, existing and usually incompatible computer systems.
Visual 11: XCare.net Solution (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. Three arrows on the left of the page pointing to the right.
Visual Text: Title: XCare.net Solution. To the right of the first arrow
will appear the caption "Use of new standard for information exchange." To the
right of the second arrow will appear the caption "Ability to develop
comprehensive customer strategies." To the right of the third arrow will appear
the caption "Value-added Solution Channels."
Script: (Lorine Sweeney) (see "Business -- Our Solution"): Our business
model is based on a multi-faceted network of collaborative relationships, which
we call Solution Channels. Our Solution Channels leverage our customers' and
vendors' core competencies to promote the exchange of health care related
services and products. XCare.net Solution Channels create a community which
enables our customers to also act as vendors of applications, services and
products to other XCare.net community participants. Solution Channels allow us
to create new revenue opportunities for others; identify new revenue
opportunities for us; and establish growing communities connected through the
XCare.net platform.
A-4
<PAGE> 103
Visual 12: XCare.net Strategy
Imagery: Border and Company logo. XCare.net logo in center of page. A
circle filled with a text heading will be connected to the logo as a spoke.
Visual Text: Title: XCare.net strategy. The surrounding circle will include
the following caption:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
Script: (Lorine Sweeney) (see "Business -- Strategy"): Our strategy to grow
the Company focuses on the following initiatives. First, we believe that our
Solution Channels represent an opportunity for deploying new applications,
services and electronic commerce product offerings that are either internally
developed or obtained through our growing number of customer and vendor
relationships. We believe this cross-selling approach simplifies the sales
process and may shorten our sales cycle and reduce our cost of sales.
Visual 13: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo in center of page. Two circles filled with text
headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the two surrounding circles
will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
Script: (Lorine Sweeney) (see "Business -- Strategy"): We estimate that
there are more than 12,000 entities operating within the payer/third-party
administrator, at-risk provider market segments. We believe that these
organizations have both the funding to adopt new Internet-based process
improvements and the incentive to lower ongoing operating costs in order to
improve their margins.
Visual 14: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo in center of page. Three circles filled with text
headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the three surrounding
circles will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
- Develop new applications, services and product offerings
Script: (Lorine Sweeney) (see "Business -- Strategy"): We will continue to
develop a variety of applications, services and product offerings to address
operational inefficiencies in the health care industry. As Internet strategies
in the health care and other industries evolve and new relationships between
organizations are formed, we intend to continue to identify new development
opportunities.
A-5
<PAGE> 104
Visual 15: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo in center of page. Four circles filled with text
headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the four surrounding
circles will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
- Develop new applications, services and product offerings
- Leverage existing applications, services and product offerings
Script: (Lorine Sweeney) (see "Business -- Strategy"): We seek to identify
key functions that are critical to particular industry participants and develop
solutions supporting these functions. We intend to regularly review existing
applications, services and product offerings to extend their functionality,
transaction capabilities and features as customer needs dictate.
Visual 16: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo in center of page. Five circles filled with text
headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the five surrounding
circles will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
- Develop new applications, services and product offerings
- Leverage existing applications, services and product offerings
- Form strategic relationships with leading health care participants
Script: (Lorine Sweeney) (see "Business -- Strategy"): We are aggressively
pursuing strategic relationships with leaders in key health care industry
segments to increase our portfolio of applications, services and product
offerings, to increase the scope of our XCare.net community of users and to
provide specialized industry expertise for new solutions. We believe this will
result in accelerated market awareness and demand for our applications, services
and product offerings.
A-6
<PAGE> 105
Visual 17: Applications, Services and Product Offerings
Imagery: Border and Company logo. Three vertical rectangles with the
titles "Applications," "Services" and "Product Offerings."
Visual Text: Title: Applications, Services and Product Offerings. Includes
three rectangles for Applications, Services and Product Offerings. Each
rectangle will include captions listing the following names of the Company's
applications, services and product offerings.*
- --------------------------------------------------------------------------------
APPLICATIONS
eXtensible CARE System
eXtensible CARE Transactions
MatchNet Staffing &
Scheduling
Physician Credentialing
Electronic Medical
Record
Medication and Medical
Assessment
Inquiry Systems
Physician Practice
Management
Provider and Payer Profiling and Report Cards*
Document Management*
Decision Support System*
Remote Patient Monitoring*
SERVICES
eHealth Development Discipline
Custom Portal Integration & Hosting
Third-Party Administration/
Management Service
Organization
Outsourcing Services
eHealth Operations
Management
PRODUCT OFFERINGS
MDPay Accelerator*
Online Drug Store*
Medical Supply Product*
- --------------------------------------------------------------------------------
Script: (Lorine Sweeney) (see "Business -- Applications, Services and
Product Offerings"): We provide a range of applications, services and product
offerings that support the management of health care data and facilitate health
care business connectivity, information exchange and electronic commerce among
health care industry participants. Our applications, services and product
offerings, which may incorporate licensed components, are designed to enable our
customers to preserve investments in existing computer systems while integrating
new Internet-based products and services. For example, the eXtensible CARE
Transactions application facilitates submission, adjudication, remittance and
verification transactions for a variety of managed care functions such as
claims, capitation, authorizations, referrals, eligibility, enrollment and
benefits. The eHealth Operations Management service provides a secure, 24 hours
a day, seven days a week environment for Internet hosting of transactions and
multi-media content. And, the Online Drug Store offers an online drug store
facilitating the purchase of brand-name pharmaceutical and personal health care
products, as well as access to decision making resources.
Visual 18: Technology
Imagery: Border and Company logo. See Description of Artwork on page 112
of the Registration Statement for a description of the image located on page 38
of the prospectus.
Visual Text: Title: Technology
Script: (Lorine Sweeney) (see "Business -- Technology"): Our XCare.net
platform is based on an extensible mark-up language, or XML-based infrastructure
in conjunction with the Topic Navigation Mapping standard. We believe that the
enhanced capabilities of this platform are well-suited to meet the demands of
health care industry participants. Unlike the current Internet standard,
hypertext mark-up language, or HTML, extensible mark-up language in combination
with the Topic Navigation Mapping standard allows a higher degree of flexibility
for customized data exchange between health care
- ---------------
* We are currently marketing these product offerings but have not yet
recognized revenue from sales.
A-7
<PAGE> 106
participants. We expect extensible mark-up language to be a predominant protocol
for exchanging multimedia data for information exchange and electronic commerce
in the future. Topic Navigation Mapping provides a standard format for indexing
and structuring the extensible mark-up language formatted content. We call the
resulting indices and structures Topic Maps. We take advantage of the benefits
of both extensible mark-up language and Topic Navigation Mapping technologies to
process data previously trapped in usually incompatible computer systems, allow
for automation of health care processes and integrate a wide variety of health
care data including data in audio, video and text form. We use a set form of
software applications, known as brokering components, to find, integrate and
present relevant, customized information to individual users. Let's walk through
the diagram to see how this technology actually works. In step one, a user
initiates a request for information. In step two, the Context Broker describes
the user's request and passes it to the Semantic Broker. In step three, the
Semantic Broker queries the Logic Fabric for the transaction that will satisfy
the request. In step four, the Semantic Broker dispatches the Service Broker to
obtain information from the Internet. In step five, information is returned to
the Context Broker, which presents the information in a customized view for
users.
Visual 19: Customers
Imagery: Border and Company logo. Three vertical rectangles with the titles
"Health Care Providers", "Health Care Payers" and "Health Care Suppliers."
Visual Text: Title: Customers. Rectangles include captions listing the
following customers:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS HEALTH CARE PAYERS HEALTH CARE SUPPLIERS
- --------------------------------------------------------------------------------------------------------
- - American Medical Pathways, - Advica Health Resources - ADIS International Ltd
Inc., a subsidiary of American - Community Health Electronic - Clinical Solutions LLC
Medical Response Clearing House - Digital Medical Registrar
- - Asthma Management Services, - Employers Mutual, Inc., a - NotifyMD, Inc.
Inc. wholly owned subsidiary of - Nursefinders, Inc.
- - Delta Health Systems Florida Physicians Insurance
- - Methodist Care, Inc. Company, and Brokerage Services,
- - Provider Services Incorporated Inc., a division of Employers
- - Quest Diagnostics Incorporated Mutual, Inc.
- - University of Southern - Provider Services, Inc.
California -- Doheny Eye
Institute
</TABLE>
------------------------------------------------------------------------------
Script: (Lorine Sweeney) (see "Business -- Customers" and "-- Our
Solution"): The following is a representative list of our customers that have
purchased applications or services. Customers and vendors can utilize our
Solution Channels as distribution channels for existing as well as new products
and services that allow them to generate new sources of incremental revenue. For
example, we package our eXtensible CARE applications system with medical
management and third party administration services provided by Employers Mutual,
Inc. These transactions are then distributed to other members of the XCare.net
community such as American Medical Pathways, a subsidiary of American Medical
Response.
Visual 20: Competition
Imagery: Border and Company logo. Page with three arrows on the left of the
page pointing to the right.
Visual Text: Title: Competition. Subheading: "Potential competitors fall
primarily into three categories." To the right of the first arrow will appear
the caption, "Health care Internet companies." To the right of the second arrow
will appear the caption, "Traditional health care information system vendors."
To the right of the third arrow will appear the caption, "Traditional managed
care information system and outsourcing vendors."
Script: (Lorine Sweeney) (see "Business -- Competition"): Potential
competitors fall primarily into three categories. First, health care Internet
companies focused on providing connectivity and transactions within
business-to-business and business-to-consumer frameworks. Second, traditional
health care information system vendors who seek to extend the services of their
core products using Internet-
A-8
<PAGE> 107
based technology. And third, traditional managed care information system and
outsourcing vendors who are focusing on extending the services of their core
products to the Internet.
And with that, I will turn it over to Peter for an overview of our
financial results. Peter . . .
Visual 21: Financial Summary
Imagery: Border and Company logo. Selected Quarterly Results of Operations
(March 31, 1998 -- June 30, 1999). See table on page 30 of the Registration
Statement.
Visual Text: Title: Financial Summary. "Quarterly Results of Operations"
table.
Script: (Peter Cheesbrough) (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "-- Quarterly
Results of Operations"):
We commenced operations in March 1989, but we did not begin to focus on
Internet-based health care solutions until mid-1998. We have historically
derived a significant portion of revenue from sales of mainframe and
client-server software for managed health care systems and from providing
services to health care organizations seeking to outsource administrative
functions. We intend to derive an increasing portion of our future revenue from
our Internet-based applications, services and product offerings. Accordingly, we
believe that our historical financial results are not necessarily indicative of
our future financial performance.
We have experienced quarterly fluctuations in our operating and financial
results due to the timing and relative size of new custom software development
projects, cancellations of contracts, and fluctuations in costs, including
personnel, equipment and facilities costs. We expect quarterly results to
fluctuate in the future due to the timing and introduction of new applications
and services and other market factors.
The following table sets forth unaudited statement of operations data for
each of the seven quarters ended September 30, 1999. This information has been
derived from our unaudited financial statements. These unaudited quarterly
results should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in the prospectus.
Revenue increased significantly during the quarter ended March 31, 1999 due
to the progress made in completing several custom software development projects.
Revenue for the quarter ended June 30, 1999 decreased relative to the prior
quarter as limited working capital available during the six months ended June
30, 1999 resulted in a reduction in our sales force personnel and other
promotional marketing activities, which impeded our ability to generate new
sales leads. Revenue for the quarter ended September 30, 1999 included $240,000
for the settlement of outstanding amounts owed by a customer relating to work
that had been performed in a prior quarter and for which the revenue had not
previously been recognized because collectibility of fees was not probable.
Cost of revenue as a percentage of revenue has varied from quarter to
quarter due to fluctuations in quarterly revenue and changes in associated
personnel costs. During the quarter ended March 31, 1999, cost of revenue
decreased as a percentage of revenue due to increased revenue from the
completion of several custom software development projects during the quarter.
During the quarter ended June 30, 1999, the increase in cost of revenue as a
percentage of revenue reflects the decreased revenue recognized during the
quarter, the utilization of third party consultants for license implementation
contracts and custom development projects, and the amortization of purchased
software.
During the quarter ended December 31, 1998, general and administrative
expense increased in absolute dollars and as a percentage of revenue due to an
approximate $360,000 loss on disposal of fixed assets. During the quarter ended
March 31, 1999, sales and marketing and general administrative expense declined
in both dollars and as a percentage of revenue due to substantial reductions of
personnel costs. During the quarter ended September 30, 1999 we increased
general and administrative personnel by 68%, and recruiting and relocation costs
increased by $192,000 reflecting costs associated with recruiting new employees.
A-9
<PAGE> 108
Research and development expenses sharply declined following the quarter
ended March 31, 1998 due to reduction of research and development personnel
caused by limited working capital. During the quarter ended September 30, 1999,
we increased research and development expenses by 266% reflecting our commitment
to enhance the XCare.net platform.
Lorine . . .
Visual 22: End of Presentation
Imagery: See Description of Artwork on page 110 of the Registration
Statement for a description of the image located on the inside front cover of
the prospectus.
Script: (Lorine Sweeney): We hope that this presentation was helpful in
understanding the business model of XCare.net and the strategy that our
management team intends to execute. We encourage you to refer back to the
prospectus for additional support and disclosure as well as to look at the "Risk
Factors" in detail. Again, thank you for your interest in XCare.net.
A-10
<PAGE> 109
IALTERNATIVE PAGE i FOR E*OFFERING ONLINE PROSPECTUSJ
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 6
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 34
Management.................................................. 51
Certain Transactions with Related Parties................... 60
Principal Stockholders...................................... 63
Description of Capital Stock................................ 66
Shares Eligible for Future Sale............................. 68
Underwriting................................................ 70
Legal Matters............................................... 73
Change in Independent Accountants........................... 73
Experts..................................................... 73
Available Information....................................... 74
Index to Financial Statements............................... F-1
Appendix: "Meet the Management" Presentation................ A-1
Iclick here for "Meet the Management" PresentationJ
</TABLE>
------------------------------
XCare.net is a trademark of XCare.net, Inc. Trade names, trademarks and
service marks of other companies appearing in this prospectus are the property
of the respective holders.
A-11
<PAGE> 110
DESCRIPTION OF ARTWORK
[Artwork on page 33]
In the middle of the artwork are pictures of an envelope, with the caption
"U.S. Mail" on it, a telephone, a fax machine, with the caption "Fax" on it,
and a computer with the caption "Legacy System" on it.
Surrounding these pictures are pictures depicting health care participants
as follows:
On the top left is a picture of a person, with the caption "Employer" to
the left of it. Under the caption are the phrases "Enroll employees," "Select
plans," "Choose benefit levels" and "maintain eligibility data."
On the bottom left is a picture of a person with the caption "Consumer" to
the left of it. Under the caption are the phrases "Compare plans," "Choose
physicians" and "Submit claims."
On the bottom center is a picture of a person with a stethoscope holding a
piece of paper with "Rx" written on it and with the caption "Providers
(Physicians' Offices, Hospitals, Clinics)" below and to the left of the
picture. Above the caption are the phrases "Verify patient eligibility,"
"Collect patient lists," "Order tests and x-rays," "Receive and interpret
tests," "Render diagnoses," "Issue referrals" and "Submit claims to payers."
On the bottom right is a picture of a laboratory flask and test tube with
the caption "Suppliers (Pharmacies, Clinical Labs, Pharmaceutical Companies,
Device Mfgs. and Distributors)" above and the right of the picture. Underneath
the caption are the phrases "Analyze and process patient samples and tests,"
"Provide test results," "Fill prescriptions" and "Submit claims to payers."
On the top right is a picture of an office building with the caption
"Payers (HMOs, PPOs, TPAs, Insurers)" above and to the rights of it. Underneath
the caption are the phrases "Establish protocols and reimbursement policy,"
"Manage referrals" and "Process claims."
Lines run from each of the captions to the pictures of the envelope,
telephone, fax machine and the computer and between each of these pictures.
[Artwork on p.38]
On the top left of the artwork is a picture of a person with a stethoscope
holding a piece of paper with "Rx" written on it. To the right of the picture
is the caption "1. User initiates request for information."
<PAGE> 111
To the right of this picture is a picture of a wall with two openings with
a conveyer belt running away from and into the openings in the wall.
The conveyer belt running away from the wall has two pictures of pieces of
paper on it. The first piece of paper is on the edge of the conveyer belt next
to the wall and has "Rx" written on it. The second piece of paper is in the
middle of the conveyer belt and has a graphic representing data. Standing next
to the conveyer belt is a picture of a person holding a piece of paper with "Rx"
written on it and shown to be saying "XML." Connected by a line to this person
is a caption placed underneath the conveyer belt which states "2. The Context
Broker describes the user's request and passes it to the Semantic Broker."
The conveyer belt runs into a six level structure with the caption "Topic
Navigation Mapping" on it. The levels have captions on them which alternate
between "Logic" and "Data." Connected by a line from the structure is a caption
to the right of the structure stating "3. The Semantic Broker queries the Logic
Fabric for the transaction that will satisfy the request."
On top of the structure is a picture of a robot with the caption "Semantic
Broker" on it show to be taking a piece of paper with "Rx" on it from the
picture of the person next to the conveyer belt.
The conveyer belt running into the opening in the wall begins at the
six-level structure. On the conveyer belt at the end next to the wall is a
picture of an open box with the word "XML" written on the inside of the box.
Standing next to the box to the side of the conveyer belt is a picture of a
person with the caption "5. Information is returned to the Context Broker, which
presents the information in a customized view for users."
Above this conveyer belt and to the right is a picture of a cloud with
"WWW" written on it. Conveyer belts run into and out of the cloud. The robot on
top of the structure is show to be placing pieces of paper on the conveyer belt
running into the cloud. The pieces of paper have graphics depicting data on
them. The conveyer belt running out of the cloud as a picture of a stack of
paper on it. In between these to conveyer belts is a picture of a person.
Connected to this person by a line a caption stating "4. The Semantic Broker
dispatches the Service Broker to obtain information from the Internet."
[Artwork on inside front cover]
There are three pictures, one on the far left is entitled "Solution
Model", one in the middle entitled "Technology Model", and one on the far right
entitled "Business Model".
"Solution Model"
<PAGE> 112
On the top left of the artwork is a picture of a person standing with the
word "Employer" written above the person. On the top right is a picture of a
person holding a large pill with the word "Consumer" written above the person.
On the bottom left is a picture of a building, with the words "Health Plan"
written above it. On the bottom right is a picture of a person wearing a
stethoscope and holding a piece of paper with "Rx" written on it. Above this
person is the word "Provider."
Connecting the pictures of the three person and the building is an
x-shape, with the words, "Community," "Connectivity," and "Commerce" in the
middle, the words "An eCommerce paradigm for services delivery..." above the
x-shape and the words "...Integrating best of breed practices" below the
x-shape. On the top left part of the x-shape is a rectangle, inside of which is
a smaller picture of the building and a smaller picture of the person holding
the pill. Below that and closer to the center of the x-shape are two smaller
rectangles on top of an arrow pointing toward the center of the x-shape. Inside
the two smaller rectangles are a picture of a person holding a pill, and a
question mark.
On the top right of the x-shape is a rectangle, inside of which is a
smaller picture of the building, and a smaller picture of the person holding
the pill. Below that and closer to the center of the x-shape is a smaller
rectangle on top of an arrow pointing toward the center of the x-shape. Inside
the rectangle is a question mark.
On the bottom left of the x-shape is a rectangle, inside of which is a
smaller picture of the person standing, the person holding the pill and the
person wearing the stethoscope. Above that and closer to the center of the
x-shape are two smaller rectangles on top of an arrow pointing toward the
center of the x-shape. Inside the two rectangles are a picture of a pill and a
picture of a person holding a pill.
On the bottom right of the x-shape is a rectangle, inside of which is a
smaller picture of the building and a smaller picture of the person wearing a
stethoscope. Above that and closer to the center of the x-shape are two smaller
rectangles on top of an arrow pointing toward the center of the circle. Inside
the two rectangles are an "Rx" and a cross-shape.
"Technology Model"
On the top left of the artwork is a picture of a person with a
stethoscope. To the right of the picture is the caption "1. User."
To the right of this picture is a picture of a wall with two openings with
a conveyer belt running away from and into the openings in the wall.
The conveyer belt running away from the wall has two pictures of pieces of
paper on it. The first piece of paper is on the edge of the conveyer belt next
to the wall and has "Rx" written on it. The second piece of paper is in the
middle of the conveyer belt and has a graphic representing data. Standing next
to the conveyer belt is a picture of a
<PAGE> 113
person holding a piece of paper with "Rx" written on it and shown to be saying
"XML." Connected by a line to this person is a caption placed underneath the
conveyor belt which states "2. The Context Broker."
This conveyor belt runs into a six level structure with the caption "Topic
Navigation Mapping" on it. The levels have captions on them which alternate
between "Logic" and "Data." Connected by a line from the structure is a caption
to the right of the structure stating "3. The Semantic Broker."
On top of the structure is a picture of a robot with the caption "Semantic
Broker" on it shown to be taking a piece of paper with "Rx" on it from the
picture of the person next to the conveyor belt.
The conveyor belt running into the opening in the wall begins at the
structure. On the conveyor belt at the end next to the wall is a picture of an
open box with the word "XML" written on the inside of the box. Standing next to
the box to the side of the conveyor belt is a picture of a person with the
caption "5. Context Broker/Personalization."
Above this conveyor belt and to the right is a picture of a cloud with
"WWW" written on it. Conveyor belts run into and out of the cloud. The robot on
top of the structure is shown to be placing pieces of paper on the conveyor belt
running into the cloud. The pieces of paper have graphics depicting data on
them. The conveyor belt running out of the cloud has a picture of a stack of
paper on it. In between these two conveyor belts is a picture of a person.
Connected to this person by a line is a caption stating "4. The Semantic
Broker/Service."
"Business Model"
This picture is an x-shape, with a round, ball-shape in the middle, above
which is the caption "Applications, Products and Services." Connected to the
large ball-shape in the middle are five smaller ball-shapes. On the upper left
of the x-shape is a ball-shape, sitting above an arrow pointing toward the
center of the x-shape, with the caption "Xcare.net Component" to the left of
it. Connected to this ball-shape is one smaller ball-shape. Below that and
closer to the center of the x-shape is another ball-shape with the caption
"Customer Partner Component" to the left of it. Attached to this ball-shape are
two smaller ball-shapes. Below that and closer to the center of the x-shape are
two smaller ball-shapes with no captions.
Coming out of the large ball-shape in the center is an arrow heading
toward the upper right of the x-shape. On top of the arrow is another ball-shape
with five smaller ball-shapes connected to it. Further up the upper right axis
of the x-shape is another ball-shape with five smaller balls connected to it,
inside a cylinder shape, and a smaller cylinder shape through which an arrow
points to a picture of a person.
<PAGE> 114
Coming out of the large ball-shape in the center is an arrow pointing
toward the lower right of the x-shape. On the top of the arrow is a ball-shape
with five smaller ball-shapes connected to it.
Coming toward the large ball-shape in the center from the lower left of
the x-shape is a ball-shape with two smaller ball-shapes connected to it, with
the caption "Vendor Partner Component" to the left. To the right of that and
closer to the center of the x-shape is one small ball-shape.
To the left of the x-shape is the caption "Component Partners." To the
right of the x-shape is the caption "Solution Channels."
<PAGE> 115
LOGO
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee............................................ 19,734
NASD Fee.................................................... 7,975
Nasdaq Listing Fee.......................................... 113,755
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 600,000
Printing Fees and Expenses.................................. 300,000
Blue Sky Fees and Expenses.................................. 3,000
Transfer Agent Fees......................................... 25,000
Miscellaneous............................................... 80,536
----------
Total.................................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care. In addition, as permitted by Section 145
of the Delaware General Corporation Law, the bylaws of the registrant provide
that: (1) the registrant is required to indemnify its directors and executive
officers and persons serving in such capacities in other business enterprises
(including, for example, subsidiaries of the registrant) at the registrant's
request, to the fullest extent permitted by Delaware law, including in those
circumstances in which indemnification would otherwise be discretionary; (2) the
registrant may, in its discretion, indemnify employees and agents in those
circumstances where indemnification is not required by law; (3) the registrant
is required to advance expenses, as incurred, to its directors and executive
officers in connection with defending a proceeding (except that it is not
required to advance expenses to a person against whom the registrant brings a
claim for breach of the duty of loyalty, failure to act in good faith,
intentional misconduct, knowing violation of law or deriving an improper
personal benefit; (4) the rights conferred in the bylaws are not exclusive, and
the registrant is authorized to enter into indemnification agreements with its
directors, executive officers and employees; and (5) the registrant may not
retroactively amend the bylaw provisions in a way that it adverse to such
directors, executive officers and employees.
The registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional procedural
protections. In addition, such indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the registrant, on account
of their services as directors or executive officers of the registrant or as
directors or officers of any other company or enterprise when they are serving
in such capacities at the request of the registrant. The registrant will not be
obligated pursuant to the indemnity agreements to indemnify or advance expenses
to an
II-1
<PAGE> 117
indemnified party with respect to proceedings or claims initiated by the
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the registrant's board of directors or brought to
enforce a right to indemnification under the indemnity agreement, the
registrant's bylaws or any statute or law. Under the agreements, the registrant
is not obligated to indemnify the indemnified party (1) for any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
registrant consents to such settlement; (3) with respect to any proceeding
brought by the registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (4) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the registrant pursuant to the
provisions of sec. 16(b) of the Securities Exchange Act of 1934 and related
laws; (5) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (6) an account
of any conduct from which the indemnified party derived an improper personal
benefit; (7) on account of conduct the indemnified party believed to be contrary
to the best interests of the registrant or its stockholders; (8) on account of
conduct that constituted a breach of the indemnified party's duty of loyalty to
the registrant or its stockholders; or (9) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
registrant's officers and directors for liabilities arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Certificate of Incorporation of Registrant, as amended...... 3.1
Form of Amended and Restated Certificate of Incorporation of
Registrant, to be filed upon closing of the offering...... 3.2
Bylaws of Registrant........................................ 3.3
Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.................................................. 4.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since October 1, 1996, the Registrant has issued and sold the following
securities:
(a) From May 17, 1999 to September 16, 1999, XCare.net sold in the
aggregate of 167,662 shares of unregistered common stock to sixteen
directors, officers and employees at a price of $0.25 per share, for
aggregate consideration of $41,915.63. Such shares were sold pursuant to
the exercise of options granted by the board. As to each director, officer
and employee of XCare.net who was issued such securities, XCare.net relied
upon Rule 701 of the Securities Act of 1933. Each such person purchased
securities of XCare.net pursuant to a written contract between such person
and XCare.net. In addition, XCare.net met the conditions imposed under Rule
701(b).
(b) On March 12, 1997, XCare.net sold in the aggregate 2,450,000
shares of unregistered Series A Preferred Stock at a price per share of
$2.86 to Nazem & Company IV, L.P. and Atlantic Medical Capital, L.P. for
aggregate cash consideration of $7,007,000. XCare.net relied upon Section
4(2) of the Securities Act in connection with the sale of these shares.
Each investor who
II-2
<PAGE> 118
was not an accredited investor represented to XCare.net that he or she had
such knowledge and experience in financial and business matters that he or
she was capable of evaluating the merits and risks of the investment.
(c) In June and July 1999, XCare.net sold in the aggregate 63,053,144
shares of unregistered Series B Preferred Stock at a price per share of
$0.27 to Atlantic Medical Capital, L.P., Canpartners Investments IV,
L.L.C., CB Healthcare Fund, L.P., Dauphin Capital Partners, L.P., Nazem &
Company IV, L.P., Sequel Entrepreneurs Fund II, L.P., Sequel Limited
Partnership II, Singapore Computer Systems, Ltd., The Transatlantic Venture
Fund C.V., Vertex Technology Fund (II) Ltd., Rachel S. Lovejoy, Arthur F.
Schneiderman, and Dennis Yong for aggregate consideration of
$17,024,348.88, including an aggregate of $3,204,348.93 representing the
principal and interest of convertible promissory notes converted into
shares of Series B Preferred Stock. XCare.net relied upon Regulation D,
Rule 506, of the Securities Act in connection with the sale of these
shares. The sale of the Series B Preferred Stock was made in compliance
with all of the terms of Rules 501 and 502 of Regulation D, there were no
more than 35 investors (as calculated pursuant to Rule 501(e) of Regulation
D) and each investor who was not an accredited investor represented to the
XCare.net that he or she had such knowledge and experience in financial and
business matters that he or she was capable of evaluating the merits and
risks of the investment.
(d) From December 29, 1997 to November 20 , 1998, XCare.net issued an
aggregate of 15 convertible promissory notes to Nazem & Company IV, L.P.
and Atlantic Medical Capital, L.P. for aggregate cash consideration of
$2,765,000. On June 4, 1999, the principal and accrued interest due on
these convertible promissory notes were converted into an aggregate of
11,867,959 shares of Series B Preferred Stock. XCare.net relied on Section
4(2) of the Securities Act in connection with the sales of these
securities. Each investor who was not an accredited investor represented to
XCare.net that he or she had such knowledge and experience in financial and
business matters that he or she was capable of evaluating the merits and
risks of the investment.
(e) From December 29, 1997 to June 9, 1998, XCare.net issued an
aggregate of 13 warrants to Nazem & Company IV, L.P. and Atlantic Medical
Capital, L.P. for the purchase of an aggregate of 437,062 shares of Series
A Preferred Stock at an exercise price per share of $0.25. Each warrant
expires 5 years from the date of issuance or upon the closing of our
initial public offering, if earlier. XCare.net relied on Section 4(2) of
the Securities Act in connection with the sales of these securities. Each
investor who was not an accredited investor represented to XCare.net that
he or she had such knowledge and experience in financial and business
matters that he or she was capable of evaluating the merits and risks of
the investment.
(f) On March 12, 1997 and November 20, 1998, XCare.net issued an
aggregate of 3 warrants to Nazem & Company IV, L.P., Atlantic Medical
Capital, L.P., and Counterpart Capital Corporation, a consultant, for the
purchase of an aggregate of 212,500 shares of common stock at exercise
prices per share ranging from $0.10 to $31.46. The warrant issued on March
12, 1997 expires on March 12, 2005 or upon the closing of our initial
public offering, if earlier, and the 2 warrants issued on November 20, 1998
expire on November 20, 2003 or upon the closing of our initial public
offering, if earlier. XCare.net relied on Section 4(2) of the Securities
Act in connection with the sales of these securities. Each investor who was
not an accredited investor represented to XCare.net that he or she had such
knowledge and experience in financial and business matters that he or she
was capable of evaluating the merits and risks of the investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made
under the Registration Statement.
</TABLE>
II-3
<PAGE> 119
<TABLE>
<S> <C>
3.3+ Bylaws of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
4.2* Second Amended and Restated Registration Rights Agreement,
dated as of July 27, 1999, between the Registrant and the
parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2 Amended and Restated 1997 Stock Option Plan.
10.3 1999 Employee Stock Purchase Plan and related agreements.
10.4 1999 Director Option Plan and related agreements.
10.5**+ Licensing Agreement, dated as of December 30, 1998, between
the Registrant and Match Health Care Services, Ltd.
10.6**+ Master Licensing Agreement, dated February 4, 1999, between
the Registrant and Methodist Care, Inc.
10.7+ Services Agreement Subcontract, dated December 17, 1998,
between the Registrant and PRC, Inc.
10.8**+ Master Licensing, Processing and Services Agreement, dated
February 16, 1997, between the Registrant and
Healthscope/United, Inc.
10.9**+ System Management Contract, dated April 1, 1999, between the
Registrant and Advica Health Resources.
10.10**+ Administration Services Agreement, dated March 29, 1999,
between the Registrant and American Medical Pathways, Inc.
10.11**+ Processing and Services Agreement, dated January 1, 1997,
between the Registrant and Brokerage Services Incorporated.
10.12**+ Addendum to Processing and Services Agreement, dated July
25, 1997, between the Registrant and Brokerage Services
Incorporated.
10.13**+ Supplemental Agreement, dated December 24, 1997, between the
Registrant and Brokerage Services Incorporated.
10.14**+ Employers Mutual, Inc. Assignment Letter, dated August 5,
1999, between the Registrant and Employers Mutual, Inc.
10.15**+ Master License and Services Agreement, dated June 24, 1998,
between Registrant and Employers Mutual, Inc.
10.16**+ Contractor Agreement, dated February 19, 1999, between the
Registrant and Employers Mutual, Inc.
10.17**+ Master Licensing and Services Agreement, dated February 20,
1998, between the Registrant and Provider Services,
Incorporated.
10.18**+ Contractor Agreement, dated April 27, 1999, between the
Registrant and Provider Services, Incorporated.
10.19**+ Master Licensing and Services Agreement, dated August 24,
1998, between the Registrant and Quest Diagnostics
Incorporated.
10.20+ Offer letter, dated September 22, 1997, with Lorine Sweeney.
10.21+ Offer letter, dated December 12, 1997, with Mark Rangell.
10.22+ Offer letter, dated June 12, 1998, with Tammy McLaren.
10.23+ Sublease, dated as of May 11, 1998, by and between the
Registrant and Echo Bay Management Corp.
10.24+ Sub-sublease Agreement, dated as of December 18, 1998, by
and between Registrant and Project Discovery, Inc.
10.25+ Office lease, dated May 2, 1997, between Registrant and MBL
Life Assurance Corporation.
10.26+ Office lease, dated September 29, 1995 between Registrant
and MBL Life Assurance Corporation.
10.27**+ Consulting Agreement, dated June 10, 1998, by and between
Registrant and ADIS International Ltd.
10.28**+ Consulting Agreement, dated September 16, 1998, by and
between Registrant and ADIS International Ltd.
</TABLE>
II-4
<PAGE> 120
<TABLE>
<S> <C>
10.29** Development Services Agreement, dated November 8, 1999, by
and between Registrant and Doheny Eye Medical Group, Inc.
10.30** Development Services Agreement, dated November 10, 1999, by
and between Registrant and Delta Health Services.
10.31** Hosting Services Agreement, dated November 10, 1999, by and
between Registrant and Delta Health Systems.
10.32 Office Lease Agreement dated November 1, 1999, by and
between Registrant and Mountain States Mutual Casualty
Company.
10.33** Software License and Services Agreement, dated October 25,
1999, by and between Registrant and Oracle Corporation.
16.1+ Letter regarding change in certifying accountant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers, LLP.
24.1+ Power of Attorney (See page II-7).
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ Previously submitted.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions referenced in Item 14 of this registration Statement
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act 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 Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 registration statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Englewood, State of Colorado, on this 16th day of December 1999.
XCARE.NET, INC.
By: /s/ LORINE R. SWEENEY
---------------------------------------
Lorine R. Sweeney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* President and Chief December 16, 1999
- ----------------------------------------------------- Executive Officer
Lorine R. Sweeney (Principal Executive
Officer)
* Senior Vice President, December 16, 1999
- ----------------------------------------------------- Finance and Chief
Peter H. Cheesbrough Financial Officer
(Principal Financial and
Accounting Officer)
* Chairman of the Board December 16, 1999
- -----------------------------------------------------
Jeffrey M. Krauss
* Director December 16, 1999
- -----------------------------------------------------
J. Andrew Cowherd
* Director December 16, 1999
- -----------------------------------------------------
James B. Hoover
* Director December 16, 1999
- -----------------------------------------------------
Daniel J. Mitchell
* Director December 16, 1999
- -----------------------------------------------------
William F. Reilly
* Director December 16, 1999
- -----------------------------------------------------
Robert Tsao
*By: /s/ LORINE R. SWEENEY
------------------------------------------------
Lorine R. Sweeney
Attorney-in-fact
</TABLE>
II-6
<PAGE> 122
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made
under the Registration Statement.
3.3+ Bylaws of Registrant.
4.1 Form of Registrant's Common Stock Certificate.
4.2+ Second Amended and Restated Registration Rights Agreement,
dated as of July 27, 1999, between the Registrant and the
parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2 Amended and Restated 1997 Stock Option Plan.
10.3 1999 Employee Stock Purchase Plan and related agreements.
10.4 1999 Director Option Plan and related agreements.
10.5**+ Licensing Agreement, dated as of December 30, 1998, between
the Registrant and Match Health Care Services, Ltd.
10.6**+ Master Licensing Agreement, dated February 4, 1999, between
the Registrant and Methodist Care, Inc.
10.7+ Services Agreement Subcontract, dated December 17, 1998,
between the Registrant and PRC, Inc.
10.8**+ Master Licensing, Processing and Services Agreement, dated
February 16, 1997, between the Registrant and
Healthscope/United, Inc.
10.9**+ System Management Contract, dated April 1, 1999, between the
Registrant and Advica Health Resources.
10.10**+ Administration Services Agreement, dated March 29, 1999,
between the Registrant and American Medical Pathways, Inc.
10.11**+ Processing and Services Agreement, dated January 1, 1997,
between the Registrant and Brokerage Services Incorporated.
10.12**+ Addendum to Processing and Services Agreement, dated July
25, 1997, between the Registrant and Brokerage Services
Incorporated.
10.13**+ Supplemental Agreement, dated December 24, 1997, between the
Registrant and Brokerage Services Incorporated.
10.14**+ Employers Mutual, Inc. Assignment Letter, dated August 5,
1999, between the Registrant and Employers Mutual, Inc.
10.15**+ Master License and Services Agreement, dated June 24, 1998,
between Registrant and Employers Mutual, Inc.
10.16**+ Contractor Agreement, dated February 19, 1999, between the
Registrant and Employers Mutual, Inc.
10.17**+ Master Licensing and Services Agreement, dated February 20,
1998, between the Registrant and Provider Services,
Incorporated.
10.18**+ Contractor Agreement, dated April 27, 1999, between the
Registrant and Provider Services, Incorporated.
10.19**+ Master Licensing and Services Agreement, dated August 24,
1998, between the Registrant and Quest Diagnostics
Incorporated.
10.20+ Offer letter, dated September 22, 1997, with Lorine Sweeney.
10.21+ Offer letter, dated December 12, 1997, with Mark Rangell.
10.22+ Offer letter, dated June 12, 1998, with Tammy McLaren.
10.23+ Sublease, dated as of May 11, 1998, by and between the
Registrant and Echo Bay Management Corp.
</TABLE>
<PAGE> 123
<TABLE>
<S> <C>
10.24+ Sub-sublease Agreement, dated as of December 18, 1998, by
and between Registrant and Project Discovery, Inc.
10.25+ Office lease, dated May 2, 1997, between Registrant and MBL
Life Assurance Corporation.
10.26+ Office lease, dated September 29, 1995 between Registrant
and MBL Life Assurance Corporation.
10.27**+ Consulting Agreement, dated June 10, 1998, by and between
Registrant and ADIS International Ltd.
10.28**+ Consulting Agreement, dated September 16, 1998, by and
between Registrant and ADIS International Ltd.
10.29** Development Services Agreement, dated November 8, 1999, by
and between Registrant and Doheny Eye Medical Group, Inc.
10.30** Development Services Agreement, dated November 10, 1999 by
and between Registrant and Delta Health Services.
10.31** Hosting Services Agreement, dated November 10, 1999, by and
between Registrant and Delta Health Services.
10.32 Office Lease Agreement, dated November 1, 1999, by and
between Registrant and Mountain States Mutual Casualty
Company.
10.33** Software License and Services Agreement, dated October 25,
1999, by and between Registrant and Oracle Corporation.
16.1+ Letter regarding change in certifying accountant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers, LLP.
24.1+ Power of Attorney (See page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission. To be supplied by amendment.
+ Previously submitted.
<PAGE> 1
EXHIBIT 4.1
[XCARE. NET LOGO] SHARES
XCARE.NET, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIF 883884 10 2
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE, OF
XCARE.NET, INC.
transferrable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
/s/ ARTHUR F. SCHNEIDERMAN [SEAL] /s/ LORINE R. SWEENY
Secretary PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE> 2
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...................Custodian...............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act........................................
in common (State)
UNIF TRF MIN ACT -- .............Custodian (until age.........)
(Cust)
....................under Uniform Transfers
(Minor)
to Minors Act..............................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________________hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated________________________
X_______________________________________________
X_______________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
NOTICE: FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
__________, 2000
XCare.net, Inc.
6400 S. Fiddler's Green Circle, Suite 500
Englewood, CO 80111
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on November 2, 1999 (Registration No.
333-90165) (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of up to 5,750,000 shares of your
Common Stock, par value $0.01 per share (the "Shares"). The Shares include an
over-allotment option granted to the underwriters of the offering to purchase
75,000 shares. We understand that the Shares are to be sold to the underwriters
of the offering for resale to the public as described in the Registration
Statement. As your legal counsel, we have examined the proceedings taken, and
are familiar with the proceedings proposed to be taken, by you in connection
with the sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.2
XCARE.NET, INC.
1997 STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE __)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 hereof.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means XCare.net, Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "Director" means a member of the Board.
(j) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment
<PAGE> 2
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i)If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of grant, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of grant; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(n) "IPO Effective Date" means the date upon which the
Securities and Exchange Commission declares the initial public offering of the
Company's common stock as effective.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(r) "Option Exchange Program" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
(s) "Optioned Stock" means the Common Stock subject to an Option
or a Stock Purchase Right.
-2-
<PAGE> 3
(t) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(u) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1997 Stock Plan, as amended.
(w) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(x) "Service Provider" means an Employee, Director or
Consultant.
(y) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(z) "Stock Purchase Right" means a right to purchase Common
Stock pursuant to Section 10 below.
(aa) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 2,220,000 Shares, plus an annual increase to be added
on January 1 of each year, beginning in 2001, equal to the lesser of (i)
1,224,000 shares, (ii) 5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
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<PAGE> 4
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by
each such award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, of any Option
or Stock Purchase Right granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right of
the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances
an Option may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
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<PAGE> 5
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i)No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,050,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
1,050,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the amendment and
restatement of the Plan shall become effective upon the date of stockholder
approval of the Plan in October, 1999; provided, however, that amendments that
would cause the Plan or Options granted hereunder to fail to comply with
applicable Delaware "blue sky" securities law shall not become effective until
the IPO Effective Date. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.
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<PAGE> 6
9. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i)In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of
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<PAGE> 7
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Shares, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Shares are issued, except as provided in Section 12 of
the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's total and permanent disability,
as defined in Section 22(e)(3) of the Code, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of
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<PAGE> 8
descent or distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 13 of
the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, Options and Stock Purchase Rights may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
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<PAGE> 9
13. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of
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<PAGE> 10
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
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<PAGE> 11
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
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<PAGE> 12
XCARE.NET, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
<<Name>>
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
<TABLE>
<S> <C>
Grant Number <<Grant_No>>
Date of Grant <<Grant_Date>>
Vesting Commencement Date <<Vesting_Date>>
Exercise Price per Share $<<Price_per_share>>
Total Number of Shares Granted <<Total_Shares>>
Total Exercise Price $<<Total_Price>>
Type of Option: <<ISO>> Incentive Stock Option
<<NSO>> Nonstatutory Stock Option
Term/Expiration Date: <<Exp_Date>>
Vesting Schedule:
</TABLE>
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to Optionee's continuing to be a
Service Provider on such dates. That the options shall become fully exerciseable
upon a change of control of the Company.
<PAGE> 13
Termination Period:
This Option shall be exercisable for three months after Optionee ceases
to be a Service Provider. Upon Optionee's death or disability, this Option may
be exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise.
i) Subject to subsections 2(a)(ii) and 2(a) iii below,
this Option shall be exercisable cumulatively according to the vesting schedule
set forth in the Notice of Grant.
ii) This Option may not be exercised for a fraction of a
Share.
(b) Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the "Exercise
Notice") which shall state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised, and such other
representations and agreements as may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if
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<PAGE> 14
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND
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<PAGE> 15
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of Nonstatutory Stock Option. There may be a
regular federal income tax liability upon the exercise of a Nonstatutory Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
Optionee is an Employee or a former Employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of Colorado.
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<PAGE> 16
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: XCARE.NET, INC.
- ---------------------------------- -----------------------------------
Signature By
- ---------------------------------- -----------------------------------
Print Name Title
Residence Address
- ----------------------------------
- ----------------------------------
-5-
<PAGE> 17
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
XCARE.NET, INC.
6400 S. Fiddler's Green Circle
Suite 540
Englewood, CO 80111
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of XCARE.NET, INC. (the
"Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock
Option Agreement dated <<Grant_Date>> (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the
<PAGE> 18
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
-2-
<PAGE> 19
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by state
or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL
HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this
-3-
<PAGE> 20
Agreement shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of New Mexico.
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE: XCARE.NET, INC.
- ---------------------------------- -----------------------------------
Signature By
- ---------------------------------- -----------------------------------
Print Name Its
Address: Address:
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
Date Received:
--------------------
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<PAGE> 21
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
<TABLE>
<S> <C>
OPTIONEE: <<Name>>
COMPANY: XCARE.NET, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
</TABLE>
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company and any other legend required under applicable state
securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the
<PAGE> 22
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than two years after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than three years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
SIGNATURE OF OPTIONEE:
DATE: _______________________, 19___
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<PAGE> 1
EXHIBIT 10.3
XCARE.NET, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean XCare.net, Inc., a Delaware corporation, and
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq
<PAGE> 2
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
on the date prior to the purchase, as reported in The Wall Street Journal or
such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date prior to the purchase, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twelve
(12) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twelve months later; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before April 30, 2001. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
2
<PAGE> 3
(q) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office
fifteen days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount
3
<PAGE> 4
from one percent (1%) to twenty percent (20%) of the Compensation which he or
she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
10,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the
4
<PAGE> 5
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period
5
<PAGE> 6
shall be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase to be added on January 1, of
each year, beginning in 2001, equal to the lesser of (i) 500,000 shares, (ii) 2%
of the outstanding shares on such date, or (iii) a lesser amount determined by
the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
6
<PAGE> 7
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without
7
<PAGE> 8
receipt of consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be
8
<PAGE> 9
entitled to change the Offering Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
in order to adjust for delays or mistakes in the Company's processing of
properly completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent with
the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
9
<PAGE> 10
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
10
<PAGE> 11
EXHIBIT A
XCARE.NET, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the XCare.net, Inc.
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1% to 20%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
hereby agree to notify the Company in writing
<PAGE> 12
within 30 days after the date of any disposition of my shares and I will
make adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the disposition of the Common Stock.
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_____________________________________ ________________________________________
Relationship
________________________________________
(Address)
2
<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature
(If beneficiary other than spouse)
3
<PAGE> 14
EXHIBIT B
XCARE.NET, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the XCare.net, Inc.
1999 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.4
XCARE.NET, INC.
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means XCare.net, Inc., a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Disability" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of grant as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market
<PAGE> 2
trading day prior to the time of grant, as reported in The Wall Street Journal
or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Inside Director" means a Director who is an Employee.
(k) "IPO Effective Date" means the date upon with the Securities and
Exchange Commission declares the initial public offering of the Company's common
stock as effective.
(l) "Option" means a stock option granted pursuant to the Plan.
(m) "Optioned Stock" means the Common Stock subject to an Option.
(n) "Optionee" means a Director who holds an Option.
(o) "Outside Director" means a Director who is not an Employee.
(p) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this 1999 Director Option Plan.
(r) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(s) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares (the "Pool"), plus an annual increase to be
added on January 1 of each year beginning in 2001, equal to the lesser of (i)
200,000 shares, (ii) 1% of the outstanding shares on such date, or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
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<PAGE> 3
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 25,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the IPO Effective Date, or (B) the
date on which such person first becomes an Outside Director, whether through
election by the shareholders of the Company or appointment by the Board to fill
a vacancy; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") on the date of the
annual stockholders meeting of each year provided he or she is then an Outside
Director and if as of such date, he or she shall have served on the Board for at
least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 25% percent of the Shares subject to the First Option
on each anniversary of its date of grant, provided that the Optionee continues
to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall be
as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.
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<PAGE> 4
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 100% percent of the Shares subject to the
Subsequent Option on the anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such date.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person
-4-
<PAGE> 5
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment may
consist of any consideration and method of payment allowable under Section 7 of
the Plan. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
-5-
<PAGE> 6
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and
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<PAGE> 7
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares). If such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
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14. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
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<PAGE> 1
EXHIBIT 10.29
DEVELOPMENT SERVICES AGREEMENT
This Professional Services Agreement (the "Agreement") is entered into
as of November 8, 1999 (the "Effective Date") by and between Xcare.net, a
Delaware corporation with offices at 6400 S. Fiddler's Green Circle, Englewood,
CO 80111, ("Xcare.net"), and Doheny Eye Medical Group, Inc. with offices at 1450
San Pablo Street, Los Angeles, CA 90033 ("Client").
This Agreement covers the purchase and license of consulting,
development and other services from Xcare.net, pursuant to orders placed by:
Client and accepted by Xcare.net after the Effective Date.
This Agreement includes the following attachments, which are
incorporated herein by this reference:
Attachment 1 Xcare.net Development Services
Any notice required or permitted under this Agreement will be in writing
and delivered to the address set forth below, or to such other notice address as
the other party has provided by written notice.
THIS AGREEMENT, INCLUDING THE ATTACHMENTS LISTED ABOVE, CONSTITUTES THE
COMPLETE AND EXCLUSIVE UNDERSTANDING OF THE PARTIES WITH REFERENCE TO THE
SUBJECT MATTER HEREOF, AND SUPERSEDES ALL PRIOR SALES PROPOSALS, NEGOTIATIONS,
AGREEMENTS AND OTHER REPRESENTATIONS OR COMMUNICATIONS, WHETHER ORAL OR WRITTEN.
IF THERE IS ANY CONFLICT BETWEEN THE TERMS AND CONDITIONS OF CLIENT'S PURCHASE
ORDER (OR ANY OTHER PURCHASE OR SALES DOCUMENT) AND THE TERMS AND CONDITIONS OF
THIS AGREEMENT, THIS AGREEMENT SHALL CONTROL. THIS AGREEMENT MAY BE MODIFIED,
REPLACED OR RESCINDED ONLY IN WRITING, AND SIGNED BY A DULY AUTHORIZED
REPRESENTATIVE OF EACH PARTY.
AGREED:
XCare.net Doheny Eye Medical Group, Inc.
6400 S. Fiddlers Green Circle 1450 San Pablo Street
- ------------------------------------- -----------------------------------
Suite 540 DEI 5803
- ------------------------------------- -----------------------------------
Englewood, CO 80111 Los Angeles, CA 9003
- ------------------------------------- -----------------------------------
By: /s/ MARK S. RANGELL By: /s/ [ILLEGIBLE SIGNATURE]
- ------------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
Mark S. Rangell -- Sup. Sales & Mktg. [SIGNATURE ILLEGIBLE] -- President
- ------------------------------------- -----------------------------------
(Printed Name and Title) (Printed Name and Title)
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<PAGE> 2
ATTACHMENT 1
XCARE.NET DEVELOPMENT SERVICES
1. DEFINITIONS
1.1. "Content" shall mean marketing collateral, data, text, audio files,
video files, graphics and other materials provided by Client or developed
hereunder for use with the Client Web Site, but excluding the Xcare.net
Software.
1.2. "Development Services" shall mean design, development, and set-up
services as necessary to modify existing Xcare.net technology, trade secrets and
know-how to produce the Xcare.net Software and other elements of the Client Web
Site, and/or any other consulting services rendered hereunder as identified in
the appropriate schedules ("Schedule(s)") attached hereto.
1.3. "Xcare.net Software" shall mean all computer program code and other
results and proceeds of Xcare.net's services hereunder (other than Content) that
are delivered by Xcare.net to Client pursuant to this Agreement. Such Xcare.net
Software shall be provided in object code form unless the parties mutually agree
in writing to delivery of source code.
1.4. "Client Web Site(s)" shall mean the so-called "web page" site or
sites on the World Wide Web, for the public Internet or for corporate intranets
or extranets, to be developed or serviced by Xcare.net hereunder, as identified
in the appropriate Schedule(s). The Phase 1.0 Prototype Internet Site shall mean
the initial version of the Client Web Site to be developed under the scope of
functionality and budget outlined in Schedule 1.
2. SERVICES
2.1. Development Services, Xcare.net shall render Development Services
in accordance with the requirements set forth in Schedules attached hereto. Each
Schedule for new services shall be successively numbered (e.g., 1, 2, etc.).
Each schedule shall be executed by the parties and shall be subject to the terms
and conditions of this Agreement. Xcare.net shall provide qualified and trained
personnel to render such services and shall use best efforts to meet the
delivery schedule set forth in the applicable Schedules. Any additions,
deletions or other changes to a Schedule shall be mutually agreed to in writing
in advance by both parties and shall be memorialized in a revised Schedule
pursuant to the procedure set forth in Section 2.6 below for Change Orders. All
services shall be performed at Xcare.net's offices unless otherwise agreed by
the parties. In the event that services are performed at Client's location,
Client shall provide Xcare.net at no charge with all necessary facilities and
equipment, including without limitation, computer time on Client's computers and
office space, sufficient to render the services contemplated hereunder. Client
shall deliver to Xcare.net all Content selected by Client for incorporation into
any Client Web Site in digitized format in accordance with the delivery schedule
set forth in the applicable Schedule(s). In the event that Client fails to
deliver the Content in accordance with the delivery schedule, the development
schedule shall be extended by the number of days that delivery of the Content
was delayed, unless Xcare.net notifies Client that this extension will not
rectify Xcare.net's scheduling interruption resulting from Client's delay and
such delay
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may also result in additional charges to Client, in which case the parties shall
mutually agree upon a new delivery schedule and fees with respect to the
rendition of the Development Services.
2.2. Acceptance of Deliverables. Within forty-five (45) days after the
delivery to Client of any deliverable pursuant to any Schedule, Client shall
provide Xcare.net with written notice of any failure of any deliverable to
materially conform to the functional specifications set forth in the applicable
Schedule. Xcare.net and Client shall review the objections, and Xcare.net will
use best efforts to correct any material non-conformities with the functional
specifications and provide Client with a revised deliverable within fifteen (15)
days. Client shall have deemed to have accepted the deliverable if Xcare.net
does not receive written notice of Client's objections within said fifteen (15)
day period.
2.3. Domain Name Registration Services. If domain name registration
services are included in the Schedule, Xcare.net shall use best efforts to
assist Client in registering an Internet domain name selected by Client. Client
will be solely responsible for all out-of-pocket costs and all legal clearances
regarding name selection and registration.
2.4. Maintenance Services. If Client desires to purchase maintenance
services from Xcare.net for the Client Web Site, the parties shall execute the
then current Xcare.net Maintenance Services Agreement and Xcare.net shall render
maintenance services pursuant to the terms and conditions of such agreement.
Maintenance Services shall be supplied upon request of Client at the rate of
$150 per hour.
2.5. Hosting Services. If Client desires to purchase hosting services
from Xcare.net for the Client Web Site, the parties shall execute the then
current Xcare.net Hosting Services Agreement, and Xcare.net shall render hosting
services pursuant to the terms and conditions of such agreement. Hosting
services related to the Phase 1.0 Prototype Site are provided as part of this
agreement for a period of 6 months. After the initial period, hosting services
shall be provided for the Phase 1.0 Prototype Site at the rate of $250 per
month. Costs associated with hosting subsequent phases of the Site will be
negotiated in good faith by both parties.
2.6. Change Orders. If Client desires to make changes to an existing
Schedule, the parties shall mutually agree upon an additional or revised
Schedule for each new Change Order. Each such Schedule shall be successively
numbered (e.g., 1.A, 1.B, etc.) and shall be executed by the parties. Any
revised Schedule(s) shall be subject to the terms and conditions of this
Agreement.
3. OWNERSHIP AND LICENSE RIGHTS
3.1. Property Rights and Ownership. The Client Web Site(s) and all other
results and proceeds of Xcare.net's services hereunder, shall consist of, and
shall operate in conjunction with, multiple elements of intellectual property,
including without limitation the Xcare.net Software and the Client Content. The
parties' respective rights to such elements shall be as set forth below. For
purposes of this Agreement, the term "ownership" shall refer to ownership of all
intellectual property rights including, but not limited to, all patent,
copyright, trade secret and trademark rights, as applicable, with respect to the
subject intellectual property.
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<TABLE>
<CAPTION>
Intellectual Property Elements Ownership/Rights
- ----------------------------------------- -------------------------------
<S> <C>
Client Content, including all Client Content that is Client has sole ownership.
modified by Xcare.net ("Modified Content") and
HTML files that contain Client Content, and
modifications to Content as a result
of Client's usage of self-authoring tools.
Content created for Client by Xcare.net and Client has sole ownership.
accepted and paid for by Client, as well as
commissioned Content authored by third parties
specifically for use in connection with this
Agreement and paid for by Client (e.g., original
illustrations or graphics).
Domain name for Client Web Site. Client has sole ownership.
Server usage report data/statistics generated by the Client has sole ownership of
Xcare.net Software in form and substance as set data/statistics, and Xcare.net
forth in the applicable Schedule or as mutually has a license pursuant to Section
agreed by the parties. 3.3 below.
Commercially available third-party software which Third-parties have ownership, and
is incorporated into the Xcare.net Software. Client shall be informed of all
third-party software that Client
may need to license at Client's own
expense.
Xcare.net Software developed by or for Xcare.net Xcare.net has sole ownership of such
in connection with this Agreement for Client. Xcare.net Software. Client shall be
granted a license to use the Xcare.net
Software as set forth in Section 3.2.
Xcare.net supplied material developed generally Xcare.net has sole ownership of such
to support Xcare.net products and/or service offerings developed material. Client shall be
(e.g. http configuration). granted license to use the Xcare.net
Software as set forth in Section 3.2
below.
</TABLE>
3.2. License to Client. Xcare.net grants Client a non-exclusive,
non-transferable license to use the Xcare.net Software on a single computer in
object code version only to operate and display the Client Web Site in order for
end users to access the Client Web Site. If the Xcare.net Software is not
developed for use on a Client Web Site, then the foregoing license shall
constitute a non-exclusive, non-transferable license to use the Xcare.net
Software on a single computer in object code version only for Client's internal
business needs. Client may transfer the Xcare.net Software to a different
computer so long as the Xcare.net Software is not retained on the prior computer
On which it was initially installed other than as a permitted backup copy.
Client is prohibited from duplicating and/or distributing any Xcare.net Software
without the prior written consent of Xcare.net; provided, however that Client
may copy the Xcare.net Software only as needed for reasonable ordinary backup or
disaster recovery procedures. Client may use the backup copies only if the
installed copy is lost or destroyed or the hardware on which the installed copy
is installed becomes inoperable, provided that the use of said backup copies is
discontinued immediately when the original
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hardware becomes operable.
3.3. License to Xcare.net. Client grants Xcare.net a non-exclusive
license (i) to use, copy, and modify the Content in connection with Xcare.net's
performance of the Development Services, (ii) to use, copy, modify, distribute
and display server usage data and statistics generated by the Xcare.net
Software.
3.4. Supporting Documents. Each party agrees to execute any additional
documents deemed reasonably necessary to effect and evidence the other party's
rights with respect to the intellectual property elements set forth above.
3.5. No Reverse Engineering All rights not expressly granted hereunder
are reserved by Xcare.net. Without limiting the foregoing, Client may not
reverse engineer, reverse assemble, decompile or otherwise attempt to derive the
source code from the Xcare.net Software.
3.6. Proprietary Notices. All copies of the Xcare.net Software and other
Xcare.net supplied materials used by Client shall contain copyright and other
proprietary notices in the same manner in which Xcare.net incorporates such
notices in the Xcare.net Software or in any other manner requested by Xcare.net.
Client agrees not to remove, obscure or obliterate any copyright notice,
trademark or other proprietary rights notices placed by Xcare.net on or in the
Xcare.net Software.
4. PAYMENT
4.1. Development Services. In consideration for the performance of the
Development Services, Client shall pay to Xcare.net the amounts set forth in the
applicable Schedule, on the payment dates set forth in such Schedule. In the
event that Xcare.net renders services at Client's location, Client shall pay the
reasonable travel, living and related expenses for Xcare.net personnel rendering
services at Client's location, based on Client's pre-approval of expenses
related to any applicable visit(s). All services hereunder shall be rendered on
a per-project basis; provided, however, that in the event that the parties agree
that any services hereunder will be rendered on a time and materials basis, all
work will be billed at Xcare.net's standard hourly rates (separately provided),
which may be revised from time to time by Xcare.net, in its sole discretion,
upon written notice to Client. For time and materials billing, amounts set forth
in the applicable Schedule represent an estimate of the hours required to
complete the work outlined in such Schedule; in the event that actual hours
incurred to complete the work exceed those included in the estimate, Xcare.net
will notify Client, and additional hours will be billed at Xcare.net's standard
hourly rates.
4.2. Taxes. In addition to the fees due as specified above, Client shall
pay any and all federal, state and local sales, use, value added, excise, duty
and any other taxes of any nature assessed upon or with respect to the license
granted hereunder, arising from this Agreement, except that taxes on Xcare.net's
income shall be the sole responsibility of Xcare.net.
4.3. Payments. All payments made pursuant to this Agreement shall be
made in U.S. Dollars are due thirty (30) days from the date of invoice. Late
payments more than sixty (60) days in arrears shall bear interest at one and
one- (1.%) per month or the maximum rate permitted by law, whichever is less.
5. LIMITED WARRANTY
5.1. Software Warranty. Subject to the limitations set forth in this
Agreement, Xcare.net warrants only to Client that the Xcare.net Software
furnished hereunder when properly installed, properly
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used and unmodified by Client, will conform to the functional specifications set
forth in the applicable Schedule. Xcare.net's warranty shall extend for a period
of one (1) year from the date that the final deliverables specified in each
Schedule are delivered to Client ("Warranty Period"). Xcare.net's sole
responsibility under this Section 5.1 shall be to use best efforts to promptly
correct material errors, or at Xcare.net's option, to refund Client's fees paid
for the Xcare.net Software after de-installation and return thereof. All
warranty claims not made in writing or not received by Xcare.net within the
Warranty Period shall be deemed waived. Xcare.net's warranty obligations are
solely for the benefit of Client, who has no authority to extend or transfer
this warranty to any other person or entity.
5.2. XCARE.NET DOES NOT WARRANT THAT THE USE OF THE XCARE.NET SOFTWARE
WILL BE UNINTERRUPTED OR ERROR FREE . EXCEPT FOR THE EXPRESS WARRANTIES STATED
ABOVE, XCARE.NET DOES NOT MAKE ANY WARRANTY AS TO THE XCARE.NET SOFTWARE OR THE
SERVICES PROVIDED HEREUNDER OR THE RESULTS TO BE OBTAINED FROM USE OF THE
XCARE.NET SOFTWARE. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH ABOVE, THE
XCARE.NET SOFTWARE IS USED AND THE SERVICES ARE PROVIDED ON AN "AS-IS" BASIS
WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
USE WITH RESPECT TO THE INTERNET OR USE OF INFORMATION IN CONNECTION WITH THE
SOFTWARE.
6. INTELLECTUAL PROPERTY INDEMNIFICATION
6.1. Xcare.net.
6.1.1. Indemnification. Xcare.net, at its own cost and expense,
shall defend Client and its officers and directors, against a claim that the
Xcare.net Software infringes a third-party United States copyright or trade
secret, and shall pay any settlements entered into or damages awarded against
Client, or its officers and directors, to the extent related to such claim,
provided that (i) Client notifies Xcare.net promptly in writing of the claim;
(ii) Xcare.net has the sole control of the defense and all related settlement
negotiations; and (iii) Client provides Xcare.net with all reasonably necessary
assistance, information, and authority to perform the foregoing at Xcare.net's
expense.
6.1.2. Xcare.net shall have no liability for any claim of
infringement based on (i) use by Client of other than the current update of the
Xcare.net Software if the infringement would have been avoided by uses of the
current update; (ii) modifications, adaptations or changes to the Xcare.net
Software not made by Xcare.net; (iii) the combination or use of the materials
furnished hereunder with materials not furnished by Xcare.net if such
infringement would have been avoided by use of the Xcare.net materials alone; or
(iv) use or incorporation of Content or Modified Content. In the event the
Xcare.net Software is held to, or Xcare.net believes is likely to be held to,
infringe the intellectual property rights of a third party, Xcare.net shall have
the right at its sole option and expense to (i) substitute or modify the
Xcare.net Software so that it is non-infringing and qualitatively and
functionally equivalent to the Xcare.net Software; (ii) obtain for Client a
license to continue using the Xcare.net Software; or if neither (i) nor (ii) is
commercially reasonable, Xcare.net shall have the right to terminate this
Agreement immediately upon written notice to Client, and Xcare.net shall make
payment to Client of an amount equal to the fees paid for the Xcare.net
Software. This Section 6.1 sets forth Client's sole and exclusive remedy and
Xcare.net's sole liability for intellectual property infringement by Xcare.net.
6.2. Client.
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6.2.1. Client hereby represents and warrants to Xcare.net that
(i) Client has secured all necessary consents, permissions, clearances,
authorizations and waivers for the use of Content or Modified Content, including
without limitation, all text, pictures, audio, video, logos and copy contained
in all Content or Modified Content; (ii) the use of Content as contemplated
herein shall not infringe the copyright, trademark or other intellectual
property rights of any party, or constitute defamation, invasion of privacy, or
the violation of any right of publicity or any other right of any party; and
(iii) Client has complied and shall comply with all legislation, rules and
regulations regarding Content.
6.2.2. Client shall indemnify and hold harmless Xcare.net, its
directors, officers, parent company, and affiliates, from any and all liability,
costs and expenses (including attorney's fees) arising in connection with any
third party claim Or action brought against Xcare.net, or any of its directors,
officers, parent company, and affiliates, relating to Content or Modified
Content, provided (i) Xcare.net notifies Client promptly in writing of such
claim, (ii) Client has the sole control of the defense and all related
settlement negotiations, and (iii) Xcare.net provides Client with all reasonably
necessary assistance, information and authority to perform the foregoing at
Client's expense.
6. LIMITATIONS ON LIABILITY
THE MAXIMUM LIABILITY OF XCARE.NET, ITS DIRECTORS, OFFICERS, PARENT
COMPANY, AND, AFFILIATES, TO CLIENT FOR DAMAGES RELATING TO XCARE.NET'S FAILURE
TO PERFORM SERVICES HEREUNDER SHALL BE LIMITED TO AN AMOUNT EQUAL TO THE TOTAL
FEES PAID BY CLIENT TO XCARE.NET WITH RESPECT TO SUCH SERVICES. NOTWITHSTANDING
THE FOREGOING, THE MAXIMUM LIABILITY OF XCARE.NET, ITS DIRECTORS, OFFICERS,
PARENT COMPANY, AND AFFILIATES, TO CLIENT FOR DAMAGES FOR ANY AND ALL OTHER
CAUSES WHATSOEVER, AND CLIENT'S MAXIMUM REMEDY, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL BE LIMITED TO AN AMOUNT
EQUAL TO THE TOTAL FEES PAID BY CLIENT TO XCARE.NET HEREUNDER. IN NO EVENT SHALL
XCARE.NET, ITS DIRECTORS, OFFICERS, PARENT COMPANY, AND AFFILIATES, LICENSORS,
AND SUPPLIERS, BE LIABLE FOR ANY LOST DATA OR CONTENT, LOST PROFITS, BUSINESS
INTERRUPTION OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY
OR PUNITIVE DAMAGES ARISING OUT OF OR RELATING TO THE SOFTWARE OR THE SERVICES
PROVIDED HEREUNDER, EVEN IF XCARE.NET HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY.
8. TERM AND TERMINATION
8.1. Term. Subject to this Section 8, the term of this Agreement shall
commence on the Effective Date and continue until terminated by either party
pursuant to Section 8.2 or 8.3 below.
8.2. Termination for Cause. This Agreement may be terminated by either
party in the event of (i) any material default in, or material breach of, any of
the terms and conditions of this Agreement by the other party, which default
continues in effect after the defaulting party has been provided with written
notice of default and thirty (30) days to cure such default; (ii) the
commencement of a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to either party of its debts under
any bankruptcy, insolvency, or other similar law now or hereafter in effect,
that authorizes the reorganization or liquidation of such party or its debt or
the appointment of a trustee, receiver, liquidator, custodian or other
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<PAGE> 8
similar official of it or any substantial part of its property; (iii) either
party's consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it; or (iv) either party's making a general assignment for the benefit
of creditors; or either party's becoming insolvent; or either party taking any
corporate action to authorize any of the foregoing.
8.3. Termination for Convenience. This Agreement may be terminated by
either party upon ninety (90) days' advance written notice.
8.4. Effect of Termination, If this Agreement is terminated by Xcare.net
under Section 8.2, while Xcare.net is performing any Development Services for
Client hereunder, Client shall immediately pay Xcare.net the total fees
associated with such incomplete project, as well as all amounts due and owing
for any projects already completed by Xcare.net hereunder or for any third-party
products or services purchased by Xcare.net in Client's behalf. If the Agreement
is terminated under Section 8.3 while Xcare.net is performing any Development
Services or other services for Client hereunder, Client shall pay Xcare.net all
fees due and owing up to the effective date of such termination. The foregoing
shall be without limitation to Xcare.net's rights and remedies under this
Agreement.
8.5. Survival. Sections 3, 5, 7, 8, 9 and 10 shall survive any
termination or expiration of this Agreement; provided, however, that if this
Agreement is terminated by Xcare.net pursuant to Section 8.2 above, then Section
3.2 shall not survive.
9. CONFIDENTIALITY
9.1. Confidential Information. Each party acknowledges that, in
connection with the performance of this Agreement, it may receive certain
confidential or proprietary technical and business information and materials of
the other party ("Confidential Information").
9.2. Confidentiality. Each party hereby agrees: (i) to hold and maintain
in strict confidence all Confidential Information of the other party and not to
disclose it to any third party; and (ii) not to use any Confidential Information
of the other party except as permitted by this Agreement or as may be necessary
to perform its obligations under this Agreement. Each party will use at least
the same degree of care to protect the other party's Confidential Information as
it uses to protect its own Confidential Information of like importance, and in
no event shall such degree of care be less than reasonable care.
9.3. Exceptions. Notwithstanding the foregoing, the parties agree that
Confidential Information will not include any information that: (i) is or
becomes generally known or is or becomes part of the public domain through no
fault of the other party, (ii) the first party authorizes to be disclosed; (iii)
is rightfully received by the other party from a third party without restriction
on disclosure and without breach of this Agreement; or (iv) is known to the
other party on the Effective Date from a source other than the first party, and
not subject to a confidentiality obligation.
9.4. Injunctive Relief. Each party acknowledges that any breach of the
provisions of this Section 9 may cause irreparable harm and significant injury
to an extent that may be extremely difficult to ascertain. Accordingly, each
party agrees that the other party will have, in addition to any other rights or
remedies available to it at law or in equity, the right to seek injunctive
relief to enjoin any breach or violation of this Section 9.
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10. GENERAL PROVISIONS
10.1. Force Majeure. In the event that either party is unable to perform
any of its obligations under this Agreement or to enjoy any of its benefits
because of any event beyond the control of the affected party including, but not
limited to, natural disaster, acts of God, actions or decrees of governmental
bodies or failure of communication lines (a "Force Majeure Event"), the party
who has been so affected shall promptly give written notice to the other party
and shall use its best efforts to resume performance. Upon receipt of such
notice, all obligations under this Agreement shall be immediately suspended for
the duration of such Force Majeure Event.
10.2. Notice. All notices, demands, requests or other communications
required or permitted under this Agreement will be deemed given when (i)
delivered personally; (ii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iii) one (1) day
after deposit with a commercial overnight carrier, with written verification of
receipt.
10.3. Waiver. Waiver of any breach or failure to enforce any term of
this Agreement shall not be deemed a waiver of any breach or right to enforce
which may thereafter occur. No waiver shall be valid against any party hereto
unless made in writing and signed by the party against whom enforcement of such
waiver is sought and then only to the extent expressly specified therein.
10.4. Severability. In the event any one or more of the provisions of
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be unimpaired
and the parties will substitute a new enforceable provision of like economic
intent and effect.
10.5. Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes thereto, shall be governed by and
construed in accordance with the laws of the State of Colorado without reference
to conflict of law principles.
10.6. Assignment. Neither party shall have the right to assign this
Agreement without the prior written consent of the other party; provided, that
either party shall have the right to assign this Agreement to any person or
entity that acquires or succeeds to all or substantially all of such party's
business or assets upon written notice to the other party.
10.7. Publicity. Within a time frame mutually agreed upon by the
parties, the parties shall mutually agree on a joint press release announcing
the existence of this Agreement. Neither party will use the other party's name,
domain name, logo, trademark or service mark in advertising or publicity without
obtaining the other party's prior written consent; provided, however, that
Xcare.net shall have the nonexclusive right and license to use Client's name
and Client Web Site name, including the URL (Uniform Resource Locator) thereto,
as a Client reference, and as part of Xcare.net's client portfolio. Xcare.net
shall also have the right to display its name and logo, as well as a link to the
Xcare.net site, on the Client Web Site(s), and to receive credit as the
developer of the Client Web Site(s), (collectively, the "Credit"). Such Credit
shall appear on the "home page" of the Client Web Site(s) in a position that
provides reasonable and appropriate visibility to Xcare.net in light of industry
standards and Client's requirements.
10.8. Additional Actions and Documents. Each of the parties hereto
hereby agrees to take or cause to be taken such further actions, to execute,
deliver and file or cause to be executed, delivered and filed such further
documents, and will obtain such consents, as may be necessary or as may be
reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
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<PAGE> 10
10.9. Headings. Section headings contained in this Agreement are
inserted for convenience or reference only, shall not be deemed to be a part of
this Agreement for any other purpose, and shall not in any way define or affect
the meaning, construction or scope of any of the provisions hereof.
10.10. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, and all
of which, when taken together, shall constitute one and the same instrument.
10.11. Independent Contractors. The relationship of the parties
hereunder shall be that of independent contractors. Nothing herein shall be
construed to constitute a partnership between or joint venture of the parties,
nor shall either party be deemed the agent of the other or have the right to
bind the other in any way without the prior written consent of the other.
10.12. Jurisdiction. All disputes arising out of or relating to this
Agreement shall be submitted to the non-exclusive jurisdiction of the state and
federal courts encompassing Denver, Colorado, and each party irrevocably
consents to such personal jurisdiction and waives all objections thereto.
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SCHEDULE 1
This Schedule describes Services to be provided by Xcare.net to Client under
this Professional Services Agreement dated November 8, 1999.
PROJECT OVERVIEW
Xcare.net and the Doheny Eye Medical Group (DEMG) will initiate the rapid
development of eCommerce concepts discussed at the 10/12/99 meeting. The goal of
this project phase is to rapidly define and validate existing concepts. Existing
concepts must be validated and refined and effectively demonstrated to key
internal stakeholders and representatives of key external business audiences.
This must be done rapidly so as to preclude competition from marketing similar
concepts to DEMG business audiences. In addition, the first release must be
compelling enough to make a lasting impression. Hence, the first release of
"DEMG.com" must deliver features that provide solid business value to its target
audiences.
The project will consist of five parts:
1. Initial envisioning work sessions will define strategy for achieving these
business goals within project scope.
2. Description of Work: Design, development and hosting of a prototype web
site.
3. Functional Specifications: Detailed document containing prototype site
requirements and functionality.
4. Delivery of Functional Specification Document which details Phase 1.0 of the
web site's content and functionality
5. Delivery and acceptance of the prototype site
PROJECT SCOPE AND OBJECTIVES
The scope of this initiative is as follows:
1. Perform an onsite "envisioning Session"
- Model current eCommerce concepts
- Define current technology and business entities that the solution must
address
- Define future technology and business entities that the solution must
address
- Create a Functional Specification Release 1
- Detailed site information document which will "blueprint" the
prototype site
2. Rapid development of Phase 1.0 Prototype Internet site
Design, develop and test content, and functionality components
- Based on preliminary analysis, it is anticipated that the
functionality of the prototype site will provide for the following:
1. Security will be set up by type of user (i.e., DEMG
supervisor, DEMG faculty, external referring doctor,
doctor, doctor identified patient) in order to show
presentation layout of site. Security for the prototype
will not restrict data access. Multi-level security
access will be addressed when the application to
interface with DEMG's IDX system is created.
2. Firewall at industry standard
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3. Physician referral form
4. Patient registration form
5. E-mail inquiry
6. CME area which will allow for access of CME data from a
prototype database. CME content not to exceed 50 pages.
7. Public information area (e.g. on-going trials, etc.)
3. Site registration
4. Host prototype site
The prototype web site will be hosted on the Xcare.net. Hosting of the
site will include the following:
- 24x7x365 support
- Full network redundancy with MCI WorldCom as Internet backbone
provider
- Site user demographics
- Site statistics
The objectives of the consulting initiative are as follows:
- Build a foundational site that:
- Stakeholds the DEMG eCommerce concept internal and external key
audiences
- Serves as a technological platform for additional functionality to
be added in subsequent phases
- Brands the concept and established DEMG as a market leader in this
specific eCommerce category
- Assist DEMG with marketing and sales communications planning for the
newly treated eCommerce initiative
DELIVERABLES
Exact design features that achieve phase 1 business goals are yet to be
determined. Xcare.net and DEMG.Xcare.net will make a best effort to deliver
functionality that provides business value to key internal and external DEMG
business audiences. Scope for the first release of "DEMG.com" will certainly
include the following:
1. Product branding and positioning
2. Content features demonstrating that DEMG eCommerce concept
3. Provide DEMG with a Functional Specification Document which details
Phase 1.0 of the web site's content and functionality
4. Envisioning documentation illustrating modeling and defense for Phase 1 and
overall concept
ON-GOING RELATIONSHIP
X.Care.net and Client agree that the long-term goal of the relationship is to
jointly develop and market an eCommerce Web-based product for the medical
marketplace. The Client and X.care.net will, upon successful completion of Phase
1, enter into a joint venture or contractual relationship. This joint venture or
contract will specify the relative ownership of the intellectual property and
the distribution of proceeds to the parties from sale or licensing of the
derived products. The parties acknowledge that further development beyond Phase
1 will be required for realization of a commercially viable product.
Notwithstanding, the Client will not be required to have any financial
commitment to this project beyond Phase 1 development.
Timing and fees
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<PAGE> 13
Professional fees for Phase 1 of this initiative will be incurred on a fixed
cost basis, totaling $[ * ].
Payment schedule is as follows:
- - $[ * ] upon execution of contract
- - $[ * ] following 1-day planning session
- - $[ * ] upon receipt and approval of the Functional Specification
Document
- - $[ * ] upon delivery of the Phase 1 software
- - $[ * ] after acceptance of Phase 1 software, not to exceed 30 days
from completion of warranty changes
The parties agree that time is of the essence of this Agreement.
Xcare.net and Client Contacts:
Xcare.net: Bill Williams - Senior Sales Consultant
Mark Rangell - Senior Vice President, Sales & Marketing
Sy Nayman - Director of Strategic Marketing & Creative Services
Doheny Eye Institute: Steven E. Feldon - Vice President, Business
Development
Azalea Bilac - Marketing Manager
XCARE.NET DOHENY EYE MEDICAL GROUP
By: /s/ MARK S. RANGELL By: [SIGNATURE ILLEGIBLE]
---------------------------- --------------------------------
MARK S. RANGELL [SIGNATURE ILLEGIBLE]
- ------------------------------ --------------------------------
PRINTED NAME PRINTED NAME
SVP - SALES & MARKETING PRESIDENT
- ------------------------------ --------------------------------
TITLE TITLE
11/8/99 11/9/99
- ------------------------------ --------------------------------
DATE DATE
* Confidential Treatment Requested
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<PAGE> 1
EXHIBIT 10.30
DEVELOPMENT SERVICES AGREEMENT
This Professional Services Agreement (the "Agreement") is entered into
as of November 10, 1999 (the "Effective Date") by and between Xcare.net, a
Delaware corporation with offices at 6400 S. Fiddler's Green Circle, Englewood,
CO 80111, ("Xcare.net"), and Delta Health Services, a California corporation
with offices at 1234 West Oak Street, Stockton, CA 95203-2606 ("Client").
This Agreement covers the purchase and license of consulting,
development and other services from Xcare.net, pursuant to orders placed by
Client and accepted by Xcare.net after the Effective Date.
This Agreement includes the following attachments, which are
incorporated herein by this reference Attachment A Xcare.net Grant of
6-month Exclusive License as defined Schedule 1 Description of Work and
Fee Schedule
Any notice required or permitted under this Agreement will be in writing
and delivered to the address set forth below, or to such other notice address as
the other party has provided by written notice.
THIS AGREEMENT, INCLUDING THE ATTACHMENTS LISTED ABOVE, CONSTITUTES THE
COMPLETE AND EXCLUSIVE UNDERSTANDING OF THE PARTIES WITH REFERENCE TO THE
SUBJECT MATTER HEREOF, ANT) SUPERSEDES ALL PRIOR SALES PROPOSALS, NEGOTIATIONS.
AGREEMENTS AND OTHER REPRESENTATIONS OR COMMUNICATIONS, WHETHER ORAL OR WRITTEN.
IF THERE IS ANY CONFLICT BETWEEN THE TERMS AND CONDITIONS OF CLIENT'S PURCHASE
ORDER (OR ANY OTHER PURCHASE OR SALES DOCUMENT) AND THE TERMS AND CONDITIONS OF
THIS AGREEMENT, THIS AGREEMENT SHALL CONTROL. THIS AGREEMENT MAY BE MODIFIED,
REPLACED OR RESCINDED ONLY IN WRITING, AND SIGNED BY A DULLY AUTHORIZED
REPRESENTATIVE OF EACH PARTY
AGREED
XCARE.NET CLIENT DHS
------------------------------
- ------------------------------ ------------------------------------
- ------------------------------ ------------------------------------
- ------------------------------ ------------------------------------
By /s/ LORINE SWEENEY By /s/ THOMAS R. PARTLOW 11/10/99
---------------------------- --------------------------------
Lorine Sweeney, Pres. and CEO Thomas R. Partlow, President
- ------------------------------ --------------------------------
(PRINTED NAME AND TITLE) (PRINTED NAME AND TITLE)
1
<PAGE> 2
ATTACHMENT 1
XCARE.NET DEVELOPMENT SERVICES
1. DEFINITIONS
1.1. "Content" shall mean marketing collateral, data, text, audio files,
video files, graphics and other materials provided by Client or developed
hereunder for use with the Client Web Site, but excluding the Xcare.net
Software.
1.2. "Development Services" shall mean design, development, and set-up
services as necessary to modify existing Xcare.net technology, trade secrets and
know-how to produce the Xcare.net Software and other elements of the Client Web
Site, and/or any other consulting services rendered hereunder as identified in
the appropriate schedules ("Schedule(s)") attached hereto.
1.3 "Xcare.net Software" shall mean all computer program code and other
results and proceeds of Xcare.net's services hereunder (other than Content) that
are delivered by Xcare.net to Client pursuant to this Agreement. Such Xcare.net
Software shall be provided in object code form unless the parties mutually agree
in writing to delivery of source code.
1.4 "Client Web Site(s)" shall mean the so-called "web page" site or
sites on the World Wide Web, for the public Internet or for corporate intranets
or extranets, to be developed or serviced by Xcare.net hereunder, as identified
in the appropriate Schedule(s).
2. SERVICES
2.1. Development Services Xcare.net shall render Development Services in
accordance with the requirements set forth in Schedules attached hereto. Each
Schedule for new services shall be successively numbered (e.g., 1, 2, etc.).
Each schedule shall be executed by the parties and shall be subject to the terms
and conditions of this Agreement. Xcare.net shall provide qualified and trained
personnel to render such services and shall use reasonable efforts to meet the
delivery schedule set forth in the applicable Schedules. Any additions,
deletions or other changes to a Schedule shall be mutually agreed to in writing
in advance by both parties and shall be memorialized in a revised Schedule
pursuant to the procedure set forth in Section 2.6 below for Change Orders. All
services shall be performed at Xcare.net's offices unless otherwise agreed by
the parties. In the event that services are performed at Client's location.
Client shall provide Xcare.net at no charge with all necessary facilities and
equipment, including without limitation, computer time on Client's computers and
office space, sufficient to render the services contemplated hereunder. Client
shall deliver to Xcare.net all Content selected by Client for incorporation into
any Client Web Site in digitized format in accordance with the delivery schedule
set forth in the applicable Schedule(s). In the event that Client fails to
deliver the Content in accordance with the delivery schedule, the development
schedule shall be extended by the number of days that delivery of the Content
was delayed, unless Xcare.net notifies Client that this extension will not
rectify Xcare.net's scheduling interruption resulting from Client's delay and
such delay may also result in additional charges to Client, in which case the
parties shall mutually agree upon a new delivery schedule and fees with respect
to the rendition of the Development Services.
2.2. Acceptance of Deliverables. Within fifteen (15) days after the
delivery to Client of any
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deliverable pursuant to any Schedule, Client shall provide Xcare.net with
written notice of any failure of any deliverable to materially conform to the
functional specifications set forth in the applicable Schedule. Xcare.net and
Client shall review the objections, and Xcare.net will use commercially
reasonable efforts to correct any material non-conformities with the functional
specifications and provide Client with a revised deliverable within fifteen (15)
days. Client shall have deemed to accepted the deliverable if Xcare.net does not
receive written notice of Client's objections within said fifteen (15) day
period.
2.3. Domain Name Registration Services. If domain name registration
services are included in the Schedule, Xcare.net shall use commercially
reasonable efforts to assist Client in registering an Internet domain name
selected by Client. Client will be solely responsible for all out-of-pocket
costs and all legal clearances regarding name selection and registration.
2.4. Maintenance Services. If Client desires to purchase maintenance
services from Xcare.net for the Client Web Site, the parties shall execute the
then current Xcare.net Maintenance Services Agreement and Xcare.net shall render
maintenance services pursuant to the terms and conditions of such agreement.
2.5. Hosting Services. If Client desires to purchase hosting services
from Xcare.net for the Client Web Site, the parties shall execute the then
current Xcare.net Hosting Services Agreement, and Xcare.net shall render hosting
services pursuant to the terms and conditions of such agreement.
2.6. Change Orders. If Client desires to make changes to an existing
Schedule, the parties shall mutually agree upon an additional or revised
Schedule for each new Change Order. Each such Schedule shall be successively
numbered (e.g., 1.A, 1.B, etc.) and shall be executed by the parties. Any
revised Schedule(s) shall be subject to the terms and conditions of this
Agreement.
3. OWNERSHIP AND LICENSE RIGHTS
3.1. Property Rights and Ownership. The Client Web Site(s) and all other
results and proceeds of Xcare.net's services hereunder, shall consist of, and
shall operate in conjunction with, multiple elements of intellectual property,
including without limitation the Xcare.net Software and the Client Content. The
parties' respective rights to such elements shall be as set forth below. For
purposes of this Agreement, the term "ownership" shall refer to ownership of all
intellectual property rights including, but not limited to, all patent,
copyright, trade secret and trademark rights, as applicable, with respect to the
subject intellectual property.
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<TABLE>
<CAPTION>
Intellectual Property Elements Ownership/Rights
- ----------------------------------------- -------------------------------
<S> <C>
Client Content, including all Client Content that is Client has sole ownership.
modified by Xcare.net ("Modified Content") and
HTML files that contain Client Content, and
modifications to Content as a result
of Client's usage of self-authoring tools.
Content created for Client by Xcare.net and Client has sole ownership.
accepted and paid for by Client, as well as
commissioned Content authored by third parties
specifically for use in connection with this
Agreement and paid for by Client (e.g., original
illustrations or graphics).
Domain name for Client Web Site. Client has sole ownership.
Server usage report data/statistics generated by the Client has sole ownership of
Xcare.net Software in form and substance as set data/statistics, and Xcare.net
forth in the applicable Schedule or as mutually has a license pursuant to Section
agreed by the parties. 3.3 below.
Xcare.net Software developed by or for Xcare.net Xcare.net has sole ownership of such
in connection with this Agreement for Client. Xcare.net Software. Client shall be
granted a license to use the Xcare.net
Software as set forth in Section 3.2.
Xcare.net supplied material developed generally Xcare.net has sole ownership of such
to support Xcare.net products and/or service offerings developed material. Client shall be
(e.g. http configuration). granted license to use the Xcare.net
Software as set forth in Section 3.2
below.
</TABLE>
3.2. License to Client. Xcare.net grants Client a non-exclusive, license
as defined in Attachment A. to begun upon contract signing, non -transferable
license to use the Xcare.net Software on a single computer in object code
version only to operate and display the Client Web Site in order for end users
to access the Client Web Site. License shall convert to non-exclusive at the end
of six months as defined in Attachment A. If the Xcare.net Software is not
developed for use on a Client Web Site, then the foregoing license shall
constitute a non-exclusive, non-transferable license to use the Xcare.net
Software on a single computer in object code version only for Client's internal
business needs. Client may transfer the Xcare.net Software to a different
computer so long as the Xcare.net Software is not retained on the prior computer
on which it was initially installed other than as a permitted backup copy.
Client may grant a sublicense to a third party that Client engages to host the
Client Web Site: provided, that such third party agrees in writing to be bound
by the license and confidentially, restrictions set forth in this Agreement.
Client is prohibited from duplicating and/or distributing any Xcare.net Software
without the prior written consent of Xcare.net; provided, however that Client
may copy the Xcare.net Software only as needed for reasonable ordinary backup or
disaster recovery procedures Client may use the backup copies only if the
installed copy is lost or destroyed or the hardware on which the installed copy
is installed becomes inoperable, provided that the use of said backup copies is
discontinued immediately when the original hardware becomes operable.
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<PAGE> 5
3.3. License to Xcare.net. Client grants Xcare.net a non-exclusive
license (i) to use, copy, and modify the Content in connection with Xcare.net's
performance of the Development Services, (ii) to use, copy, modify, distribute
and display server usage data and statistics generated by the Xcare.net
Software.
3.4. Supporting Documents. Each party agrees to execute any additional
documents deemed reasonably necessary to effect and evidence the other party's
rights with respect to the intellectual property elements set forth above.
3.5. No Reverse Engineering All rights not expressly granted hereunder
are reserved by Xcare.net. Without limiting the foregoing, Client may not
reverse engineer, reverse assemble, decompile or otherwise attempt to derive the
source code from the Xcare.net Software.
3.6. Proprietary Notices. All copies of the Xcare.net Software and other
Xcare.net supplied materials used by Client shall contain copyright and other
proprietary notices in the same manner in which Xcare.net incorporates such
notices in the Xcare.net Software or in any other manner requested by Xcare.net.
Client agrees not to remove, obscure or obliterate any copyright notice,
trademark or other proprietary rights notices placed by Xcare.net on or in the
Xcare.net Software.
4. PAYMENT
4.1. Development Services. In consideration for the performance of the
Development Services, Client shall pay to Xcare.net the amounts set forth in the
applicable Schedule, on the payment dates set forth in such Schedule. In the
event that Xcare.net renders services related to development and implementation
of this Agreement at Client's location, Client shall pay the reasonable travel,
living and related expenses for Xcare.net personnel rendering services at
Client's location. All services hereunder shall be rendered on a per-project
basis; provided. however, that in the event that the parties agree that any
services hereunder will be rendered on a time and materials basis, all work will
be billed at Xcare.net's standard hourly rates, which may be revised from time
to time by Xcare.net, in its sole discretion, upon written notice to Client. For
time and materials billing, amounts set forth in the applicable Schedule
represent an estimate of the hours required to complete the work outlined in
such Schedule: in the event that actual hours incurred to complete the work
exceed those included in the estimate, Xcare.net will notify Client, and
additional hours will be billed at Xcare.net's standard hourly rates.
4.2. Maintenance Services. If the parties have entered rate a Xcare.net
Maintenance Services Agreement. Client shall pay Xcare.net the amounts set forth
in said Maintenance Services Agreement.
4.3. Hosting Services. If the parties have entered into a Xcare.net
Hosting Services Agreement. Client shall pay Xcare.net the amounts set forth in
said Hosting Services Agreement.
4.4. Taxes. In addition to the fees due as specified above. Client shall
pay any and all federal, state and local sales, use, value added, excise, duty
and any other taxes of any nature assessed upon or with respect to the license
granted hereunder, arising from this Agreement, except that taxes on Xcare.net's
income shall be the sole responsibility of Xcare.net.
4.5. Payments. All payments made pursuant to this Agreement shall be
made in U.S. Dollars are are due thirty (30) days from the date of invoice. Late
payments shall bear interest at one and one-half percent (1.5%) per month or the
maximum Fate permitted by law, whichever is less
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5. LIMITED WARRANTY
5.1. Software Warranty. Subject to the limitations set forth in this
Agreement, Xcare.net warrants only to Client that the Xcare.net Software
furnished hereunder when properly installed, properly used and unmodified by
Client, will substantially conform to the functional specifications set forth in
the applicable Schedule. Xcare.net's warranty shall extend for a period of
ninety (90) days from the date that the final deliverables specified in each
Schedule are delivered to Client ("Warranty Period"). Xcare.net's sole
responsibility under this Section 5.1 shall be to use reasonable commercial
efforts to promptly correct material errors. or at Xcare.net's option, to refund
Client's fees paid for the Xcare.net Software after de-installation and return
thereof. All warranty claims not made in writing or not received by Xcare.net
within the Warranty Period shall be deemed waived. Xcare.net's warranty
obligations are solely for the benefit of Client, who has no authority to extend
or transfer this warranty to any other person or entity.
5.2. XCARE.NET DOES NOT WARRANT THAT THE USE OF THE XCARE.NET SOFTWARE
SKILL BE UNINTERRUPTED OR ERROR FREE OR THAT THE SPECIFICATIONS WILL MEET
CLIENT'S REQUIREMENTS. EXCEPT FOR THE EXPRESS WARRANTIES STATED ABOVE. XCARE.NET
DOES NOT MAKE ANY WARRANTY AS TO THE XCARE.NET SOFTWARE OR THE SERVICES PROVIDED
HEREUNDER OR THE RESULTS TO BE OBTAINED FROM USE OF THE XCARE.NET SOFTWARE.
EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH ABOVE, THE XCARE.NET SOFTWARE IS
USED AND THE SERVICES ARE PROVIDED ON AN "AS-IS" BASIS WITHOUT WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
INTERNET OR USE OF INFORMATION IN CONNECTION WITH THE SOFTWARE.
6. INTELLECTUAL PROPERTY INDEMNIFICATION
6.1. Xcare.net and Client (language shall apply to client wherever
Xcare.net appears in section 6).
6.1.1. Indemnification. Xcare.net, at its own cost and expense,
shall defend Client and its officers and directors, against a claim that the
Xcare.net Software infringes a third-party. United States copyright or trade
secret, and shall pay any settlements entered into or damages awarded against
Client, or its officers and directors. to the extent related to such claim,
provided that (i) Client notifies Xcare.net promptly in writing Of the claim;
(ii) Xcare.net has the sole control of the defense and all related settlement
negotiations; and (iii) Client provides Xcare.net with all reasonably necessary
assistance, information, and authority to perform the foregoing, at Xcare.net's
expense.
6.1.2. Xcare.net shall have no liability for any claim of
infringement based on (i) use by Client of other than the current update of the
Xcare.net Software if the infringement would have been avoided by uses of the
current update; (ii) modifications, adaptations or changes to the Xcare.net
Software not made by Xcare.net: (iii) the combination or use of the materials
furnished hereunder with materials not furnished by Xcare.net if such
infringement would have been avoided by use of the Xcare.net materials alone; or
(iv) use or incorporation of Content or Modified Content. In the event the
Xcare.net Software is held to, or Xcare.net believes is likely to be held to,
infringe the intellectual property rights of a third party, Xcare.net shall have
the right at its sole option and expense to (i) substitute or modify the
Xcare.net Software so that it is non-infringing and qualitatively and
functionally equivalent to the Xcare.net Software: (ii) obtain for Client a
license to continue using the Xcare.net Software; or if neither (i) nor (ii) is
commercially reasonable, Xcare.net shall have the right to terminate this
Agreement within 60 days upon written notice to Client and Xcare.net shall make
payment to Client of an amount equal to the fees paid for the Xcare.net Software
pro-rated over a three (3) year period
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commencing on the Effective Date. This Section 6.1 sets forth Client's sole and
exclusive remedy and Xcare net's sole liability for intellectual property
infringement by Xcare.net.
6.2. Client.
6.2.1. Client hereby represents and warrants to Xcare.net that
(i) Client has secured all necessary consents, permissions, clearances,
authorizations and waivers for the use of Content or Modified Content, including
without limitation, all text, pictures, audio, video, logos and copy contained
in all Content or Modified Content; (ii) the use of Content as contemplated
herein shall not infringe the copyright, trademark or other intellectual
property rights of any party, or constitute defamation, invasion of privacy, or
the violation of any right of publicity or any other right of any party; and
(iii) Client has complied and shall comply with all legislation, rules and
regulations regarding Content.
6.2.2. Client shall indemnify and hold harmless Xcare.net, its
directors, officers, parent company and affiliates, from any and all liability,
costs and expenses (including attorney's fees) arising in connection with any
third party claim or action brought against Xcare.net, or any off its directors,
officers, parent company, and affiliates, relating to Content or Modified
Content, provided (i) Xcare.net notifies Client promptly in writing of such
claim, (ii) Client has the sole control of the defense and all related
settlement negotiations, and (iii) Xcare.net provides Client with all reasonably
necessary assistance, information and authority to perform the foregoing at
Client's expense.
7. LIMITATIONS ON LIABILITY
THE MAXIMUM LIABILITY OF XCARE.NET, ITS DIRECTORS, OFFICERS, PARENT
COMPANY, AND, AFFILIATES, TO CLIENT FOR DAMAGES RELATING TO XCARE.NET'S FAILURE
TO PERFORM SERVICES HEREUNDER SHALL BE LIMITED TO AN AMOUNT EQUAL TO THE TOTAL
FEES PAID BY CLIENT TO XCARE.NET WITH RESPECT TO SUCH SERVICES NOTWITHSTANDING
THE FOREGOING, THE MAXIMUM LIABILITY OF XCARE.NET. ITS DIRECTORS, OFFICERS.
PARENT COMPANY, AND AFFILIATES. TO CLIENT FOR DAMAGES FOR ANY AND ALL OTHER
CAUSES WHATSOEVER, AND CLIENT'S MAXIMUM REMEDY, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE. SHALL BE LIMITED TO AN AMOUNT
EQUAL TO THE TOTAL FEES PAID BY CLIENT TO XCARE.NET HEREUNDER IN NO EVENT SHALL
XCARE.NET, ITS DIRECTORS, OFFICERS, PARENT COMPANY, AND AFFILIATES, LICENSORS,
AND SUPPLIERS. BE LIABLE FOR ANY LOST DATA OR CONTENT, LOST PROFITS, BUSINESS
INTERRUPTION OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY
OR PUNITIVE DAMAGES ARISING OUT OF OR RELATING TO THE SOFTWARE OR THE SERVICES
PROVIDED HEREUNDER EVEN IF XCARE.NET HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY.
8. TERM AND TERMINATION
8.1. Term. Subject to this Section 8, the term of this Agreement shall
commence on the Effective Date and continue until terminated by either party,
pursuant to Section 8.2 or 8.3 below.
8.2. Termination for Cause. This Agreement may be terminated by either
party in the event of (i) any material default in, or material breach of, any of
the terms and conditions of this Agreement by the other party. which default
continues in effect after the defaulting party has bran provided written notice
of default and sixty (60) days to cure such default: (ii) the commencement of a
a voluntary case or other proceeding seeking
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liquidation, reorganization or other relief with respect to either party of its
debts under any bankruptcy, insolvency, or other similar law now or hereafter in
effect, that authorizes the reorganization or liquidation of such party or its
debt or the appointment of a trustee, receiver. liquidator, custodian or other
similar official of it or any substantial part of its property (iii) either
party's consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it; or (iv) either party's making a general assignment for the benefit
of creditors or either party's becoming insolvent: or either party taking any
corporate action to authorize any of the foregoing.
8.3. Termination for Convenience. This Agreement may be terminated by
either party upon ninety (90) days advance written notice.
8.4. Effect of Termination. If this Agreement is terminated by Client
under Section 8.2, while Xcare.net is performing any Development Services for
Client hereunder, Client shall immediately pay Xcare.net the total fees
associated with such incomplete project, as well as all mounts due and owing for
any projects already completed by Xcare.net hereunder or for any third-party
products or services purchased by Xcare.net in Client's behalf. If the Agreement
is terminated under Section 8.3 while Xcare.net is performing any Development
Services or other services for Client hereunder, Client shall pay Xcare.net all
fees due and owing up to the effective date of such termination. The foregoing
shall be without limitation to Xcare.net's fights and remedies under this
Agreement.
8.5. Survival. Sections 3, 5, 7, 8, 9 and 10 shall surmise any
termination or expiration of this Agreement; provided. however, that if this
Agreement is terminated by Xcare.net pursuant to Section 8.2 above.
then Section 3.2 shall not survive.
9. CONFIDENTIALITY
9.1. Confidential Information. Each party acknowledges that, in
connection with the performance of this Agreement, it may receive certain
confidential or proprietary technical and business information and materials of
the other party ("Confidential Information").
9.2. Confidentially. Each party hereby agrees: (i) to hold and maintain
in strict confidence all Confidential Information of the other party and not to
disclose it to any third party; and (ii) not to use any Confidential Information
of the other party except as permitted by this Agreement or as may be necessary
to perform its obligations under this Agreement. Each party will use at least
the same degree of care to protect the other party's Confidential Information as
it uses to protect its own Confidential Information of like importance, and in
no event shall such degree of care be less than reasonable care.
9.3. Exceptions. Notwithstanding the foregoing, the parties agree that
Confidential Information will not include any information that: (i) is or
becomes generally known or is or becomes part of the public domain through no
fault of the other party, (ii) the first party authorizes to be disclosed: (iii)
is rightfully received by the other party from a third party without restriction
on disclosure and without breach of this Agreement; or (iv) is known to the
other party on the Effective Date from a source other than the first party, and
not subject to a confidentially obligation.
9.4. Injunctive Relief. Each party acknowledges that any breach of the
provisions of this Section 9 may cause irreparable harm and significant injury
to an extent that may be extremely difficult to ascertain. Accordingly, each
party agrees that the other party will have, in addition to any other rights or
remedies available to it at law or in equity, the right to seek injunctive
relief to enjoin any breach or violation of this Section 9.
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10. GENERAL PROVISIONS
10. l. Force Majeure. In the event that either party is unable to
perform any of its obligations under this Agreement or to enjoy any of its
benefits because of an event beyond the control of the affected party including,
but not limited to, natural disaster, acts of God, actions or decrees of
governmental bodies or failure of communication lines (a "Force Majeure Event"),
the party who has been so affected shall promptly give written notice to the
other party and shall use its best efforts to resume performance. Upon receipt
of such notice. all obligations under this Agreement shall be immediately
suspended for the duration of such Force Majeure Event.
10.2. Notice. All notices, demands, requests or other communications
required or permitted under this Agreement will be deemed given when (i)
delivered personally; (ii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iii) one (1) day
after deposit with a commercial overnight carrier, with written verification of
receipt.
10.3. Waiver. Waiver of any breach or failure to enforce any term of
this Agreement shall not be deemed a waiver of any breach or right to enforce
which may thereafter occur. No waiver shall be valid against any party hereto
unless made in writing and signed by the party against whom enforcement of such
waiver is sought and then only to the extent expressly specified therein.
10.4. Severability. In the event any one or more of the provisions of
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be unimpaired
and the parties will substitute a new enforceable provision of like economic
intent and effect.
10.5. Governing Law This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes thereto. shall be governed by and
construed in accordance with the laws of the State of [Colorado] without
reference to conflict of law principles.
10.6 Assignment. Neither party shall have the right to assign this
Agreement without the prior written consent of the other party; provided, that
either party shall have the right to assign this Agreement to any person or
entity that acquires or succeeds to all or substantially all of such party's
business or assets upon written notice to the other party.
10.7. Publicity Within a time frame mutually agreed upon by the pomes,
the parties shall mutually agree on a joint press release announcing the
existence of this Agreement. Neither party, will use the other party's name.
domain name, logo, trademark or service mark in advertising or publicly without
obtaining the other party's prior written consent: provided. however, that
Xcare.net shall have the nonexclusive right and license to use Client's name and
Client Web Site name, including the URL (Uniform Resource Locator) thereto. as a
Client reference, and as part of Xcare.net's client portfolio. Xcare.net shall
also have the right to display its name and logo, as well as a link to the
Xcare.net site. on the Client Web Site(s), and to receive credit as the
developer of the Client Web Site(s), (collective(v, the "Credit"). Such Credit
shall appear on the "home page" of the Client Web Site(s) in a position that
provides reasonable and appropriate visibility to Xcare.net in light of industry
standards and Client's requirements.
10.8. Additional Actions and Documents. Each of the parties hereto
hereby agrees to take or cause to be taken such further actions, to execute,
deliver and file or cause to be executed, delivered and filed such further
documents, and will obtain such consents, as may be necessary or as may be
reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
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10.9 Heading. Section headings contained in this Agreement are
inserted for convenience or reference only, shall not be deemed to be a part of
this Agreement for any other purpose, and shall not in any way define or affect
the meaning, construction or scope of any of the provisions hereof.
10.10. Execution in Counterparts. This Agreement maybe executed in
several counterparts, each of which shall be deemed to be an original, and all
of which. when taken together, shall constitute one and the same instrument.
10.11 Independent Contractors. The relationship of the parties
hereunder shall be that of independent contractors. Nothing herein shall be
construed to constitute a partnership between or joint venture of the parties,
nor shall either party be deemed the agent of the other or have the right to
bind the other in any way without the prior written consent of the other.
10.12. Jurisdiction. All disputes arising out of or relating to this
Agreement shall be submitted to the non-exclusive jurisdiction of the state and
Federal courts encompassing Denver, Colorado, and each party irrevocably
consents to such personal jurisdiction and waives all objections thereto.
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SCHEDULE 1
This Schedule describes Services to be provided by Xcare.net to Client under
this Professional Services Agreement dated October 15, 1999.
Description of Work: Development of ELIGIBILITY STATUS, CLAIMS STATUS,
ID CARD ORDER (with change/update member information
message) and Benefit Search (SPDs). Transaction will be
used by Providers, Members and Employer Groups.
Transactions will present data dynamically for those three
segments.
Functional Specifications: Integration with homegrown MCIS running on
AS/400 using DB2. Other functional
specifications as outlined Transactions
linked to client's web-site.
Deliverables: Deliverables include transactions listed above with an
anticipated go-live date of [ * ]. Customized
development of "look and feet" of those transactions leveraging
the work being done on the client's web-site and maintaining
creative flow from site to transactions. Development must also
adhere to all security protocols as required by HCFA and HIPAA.
Transactions will reside on the client's web-site currently under
development and expected to be completed by [ * ].
Acceptance: Upon completion of testing and for a period of five consecutive
days in a live environment running on the Internet.
Fee Schedule: The transactions listed above can be priced as a bundled service
of $[ * ] Per Employee Per Month or as separate transactions
with a rate of $[ * ] per transaction. A minimum usage fee of
$[ * ] per month for the first six (6) months of the contract
duration of two years will apply. At the conclusion of six
months, Client shall pay the $[ * ] per month or monthly
transaction volume times $[ * ] each month, whichever is
greater, for the remaining 18 months of the contract.
Development costs are $[ * ] based on revised estimates from
the original proposal. A fee. of $[ * ] will be paid to
Xcare.net upon contract signing. The remaining $[ * ] will be
due. along with the initial $[ * ] monthly fee upon Acceptance.
Xcare.net and Client Contacts: Client- Tom Partlow, Project Lead
Others to be named
XCare.net- Barry Russell. Account
Manager Sy Nayman, Creative
Director Odell Isaac,
Senior Developer
* Confidential Treatment Requested
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XCARE.NET "CLIENT"
By /s/ LORINE SWEENEY By
---------------------------- --------------------------------
LORINE SWEENEY
- ------------------------------ --------------------------------
Printed Name Printed Name
- ------------------------------ --------------------------------
Title Title
11/10/99
- ------------------------------ --------------------------------
Date Date
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ATTACHMENT A
GRANT OF SIX (6) MONTH EXCLUSIVE LICENSE
Xcare.net agrees to issue Client a six (6) month exclusive license, to begin
upon contract signing, with the following provisions:
1. Xcare.net agrees that for a period of six (6) months, beginning
on the contract signing date. November 10, 1999 and ending on or
around May 10, 2000. Xcare.net will not contract with the
following companies/organizations as provided by the Client:
- HealthComp Inc.
- Stephan Chelbay
- Benefit Administrators Corp. (BAC)
- Glacier Administration
- Managed Care Administrators
- Allied Administrators
- HRM Claims Mgmt
2. Client may not disclose terms of this exclusive contract
provision to any party without the consent and written approval
of Xcare.net.
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EXHIBIT 10.31
HOSTING SERVICES AGREEMENT
This Hosting Services Agreement (the "Agreement") is entered into as of
November 10, 1999 (the "Effective Date") by and between Xcare.net, a Delaware
corporation with offices at 6400 S. Fiddler's Grin Circle, Englewood, CO 80111,
("Xcare.net"), and Delta Heath Systems, with offices at Stockton, CA
("Client").
This Agreement includes the following schedules, which are incorporated
herein by this reference:
Schedule 1 Hosting Services Description and Pricing
Schedule 2 Managed Services Option
Any notice required or permitted under this Agreement will be in writing
and delivered to the address set forth below, or to such other notice address as
the other party has provided by written notice.
THIS AGREEMENT, INCLUDING THE SCHEDULES LISTED ABOVE, CONSTITUTES THE
COMPLETE AND EXCLUSIVE UNDERSTANDING OF THE PARTIES WITH REFERENCE TO THE
SUBJECT MATTER HEREOF, AND SUPERSEDES ALL PRIOR SALES PROPOSALS, NEGOTIATIONS,
AGREEMENTS AND OTHER REPRESENTATIONS OR COMMUNICATIONS, WHETHER ORAL OR WRITTEN.
IF THERE IS ANY CONFLICT BETWEEN THE TERMS AND CONDITIONS OF CLIENT'S PURCHASE
ORDER (OR ANY OTHER PURCHASE OR SALES DOCUMENT) AND THE TERMS AND CONDITIONS OF
THIS AGREEMENT, THIS AGREEMENT SHALL CONTROL. THIS AGREEMENT MAY BE MODIFIED,
REPLACED OR RESCINDED ONLY IN WRITING, AND SIGNED BY A DULY AUTHORIZED
REPRESENTATIVE OF EACH PARTY.
AGREED
XCARE.NET CLIENT DHS
------------------------------
- ------------------------------ ------------------------------------
- ------------------------------ ------------------------------------
- ------------------------------ ------------------------------------
By /s/ LORINE SWEENEY By /s/ THOMAS R. PARTLOW 11/10/99
---------------------------- --------------------------------
Lorine Sweeney, Pres. and CEO Thomas R. Partlow, President
- ------------------------------ --------------------------------
(PRINTED NAME AND TITLE) (PRINTED NAME AND TITLE)
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XCARE.NET HOSTING SERVICES AGREEMENT
1 Xcare.net Obligations
1.1 Xcare.net agrees to provide to Client the Services as described in
Schedules attached hereto pursuant to orders placed by Client and accepted by
Xcare.net.
1.2 The initial service period for all orders for Services ("Initial Service
Period") shall commence upon activation of the Services and remain in effect for
a period of two years. If Client and Xcare.net fail to agree on the terms to
extend the Services past the Initial Service Period the applicable Schedule for
Services shall continue in effect on a month-to-month basis, until terminated by
either Client or Xcare.net as provided in Section .4 below.
1.3 The fees for Services are specified in Schedule I of this agreement.
Xcare.net will issue invoices ("Invoices") to Client for installation fees for
Client's Services and other applicable nonrecurring and recurring fees covering
the initial one month period. On a monthly basis, Xcare.net will determine
Client's actual usage. After the initial one month period. Xcare.net will issue
Invoices on a monthly basis to Client as specified in attached schedules.
2 Client's Obligations
2.1 Client shall pay Xcare.net the amount specified in the Invoices, in
U.S. Dollars, per the payment terms set forth in such invoices. Late payments
shall bear interest at one and one-half percent (1.5%) per month or the maximum
rate permitted by law whichever is less.
2.2 Client is solely responsible for all updates to Content (as defined
below) on Server ("Server") as defined in the applicable Schedule). Client shall
update Content on the Server by means of the Internet and a Xcare.net provided
secure account.
2.3 Xcare.net shall not obtain any right, title to and/or interest in
content, including but not Limited to text, multimedia images (graphics, audio
and video), software and other data (collectively "Content") provided by Client
and installed by Xcare.net or Client on the Server: however, Xcare.net shall
retain title to and all rights in all other intellectual property including but
not limited to any know-how related to Xcare.net-provided products or services
such as the hardware, software or any other server technology.
2.4 Client acknowledges and agrees that use of the Services is subject to
Client's compliance with the terms defined in Xcare.net's Prohibited Uses of
Products and Services Policy, attached hereto as Exhibit A, as amended from time
to time. Violations of any of the terms of such policy shall constitute a breach
hereunder and may result in termination of this Agreement by Xcare.net.
2.5 Client is solely responsible for Content, including any subsequent
changes or updates made or authorized by Client. Client warrants and represents
that Content: (i) does not infringe or violate the rights of any third party
including but not limited to, intellectual property rights (including but not
limited to patents, copyrights, trademarks, trade secrets and rights of
publicity); (ii) is not defamatory or obscene; and (iii) does not violate any
other applicable law. Xcare.net reserves the right (but shall have no
obligation) to delete any material installed on a Server in a Xcare.net facility
or to disconnect Internet access of a Server which contains Content which
Xcare.net believes in good faith breaches any of these warranties. Any breach of
these warranties by Client may result in termination of the Services.
2.6. Client acknowledges and agrees that Client assumes all risk related to
the processing of transactions related to electronic commerce. Xcare.net
reserves the right to discontinue the Services to Client if either Xcare.net
believes in good faith that Client has violated the foregoing, or that Client's
use of the Services poses a threat to the internal
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security of the Xcare.net network, the Web hosting facility, other customers, or
the Server.
2.7 Upon termination of either this Agreement or any applicable Schedule for
Services. User must relinquish use of the Internet Protocol Addresses ("IP
Addresses") or address blocks assigned to it in connection with the Services.
2.8 All equipment provided by Xcare.net in connection with this Agreement
shall remain the property of Xcare.net.
3 Warranties and Indemnity
3.1 Xcare.net makes no warranties of any kind with respect to Services and
products provided under this Agreement. XCARE.NET DISCLAIMS ALL WARRANTIES,
EXPRESS AND IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE. In any instance involving performance or nonperformance of
Services or products provided hereunder. Client's sole remedy shall be (a) in
the case of Services, refund of a pro rata portion of the price paid for
Services which were not provided, or (b) in the case of products, repair or
return of the defective product to Xcare.net for refund at the option of
Xcare.net.
3.1.1 Except as otherwise may be provided in this Agreement, credit for
lost Services will be issued only for periods, calculated in fifteen
(15) minutes increments, in excess of eight (8) hours in a calendar
month. Lost Services or "Downtime" is deemed to have occurred only if
service becomes unusable by Client as a result of failure of Xcare.net
facilities, equipment or personnel used to provide the Services, and
only where the interruption is not the result of (a) negligence or other
conduct of Client or its agents, including a failure or malfunction
resulting from applications or services provided by Client or its
agents. (b) failure or malfunction of any equipment or services not
provided by Xcare.net. (c) circumstances beyond the control of
Xcare.net, or (d) interruption due to scheduled maintenance, alteration,
or implementation. All claims must be made within 60 days of the date of
such lost Services.
3.2 IN NO EVENT WILL XCARE.NET, IT'S SUBSIDIARIES OR ITS OR THEIR AGENTS, BE
LIABLE TO CLIENT FOR ANY DAMAGES, INCLUDING LOST PROFITS, LOSS OF DATA, OR OTHER
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY OTHER DAMAGES,
ARISING OUT OF OR IN CONNECTION WITH THE PURCHASE, USE OR PERFORMANCE OF THE
SERVICES. Xcare.net will not be liable for any damages Client may suffer arising
out of Client's use, or inability to use, the Services or related products. In
no event shall Xcare.net be liable for unauthorized access to Client's
transmission facilities or Client premise equipment or for unauthorized access
to or alteration, theft or destruction of Client's data files, programs,
procedure or information through accident, fraudulent means or devices, or any
other method, except where such unauthorized access occurs through Xcare.net
facilities or premises.
3.3 Xcare.net's liability for damages to Client for any cause whatsoever,
regardless of form of action, including negligence, shall not exceed an amount
equal to the price of products and Services purchased by Client during the
twelve month period preceding the event which caused the damages or injury:
provided, however, that this limitation shall not apply to damages to Client for
personal injuries or destruction of tangible personal property proximately
caused by the negligence of Xcare.net.
3.4 Xcare.net will indemnify and hold Client harmless against any claim or
demand by any third party that any hardware or software provided to Client
hereunder, infringes any United States copyright or trade secret. Except for
damages incurred by Xcare.net caused by (a) proprietary rights infringement
claims as provided for above, or (b) damages for personal injuries or
destruction of tangible property proximately caused by Xcare.net's gross
negligence or willful misconduct. Client agrees to indemnify and hold Xcare.net
harmless against any claim or demand by any third party due to or arising out of
the use by Client of Services and related products provided hereunder.
3.5 Client will indemnify and hold Xcare.net harmless against any claim or
demand by any third party brought as a result of Client's violation of the
Xcare.net Prohibited Uses Policy or and third party claims Content provided by
Client or by Xcare.net at Client's request.
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4 Termination
4.1 Either party may terminate this Agreement by providing the other party
with at least sixty (60) days notice.
4.2 Client may cancel or terminate this Agreement in the event of three (3)
or more "service interruptions" in excess of four (4) hours duration during any
thirty (30) day period, during the term of this Agreement. A "service
interruption" is deemed to have occurred only if service becomes unusable by
Client as a result of failure of Xcare.net facilities, equipment, or personnel
used to provide the Services, and only where the interruption is not the result
of (a) negligence or other conduct of Client or its agents, including a failure
or malfunction resulting from applications or services provided by Client or its
agents, (b) failure or malfunction of any equipment or services not provided by
Xcare.net. (c) circumstances beyond the control of Xcare.net. or (d)
interruption due to scheduled maintenance, alteration, or implementation.
4.3 This Agreement may be terminated by either party in the event of (i) any
material breach of any of the terms and conditions of this Agreement by the
other party, which default continues in effect after the defaulting party has
been provided with written notice of default and thirty (30) days to cure such
default: (ii) the commencement of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to either party of its
debts under any bankruptcy, insolvency, or other similar law now or hereafter in
effect, that authorizes the reorganization or liquidation of such party or its
debt or the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property: (iii) either
party's consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it: or (iv) either party's making a general assignment for the benefit
of creditors: or either party's becoming insolvent: or either party taking any
corporate action to authorize any of the foregoing.
4.4 In the event of termination by Client for any reason other than
expiration of a service order, or breach as defined in subsection 4.3. or a
service interruption as defined in subsection 4.2. Client agrees to immediately
pay Xcare.net as a cancellation fee all monthly recurring fees specified in the
quote provided by Xcare.net for such service order for the balance of the then
current term. Upon termination of this Agreement, Client must relinquish use of
the Internet Protocol Addresses ("IP Addresses") or address blocks assigned to
it in connection with the Services.
5 General
5.1 Force Majeure. In the event that either party is unable to perform any
of-its obligations under this Agreement or to enjoy any of its benefits because
of any event beyond the control of the affected party including but not limited
to natural disaster, acts of God, actions or decrees of governmental bodies or
failure of communication lines (a "Force Majeure Event"), the party who has been
so affected shall promptly give written notice to the other party and shall use
its best efforts to resume performance. Upon receipt of such notice, all
obligations under this Agreement shall be immediately suspended for the duration
of such Force Majeure Event.
5.2 Assignment Neither party shall have the right to assign this Agreement
without the prior written consent of the other party: provided, that either
party shall have the right to assign this Agreement to any person or entity that
acquires or succeeds to all or substantially all of such party's business or
assets upon written notice to the other party.
5.3 Severability In the event any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or unenforceable,
the remaining provisions of this Agreement shall be unimpaired and the parties
will substitute a new enforceable provision of like economic intent and effect.
5.4 Waiver Waiver of any breach or failure to enforce any term of this
Agreement shall not be deemed a waiver of any breach or right to enforce which
may thereafter occur. No waiver shall be valid against any party hereto unless
made in writing and signed by the party against whom enforcement of such waiver
is sought and then only to the extent expressly specified therein.
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5.5 Notices All notices, demands, requests or other communications required
or permitted under this Agreement will be deemed given when (i) delivered
personally: (ii) five (5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid: or (iii) one (1) day after
deposit with a commercial overnight carrier, with written verification of
receipt.
5.6 Governing Law This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes thereto, shall be governed by and construed
in accordance with the laws of the State of [Colorado] without reference to
conflict of law principles.
5.7 Jurisdiction All disputes arising out of or relating to this Agreement
shall be submitted to the non-exclusive jurisdiction of the state and federal
courts encompassing Denver, Colorado, and each party irrevocably consents to
such personal jurisdiction and waives all objections thereto.
5.8 Headings Section headings contained in this Agreement are inserted for
convenience or reference only, shall not be deemed to be a part of this
Agreement for any other purpose, and shall not in any way define or affect the
meaning construction or scope of any of the provisions hereof.
5.9 Independent Contractors The relationship of the parties hereunder shall
be that of independent contractors Nothing herein shall be construed to
constitute a partnership between or joint venture of the parties, nor shall
either party be deemed the agent of the other or have the right to bind the
other in any way without the prior written consent of the other.
5.10 Execution in Counterparts This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
when taken together, shall constitute one and the same instrument.
5.11 Publicity Client understands that Internet use, and related products and
Services provided under this Agreement, may require registrations and related
administrative reports which are public in nature. In addition Client agrees
Xcare.net may include its name and a description of the provided services as a
reference or in client portfolios.
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EXHIBIT A
XCARE.NET PROHIBITED USES POLICY FOR
XCARE.NET HOSTING SERVICES
The following actions are defined by Xcare.net as "system abuse" and are
strictly prohibited under the Xcare.net Hosting Services Agreement. The examples
named in this list are not exhaustive and are provided solely for guidance to
Clients using the Xcare.net Hosting Services. If any Client is unsure of whether
a contemplated use or action is permitted, it is Client's responsibility to
determine the permitted use by contacting Xcare.net via electronic mail at
[email protected]. The following activities are expressly prohibited and could
result in termination of a Client's Xcare.net Hosting Services Agreement.
General
- Resale of Xcare.net's products and services, unless specifically
permitted and documented in a separate written agreement or the initial
Client contract.
- Using the facilities and capabilities of Xcare.net or its services to
conduct any illegal activity or other activity that infringes the
rights of others.
- Deceptive on-line marketing practices. The United States Federal Trade
Commission has issued informative guidelines for proper on-line
marketing schemes. For more information about the FTC gradelines review
the Deception Policy Statement from the FTC.
- Violations of intellectual property -- as legally protected by
copyrights and licenses. This includes, but is not limited to, the
installation or distribution of illegal, "pirated", or other software
products that are not appropriately licensed by Client.
- Violations of privacy.
System and Network
- Introduction of malicious programs into the network or Server (e.g.
viruses, worms, Trojan horses, etc.).
- Attempted or successful security breaches or disruption of Internet
communication. Security breaches include, but are not limited to,
accessing data of which Client is not an intended recipient or logging
into a Server or account that Client is not expressly authorized
to access.
- Client may not execute any form of network monitoring (e.g. packet
sniffer) which will intercept data not intended for Client Server.
- Attempts to circumvent Client authentication or security of any host,
network, or account ("cracking").
- Attempts to interfere with or deny service to any user or any host
(e.g. Denial of Service Attacks).
- Use of any program/script/command, or sending messages of any kind,
designed to interfere with a third party Clients terminal session, via
any means, locally or via the Internet.
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BILLING
- Furnishing false or incorrect data on the signup form hosting
agreement, or online hosting order application.
- Attempts to circumvent or alter the processes or procedures to measure
time, bandwidth utilization, or other methods to document "use" of
Xcare.net's products and services.
MAIL
- Sending unsolicited mail messages, including the sending of "junk mail"
or other advertising material to individuals who did not specifically
request such material (e.g. "spamming").
- Harassment, whether through language, frequency, or size of messages.
- Forging of mail header information to a third party.
- Using the Xcare.net or Client account to collect replies to messages
sent from another provider, which violate these rules or those of the
other provider.
- Creating or forwarding "chain letters" or other "pyramid schemes" of
any type.
USENET NEWSGROUPS
- Posting the same or similar message to large numbers of Usenet
newsgroups.
- Posting chain letters of any type.
- Posting encoded binary files to newsgroups not specifically named for
that purpose.
- Cancellation or superseding of posted messages other than your own.
- Forging of header information.
- Solicitations of mail for any other e-mail address other than that of
the poster's account or service, with intent to harass or to collect
replies.
IRC (INTERNET RELAY CHAT)
- Use of IRC scripts or programs that will interfere with or deny service
to other clients on any Server or host.
- Running or attempting to run any IRC robot or Server on equipment other
than the equipment provided by Xcare.net to the Client.
Administrator Accounts
The following section details Xcare.net's policy regarding administrator
privileges with the products and services offered by Xcare.net's Hosting
Services Group Clients utilizing Xcare.net Hosting Services products and
services, whether the Server is provided by Xcare.net or is provided by the
Client are subject to the following list of restrictions. The items in this list
are not exhaustive and are provided solely for guidance to Clients using the
Xcare.net Hosting Services. If any Client is unsure of whether a contemplated
use or action is permitted it is Client's responsibility to determine the
permitted use by contacting Xcare.net via electronic mail at [email protected].
- Client may not change the IP address or name of the Server.
- Client may not provide or share administrator privileges with
individuals who have not reviewed and agreed to the terms of the
Xcare.net Hosting Services Agreement and the Xcare.net Prohibited uses
Policy for Xcare.net Hosting Services.
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<PAGE> 8
SCHEDULE 1
HOSTING SERVICES DESCRIPTION AND PRICE SCHEDULE
In accordance with this agreement, Xcare.net will provide the following
Services, resources and service features
<TABLE>
<S> <C> <C>
Server Configuration
--------------------
Hardware
Sun Solaris
Xcare.net Hosting Provided Software
DATA CENTER
-----------
- Xcare.net eCommerce Operations Center: associated with tools,
software, database and reporting.
BANDWIDTH & NETWORKING
----------------------
- T1 bandwidth with dedicated frame relay.
BACKUP
------
- Provided redundancy through MCI/UUNet
SERVICES
--------
Application maintenance (install upgrades)
Application support (help desk)
Technical support (remote, on-site additional)
Account management
PRICING SETUP FEE MONTHLY FEE
------- --------- -----------
Total pricing as configured above due upon [ * ] [ * ]
Acceptance and monthly thereafter for the
duration of the contract:
This represents 15% of the current Monthly
Transaction Fee and will be adjusted accordingly.
</TABLE>
* Confidential Treatment Requested
8
<PAGE> 9
SCHEDULE 2
MANAGED SERVICES OPTION
As the Managed Services portion of this Hosting agreement. Xcare.net will
provide server administration and management services that include but are not
necessarily limited to:
- Performance/resource monitoring and proactive problem resolution
- Daily systems administration tasks
- Applying operating system enhancements and security patches
- Adding user accounts
- Configuring DSN's and database connections
- Managing DNS services
- Adding/configuring FTP services
- Installing security certification keys
- Minor software revision changes & application patches
- Conducting automatic log rotation
- Checking disk space
- Facilitating restore requests
The above services are limited to a maximum of thirty (30) hours of proactive
administration and thirty (30) hours of Client requested administration per
month. In addition, Xcare.net Hosting will provide 24x7 1st level response for
recovering application related problems that have caused a complete outage to
the Web Services. However, these issues may need to be escalated to the
appropriate Application Development contact provided by the client for
resolution.
9
<PAGE> 1
EXHIBIT 10.32
OFFICE LEASE AGREEMENT
1. LEASED PREMISES AND TERM: This Lease Agreement, made and entered into by and
between Mountain States Mutual Casualty Company, hereinafter referred to as
"Landlord", does hereby demise and lease unto Xcare.net, hereinafter referred to
as "Tenant", the premises for the purposes of this Lease, deemed to be 5,240
rentable square feet of the Mountain States Insurance Group Building, Suite #410
located at 5051 Journal Center Boulevard NE, Albuquerque, New Mexico 87109 for
the term of Five (5) Years and Two (2) Weeks beginning on the 15th day of
January, 2000 excepting delays due to strikes, acts of God, failure in delivery
of materials and events beyond Landlord control, and ending on the 31st day of
January, 2005, unless the term hereof shall be sooner terminated as hereinafter
provided.
2. RENT AND SECURITY DEPOSIT:
(a) In consideration of said Lease, the Tenant, without prior written
notice or demand, agrees to pay to the Landlord as minimum rent for said
premises monthly payments as follows:
<TABLE>
<CAPTION>
Months Rate /RSF Monthly
<S> <C> <C>
1-12 $20.00 $8,733.33
13-24 $20.50 $8,951.67
25-36 $21.00 $9,170.00
37-48 $21.50 $9,388.33
49-60 $22.00 $9,606.67
</TABLE>
Rent Concession - first two weeks free.
(b) All of which said payments shall be due and payable in advance on
the first day of each and every calendar month at the office of the Landlord, or
such other place as the Landlord from time to time, in writing, may designate.
With the execution of this Lease, Tenant has deposited with the Landlord the sum
of $18,340.00 of which $8,733.33 shall be applied as rent from February 1, 2000
through February 29, 2000 and the balance of $9,606.67 shall be held by Landlord
as a Security Deposit.
(c) Security Deposit is defined as monies pledged as security for the
payment of the rent and other charges herein agreed to be paid, and for the
faithful performance of all the terms, conditions, and covenants of this Lease.
If at any time during the term of this Lease Tenant shall be in default in the
performance of any provision of the Lease, and shall fail to remedy or cure said
default after having received fifteen (15) days written notice of same, then,
the Landlord may, at its option, apply monies held as partial or full
satisfaction of said default or declare said deposit to be forfeited. Upon full
and satisfactory completion of this Lease, said deposit shall be refunded to the
Tenant without interest.
(d) No dispute between Landlord and Tenant as to Landlord or Tenant
obligations under this Lease shall excuse the payment of rent or the faithful
performance of the other conditions of said Lease by either party.
3. POSSESSION:
(a) If Landlord, for any reason whatsoever, cannot deliver possession of
the said premises to the Tenant at the commencement of the term hereof, this
Lease shall not be void or voidable, nor shall Landlord be liable to the Tenant
for any loss or damage resulting therefrom, but in that event the term of the
Lease shall
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<PAGE> 2
be amended to commence on the date when Landlord can deliver possession and the
expiration date shall be extended accordingly. If permission is given to Tenant
to occupy the premises prior to the commencement date, such occupancy shall be
subject to all provisions of this Lease, and if the term hereof commences on a
later date than the commencement date pursuant to the provision set forth above,
the Parties hereto agree to execute and acknowledge a written statement setting
forth the actual date of commencement of this Lease and the termination date.
This Lease shall be in full force and effect even though either Party may fail
or refuse to execute such Statement.
(b) The taking of possession of said premises by the Tenant shall be
conclusive evidence as against the Tenant that said premises were in good and
satisfactory condition when possession of same was taken.
4. LATE CHARGE: Tenant acknowledges that late payment by Tenant to Landlord of
rent or other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which would be extremely
difficult and impractical to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges that may be imposed on
Landlord by the terms of any mortgage or trust deed covering the premises.
Therefore, in the event Tenant should fail to pay any installment of rent or any
sum due hereunder after such amount is due, Tenant shall, upon being billed, pay
to Landlord as additional rent, a late charge equal to 10% of each such
installment or other sum or $25.00 per month, whichever is greater. Said late
charge shall be assessed on the 15th day of each month. A $20.00 charge will be
paid by the Tenant to the Landlord for each returned check.
5. TENANT IMPROVEMENT WORK:
(a) Tenant agrees to devote the necessary time in consultation, or by
plan, with Landlord as may be necessary, for it to complete the Plans in
accordance with the Tenant's requirements for the Building Standard Work. The
Tenant further agrees to provide the Landlord's architect, within fifteen (15)
days of the execution of this Lease, with written approval of the final Plans
for the Tenant's premises, including but not necessarily limited to the below
listed items:
(1) Any requirements which the Tenant desires and which are in excess of
the Landlord's Building Standard Work.
(2) Special loading, such as location of file cabinets or special
equipment.
(3) Openings in the walls or floors.
(4) Special electrical, air conditioning or plumbing work.
(5) Partitions - location and type, including doors and hardware.
(6) Special cabinet work or other millwork items.
(7) Variations to standard ceiling heights.
(8) Color selection of painted areas.
(9) Selection of floor covering and any special wall covering.
(b) Should the Tenant fail to furnish the Landlord with the above
information, the Landlord may complete the Building Standard Work in a manner
satisfactory to the Landlord.
(c) Landlord agrees to produce the necessary architectural, mechanical
and electrical plans and specifications (herein called the "Plans") to be drawn
by its architect and covering the Building Standard Work which is to be done by
the Landlord. The cost of these plans shall be borne by the Landlord. Tenant
shall pay for non-standard construction and engineering drawings or any
additional costs for drawings occasioned by special installation and Tenant
shall be responsible for the design, function and maintenance of such special
improvements or not installed by
2
<PAGE> 3
Landlord at Tenant's request.
(d) If, upon Tenant's request and submission by Tenant (at Tenant's sole
cost and expense) of the necessary drawings, plans and specifications (which
drawings, plans and specifications are expressly subject to Landlord's written
approval), Landlord may agree to do other work in addition to that work as
specified as Building Standard Work, such other work (herein called "Additional
Work") shall be done at Tenant's sole cost and expense. Prior to commencing any
Additional Work requested by Tenant, Landlord shall submit to Tenant written
estimates of the cost of Additional Work and Tenant shall approve said estimates
in writing within ten (10) business days from the receipt thereof. Landlord
shall not be authorized to proceed thereon until such estimate is mutually
agreeable and approved in writing. Tenant agrees to pay to Landlord in advance
upon being billed therefor the costs of all Additional Work, together with
fifteen percent (15%) of said cost for Landlord's overhead and profit. Tenant
may also use its own fully licensed and bonded contractor, provided it has
Landlord's prior written approval.
(e) Notwithstanding the date provided in said Lease for commencement of
the terms thereof, Tenant's obligation to pay rent thereunder shall not commence
until Landlord shall have substantially completed all Building Standard Work and
Additional Work; provided, however, that Landlord is not delayed in
substantially completing the demised premises as a result of:
(1) Tenant's failure to furnish approval of said Plans as specified
above, or
(2) Tenant's failure to furnish Plans for Additional Work, approve
Landlord' s cost estimates within the time specified above, or
(3) Tenant' s request for materials, finishes or installations other
than Building Standard, or
(4) Tenant's changes in the Building Standard Work or the Plans therefor
or in the drawings, plans and specifications for Additional Work
(notwithstanding Landlord's approval of any such changes), or
(5) The performance by Tenant or any other person, firm or corporation
employed by Tenant, including but not limited to, the completion of
any work done by Tenant or said person, firm or corporation employed
by Tenant.
(f) If the Tenant fails to reasonably cooperate or otherwise comply with
any of the provisions, outlined above, the Landlord may, at its option, commence
the Lease term, after having given the Tenant ten (10) days written notice
thereof.
6. CHARACTER OF OCCUPANCY: The demised premises shall be used only for office
purposes and for such other lawful purposes as may be incidental thereto. Tenant
shall, at its own cost and expense, obtain any and all licenses and permits
necessary for such use. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the demised premises.
Tenants shall promptly comply with all Landlord or government orders and
directives for the correction, prevention, and abatement of nuisances in or
upon, or connected with the demised premises, all at Tenant's sole expense.
Tenant shall not permit the leased premises to be used in any way which would,
in the opinion of the Landlord, be extra hazardous or which would in any way
increase or render void the fire insurance on the leased premises. Tenant agrees
to pay, on demand, costs for any damage or repairs to the premises caused by the
misuse of Tenant, its agents or employees.
7. PRORATION: Whenever the term "pro rata" shall appear in this Lease, it shall
refer to Tenant's gross square footage (5,240) as that figure compares to the
total square footage (66,063) included in any billing for taxes, insurance or
other services being provided for that portion of the leased premises.
3
<PAGE> 4
8. SIGNS, WINDOW COVERINGS: No sign, placard, picture, advertisement, name,
notice, door sign or window covering visible from the exterior of the premises,
or corridor hall, shall be inscribed, painted or affixed by the Tenant on or to
any part of the outside or inside of the building or the premises without the
prior written consent of the Landlord. If the Landlord shall have given such
consent at any time, whether before or after the execution of the Lease, such
consent shall in no way operate as a waiver or release of any of the provisions
of this Lease and shall be deemed to relate only to the particular sign,
placard, picture, advertisement, name, notice, door sign or window covering so
consented to by the Landlord and shall not be construed as dispensing with the
necessity of obtaining the specific written consent of the Landlord with respect
to each and every such sign, placard, picture, advertisement, name, notice door
sign or window covering. All door signs shall be installed by the Landlord, at
the expense of the Tenant.
9. MAINTENANCE, UTILITIES, AND JANITORIAL: The Landlord and Tenant agree that
during the period of this Lease:
(a) Landlord agrees to provide at its cost: water, heat, electricity and
air conditioning to the demised premises, and pay all utilities that may be
provided to said demised premises.
(b) Tenant will not, without the written consent of the Landlord, use
any apparatus or device which will in any way increase the amount of
electricity, gas or water normally supplied for use of the premises as general
office space; nor connect with electric current, except through existing
electrical outlets in the premises. If Tenant shall require water, gas or
electric current in excess of that normally supplied for use of the premises as
general office space, Tenant shall first obtain the written consent the
Landlord. Such consent shall not be unreasonably withheld. Landlord may cause a
water, gas or electric meter to be installed in the premises to measure the
amount of water, gas and electric current consumed for any such other use. The
cost of any meters and of installation, maintenance and repair thereof, shall be
paid for by the Tenant, and Tenant agrees to pay to Landlord promptly upon
demand, the cost incurred for all water, gas and electric current consumed, as
shown by said meters, at the rates charged by the local public
authority/utility. Any additional expense in monitoring the water, gas and
electric current consumed will be paid for by the Tenant.
(c) Landlord and Tenant agree that it is in the best interest of both
Parties to keep the utility expense in the building to a minimum. As a result,
Landlord and Tenant agree that normal utilities will be available to the
Tenant's premises during normal business hours, which shall be from 7:00 A.M. to
7:00 P.M. on normal days. Normal business hours are Monday through Friday each
week with the exception of all National Holidays. It is understood that the
Landlord may elect not to provide electricity, heating or air conditioning to
the premises outside the normal business hours on normal business days, outlined
above. Timed override buttons will be provided for after hours HVAC use. Each
time a button is used, Tenant will be billed at a rate of $35.00 per hour.
(d) Landlord shall provide, at Landlord's expense, five-day a week
janitorial service for the demised premises and common areas. Tenant will pay
the Landlord a reasonable charge for any extra cleaning of the premises required
because of the carelessness or indifference of Tenant, or because of the nature
of Tenant's business, and for any special cleaning done at the request of
Tenant. If the cost to Landlord for cleaning the premises shall be increased due
to the installation in the premises, at Tenant's request, of any materials or
finish other than those which are Building Standard, Tenant shall pay the
Landlord an amount equal to such increase in cost.
(e) Tenant agrees that Landlord shall not be held liable for
4
<PAGE> 5
failure to supply heating, elevator, janitorial or lighting services, when such
failure is not due to gross negligence on its part, it being understood that
Landlord reserves the right to temporarily discontinue services, at such times
as may be necessary by reason of accident, repairs, alterations or improvements,
or whenever, by reason of strikes, lockouts, riots, acts of God, or any other
happening, Landlord is unable to furnish same.
(f) Tenant agrees that if any payment of rent or other charges as herein
provided shall remain unpaid for more then twenty (20) days after the same shall
become due, Landlord may, without notice to Tenant, discontinue furnishing
lighting, heating and janitorial services, until all arrears of rent shall have
been paid and discharged, and that Landlord shall not be liable for damages, and
that such action shall in no way operate to release Tenant from the obligations
hereunder.
(g) Landlord shall pay all expenses involved in maintaining the
equipment, structure, common areas, and landscaping for the building in which
Tenant's demised premises are located.
(h) Tenant shall place or have placed solid pads under all rolling
chairs such as may be used at desks or tables. Any damages caused to carpet by
not having same shall be repaired or replaced at the expense of Tenant.
10. BUILDING OPERATING COSTS: It is further agreed that Tenant shall pay, as
additional rent, its pro rata share of any increase in monthly operating costs,
within thirty (30) days of billing. Building Operating Costs will be determined
by actual operating costs for the calendar year January 1, through December 31,
2000.
(a) Operating costs are defined as any and all expenditures incurred by
the Landlord in connection with the maintenance and operation of the building of
which the premises are a part. These costs may include, but are not limited to,
equipment, landscaping, adjacent walks, parking areas, as well as any charges
for electricity, gas, sewer and water or other utilities furnished to the
building, including any taxes thereon. Other charges may include janitorial
services and supplies, management services, and any additional expenditures
which may be required from time to time in maintaining the operation of a
first-class office building.
(b) Operating costs will be reviewed annually to determine the Tenant's
pro rata share of any accrued obligation for increases, in monthly operating
costs. Landlord will furnish to Tenant a written statement showing, in
reasonable detail, Landlord's operating costs for the months that are being
billed. Tenants having three (3) month's history, or longer, in any six (6)
month billing period, will be billed for that period. Tenants with less than
three (3) month's history, will be carried forward to the next billing period.
In the event that Building Operating Costs decrease, the base costs as
heretofore defined, shall act as minimum Building Operating Costs for the
purposes of any account adjustments. Standard acceptable practices will be
followed by the Landlord and, in the event of any dispute as to any additional
rental due hereunder, Tenant will have the right to inspect Landlord's
accounting records at Landlord's accounting office. Any inspection must be made
within thirty (30) days of receipt of billing.
11. TAXES AND INSURANCE:
(a) Landlord shall pay all real property taxes and insurance upon the
demised premises. Real property taxes and insurance costs for the base year will
be determined by the actual real property taxes and insurance costs incurred by
Landlord in the calendar year January 1, through December 31, 2000 provided,
however, that the base year for real property taxes shall be the first year the
property is assessed for the increased value attributable to Landlord's building
improvements. If said costs increase above the base year, the Tenant shall pay a
pro rata share of the increase.
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<PAGE> 6
The amount to be paid for any increase shall be paid by the Tenant annually,
within thirty (30) days of the billing.
(b) Tenant will be responsible for payment of its personal property tax
and rent tax. As used in the above paragraph, "real property tax" shall mean any
form of assessment (both general and special), levy, penalty or tax (other than
estate or inheritance tax) imposed by any authority having direct or indirect
power to tax any legal or equitable interest of Landlord in the leased premises,
including any tax on rent (other than income tax) in lieu of or in addition to
normal real property taxes or assessments.
12. ALTERATIONS: Tenant shall not make any alterations, additions, or
improvements to the demised premises without the prior written consent of
Landlord. At the termination of this Lease, Tenant shall, if Landlord so elects,
remove all alterations, additions, improvements, and partitions erected by
Tenant and restore the premises to their original conditions, otherwise such
improvements shall be delivered up to Landlord with the premises. All shelves,
bins, equipment and trade fixtures installed by Tenant may be removed by Tenant
at the termination of this Lease if Tenant so elects, and shall be so removed if
required by Landlord. All such removals and restorations, shall be accomplished
in a good workmanlike manner so as not to damage the primary structural
qualities of the building and other improvements situated on the demised
premises.
13. MECHANICS LIENS: Tenant agrees that it will promptly pay for any work done
in or about the demised premises, and will not permit or suffer any mechanics
liens to attach to the demised premises, and shall promptly cause any claim for
such lien to be released, or to secure Landlord to its satisfaction in the event
Tenant desires to contest any such claim.
14. LEASE ASSIGNMENT OR SUBLETTING: Tenant shall not have the right to assign
this Lease or to sublet the whole or any part of the demised premises without
first obtaining prior written consent of Landlord. The Tenant shall not change
the ownership of the business in order to avoid this provision, and will, at the
request of the Landlord, provide whatever documentation is necessary to
establish that the Tenant is in compliance with this provision. If the Landlord,
upon the request of the Tenant allows Tenant to assign or sublet the premises,
then, in the "event of default" as herein defined, Landlord, in addition to any
other remedies herein provided or provided by law, may at its option collect
directly from such assignee or subtenant all rents coming due to Tenant under
such assignment, or sublease and apply such rent against any sums due to it by
Tenant hereunder, and no such obligation shall be construed to constitute a
novation or a release of Tenant from the further performance of its obligations
hereunder. Assignor or Sublessor may not collect rent in excess of the existing
Lease rates and any such sum received by Assignor or Sublessor must be
immediately paid to the Landlord, less any costs Sublessor may have for said
subletting. The Landlord shall also have the right to assign any of its rights
under this Lease.
15. INSURANCE, LIABILITY AND INDEMNITY:
(a) Tenant shall throughout the demised term, at its sole cost and
expense, provide and keep in force with responsible insurance companies
satisfactory to Landlord and to any mortgagee under a mortgage constituting a
lien upon the demised premises, public liability, and property damage insurance.
The liability limits of all said insurance shall be a minimum of $1,000,000
Bodily Injury, $500,000 Property Damage or a combined single limit of
$1,000,000, protecting Landlord and any such mortgagee, as well as Tenant
against liability to any employees or servants of Tenant or to any other person
whomsoever arising out of or in connection
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<PAGE> 7
with Tenant's use of the leased premises or the condition of the leased
premises. Tenant is to furnish Landlord with a Certificate of Liability
Insurance with 30 days after commencement of this Lease, or Landlord may provide
same and charge Tenant on its normal monthly billing.
(b) Landlord shall procure and maintain at all times during the term of
this Lease a policy or policies of insurance covering loss or damage to the
premises (exclusive of Tenant ' s trade fixtures, equipment, and personal
property), providing protection against all perils included within the
classification of "All Risk".
(c) (1) Tenant's Indemnity. Tenant indemnifies, defends, and holds
Landlord harmless from claims:
(i) for personal injury, death, or property damage;
(ii) for incidents occurring in or about the premises or building;
and
(iii) caused by the negligence or willful misconduct of Tenant, its
agents, employees, or invitees.
When the claim is caused by the joint negligence or willful misconduct
of Tenant and Landlord or Tenant and a third party unrelated to Tenant, except
Tenant' s agents, employees, or invitees, Tenant's duty to defend, indemnify,
and hold Landlord harmless shall be in proportion to Tenant's allocable share of
the joint negligence or willful misconduct.
(c) (2)Landlord's Indemnity. Landlord indemnifies, defends, and holds
Tenant harmless from claims:
(i) for personal injury, death, or property damage;
(ii) for incidents occurring in or about the premises or building;
and
(iii) caused by the negligence or willful misconduct of Landlord,
its agents, employees, or invitees.
When the claim is caused by the joint negligence or willful misconduct
of Landlord and Tenant or Landlord and a third party unrelated to Landlord,
except Landlord's agents, employees, or invitees, Landlord's duty to defend,
indemnify, and hold Tenant harmless shall be in proportion to Landlord's
allocable share of the joint negligence or willful misconduct.
(c) (3)Exclusion from indemnities. To the extent, if at all, that
Section 56-7-1 New Mexico Statutes Annotated 1978 applies to any agreement to
indemnify contained herein, such agreement to indemnify shall not extend to
liability, claims, damages, losses or expenses, including attorney's fees,
arising out of:
(i) The preparation or approval of maps, drawings, opinions,
reports, surveys, change orders, designs or specifications by
the indemnitee, or the agents or employees of the indemnitee;
or
(ii) The giving of or the failure to give directions or
instructions by the indemnitee, or the agents or employees of
the indemnitee, where such giving or failure to give
directions or instructions is the primary cause of bodily
injury to persons or damage to property.
(d) All personal property of any kind or description whatsoever in the
demised premises shall be at the Tenant's sole risk, and the Landlord shall not
be held liable for any damage to or loss of such personal property or to the
business of the Tenant.
16. DAMAGE OR DESTRUCTION:
(a) In the event improvements on the premises are damaged by any
casualty which is covered under an insurance policy required to be maintained
pursuant to Paragraph 15, then Landlord may, at Landlord' s option, either (1)
repair such damage as soon as reasonably possible at Landlord's expense, in
which event this Lease shall continue in full force and effect, or (2) give
written notice to Tenant within thirty (30) days after the date of
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<PAGE> 8
occurrence of such damage of Landlord's intention to cancel and terminate this
Lease, as of the date of the occurrence of the damage. In the event Landlord
elects to terminate this Lease, Tenant shall have the right within ten (10) days
after receipt of the required notice to notify Landlord in writing of Tenant's
intention to repair such damage at Tenant's expense, without reimbursement from
Landlord, in which event the Lease shall continue in full force and effect, and
Tenant shall proceed to make such repairs as soon as reasonably possible. If
Tenant does not give such notice within the ten (10) day period, this Lease
shall be cancelled and terminated as of the date of the occurrence of such
damage. If the premises are totally destroyed during the term of this Lease from
any cause whether or not covered by the insurance required under Paragraph 15
(including any destruction required by any authorized public authority) , this
Lease may automatically terminate as of the date of such total destruction, at
the option of the Landlord.
(b) If the premises are partially destroyed or damaged and Landlord or
Tenant make repairs pursuant to this Lease, the rent payable hereunder for the
period during which such damage and repair continues shall be abated in
proportion to the extent which Tenant's use of the premises is impaired. Except
for abatement of rent, if any, Tenant shall have no claim against Landlord for
any damage suffered by reason of such damage, destruction, repair or
restoration.
17. EMINENT DOMAIN: If the leased premises shall be taken by right of eminent
domain, in whole or substantially in part, for public purposes, then this Lease,
at the option of the Landlord, shall forthwith cease and terminate, and the
current rent shall be properly apportioned to the date of such taking and in
such event Landlord shall receive the entire award for the lands and
improvements so taken, and Tenant shall make no claim against Landlord for
compensation in connection with the taking referred to above.
18. SUBORDINATION: This Lease and all of the rights of Tenant hereunder are and
shall be subject and subordinate to any sale and/or lien of any mortgage now or
hereafter placed on the demised premises or any part thereof, and to any and all
renewals, modifications, consolidations, replacements, extensions or
substitutions of said sale and/or mortgage.
19. ATTORNMENT: If the Landlord under the sale or the holder of the mortgage
shall succeed to the rights of the Landlord under this Lease, whether through
possession or foreclosure action or delivery of a new lease or deed, Tenant,
upon the request of such successor Landlord, shall attorn to and recognize such
successor Landlord as Tenant's Landlord under this Lease, and shall promptly
execute and deliver any instrument that such successor Landlord may request to
further evidence such attornment. Tenant hereby irrevocably appoints Landlord or
the successor Landlord the attorney-in-fact of Tenant to execute and deliver
such instrument on behalf of Tenant, should Tenant refuse or fail to do so
promptly after request. Upon such attornment this Lease shall continue in full
force and effect as, or as if it were, a direct lease between the successor
Landlord and Tenant upon all of the terms, conditions and covenants as are set
forth in the Lease.
20. ESTOPPEL CERTIFICATES: Upon the request of either panty, at: any time, and
from time to time, Landlord and Tenant agree to execute and deliver to the
other, within ten (10) business days after such request, a written instrument,
duly executed,
(a) certifying that this Lease has not been modified and is in full
force and effect or if there has been a modification of the Lease, that this
Lease is in full force and effect as modified,
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stating such modifications;
(b) specifying the dates to which the rent and other payments due under
this Lease have been paid;
(c) stating whether or not, to the knowledge of the party executing such
instrument, the other party is in default and, if such party is in default,
stating the nature of the default;
(d) stating the commencement date and the expiration date of the terms
of this Lease; and
(e) stating which options to renew the term have been exercised, if any.
21. HOLDING OVER: Should Tenant, or any of its successors in interest, hold over
the leased premises, or any part thereof, after the expiration 'of the term of
this Lease, unless otherwise agreed in writing, such holding over shall.
constitute and be construed as tenancy from month to month only, at a rental
rate equal to 150% of the monthly base rental paid during the last year.
22. TENANT DEFAULT:
(a) The following events shall be deemed to be events of default by
Tenant under this Lease:
(1) Tenant shall fail to pay any installment of the rent or other
charges hereby reserved and such failure shall continue for a period of
ten (10) business days.
(2) Tenant shall fail to comply with any term, provision or covenant
of the Lease, other than the payment of rent or other charges and shall
not cure such failure within thirty (30) days after written notice
thereof to Tenant, or as otherwise prescribed in this Lease. This time
frame may be extended however, if the nature of said cure is such that
(30) days is not sufficient time to effect such cure due to
circumstances beyond Tenant's control and Tenant diligently pursues and
documents its effort to completion.
(3) Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of creditors.
(4) Tenant shall file a petition under any section or chapter of the
National Bankruptcy Act, as shall be adjudged bankrupt or insolvent in
proceedings filed against Tenant thereunder.
(5) A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant.
(6) Tenant shall supply false or misleading information to the
Landlord or its agents or representatives in the form of personal or
business data so as to obtain Landlord's consent to lease or other
unfair preference.
(7) Tenant shall fail to take occupancy, desert or vacate any
substantial portion of the premises without payment of rent.
(8) Tenant's failure to comply with the provisions or reporting
requirements of either the Subordination Clause or the Attornment Clause
contained within the Lease and such failure to comply continues for a
period of ten (10) business days.
(b) Upon the occurrence of any of such events of default, Landlord shall
have, in addition to the normal remedies provided by law, the option to pursue
any one or more of the following remedies without any notice or demand
whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have
for possession or arrearages in rent, enter upon and take possession of
the leased premises, with or without process of law, and expel or remove
Tenant and any other person who may be occupying said premises or any
part thereof, by force if necessary, without being liable for
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prosecution or any claim of damages therefor; and Tenant agrees to pay
to Landlord on demand the amount of all loss and damage which Landlord
may suffer by reason of such termination, whether through inability to
relet the premises on satisfactory terms or otherwise, including any
damages Landlord may incur because of special sums expended for fixing
up premises for Tenant.
(2) Enter upon and take possession of the leased premises and expel
or remove Tenant and any other person who may be occupying said premises
or any part thereof, by force if necessary, without being liable for
prosecution or any claim for damages therefore, and relet the premises
and receive the rent therefor; and Tenant agrees to pay to Landlord on
demand any deficiency that may arise by reason of such reletting as
pertains to the unexpired portion of the Lease.
(3) Enter upon the leased premises, by force if necessary, without
being liable for prosecution or any claim for damages therefore and do
whatever Tenant is obligated to do under the terms of this Lease; and
Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in thus effecting compliance with Tenant' s
obligations under this Lease, and Tenant further agrees that Landlord
shall not be liable for any damages, resulting to the Tenant from such
action, whether caused by negligence of Landlord or otherwise.
(4) It is agreed that, in case the demised premises are left vacant
and the rent be in default then Landlord may, without being obligated to
do so, and without terminating this Lease, retake possession of the
demised premises and rent the same for such terms as Landlord may deem
best, making such changes and repairs as may be required, all on behalf
of and for the account of Tenant, giving credit for the amount of rent
so received, less all expense of such changes and repairs, including
lease commissions, and said Tenant shall, at Landlord's option, be
liable for the balance of the rent herein reserved until the expiration
of the term of this Lease.
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies provided by
law, nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No waiver by Landlord of any violation or breach of
any of the terms, provisions and covenants herein contained, shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions and covenants herein contained. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default.
(d) The Tenant acknowledges and agrees that should it become necessary
for the Landlord to serve a Complaint in Forcible Entry or Unlawful Detainer, in
accordance with State statutes, that said Complaint, shall not automatically
terminate Tenant's obligations to pay future rents and this Lease may continue
in full force and effect, at the option of the Landlord.
(e) The laws of the State in which the property is located shall govern
this Lease and any interpretations or construction thereof. Further, the place
of performance and transaction of business shall be deemed to be in the County
of Bernalillo, State of New Mexico when referring to property leased in the
State of New Mexico and in the event of litigation, the exclusive venue and
place of jurisdiction shall be heretofore prescribed.
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23. LANDLORD'S LIEN AND UNIFORM COMMERCIAL CODE: As security for Tenant's
payment of rent, damages and all other payments required to be made by this
Lease, Tenant hereby grants to Landlord a lien upon all goods, wares, equipment,
fixtures, furniture of Tenant now or subsequently located upon the leased
premises. If Tenant abandons or vacates any substantial portion of the leased
premises or is in default of the payment of any rentals, damage or other
payments required to be made by this Lease, Landlord may enter upon the leased
premises, by force if necessary, and take possession of all or part of the
aforesaid items, and may sell all or any part of the same at a public or private
sale, in one or successive sales, with or without notice, to the highest bidder
for cash and on behalf of Tenant, sell and convey all or part: to the bidder,
delivering to the bidder all of the Tenant's title and interest in the items
sold to him. The proceeds of the sale shall be applied by the Landlord toward
the cost of the sale and then toward the payment of all sums then due by Tenant
to Landlord under the terms of this Lease. The statutory lien for rent is not
hereby waived, the express contractual lien herein granted being in addition and
supplementary thereto. To the extent, if any, this Lease grants Landlord, or
recognizes in Landlord, any lien rights greater than provided by the laws of the
State in which the leased premises are located pertaining to Landlord's lien.
This Lease is intended as, and constitutes a security agreement within the
meaning of the Uniform Commercial Code and, Landlord, in addition to the rights
prescribed in this Lease, shall have all of the rights, titles, liens and
interests in and to Tenant's property now or hereafter located upon the leased
premises which are granted a secured party, as that term is defined, under the
Uniform Commercial Code to secure the payment to Landlord of the various amounts
provided in this Lease and in compliance with same. A Landlord's Lien Waiver
will be granted for the computer equipment.
24. BUILDING RULES AND REGULATIONS:
(a) Tenant shall not bring or keep within the building any animal,
bicycle or motorcycle.
(b) Canvassing, soliciting and peddling in the building are prohibited,
and Tenant shall cooperate to prevent such activities.
(c) No Tenant shall install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the building without the
written consent of Landlord. No television or radio or recorder shall be played
in such a manner to cause a nuisance to any other Tenant.
25. COST AND ATTORNEY'S FEES: If by reason of any default on the part of either
party it becomes necessary for either party to employ an attorney or in case
Landlord shall bring suit to recover any rent due hereunder, or for breach of
any provision of this Lease or to recover possession of the leased premises, or
if Tenant shall bring any action, then and in any such events, the Prevailing
Party shall receive reasonable attorney's fees, not to exceed $200.00 per hour
and costs and expenses expended or incurred in connection with such default or
action as awarded by the courts.
26. QUIET ENJOYMENT: Landlord warrants that it has full right to execute and to
perform this Lease and to grant the estate leases, and, that Tenant, upon
payment of the required rents and performing the terms, conditions, covenants
and agreements contained in this Lease, shall peaceably and quietly have, hold
and enjoy the leased premises during the full term of this Lease as well as any
extension or renewal. However, Tenant accepts this Lease subject and subordinate
to any underlying lease, mortgage, deed of trust or other lien presently
existing upon the leased premises. Landlord hereby is irrevocably vested with
full power and authority to subordinate Tenant's interest under this agreement
to any
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underlying lease, mortgage, deed of trust or other lien hereunder placed on the
leased premises, and Tenant agrees upon demand to execute additional instruments
subordinating this Lease as Landlord may require. If the interest of Landlord
under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any lien, deed of trust or mortgage on the leased
premises, Tenant shall be bound to the transferee (sometimes called the
"Purchaser") under the terms, covenants and conditions of this Lease for the
balance of the term remaining, and any extensions or renewals, with the same
force and effect as if the Purchaser were the Landlord under this Leasee. Tenant
agrees to attorn to the Purchaser, as its Landlord, the attornment to be
effective and self-operative without the execution of any further instruments
upon the Purchaser succeeding to the interest of the Landlord under this Lease.
The respective rights and obligations of Tenant and the Purchaser upon the
attornment, to the extent of the then remaining balance of the term of this
Lease, and any extensions and renewals, shall be and are the same as those set
forth in the Lease.
27. FINANCIAL STATEMENT: Tenant shall furnish Landlord, upon request, a current
Financial Statement.
28. SEVERABILITY CLAUSE: If any clause or provision of this Lease is illegal,
invalid, or unenforceable under present or future laws effective during the term
of this Lease, then and in that event, it is the intention of the Parties hereto
that the remainder of this Lease shall not be affected thereby. The caption of
each paragraph hereof is added as a matter of convenience only and shall be
considered to be of no effect in the construction of any provision or provisions
of this Lease.
29. SURRENDER OF POSSESSION: The Tenant agrees to deliver up and surrender to
the Landlord possession of said premises along with all keys thereto, at the
expiration of the termination of this Lease, by lapse of time or otherwise, in
as good repair as when the Tenant obtained the same at the commencement of said
term, normal wear and tear excepted, except damage by the elements (occurring
without the fault of the Tenant or other persons permitted by the Tenant to
occupy or enter the demised premises or any part thereof) or by act of God or by
insurrection, riot, invasion, or commotion, or of military or usurped power.
30. REMOVAL OF TENANT'S PROPERTY: If the Tenant shall fail to remove all effects
from said premises upon the abandonment thereof or upon the termination of this
Lease for any cause whatsoever, the Landlord, at its option, may remove the same
in any manner that it shall choose, and store the said effects without liability
to the Tenant for loss thereof, and the Tenant agrees to pay the Landlord on
demand any and all expenses incurred in such removal, including court costs and
attorney's fees and storage charges on such effects, or sell any of the same, at
private sale and without legal process, for such prices as the Landlord may
obtain, and apply the proceeds of such sale upon any amounts due under this
Lease from the Tenant to the Landlord and upon the expense incident to the
removal and sale of said effects, rendering the surplus, if any, to the Tenant.
31. CONSENT NOT UNREASONABLY WITHHELD: Unless otherwise specifically provided,
whenever consent or approval of Landlord or Tenant is required under the terms
of this Lease, such consent shall not be unreasonably withheld or delayed.
Tenant's sole remedy, if Landlord unreasonably withholds or delays consent or
approval, shall be an action for specific performance and Landlord shall not be
liable for damages.
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32. AMENDMENT OR MODIFICATION: The Tenant acknowledges and agrees that it has
not relied upon any statements, representations, agreements or warranties,
except such as are expressed herein, and that no amendment or modification of
the Lease shall be valid or binding unless expressed in writing and executed by
the Parties hereto in the same manner as the execution of this Lease.
33. IMPLIED SURRENDER:
(a) No act or thing done by Landlord or Landlord's agents during the
term hereof or any extension thereof, shall be deemed an acceptance of a
surrender of the demised premises, and no agreement to accept such surrender
shall be valid unless in writing signed by the Landlord or his designated
representative. No employee of Landlord or of Landlord's agents shall have any
power to accept the keys of the demised premises prior to the termination of
this Lease.
(b) The delivery of keys to any employee of the Landlord, or of
Landlord's agents, shall not operate as a termination of this Lease or a
surrender of the demised premises. No payment by Tenant or receipt by Landlord,
of a lesser amount than the minimum monthly rent herein stipulated, shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check,
or payment as rent, be deemed an accord and satisfaction and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy available to Landlord.
34. FORCE MAJEURE: In the event that either Party hereto shall be delayed or
hindered in or prevented from the performance of any act required by reason of
strikes, lockouts, labor troubles, inability to procure materials, failure of
power, restrictive governmental laws or regulations, riots, insurrection, war or
other reason of a like nature not the fault of the Party delayed in performing
work or doing acts required under the terms of this Lease, then performance of
any such act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay. The provisions of this section shall not operate to excuse
Tenant from prompt payment of the base rental or any other payments required by,
the terms of this Lease.
35. NOTICE ADDRESS:
(a) Each provision of this instrument or any of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any payment by Landlord to Tenant or with
reference to the sending, mailing or delivery of any notice or the making of any
payment by Landlord to Tenant or with reference to the sending, mailing or
delivery of any notice of the making of any payment by Tenant to Landlord shall
be deemed to be complied with when and if the following steps are taken:
(1) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord or its agent at the
address hereinbelow set forth or at such other address as Landlord may
specify front time to time by written notice delivered in accordance
herewith.
(2) All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address hereinbelow set forth, or at
such other address within the continental United States as Tenant may
specify from time to time by written notice delivered in accordance
herewith.
(3) Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or
not when deposited in the United States Mail, postage prepaid, Certified
Mail, Return Receipt
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Requested, addressed to the Parties hereto at the respective addresses
set out opposite their names below, or at such other addresses as they
have theretofore specified by written notice delivered in accordance
herewith. Landlord's notice to Tenant advising same of breach or default
will further have been accomplished when personal delivery is made by
Landlord or its agent and/or representative to Tenant or Tenant's
chief official.
Landlord: Mountain States Mutual Casualty Company
501 Silver Avenue SW
Albuquerque, New Mexico 87102
Tenant: Xcare.net
5051 Journal Center Boulevard NE Suite 410
Albuquerque, New Mexico 87109
(b) If and when, included within the term "Landlord" as used in this
instrument, there is more than one person, firm, or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address in Bernalillo County, New
Mexico, or any other location, for the receipt of notices and payments to
Landlord, if and when, included within the term "Tenant", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address within the continental
United States for receipt of notices and payments to Tenant. All Parties
included within the terms "Landlord" and "Tenant", respectively, shall be bound
by notices given in accordance with the provisions of this paragraph to the same
effect as if each had received such notice.
36. SUCCESSORS: The terms, provisions and covenants and conditions contained in
this Lease shall apply to, inure to the benefit of, and be binding upon the
parties hereto and upon their respective successors in interest and legal
representatives except as otherwise herein expressly provided.
37. GENDER: Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
38. BROKERAGE COMMISSIONS: Tenant warrants that it has had no dealings with any
broker or agent other than CB Richard Ellis and With Investment Company in
connection with the negotiation or execution of this Lease, and Tenant agrees to
indemnify Landlord and hold Landlord harmless from any and all costs, expenses
or liability for commissions or other compensation or charges claimed by or
awarded to any broker or agent with respect to this Lease.
39. RENT TAX: If applicable in the jurisdiction where the leased premises are
situated, Tenant shall pay and be liable for all rental, sales and use taxes or
similar taxes, if any, levied or imposed by any, city, state, county, or other
governmental body having authority, such payment to be in addition to all other
payments required to be paid to Landlord by Tenant under the terms of this
Lease.. Any such payment shall be paid concurrently with the payment of the
rent, operating expense or other charge upon which the tax is based as set forth
above.
40. CORPORATE AUTHORITY: If Tenant is a corporation, Tenant warrants it has
legal authority to operate and is authorized to do business in the state in
which the premises are situated. Tenant also warrants that the person or persons
executing this Lease on
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behalf of Tenant has authority to do so and fully obligate Tenant to all terms
and provisions of this Lease. Tenant shall, upon request from Landlord, furnish
Landlord with a certified copy of resolution of the Board of Directors
authorizing this Lease and granting authority to execute it to the person or
persons who have executed it on Tenant's behalf.
41. AMENDMENT, ADDENDUM, MODIFICATION: Any amendments, Modifications, and/or
other Supplements, if any be hereto attached, are made a part hereof, and shall
be binding upon the Parties hereto, and if any provision of said Amendments,
Addendums, Modifications, or Supplements shall conflict in any manner with any
other provision of this Lease, the provision of the Amendment, Addendum,
Modification or Supplement shall prevail.
42. COMPLIANCE WITH LAW: Tenant, at Tenant's expense, shall comply with .all
laws, rules, orders, ordinances, directions, regulations, and requirements of
federal, state, county and municipal authorities pertaining to Tenant's use of
the premises and with the recorded covenants, conditions and restrictions,
regardless of when they become effective, including, without limitation, all
applicable federal, state and local laws, regulations or ordinances pertaining
to air and water quality, Hazardous Materials (as hereinafter defined), waste
disposal, air emissions, and other environmental matters, all zoning and other
land use matters, and utility availability, and with any direction of any public
officer or officers, pursuant to law, which shall impose any duty upon Landlord
or Tenant with respect to the use or occupation of the premises.
43. USE OF HAZARDOUS MATERIAL:
(a) Tenant shall not cause or permit Hazardous Material to be brought
upon, kept or used in or about the premises by Tenant, its agents, employees,
contractors or invitees. If Tenant breaches this obligation, the Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims,
judgements, damages, penalties, fines, costs, liabilities or losses (including,
without limitation, diminution in value of the premises, damages for the loss or
restriction on use of rentable or useable space or of any amenity of the
premises, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorney's fees, consultant fees and expert
fees) which arise during or after the lease term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under premises.
Without limiting the foregoing, if the presence of any Hazardous Material on the
premises caused by Tenant results in any contamination of the premises, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the premises to the condition existing prior to the introduction of any such
Hazardous Material to the premises; provided that Landlord's approval of such
actions shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material adverse
long-term or short-term effect on the premises. The foregoing indemnity shall
survive the expiration or earlier termination of this Lease.
(b) As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material or waste, including, but not limited to those
substances, materials, and wastes listed in the United States Department of
Transportation Hazardous Materials Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances (40 CFR Pare 302) and
amendments thereto, or
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such substances, materials and wastes that are or become regulated under any
applicable local, state or federal law.
(c) Inspection, Landlord and its agents shall have the right, but not
the duty, to inspect the premises at any time to determine whether Tenant is
complying with the terms of this Lease. If Tenant is not in compliance with this
Lease, Landlord shall have the right to immediately enter upon the premises to
remedy any contamination caused by Tenant's failure to comply notwithstanding
any other provision of this Lease. Landlord shall use its best efforts to
minimize interference with Tenant's business but shall not be liable for any
interference caused thereby.
(d) Default. Any default under this Paragraph shall be a material
default enabling Landlord to exercise any of the remedies set forth in this
Lease.
44. ATTACHMENTS: The following items are attached hereto and made a part of this
lease as Exhibit A:
(a) Tenant development standards
(b) Building plans
In consideration of this lease, Landlord will build out Suite 410 in accordance
with the attached development standards and building plans and specifications.
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This Lease Agreement shall be effective as of the later date executed by either
Landlord or Tenant, as the case may be.
TENANT NAME: Xcare.net, Inc.
By: /s/ PETER H. CHEESBROUGH
-------------------------------------------
PETER H. CHEESBROUGH, SR. VP. FINANCE & CFO
LANDLORD: Mountain States Mutual Casualty Company
By: /s/ JERRY P. WITH
-------------------------------------------
Jerry P. With, President
STATE OF COLORADO
COUNTY OF ARAPAHOE
This instrument was acknowledged before me on November 1st, 1999, by
PETER H. CHEESBROUGH AS SR. VP. FINANCE & CFO of Xcare.net, Inc. a Delaware
Corporation.
/s/ [Signature Illegible]
(Seal) ---------------------------------------------
Notary Public
My commission expires: 6-21-00
-----------------------
STATE OF NEW MEXICO
COUNTY OF BERNALILLO
This instrument was acknowledged before me on 11/8/99, 1999, by Jerry P.
With as President of Mountain States Mutual Casualty Company, a New Mexico
Corporation.
/s/ [Signature Illegible]
(Seal) ---------------------------------------------
Notary Public
My commission expires: July 7, 2002
-----------------------
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EXHIBIT A
[MOUNTAIN STATES INSURANCE BUILDING FLOORPLAN]
<PAGE> 19
Mountain States Insurance Group
Tenant Development Standards
1. Walls
a. 3-5/8" - 25 gauge studs with double 20 gauge studs at each door
jamb and other openings.
b. Rated corridor and suite demising walls shall go to deck and will
contain full sound batts. Additional acoustical or security
requirements will be additional.
c. Other walls shall go to ceiling (9' -0") unless otherwise noted.
d. 5/8" gypsum board walls with tape, spray texture, and paint
(three coats, standard color).
e. Any additional wall coverings are extra.
f. Shell space to include taped exterior walls not textured or
painted.
2. Flooring
a. Carpet allowance shall be $16 per square yard upgrades to this
amount will be the responsibility of the tenant.
b. Vinyl tile shall be "concert" series by Tarkett.
3. Base
a. 2-1/2" vinyl or rubber from standard colors.
4. Ceiling Tile
a. Ceiling tile shall be USG Type "F" fissured - 2 X 4 as indicated.
b. Shell space will include ceiling grid in place at 9' -0" without
tiles. Tiles will be purchased by shell contractor and stored on
each floor. Shell contractor will be held accountable for tile
storage. TI contractor will install ceiling tile.
c. Grid to be standard 9/16" wide, white.
5. Doors
a. One (1) entry door to tenant space shall be 3' -0" X 9' -0" X
1-3/4" flush Weyerhauser door, soft wood edge, natural cherry
veneer. Hardware shall be Sargent 1000 Series.
Page 1 of 3
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Frame shall be 18 gauge hollow metal. Double rabbit, 2 pair
hinges, Closure provided. 3' -0" X 9' -0" glazed side light in 18
gauge hollow metal to match deer frame.
b. All other doors shall be 3' -0" X 9' -0" X 1-3/4" flush
Weyerhauser door, soft wood edge, natural cherry veneer. Hardware
shall be Sargent 1000 Series latch without lock. Frame shall be
18 gauge hollow metal double rabbit. Two pair hinges.
c. Finish: Match building standard.
6. Window Covering
a. Each exterior window shall be provided with 1" mini blinds, all
doors shall be the same on the building exterior. Shell
contractor will be held accountable for blind storage. Blinds
shall be provided in the shell cost and stored. TI contractor
will install.
7. Mechanical
a. Plumbing fixtures will be provided in the Core Area. Any plumbing
fixtures within a Tenant Space is in addition to TI allowance
(sinks, cold water, hot water, sewer and vent extensions from
building risers are additional).
b. Four-pipe hot/chilled water piping systems, fan coil units, main
ductwork, to fan coil units air diffusion products, temperature
controls, building exhaust system, building make-up systems, and
energy management system shall be provided in the shell
construction.
All distribution ducting from fan coil units to areas within the
shell space will be installed by the shell contractor.
Adjustments necessary for rooms and open areas to be done by the
T.I. Contractor. Setting of existing thermostats will also be
done by the T.I. Contractor.
Normal operating conditions for the- 4-pipe hot/chilled water
piping systems and HVAC units will be provided to the building on
a 7:00 a.m. to 6:00 p.m. time frame (winter 68(degree) F to
72(degree) F), (summer 75(degree) F to 78(degree)), five days a
week (Monday thru Friday). After hours HVAC capability are
additional to the TI standard package and will be available thru
timed override meters and cancel buttons for each fan coil unit.
Building exhaust fan system and make-up air systems are shut-down
at 6:00 p.m., and start-up at 7:00 a.m.
c. Fire protection main, siamese connection, riser, mains, laterals,
roof manifolds, alarms, flow switches, etc. for
Page 2 of 3
<PAGE> 21
The entire building shall be provided in the shell construction.
Fire sprinkler heads at finished ceiling shall be recessed type,
sprinkler heads in exposed areas shall be the pendant type.
8. Electrical
a. Standard lighting fixtures shall be 18 cell parabolic with energy
saving electronic ballasts. Lights will be purchased under shell
package and stored on floor. Shell contractor shall install a few
lights in grid for light within the space. TI contractor will
install lights and ceiling tile. Lights are to be plug in type.
b. Power provided to each floor. Shell contractor shall provide a
sub-panel to each tenant space. Shell contractor shall provide
and distribute hot "J" boxes in ceiling on a 20' OC grid. TI
contractor will distribute from grid
c. Telephone backboard shall be provided at each floor by the shell
contractor. The TI contractor shall provide a "J" box, conduit to
1" above the ceiling, and a pull string. The tenant will be
responsible for pulling lines from the telephone backboard to the
outlet.
d. A data backboard shall be provided on each floor by the shell
contractor. The TI contractor shall provide a "J" box, conduit to
1" above the ceiling, and a pull string. The tenant will be
responsible for pulling data lines.
9. Signage
a. Exterior: Any exterior sign needs to be reviewed by the Journal
Center Corporation.
b. Interior: Main lobby - Building directory
c. Tenant Location: At suite entrance - tenant name and suite number
- non illuminated.
Page 3 of 3
<PAGE> 1
EXHIBIT 10.33
ORACLE
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement ("Agreement") is between Oracle
Corporation ("Oracle") and the Customer identified below. The terms of this
Agreement shall apply to each Program license granted and to all services
provided by Oracle under this Agreement, which will be identified on one or more
Order Forms.
I. DEFINITIONS
1.1. "Program" means the software in object code form distributed by
Oracle for which Customer is granted a license pursuant to this
Agreement, and the media, Documentation and Updates therefor.
1.2. "Documentation" means the user guides and manuals for installation
and use of the Program software. Documentation is provided in
whatever form is generally available.
1.3. "Update" means a subsequent release of the Program which Oracle
generally makes available for Program licenses at no additional
license fee other than media and handling charges, provided Customer
has ordered Technical Support for such licenses for the relevant time
period. Update shall not include any release, option or future
product which Oracle licenses separately.
1.4. "Order Form" means the document in hard copy or electronic form by
which Customer orders Program licenses and services, and which is
agreed to by the parties. The Order Form shall reference the
Effective Date of this Agreement.
1.5. "Designated System" means the computer hardware and operating system
designated on the relevant Order Form.
1.6. "Technical Support" means Program support provided under Oracle's
policies in effect on the date Technical Support is ordered.
1.7. "Commencement Date" means the date on which the Programs are
delivered by Oracle to Customer, or if no delivery is necessary, the
Effective Date set forth on the relevant Order Form.
1.6. "Services" means Technical Support, training, or
consulting services provided by Oracle to Customer
under this Agreement.
II. PROGRAM LICENSE
2.1. Rights Granted
A. Oracle grants to Customer a nonexclusive license to use the
Programs specified on an Order Form under this Agreement as of
the Commencement Date, as follows:
i to use the Programs solely for Customer's operations on the
Designated System or on a backup system if the Designated
System is inoperative, consistent with the use limitation,
specified or referenced in this Agreement, an Order Form, or
the Documentation. Customer may not relicense, rent or lease
the Programs or use the Programs for third-party training,
commercial time-sharing or service bureau use;
ii. to use the Documentation provided with the Programs in
support of Customer's authorized use of the Programs;
iii. to copy the Programs for archival or backup purposes, and to
make a sufficient number of copies for the use specified in
the Order Form. All titles, trademarks, and copyright and
restricted rights notices shall be reproduced in such
copies:
iv. to modify the Programs and combine them with other software
products; and
v. to allow third parties to use the Programs for Customer's
operations so long as Customer ensures that use of the
Programs is in accordance with the terms of this Agreement.
Customer shall not copy or use the Programs (including the
Documentation) except as specified in this Agreement or an Order
Form. Customer shall have no right to use any other software
program that may be delivered with ordered Programs.
B. Customer agrees not to cause or permit the reverse engineering,
disassembly or decompilation of the Programs, except to the
extent required to obtain interoperability with other
independently created software or as specified by law.
C. Oracle shall retain all title, copyright and other proprietary
rights in the Programs. Customer does not acquire any rights,
express or implied in the Programs, other than those specified in
this Agreement.
2.2. Transfer and Assignment
A. Customer may transfer a Program license within its organization
upon notice to Oracle; transfers are subject to the terms and
fees
<PAGE> 2
specified in Oracle's transfer in effect at the time of the
transfer
B. Customer may not assign this Agreement or transfer a Program
License to a legal entity separate from Customer without the
prior written consent of Oracle. Oracle shall not unreasonably
withhold or delay such consent.
2.2. Verification
At Oracle's written request, not more frequently than annually,
Customer shall furnish Oracle with a signed certification verifying
that the Programs are being used pursuant to the provisions of this
Agreement and applicable Order Forms
Oracle may audit Customer's use of the Programs. Any such audit shall
be conducted during regular business hours at Customer's facilities
and shall not unreasonably interfere with Customer's business
activities. If an audit reveals that Customer has Underpaid fees to
Oracle, Customer shall be invoiced for such underpaid fees. Audits
shall be conducted no more than once annually.
III. TECHNICAL SERVICES
3.1. Technical Support Services
Technical Support services ordered by Customer will be provided under
Oracle's Technical Support policies in effect on the date Technical
Support is ordered.
3.2. Consulting and Training Services
Oracle will provide consulting and training services agreed to by the
parties under the terms of this Agreement. All consulting services
shall be billed on a time and materials basis unless the parties
expressly agree otherwise in writing.
3.3. Incidental Expenses
For any on-site services requested by Customer, Customer shall
reimburse Oracle for actual, reasonable travel and out-of-pocket
expenses incurred.
IV. TERM AND TERMINATION
4.1. Term
If not otherwise specified on the Order Form, this Agreement and each
Program license granted under this Agreement shall continue
perpetually unless terminated under this Article IV.
4.2. Termination by Customer
Customer may terminate any Program license at any time; however,
termination shall not relieve Customer's obligations specified in
Section 4.4.
4.3. Termination by Oracle
Oracle may terminate this Agreement or any license upon written
notice if Customer materially breaches this Agreement and fails to
correct the breach within 30 days following notice specifying the
breach.
4.4. Effect of Termination
Termination of the Agreement or any license shall not limit either
party from pursuing other remedies available to it, including
injunctive relief, nor shall such termination relieve Customer's
obligation to pay all fees that have accrued or are otherwise owed by
Customer under any Order Form. The parties' rights and obligations
under Sections 2.1.B, 2.1.C, and 2.2.B, and Articles IV, V, VI and
VII shall survive termination of this Agreement. Upon termination,
Customer shall cease using, and shall return or destroy, all copies
of the applicable Programs.
V. INDEMNITY, WARRANTIES, REMEDIES
5.1. Infringement Indemnity
Oracle will defend and indemnify Customer against a claim that the
Programs infringe a copyright or patent or other intellectual
property right, provided that: (a) Customer notifies Oracle in
writing within 30 days of the claim; (b) Oracle has sole control of
the defense and all related settlement negotiations; and (c) Customer
provides Oracle with the assistance, information and authority
necessary to perform Oracle's obligations under this Section. Oracle
will reimburse Customer's reasonable out-of-pocket expenses incurred
in providing such assistance. Oracle shall have no liability for any
claim of infringement based on use of a superseded or altered release
of Programs if the infringement would have been avoided by the use of
a current unaltered release of the Programs which Oracle provided to
Customer.
If the Programs are held or are believed by Oracle to infringe,
Oracle shall have the option, at its expense to (a) modify the
Programs to be noninfringing; or (b) obtain for Customer a license to
continue using the Programs. If it is not commercially reasonable to
perform either of the above options, then Oracle may terminate the
license for the infringing Programs and refund license fees paid for
those Programs. This Section 5.1 shares Oracle's entire liability and
Customer's exclusive remedy for infringement.
5.2. Warranties and Disclaimers
A. Program Warranty
Oracle warrants for a period of one year from the Commencement Date
that each unmodified Program will perform the functions described in
the Documentation.
B. Media Warranty
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days
from the Commencement Date.
<PAGE> 3
C. Services Warranty
Oracle warrants that its Technical Support, training and
consulting services will be performed consistent with generally
accepted industry standards. This warranty shall be valid for 90
days from performance of service.
D. Disclaimers
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES. WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OP MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
Oracle does not warrant that the Programs will operate in
combinations other than as specified in the Documentation or that
the operation of the Programs will be uninterrupted or
error-free. Pro-production release of Programs and computer-based
training products are distributed "AS IS."
6.3. Exclusive Remedies
For any breach of the warranties contained in Section 5.2, Customer's
exclusive remedy, and Oracle's entire liability, shall be:
A. For programs
The correction of Program errors that cause breach of the
warranty, or if Oracle is unable to make the Program operate as
warranted. Customer shall be entitled to terminate the Program
license and recover the fees paid to Oracle for the Program
license.
B. For Media
The replacement of defective media returned within 90 days of the
Commencement Date.
C. For Services
The reperformance of the services, or if Oracle is unable to
perform the services as warranted, Customer shall be entitled to
recover the fees paid to Oracle for the unsatisfactory services.
VI. PAYMENT PROVISIONS
6.1. Invoicing and Payment
All fees shall be due and payable 30 days from the invoice date.
Customer agrees to pay applicable media and shipping charges.
Customer shall issue a purchase order, or alternative document
acceptable to Oracle, on or before the Effective Date of the
applicable Order Form.
6.2. Taxes
The fees listed in this Agreement do not include taxes; if Oracle is
required to pay sales, use, property, value-added or other taxes
based on the licenses or services granted in this Agreement or on
Customer's use of Programs or services, then such taxes shall be
billed to and paid by Customer. This Section shall not apply to taxes
based on Oracle's income.
VII. GENERAL TERMS
7.1. Nondisclosure
By virtue of this Agreement, the parties may have access to
information that is confidential to one another ("Confidential
information"). Confidential information shall be limited to the
Programs, the terms and pricing under this Agreement, and all
information clearly identified as confidential.
A party's Confidential Information shall not include information
that: (a) is or becomes a part of the public domain through no act or
omission of the other party; (b) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the
other party either directly or indirectly from the disclosing party;
(c) is lawfully disclosed to the other party by a third party without
restriction on disclosure; or (d) is independently developed by the
other party. Customer shall not disclose the results of any benchmark
tests of the Programs to any third party without Oracle's prior
written approval.
The parties agree to hold each other's Confidential information in
confidence during the term of this Agreement and for a period of two
years after termination of this Agreement. The parties agree, unless
required by law, not to make each other's Confidential Information
available in any form to any third party for any purpose other than
the implementation of this Agreement. Each party agrees to take all
reasonable steps to ensure that Confidential Information is not
disclosed or distributed by its employees or agents in violation of
the terms of this Agreement.
7.2. Governing Law
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the laws of the State of California.
7.3. Jurisdiction
Any legal action or proceeding relating to this Agreement shall be
instituted in a state or federal court in San Francisco or San Mateo
County, California. Oracle and Customer agree to submit to the
jurisdiction of, and agree that venue is proper in, these courts in
any such legal action or proceeding.
7.4. Notice
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given
when mailed by first class mail to the first address listed in the
relevant Order Form (if to Customer) or to the Oracle address on the
Order Form (if to Oracle).
To expedite order processing, Customer agrees that Oracle may treat
documents faxed by Customer to Oracle as original documents;
<PAGE> 4
nevertheless, either party may require the other to exchange original
signed documents.
7.5. Limitation of Liability
In no event shall either party be liable for any indirect,
incidental, special or consequential damages, or damages for less of
profits, revenue, data or use, incurred by either party or any third
party, whether in an action in contract or tort, even if the other
party has been advised of due possibility of such damages. Oracle's
liability for damages hereunder shall in no event exceed the amount
of fees paid by Customer Under this Agreement and if such damages
result from Customer's use of the program or services, such liability
shall be limited to fees paid for the relevant Program or services
giving rise to the liability.
The provisions of this Agreement allocate the risks between Oracle
and Customer. Oracle's pricing reflects this allocation of risk and
the limitation of liability specified herein.
7.6. Severability
If any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain
in full force.
7.7. Waiver
The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other or subsequent default or
broach. Except for actions for nonpayment or breach of Oracle's
proprietary rights in the Programs, no action, regardless of form,
arising out of this Agreement may be brought by either party more
than two years after the cause of action has accrued.
7.8. Export Administration
Customer agrees to comply fully with all relevant export laws and
regulations of the United States ("Export Laws") to assure that
neither the Programs nor any direct product thereof are (1) exported.
directly or indirectly, in violation of Export Laws; or (2) are
intended to be used for any purposes prohibited by the Export Laws,
including, without limitation, nuclear, chemical, or biological
weapons proliferation.
7.9. Entire Agreement
This Agreement constitutes the complete agreement between the parties
and supercedes all prior or contemporaneous agreements or
representations, written or oral, concerning the subject matter of
this Agreement. This Agreement may not be modified or amended except
in a writing signed by a duly authorized representative of each
party; no other act, document, usage or custom shall be deemed to
amend or modify this Agreement.
It is expressly agreed that the terms of this Agreement and any Order
Form shall supersede the terms in any Customer purchase order or
other ordering document. This Agreement shall also supersede all
terms of any unsigned or "shrinkwrap" license included in any
package, media, or electronic version of Oracle-furnished software
and any such software shall be licensed under the terms of this
Agreement, provided that the use limitations contained in an unsigned
ordering document shall be effective for the specified licenses.
The Effective Date of this Agreement shall be October 25, 1999
EXECUTED BY CUSTOMER:
Authorized Signature: /s/ PETER H. CHEESBROUGH
-------------------------------------
Name: PETER H. CHEESBROUGH
------------------------------------------------------
Title: SR. V.P. FINANCE & CFO
-----------------------------------------------------
Address: 6400 South Fiddler's Green Circle,
Suite 560, Englewood, CO 80111
--------------------------------------------------
EXECUTED BY ORACLE CORPORATION:
Authorized Signature:
-------------------------------------
Name:
------------------------------------------------------
Title:
-----------------------------------------------------
Address: 500 Oracle Parkway, Redwood City, CA
--------------------------------------------------
ORACLE IS A REGISTERED TRADEMARK OF ORACLE CORPORATION
<PAGE> 5
Payment Schedule
(Oracle Product) No. 1
<TABLE>
<S> <C>
Customer: xCare.net Technologies, Inc. EXECUTED BY CUSTOMER (AUTHORIZED SIGNATURE):
------------------------------------------
By: /s/ PETER H. CHEESBROUGH
------------------------------------------ ------------------------------------------
Address: 6400 S. Fiddlers Green Circle, Ste 540 Name: PETER H. CHEESBROUGH
------------------------------------------ ------------------------------------------
Englewood, CO 80111 Title: SR. V.P. FINANCE & CFO
------------------------------------------ ------------------------------------------
Contact:
------------------------------------------ EXECUTED BY ORACLE CREDIT CORPORATION:
Phone: 303-488-2019
------------------------------------------ By:
Order: dated ------------------------------------------
------------------------------------------ Name:
Agreement: dated ------------------------------------------
------------------------------------------ Title:
PPA No.: dated ------------------------------------------
------------------------------------------
------------------------------------------ Payment Schedule Effective Date:
-----------------
SYSTEM Payment Schedule
Payment Amount Due Date:
Software: $[ * ] 1 @ $[ * ] Due at signing
---------------------------------- 4 Q @ [ * ] 01-Jan-00 thru 01-OCT-00
Support: $[ * ] One Year
----------------------------------
Education:
---------------------------------- One payment followed by four (4) quarterly payments
Consulting: due at set forth above
----------------------------------
Other:
----------------------------------
System Price: $[ * ]
----------------------------------
</TABLE>
Optional (If this box is checked):
Customer has ordered the System from an alliance member/agent of
Oracle Corporation, whose name and address are specified below. Customer shall
provide ("OCC") with a copy of such Order. The System shall be directly licensed
or provided by the Supplier specified in the applicable Order and Agreement,
each of which shall be considered a separate contract. Customer has entered into
the Order and Agreement based upon its own judgment, and expressly disclaims any
reliance upon statements made by OCC about the System, if any. Customer's rights
with respect to the System are as set forth in the applicable Order and
Agreement and Customer shall have no right to make any claims under such Order
and Agreement against OCC or its Assignee. Neither Supplier nor any alliance
member/agent is authorized to waive or alter any term or condition of this
Contract. If within ten days of the Payment Schedule Effective Date, OCC is
provided with Customer invoices for the System specifying applicable Taxes, then
OCC may add the applicable Taxes in accordance with this Contract.
Alliance Member/Agent:
----------------------------------------------------
Address:
----------------------------------------------------
Contact: Phone:
---------------------- ------------------------
This Payment Schedule is entered into by Customer and Oracle Credit Corporation
("OCC") for the acquisition of the System from Oracle Corporation. an alliance
member/agent of Oracle Corporation or any other party providing any portion of
the System ("Supplier"). This Payment Schedule Incorporates by reference the
terms and conditions of the above-referenced Payment Plan Agreement ("PPA") to
create a separate Contract ("Contract").
A. PAYMENTS: This Contract shall replace Customer's payment obligation under the
Order and Agreement to Supplier, to the extent of the System Price listed above,
upon Customer's delivery of a fully executed Order, Agreement. PPA, Payment
Schedule, and any other documentation required by OCC, and execution of the
Contract by OCC. Customer agrees that OCC may add the applicable Taxes due on
the System Price to each Payment Amount based on the applicable tax rate
invoiced by Supplier at shipment. OCC may adjust subsequent Payment Amounts to
reflect any change or correction in Taxes due. If the System Price includes
support fees for a support period that begins after the first support period,
such future support fees and the then relevant Taxes will be paid to Supplier as
invoiced in the applicable support period from the Payment Amounts received in
that parted. The balance of each Payment Amount, unless otherwise stated,
includes a proportional amount of the remaining components of the System Price
excluding such future support fees, if any.
B. SYSTEM: Software shall be accepted and the services shall be deemed ordered
pursuant to the terms of the Agreement. Customer agrees that any software
acquired from Supplier to replace any part of the System shall be subject to the
terms of the Contract. Any claims related to the performance of any component of
the System shall be made pursuant to the Order and Agreement. Neither OCC nor
Assignee shall be responsible to Customer for any claim or liability pertaining
to any performance, actions, warranties or statements of Supplier.
C. ADMINISTRATIVE: Customer agrees that OCC or its Assignee may treat executed
faxes or photocopies delivered to OCC as original documents; however, Customer
agrees to deliver original signed documents if requested. Customer agrees that
OCC may insert the appropriate administrative information to complete this form.
OCC will provide a copy of the final Contract upon request.
* Confidential Treatment Requested
<PAGE> 6
ORACLE CREDIT CORPORATION PAYMENT PLAN AGREEMENT
<TABLE>
<S> <C>
Customer: xCare.net Technologies, Inc. EXECUTED BY CUSTOMER (AUTHORIZED SIGNATURE):
--------------------------------------
By: /s/ Peter H. Cheesbrough
-------------------------------------- -------------------------------------------
Address: 6400 S. Fiddlers Green Circle, Ste 540 Name:
-------------------------------------- ------------------------------------------
Englewood, CO 80111 Title:
------------------------------------- ------------------------------------------
Phone: 303-488-2019
------------------------------------- EXECUTED BY ORACLE CREDIT CORPORATION:
PPA No.:
------------------------------------- By:
Effective Date: ------------------------------------------
------------------------------------- Name:
------------------------------------------
Title:
------------------------------------------
</TABLE>
The payment Plan Agreement ("PPA") is entered into by Customer and Oracle Credit
Corporation ("OCC") to provide for the payment of the System Price specified in
a Payment Schedule on an installment basis. The System (as defined below) is
being acquired from Oracle Corporation, an alliance member/agent of Oracle
Corporation or any other party providing any portion of the System ("Supplier").
Each Payment Schedule shall specify the Software and other products and
services, which items together with any upgrade, transfer, substitution, or
replacement thereof, shall comprise the "System." Each Payment Schedule shall
incorporate the terms and conditions of the PPA to form a "Contract," and the
System specified therein shall be subject to the terms and conditions of such
Contract. The System shall be licensed or provided to Customer directly by
supplier pursuant to the terms of the Order and Agreement specified in the
Contract. Except as provided under the Contract, Customer's rights and remedies
under the Order and Agreement, including Supplier's warranty and refund
provisions, shall not be affected.
1. PAYMENT SCHEDULE: Customer agrees to pay OCC the Payment Amounts in
accordance with the Contract, with each payment due and payable on the
applicable Due Date. If full payment of each Payment Amount and other amounts
payable is not received by OCC within 10 days of each Due Date, Customer agrees
to pay to OCC interest on the overdue amount at the rate equal to the lesser of
one and one-half percent (1.5%) per month, or the maximum amount allowed by law.
Unless stated otherwise, Payment Amounts exclude any applicable sales, use,
property or any other tax allocable to the System, Agreement or Contract
("Taxes"). Any amounts or any Taxes payable under the Agreement which are not
added to the Payment Amounts due under the Contract are due and payable by
Customer, and Customer shall remain liable for any filing obligations.
Customer's obligation to remit Payment Amounts to OCC or its assignee in
accordance with the Contract is absolute, unconditional, noncancellable,
independent, and shall not be subject to any abatement, set-off, claim,
counterclaim, adjustment, reduction, or defense for any reason, including but
not limited to, any termination of any Agreement, or performance of the System.
2. ASSIGNMENT: Customer hereby consents to OCC's assignment of all or a portion
of its rights and interests in and to the Contract to third-parties
("Assignee"). OCC shall provide Customer notice thereof. Customer and OCC agree
that Assignee shall not, because of such assignment, assume any of OCC's or
Supplier's obligations to Customer. Customer shall not assert against Assignee
any claim, defense, counterclaim or setoff that Customer may have against OCC or
Supplier. Customer waives all rights to make any claim against Assignee for any
loss or damage of the System or breach of any warranty, express or implied, as
to any matter whatsoever, including but not limited to the System and service
performance, functionality, features, merchantability or fitness for a
particular purpose, or any indirect, incidental or consequential damages or loss
of business. Customer shall pay Assignee all amounts due and payable under the
Contract, but shall pursue any claims under any Agreement solely against
Supplier. Except when a Default occurs, neither OCC nor Assignee will interfere
with Customer's quiet enjoyment or use of the System in accordance with the
Agreement's terms and conditions.
3. DEFAULT; REMEDIES: Any of the following shall constitute a Default under the
Contract: (I) Customer fails to pay when due any sums due under any Contract:
(ii) Customer breaches any representation or fails to perform any obligation in
any Contract; (iii) Customer materially breaches or terminates the license
relating to the Software; (iv) Customer defaults under a material agreement with
Assignee; or (v) Customer becomes insolvent or makes an assignment for the
benefit of creditors, or a trustee or receiver is appointed for Customer or for
a substantial part of its assets, or bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against Customer.
In the event of a Default that is not cured within thirty (30) days of its
occurrence, OCC may: (i) require all outstanding Payment Amounts and other sums
due and scheduled to become due (discounted at the lesser of the rate in the
Contract of five percent (5%) per annum simple interest) to become immediately
due and payable by Customer; (ii) pursue any rights provided under the
Agreement, as well as terminate all of Customer's rights to use the System and
related services, and Customer agrees to cease all use of the System; and (iii)
pursue any other rights or remedies available at law or in equity. In the event
OCC institutes any action for the enforcement of the collection of Payment
Amounts, there shall be due from Customer. In addition to the amounts due above,
all costs and expenses of such action, including reasonable attorneys' fees. No
failure or delay on the part of OCC to exercise any right or remedy hereunder
shall operate as a waiver thereof, or as a waiver of any subsequent breach. All
remedies are cumulative and not exclusive, Customer acknowledges that upon a.
default under the Contract, no party shall license, lease, transfer or use any
Software in mitigation of any damages resulting from Customer's default.
4. CUSTOMER'S REPRESENTATIONS AND COVENANTS: Customer represents that,
throughout the term of the Contract, the Contract has been duly authorized and
Constitutes a legal, valid, binding and enforceable agreement of Customer. Any
transfer or assignment of Customer's rights or obligations in the System, or
under the Agreement or the Contract shall require OCC's and Assignee's prior
written consent. A transfer shall include a change in majority ownership of
Customer. Customer agrees to promptly execute any ancillary documents and take
further actions as OCC or Assignee may reasonably request, including, but not
limited to, assignment notifications, acceptance certificates, certificates of
authorization, registrations, and filings. Customer agrees to provide copies of
Customer's balance sheet, income statement, and other financial reports as OCC
or Assignee may reasonably request.
5. MISCELLANEOUS: The Contract shall constitute the entire agreement between
Customer and OCC regarding the subject matter herein and shall supersede any
inconsistent terms set forth in the Order, Agreement or any related agreements,
Customer purchase orders and all prior oral and written understandings. If any
provision of the Contract is invalid, such invalidity shall not affect the
enforceability of the remaining terms of the Contract. Customer's obligations
under the Contract shall commence on the Effective Date specified therein.
Except for payment terms specified in the Contract, Customer remains responsible
for all the obligations under each Agreement. Each Payment Schedule, and any
changes to a Contract or any related document, shall take effect when executed
by OCC. The Contract shall be governed by the laws of the State of California
and shall be deemed executed in Redwood Shores, CA as of the Contract effective
Date.
<PAGE> 7
Customer XCARENET
Location: 6400 SOUTH FIDDLERS GREEN CIRCLE
ENGLEWOOD, CO 80111
Contact: JON WISDA
Phone: 303-488-2019 Fax: 303-488-9705
End User: XCARENET
6400 SOUTH FIDDLERS GREEN CIRCLE
ENGLEWOOD, CO 80111
Contact: JON WISDA
================================================================================
ORACLE CONTRACT INFORMATION
[ ] Agreement: SLSA Attached Effective Date:
DESIGNATED SYSTEM
Make/Model: SUN SPARC / 4 CPU Media Type: CD
Operating System: SOLARIS CSI Number:
<TABLE>
<CAPTION>
Qty License Quantity & Lice
Programs List Each Disc. Extended Net
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Full Use Designer/2000 1 Developer [ * ] [ * ] [ * ]
1 Web Change Management Pack 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Diagnostics Pack 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Intermedia 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Oracle Server EE 8i 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Tuning Pack 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
------------
Sub Total: [ * ]
Initial 1 Year Silver Annual Technical Support [ * ] [ * ] [ * ]
Total License Fee Due: [ * ]
Total Technical Support Fee Due: [ * ]
Total Additional Fees Due:
============
Total Fees Due: [ * ] USD
</TABLE>
MISCELLANEOUS
Customer is licensed to use each Program only on the Designated System(s)
specified in the above Section of this Order Form and for which such Program is
available on the Effective Date. The above Section of this Order Form specifies
the Programs on the particular Designated Systems requested by Customer, which
have been shipped or currently are being shipped to Customer. Oracle shall
deliver to the Customer Location, for use in the U.S, 1 copy of the software
media ("Master Copy") and 1 set of
* Confidential Treatment Requested
<PAGE> 8
ORACLE ORDER FORM Quote #: 312790
Page: 2 of 2
Customer XCARENET
Documentation (in the form generally available) for each Program currently
available in production release as of the Effective Date below for use on the
Designated Systems(s). Customer shall have the right to make up to 1 copy of the
Program(s), including Documentation, for each license of the Program(s) and the
Customer shall be responsible for installation of the software. All fees under
this Order Form shall be due and payable net 30 days from date of invoice, and
shall be non-cancellable and the sums paid nonrefundable. Customer agrees to pay
applicable sales/use tax, media and shipping charges. If Customer loses or
damages the media containing a Program licensed hereunder, upon Customer's
written notice Oracle will provide a replacement copy thereof, under Oracle's
then-current Technical Support policies, for a media and shipping charge. The
following shipping terms shall apply: FOB Destination. Prepaid, and Add. These
terms shall also apply to any options exercised by Customer. Oracle may refer to
Customer as a customer in sales presentations, marketing vehicles and
activities.
TECHNICAL SUPPORT
Annual Technical Support services ordered by Customer will be provided under
Oracle's Technical Supped policies and pricing in effect on the date Technical
Support is ordered and shall be effective upon shipment (or upon Order Form
Effective Date for products not requiring shipment); first year Technical
Support is quoted above, if ordered. Fees for Technical Support are due and
payable annually in advance.
Term License. The Programs ordered under this Order Form and licensed As Power
Units are valid for 2 (#) years from the Effective Date ("Term") unless
otherwise terminated under the Agreement. Upon expiration of the Term Customer
shall cease using the Programs and return or destroy all copies in accordance
with the terms and conditions of the Agreement.
Thank you for your interest in Oracle. If you have any questions please
contact Edward Hut, your Oracle Sales Representative, at at (650) 506-7000.
Customer and Oracle agree that the terms and pricing of this Order Form
shall not be disclosed without prior written consent of the other party.
This Quote is valid through October 26, 1999 and shall become binding upon
execution by Customer and acceptance by Oracle.
This Quote includes the Price List Definitions attachment.
XCARENET ORACLE CORPORATION
Signature: /s/ PETER H. CHEESBROUGH Signature:
------------------------ ------------------------
Name: Peter H. Cheesbrough Name:
------------------------ ------------------------
Title: SR. V.P. FINANCE & CFO Title:
------------------------ ------------------------
Date: October 25, 1999
------------------------
<PAGE> 9
ORACLE PRICE LIST DEFINITIONS
"Concurrent Devices" (or "Concur Dev"): is the maximum number of input devices
accessing the Programs at any given point in time. If multiplexing software or
hardware (e.g. a TP monitor, webserver product) is used, this number must be
measured at the multiplexing front-end.
"Named User" (or "Named") or "Developer": is defined as an individual who is
authorized by Customer to use the Oracle Programs, regardless of whether the
individual is actively using Programs at any given time.
A "Read-Only" User is defined as an individual authorized by the Customer to
only run queries or reports against Oracle Applications Programs. Read-Only
Users are licensed to use any of the Transactional Applications or CRM Sales and
Service Applications for which Customer has acquired Named User licenses.
"Primary Usage" is defined as each licensed user being counted only once as a
designated Named or Casual User of the Oracle Application he will use most.
However, a licensed Named or Casual User may access all Oracle Applications
licensed under the Agreement which have been licensed under the same licensing
methodology, regardless of the designated Oracle Application of primary use.
"Mailbox" is defined as a point from which to send or receive electronic mail.
It is created when a user account or application is created in Oracle Office.
"Computer or Workstation": licensed for use on a single specified computer.
"Processor": shall be defined as the actual number of processors installed in
the licensed Computer and running the Oracle Programs, regardless of the number
of processors which the Computer is capable of running.
"Client": a computer which (1) is used by only one person at a time, and (2)
executes Oracle software in local memory or stores the software on a local
storage device.
"Full Use Programs" are unaltered versions of the Programs with all functions
intact.
"Deployment Programs" may be used only to execute existing applications or
reports. They may not be used to build or modify reports or applications.
Deployment Programs are to be generated by Customer from Full Use Programs.
"Application Specific Programs" (or "App Specific"): shall mean Programs which
are limited to use solely for Customer's application software defined on the
Order Form. Application Specific Programs are to be generated by Customer from
Full Use programs.
A "Web Specific" Program is defined as a Program license which may only be
accessed by third parties via internal networking protocols and which is limited
to use solely for deployment of Customer's public web site. Customer's
application may allow third party web access to a licensed Web Specific Program
solely for viewing, querying or adding data, provided such use is in accordance
with the other terms of the Agreement. No corporate use or internal data
processing by Customer or its clients shall be permitted with a Web Specific
Program. Prohibited corporate and internal uses shall include, but shall not be
limited to, the following types of uses: human resource, finance and
administration, internal messaging and communications, accounting, sales force
management, etc.
A "Web Application Specific" Program is defined as a Program license which may
be accessed and used solely for deployment of Customer's application software as
specified on the Order Form. The Web Application Specific Program may only be
accessed by third parties via internet networking protocols and is limited to
use solely for deployment of Customer's public web site. Customer's application
may allow third party web access to a licensed Web Application Specific Program
solely for viewing, querying or adding data, provided such use is in accordance
with the other terms of the Agreement. No corporate use or internal data
processing by Customer or its clients shall be permitted with a Web Application
Specific Program. Prohibited corporate and internal uses shall include, but
shall not be limited to, the following types of uses: human resource, finance
and administration, internal messaging and communications, accounting, sales
force management, etc.
For Human Resources, Training Administration and Tutor for Human Resources.
"Employee" is defined as an individual who is actively managed by the Programs.
The term "Employee" includes, without limitation, Customer employees,
contractors, retirees, and COBRA, dependents.
For Payroll and Tutor for Payroll, "Employee" is defined as an individual whose
payment or payment calculations, are generated by the Programs. The term
"Employee" includes, without limitation, Customer employees, contractors,
retirees, and employees covered by workers compensation laws or regulations.
For Time Management, "Employee" is defined as an individual who submits
timecards or other time records for payroll processing.
For Self-Service Human Resources, Self-Service Purchasing, Self-Service
Expenses, Financials Intelligence, Operations Intelligence, Purchasing
Intelligence, Process Manufacturing Intelligence, and HR Intelligence,
"Employee" is defined as an active employee of Customer. The value of these
applications is determined by the size of the active employee population not the
number of actual users. Therefore, all active employees of customer must be
included when licensing these applications.
For Call Center Intelligence, "Employee" is defined as the total number of
employees in the Customer's Call Center.
"Foundation Services": This is limited support, and any license for which it is
purchased is not a Supported Program License.
An "Education Unit" entitles Customer to acquire education
<PAGE> 10
PRICE LIST DEFINITIONS
(Continued)
products and services as specified in the Oracle Education catalogue in effect
at the time an Education Unit is utilized. Education Units are only valid for 12
months from the Effective Date of the Order or as specifically stated in the
applicable Order. Education Units may only be used in the country where the
Education Units were acquired or within the Territory defined in the applicable
Order. Customer may be required to execute standard Oracle ordering materials in
conjunction with utilizing Education Units.
"Organizational Change Management Services" are services for assisting Customers
in managing change in their organizations. Customer's discounts for consulting
or training do not apply to such Organizational Change Management Services.
A "Suite" consists of all of the functional software components described in the
Documentation.
"Module": shall mean a functional software component of a Suite or bundle.
"Per Entry": shall mean a unique item (e.g., object, person, entity, or
information) stored within the Programs. Replicated entries stored within the
Program on multiple servers are counted as a single entry.
"Power Unit": One Power Unit is defined as one MHz of power in any Intel
compatible or RISC processor in any computer of the Designated Systems on the
Order Form on which the Programs are installed and operating. The total number
of Power Units is determined by adding together the number of MHz in all the
processors in all such computers. Customer may add processors and computers, or
modify existing processors and computers, provided that if, at any time,
Customer's use exceeds the total number of licensed Power Units, Customer will
acquire licenses for the additional Power Units. At Oracle's request, no more
than once annually, Customer shall certify in writing the Power Unit
computation, including the number of relevant computers and processors, and the
MHz of each such processor. (For example: two computers with two 400 MHz
processors each would equal 1,600 Power Units)
"Bills Presented" is defined as the cumulative number of bills or invoices
delivered, presented and/or posted via the Internet using Program.
"Bill Paid" is defined as each payment or payment authorization of a bill via
the Internet using the Program.
For Service for Communications, TeleBusiness for Telecom/Utilities, CRL
Financial Management, CRL Supply Chain Management, SDP Provisioning, SDP Number
Portability, Revenue Accounting for Communications and Industrial Billing,
"Subscriber" is defined as a working telephone number for all wireline; a
handset or paging device that has been activated by Customer for all wireless
and paging; number of residential drops plus the number of nonresidential
devices serviced by cable providers; a live connected gas meter and a
live/connected electric meter. The total number of Subscribers is equal to the
aggregate of all types of Subscribers.
For Service for Communications, TeleBusiness for Telecom/Utilities, CRL
Financial Management. CRL Supply Chain Management, SDP Provisioning, SDP Number
Portability, Revenue Accounting for Communications and Industrial Billing, if
the Customer's business is not defined in the primary definition of Subscriber
above: "Subscriber" is defined as each U.S. $1,000 increment of Customer's gross
annual revenue as reported to the SEC in Customer's annual report or equivalent
reporting document.
<PAGE> 11
ATTACHMENT
to
QUOTE #312790
between
XCARE.NET
and
ORACLE CORPORATION
Notwithstanding anything to the contrary on the Quote specified above the
following changes are made to this Order Form as of its Effective Date.
1. Customer Definition. For purposes of this Order Form, Customer shall be
defined as the company listed at the head of this Order Form and its majority
owned subsidiaries located in the U.S. as of the Effective Date. Before
accessing the Programs, each subsidiary must agree in writing to be bound by the
terms of the Agreement and this Order Form.
2. Service Bureau. Notwithstanding section 2.1.A.i of the Agreement, Customer
shall have the right to use the Programs licensed under this Order Form for the
purposes of hosting third party health care web sites and limited to the
following functionalities: claims and capitalization processing; authorizations;
referral management; enrollment and eligibility tracking and management;
utilization management; provider contracting; group contracting; benefit design;
Managed Medicaid; Medicare; reporting and documentation, all provided to
Customer by Customer's end users ("End User(s)") as part of Customer's business.
Customer may issue written reports or other written records based on or arising
from its data processing activities for End User. In addition, if such reports
or records are in an electronic data file, Customer may allow End User remote
access to such reports or records for its internal business purposes, and may
permit End User to access the Programs and manipulate the data controlled by
Customer and managed by the Programs, provided that (a) Customer warrants that
it has the authority to bind End User to the terms of the Agreement and this
Order Form, and (b) Customer agrees to be responsible and to indemnify Oracle
for all damages or losses resulting from the breach of this agreement by End
User. End User personnel and devices accessing and manipulating the data
controlled by Customer and managed by the Programs shall be counted for purposes
of Named User and Concurrent Device limitations applying to the Programs.
3. Payment. The Customer's payment obligations to Oracle under this Order Form
as of the Effective Date shall be satisfied by Modis Solutions ("Payor") as
authorized pursuant to a distribution agreement executed between Payor and
Oracle ("Payor Agreement"). Oracle shall receive payments directly from Payor
under the terms of the Payor Agreement. This payment obligation is
non-cancellable and the sum paid is nonrefundable. The financial obligations of
Customer to Payor shall be specified in a separate agreement. Licenses that are
modified or added to this Order Form after the Effective Date shall be at terms
and fees as determined when such licenses are acquired. Applicable sales tax
shall be charged to Payor based on the point of delivery of the Master Copy and
paid under the terms of the Payor Agreement. Payor is responsible for payment of
any use or other tax arising from use of the Programs in any other location.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated October 22, 1999 relating to the financial statements of XCare.net,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Broomfield, Colorado
December 16, 1999
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