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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2000
REGISTRATION NO. 333-90165
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
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 14000
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 14000
ENGLEWOOD, CO 80111
(303) 488-2019
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<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. [ ]
------------------------
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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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 JANUARY 12, 2000
[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 7.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<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................................................ 7
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
</TABLE>
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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.
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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. Our portal applications are designed to
improve workflow efficiencies, reduce administrative costs and enhance
efficiency of the health care delivery and payment system. We use our XCare.net
platform as the central element for a network of business relationships among
healthcare industry participants who use our technology, thus creating
collaborative electronic communities for the exchange of healthcare data,
products and services. We call these communities our Solution Channels, and use
them to distribute our applications, services and product offerings. In
addition, our Solution Channels are designed to provide a means for our
customers, vendors, distributors, co-marketers and others to offer their own
related products and services to each other, as well as to their own customers.
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
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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.
The Internet is currently being used to speed and streamline a variety of
business transactions. Nonetheless, additional improvements in the ability to
search, structure, integrate and filter vast amounts of disparate data and to
dynamically customize and display information in contexts relevant to particular
users would increase the usefulness of Internet-based applications. These
improvements would be particularly useful in health care transaction processing
and information retrieval systems, where streamlining data exchanges among
industry participants can reduce process inefficiencies and costs. The enhanced
capabilities of our Xcare.net platform, applications, services and product
offerings are designed to provide such improvements.
STRATEGY
Our objective is to become a significant 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 customer, vendor, distributor, co-marketing and other
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 XCare.net 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 to offer our existing services, as well as additional
applications, services and products, through 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
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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 14000, Englewood, CO 80111, and our telephone number at that
office is (303) 488-2019.
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RECENT RESULTS
Our results of operations for the three months ended December 31, 1999 are
expected to reflect approximately $2.0 million of revenue (unaudited), an
increase of 146% from $813,000 (unaudited) for the three months ended September
30, 1999. Results of operations for the three months ended December 31, 1999
include all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation and should not be
considered indicative of results to be expected for any future period. See "Risk
Factors -- Our quarterly operating results are likely to fluctuate significantly
and may fail to meet the expectations of security analysts and investors,
causing our share price to decline" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE OFFERING
Common stock offered by us...................... 5,000,000 shares
Common stock to be outstanding after the
offering........................................ 15,363,549 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 was effected in January 2000. 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 give effect to the conversion of all outstanding
convertible preferred stock to common stock, including convertible preferred
stock issuable upon the assumed cashless exercise of all outstanding convertible
preferred stock warrants, and the assumed cashless exercise of all outstanding
common stock warrants. Information in this prospectus also assumes no exercise
of the underwriters' over-allotment option.
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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
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(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 $ (1.00) $ (0.32)
Pro forma weighted average
common shares
outstanding -- basic and
diluted....................... 596 599 4,067 6,724
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED)
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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.
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- 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, 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."
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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, 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;
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- 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 RELATIONSHIPS WITH ESTABLISHED HEALTH CARE INDUSTRY
PARTICIPANTS, WE MAY EXPERIENCE DELAYS IN THE GROWTH OF OUR BUSINESS
Relationships with established health care industry participants are
critical to our success. These relationships include customer, vendor,
distribution and co-marketing relationships. To date, we have established only a
limited number of these relationships, and these relationships are in the early
stages of development. Entering into 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
will grow slowly.
IF WE CANNOT MAINTAIN OUR RELATIONSHIPS WITH ESTABLISHED HEALTH CARE INDUSTRY
PARTICIPANTS, OUR APPLICATIONS, SERVICES AND PRODUCTS MAY NOT ACHIEVE MARKET
ACCEPTANCE
Once we have established a relationship with an established health care
industry participant, we rely on that participant's ability to assist us in
generating increased acceptance and use of our applications, services and
product offerings. We have limited experience in maintaining relationships with
health care industry participants. Additionally, the other parties to these
relationships may not view these 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 them from competing against us directly or from contracting with our
competitors. We cannot guarantee that any such party will perform its
obligations as agreed or contemplated or that we would be able to specifically
enforce any agreement with it. Our arrangements generally do not establish
minimum performance requirements, but instead rely on the voluntary efforts of
the other party. Therefore, we cannot guarantee that these relationships will be
successful. If we were to lose any of these relationships, or if the other
parties were to fail to collaborate with us to pursue additional business
relationships, 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 relationships.
For additional information regarding these 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
processing by the health care industry is still developing. Complexities in the
nature of health care
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transactions and lack of a common technology platform are significant issues in
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 adaptation may entail
substantial costs, may require substantial time and effort, and may not lead to
marketable and competitive products. In addition, if incompatible versions of
the extensible mark-up language standard arise in the market, the market for
extensible mark-up language-based applications may grow slowly or not at all. If
the version of extensive mark-up language for which we have developed
applications, services and product offerings does not gain widespread
acceptance, we will have to adapt our products to another version of extensible
mark-up language, which will 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 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
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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
product. 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. Similar interruptions may 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 due to sharply increased traffic,
which may cause unanticipated system disruptions, slower response times,
impaired
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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
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.
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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.
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,
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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 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.
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
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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 of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our results of operations.
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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 have filed a patent application to protect certain of our
proprietary technology. We cannot assure you that such application 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. Although no material year 2000 problems
with our application, services and product offerings have been brought to our
attention to date, year 2000 problems emerging in the future 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 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
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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,
customers and potential customers may 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 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."
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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 15,363,549
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 10,363,549 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 9,806,386 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 32.5% 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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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, the conversion of the convertible
preferred stock issued upon the assumed cashless 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; 10,363,549 shares outstanding,
pro forma; 15,363,549 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. We also expect to record a charge of
$132,000, during the first quarter of 2000, relating to the settlement of a
dispute with a holder of a warrant to purchase common stock.
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, 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 $4.22
per share. This represents an immediate increase in net tangible book value to
existing stockholders of $3.20 per share and an immediate dilution to new public
investors of $7.78 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... 3.20
-----
Pro forma net tangible book value per share after
offering.................................................. 4.22
------
Dilution per share to new public investors.................. $ 7.78
======
</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......... 10,363,549 67.5% $24,085,569 28.6% $ 2.32
New public investors.......... 5,000,000 32.5 60,000,000 71.4 12.00
---------- ------ ----------- ------
Total.................... 15,363,549 100.0% $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 $ (1.00) $ (0.32)
====== ====== ======= =======
Pro forma weighted average common shares
outstanding -- basic and diluted.......... 596 599 4,067 6,724
====== ====== ======= =======
</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 $13.7 million, of which $7.3
million was received in June 1999 and $6.4 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, $1,441,000 in 2000, $538,000 in 2001, $243,000 in 2002 and $47,000 in
2003.
We expect to record a charge during the first quarter of 2000, of $132,000,
relating to the settlement of a dispute with a holder of a warrant to purchase
common stock.
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 $13.7 million of which $7.3 million was received in
June 1999 and $6.4 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. Although no material
year 2000 problems with our application have been brought to our attention to
date, 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
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<PAGE> 36
total cost of year 2000 problems to be material to our business, financial
condition and operating results. 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. The enhanced integration and filtering capabilities of this
platform are designed 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 significant 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. 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 medication histories and payer rules
among patients, physicians, pharmacy benefit managers,
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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.
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. We believe that the lower cost nature of 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.
The Internet is currently being used to speed and streamline a variety of
business transactions. Nonetheless, additional improvements in the ability to
search, structure, integrate and filter vast amounts of disparate data and to
dynamically customize and display information in contexts relevant to particular
users would increase the usefulness of Internet-based applications. These
improvements would be particularly useful in health care transaction processing
and information retrieval systems, where streamlining data exchanges among
industry participants can reduce process inefficiencies and costs. In order for
an Internet-based health care solution to be successful, the following key
technology and business components are important:
- 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. Our technology
platform, applications, services and product offerings are designed to enhance
the efficiency of the health care delivery and payment system. Our approach to
the market is based on the following:
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.
Solution Channels that provide value to other healthcare industry
participants. We use our XCare.net platform as the central element for a network
of business relationships among healthcare industry participants who use our
technology, thus creating collaborative electronic communities for the exchange
of healthcare data, products and services. We call these communities our
Solution Channels, and use them to distribute our applications, services and
product offerings through our Solution Channels, in addition to our normal sales
activities. In addition, our Solution Channels are designed to provide a means
for our customers, vendors, distributors, co-marketers and others to offer their
own related products and services to each other, as well as to their own
customers. 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. Our
Solution Channels distribution model is designed to promote new applications,
services and electronic commerce product offerings that are either internally
developed or obtained through our growing number of customer and vendor
relationships. This cross-selling approach is designed to simplify the sales
process, and may shorten our sales cycle and reduce our cost of sales.
Penetrate target market segments. We will continue to target the more than
12,000 entities in the payer/third-party administrator, at-risk provider and
health care supplier market segments. These potential customers have the
influence to drive change in health care processes, and have the incentive to
lower their operating costs by adopting new process improvement technologies
such as the Internet.
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 applications, service and product
offerings that streamline mission critical processes and transactions such as
managed care administration and personnel management. These applications,
services and product offerings offer the highest value to health care
participants and are readily adaptable to our XCare.net platform.
Form customer, vendor, distributor, and co-marketing relationships with
leading health care participants. We are aggressively pursuing 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. These relationships are intended to accelerate 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. The enhanced capabilities of this platform are designed 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 participants. We
expect extensible mark-up language to be a predominant protocol
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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. They address the problem of excess information and
provide 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 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
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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 & Facilitates staffing, scheduling, management and reporting
Scheduling* 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.
Breathnet LLC
Delta Health Systems
Methodist Care, Inc.
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, Incorporated
Health Care Suppliers ADIS International Ltd
Clinical Solutions LLC
Expert Practice Inc.
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 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., Exodus
Communications 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 have filed a patent application 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.
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.
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
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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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<PAGE> 53
FACILITIES
Our principal executive and corporate offices are located in Englewood,
Colorado, in approximately 21,978 square feet of subleased office space under a
sublease that expires on December 30, 2001. We also sublease 4,145 square feet
of office space in the same building, which expires on December 30, 2002. 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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<PAGE> 54
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
Fred L. Brown(3)......................... 59 Director
J. Andrew Cowherd(2)..................... 46 Director
James B. Hoover(2)....................... 44 Director
L. Ben Lytle(4).......................... 53 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.
(3) Director as of December 30, 1999.
(4) Director as of January 11, 2000.
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.
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<PAGE> 55
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 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.
Fred L. Brown. Mr. Brown has been a director of XCare.net since December
30, 1999. Since January 1999, Mr. Brown has been Chairman of the American
Hospital Association, a public policy advocate and educational think tank for
the American hospital industry. From June 1993 until December 1998, Mr. Brown
was the founding President and Chief Executive Officer of BJC Health System, a
healthcare organization comprised of a comprehensive health network featuring
200 care sites, 30,000 care givers and physicians, and health plans covering
more than 200,000 patients. From January 1986 until February 1993, Mr. Brown was
President of Christian Hospital Northeast-Northwest. Mr. Brown is also currently
a director of Citation Computers, Inc., a publicly traded company that designs,
develops, markets and supports patient-centered clinical information systems for
health care providers; Superior Consultant Company, a publicly traded company
that consults for a broad cross-section of the health care industry; the
Advisory Board of American's Doctor.com, a privately held
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company; the Healthcare Research and Development Institute, a research institute
comprised of 35 chief executives who direct hospitals and major health care
systems that undertake research studies; and Morrison Management Specialists,
Inc., a publicly traded company that provides food, nutrition and dining
services to the health care senior living industries. He is also a Visiting
Professor at George Washington University in Washington, D.C., and has been a
member of President Clinton's Council of Year 2000 Conversion since January
1999. Mr. Brown received his B.A. in 1962 from Northwestern University, his M.A.
in 1966 from George Washington University, and a doctorate of humane letters
from the University of Missouri-St. Louis.
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 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.
L. Ben Lytle. Mr. Lytle has been a director of XCare.net since January 11,
2000. Since 1992, Mr. Lytle has been the Chairman of the Board of Anthem, Inc.,
a mutual insurance company that provides a wide range of managed care products
including health maintenance organizations, preferred provider organizations and
point of service organizations and integrated health networks. From 1982 to
1989, Mr. Lytle also served as Anthem, Inc.'s Chief Operating Officer. He served
as President and CEO of Anthem, Inc. from 1989 to October 1999. Mr. Lytle serves
on the boards of directors of IPALCO Enterprises, a publicly traded energy
company; Central Newspapers, Inc., a publicly traded media company; CID Equity
Partners, a venture capital firm; Duke REIT, a publicly traded real estate
investment firm; and AllScripts, Inc., a publicly traded electronic
pharmaceutical dispensing firm. Mr. Lytle is a Fellow with the American
Enterprise Institute of Washington, D.C., and a guest lecturer at the University
of Arizona School of Business. He also served on President Clinton's Commission
on Consumer Protection and Quality in the Health Care Industry. Mr. Lytle
received his B.A. in 1970 from East Texas University, and his J.D. in 1980 from
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.
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<PAGE> 57
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
XCare.net's board of directors consists of nine 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, Fred L. Brown, and L. Ben Lytle
are the Class I directors whose terms expire 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 then
in office other than Lorine R. Sweeney, our President and Chief Executive
Officer, was granted an option to purchase 10,000 shares of common stock. In
December 1999, Fred L. Brown was granted an option to purchase 25,000 shares of
common stock. In January, 2000, L. Ben Lytle was granted an option to purchase
25,000 shares of common stock. See "Management -- 1999 Director Option 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 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
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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.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during the year ended December 31, 1999, for services rendered during
1999, 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 $2,815
President and Chief Executive Officer
Lawrence S. Dike................................... 135,000 -- 3,909
Senior Vice President and Chief Scientist
Mark Rangell....................................... 135,000 2,814
Senior Vice President, Sales and Marketing
Tammy McLaren...................................... 113,462 $1,500 2,665
Vice President, Professional Services
Jon Wisda.......................................... 106,154 -- 2,123
Vice President, Product Development
</TABLE>
- -------------------------
(1) Consists of premiums we paid for life insurance, dental insurance, health
insurance and long-term disability insurance for each executive officer.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted in 1999 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........... 151,100 12.9% $0.25 03/16/09 $ 23,756 $ 60,204
285,726 24.3 2.70 09/01/09 485,167 1,229,509
Lawrence S. Dike............ -- -- -- -- -- --
Mark Rangell................ 60,300 5.1 0.25 03/16/09 9,481 24,026
66,800 5.7 2.70 09/01/09 113,427 287,447
Tammy McLaren............... 50,000 4.3 0.25 02/08/09 7,861 19,922
44,000 3.7 2.70 09/01/09 74,713 189,337
Jon Wisda................... 50,000 4.3 0.25 02/08/09 7,861 19,922
30,000 2.6 2.70 09/01/09 50,940 129,093
</TABLE>
In 1999, we granted options to purchase an aggregate of 1,175,276 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, 1999.
The value of in-the-money options is based on a value of $10.00 per share, the
fair market value of our common stock at December 31, 1999, as determined by our
board, and net of the option exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney......... 80,000 216,000 788,726 -- $6,990,050 --
Lawrence S. Dike.......... -- -- -- -- -- --
Mark Rangell.............. 22,800 61,560 277,200 -- $2,539,040 --
Tammy McLaren............. 20,000 54,000 80,000 -- $ 672,200 --
John Wisda................ -- -- 80,000 $ 706,500 --
</TABLE>
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The number of unexercised options at December 31, 1999 which are
exercisable reflects 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 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
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<PAGE> 61
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 approved by our stockholders in January 2000, 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 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
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<PAGE> 62
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 approved by our stockholders in January 2000, 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 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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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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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. On
December 30, 1999, we granted an option to purchase 25,000 shares of common
stock to Fred L. Brown, a director appointed to our board on that date. The
option has an exercise price of $10.00 per share. Twenty-five percent of the
shares subject to the option vest on December 30, 2000, and 1/48th of the shares
vest at the end of each month after December 30, 2000, subject to the continued
service of Mr. Brown as a director. On January 11, 2000, we granted an option to
purchase 25,000 shares of common stock to L. Ben Lytle, a director appointed to
our board on that date. The option has an exercise price of $10.00 per share.
Twenty-five percent of the shares subject to
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the option vest on February 10, 2002, and 1/48th of the shares vest at the end
of each month after January 10, 2000, subject to the continued service of Mr.
Lytle 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.
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 cashless exercise of all outstanding convertible preferred stock
warrants, and the cashless exercise of all outstanding common stock warrants.
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
10,363,549 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 14000, 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 27.9% 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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<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 87.2 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,
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 10,363,549 shares of common stock outstanding held of record by
approximately 36 stockholders. There will be 15,363,549 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 1.144
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 9,806,386 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 such
registration and are entitled to include shares of common stock in the
registration. The rights are
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<PAGE> 70
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.
Our stockholders approved these amendments in January 2000. 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.
67
<PAGE> 71
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
15,363,549 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 10,363,549
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
- 10,363,549 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>
UNDERWRITERS 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 375,000 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.
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, except for the last two paragraphs
of note 9 which are as of January 10, 2000
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; 10,363,549 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)....... $ (1.00) $ (0.32)
======= =======
Pro forma weighted average common
shares basic and
diluted -- (unaudited).............. 4,067 6,724
======= =======
</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 $ 97 $ 73
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, 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 9,806,386 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, 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................. 32 207
------- -------
Pro forma weighted average common shares
outstanding -- basic and diluted
(unaudited).............................. 4,067 6,724
======= =======
</TABLE>
Potentially dilutive securities totaling 1,782,855 and 5,737,092 for the
years ended December 31, 1997 and 1998, respectively, and 5,421,062 and
11,311,864 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. There were two related party lenders, each of
which is represented by one of its general partners on our board of directors.
One of those directors is the chairman of the board. 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. There were two related party lenders, each of which is
represented by one of its general partners on our board of directors. One of
those directors is the chairman of the board. These were the same related
parties that invested in the December 29, 1997 and April 10, 1998 bridge loans
described above. 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
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 $6,420,000.
F-14
<PAGE> 92
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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.
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 1.144
shares of common stock for each share of Series A mandatorily redeemable
convertible preferred stock. The 63,053,144 shares of Series B mandatorily
redeemable convertible preferred stock are convertible at the option of the
holders into 6,305,322 shares of common stock, reflecting the rounding upwards
of all resulting fractional shares. 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
F-15
<PAGE> 93
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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 $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
F-16
<PAGE> 94
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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
$0.79, $0.06 and $0.46 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
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 $0.28 424,885 $0.32
========= =======
</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 12,967 2.80
Options granted............................. 1,120,600 0.25
Less: options forfeited..................... (22,351) 1.10
----------
Options outstanding, December 31, 1998...... 1,130,117 0.28 424,885 0.32
Options granted (unaudited)................. 1,029,825 1.82
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, certain of which had
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 $96,000 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 effected a one-for-ten reverse stock split of its common stock
in January 2000. 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.
In January 2000, in order to settle a dispute, the board of directors
agreed to revise the exercise price of a warrant to purchase 12,250 shares of
common stock from $31.46 per share to $3.146 per share. As a result the Company
expects to record a charge of $132,000 during the first quarter of 2000.
F-21
<PAGE> 99
"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. We process transactions such as eligibility
checking, claims submission, referral processing, physician credentialing and
appointment scheduling.
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 109
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 with wide
geographic dispersion, a larger number of participants and significant
differences in technology infrastructure. Because health care is delivered
locally, there are hundreds of thousands of market participants in different
locations. In addition, 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
A-2
<PAGE> 101
Script: (Lorine Sweeney) (see "Business -- Overview -- Market
Characteristics"): Furthermore, health care is delivered in a marketplace which
has become increasingly complex. As managed care has become more prevalent and
the number of payers has increased, provider reimbursement and general
administration has become increasingly burdensome. Adding to the complexity are
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 significant 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
A-3
<PAGE> 102
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. Our portal applications are designed to improve workflow efficiencies,
reduce administrative costs and enhance efficiency of the health care delivery
and payment system. Our approach to the market is based on the following:
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 will review extensible
mark-up language in greater detail when we discuss technology on slide 18. 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 "Solution Channels" that provide value to other health care industry
participants.
Script: (Lorine Sweeney) (see "Business -- Our Solution"): We use our
XCare.net platform as the central element for a network of business
relationships among health care industry participants who use our technology,
thus creating collaborative electronic communities for the exchange of
healthcare data, products and services. We call these communities our Solution
Channels, and use them to distribute our applications, services and product
offerings. In addition, our Solution Channels are designed to provide a means
for our customers, vendors, distributors, co-marketers and others to offer their
own related products and services to each other, as well as to their own
customers.
A-4
<PAGE> 103
Visual 12: XCare.net Strategy
Imagery: Border and Company logo. XCare.net logo along with the word
"Strategy" 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, our Solution Channels
distribution model is designed to promote new applications, services and
electronic commerce product offerings that are either internally developed or
obtained through our growing number of customer and vendor relationships. This
cross-selling approach is designed to simplify 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 along with the word "Strategy" 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 will continue to
target the more than 12,000 entities in the payer/third-party administrator,
at-risk provider and health care supplier market segments. These potential
customers have the influence to drive change in health care processes, and have
the incentive to lower their operating costs by adopting new process improvement
technologies such as the Internet.
Visual 14: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo along with the word "Strategy" 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 along with the word "Strategy" 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 along with the word "Strategy" 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 customer, vendor, distributor and co-marketing relationships with
leading health care participants
Script: (Lorine Sweeney) (see "Business -- Strategy"): We are aggressively
pursuing 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. These relationships are
intended to accelerate 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. Footnote will read, "* We are
currently marketing these applications and product offerings but have not yet
recognized revenue from sales."
- --------------------------------------------------------------------------------
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 facilitates 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 109
of the Registration Statement for a description of the image located on page 40
of the prospectus.
Visual Text: Title: Technology
Script: (Lorine Sweeney) (see "Summary" and "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. The
enhanced capabilities of this platform are designed to meet the demands of
health care industry 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. 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 participants. 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
A-7
<PAGE> 106
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.
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 - Expert Practice Inc.
- - Breathnet LLC - Employers Mutual, Inc., a - NotifyMD, Inc.
- - Delta Health Systems wholly owned subsidiary of - Nursefinders, Inc.
- - Methodist Care, Inc. Florida Physicians Insurance
- - Quest Diagnostics Incorporated Company, and Brokerage Services,
- - University of Southern Inc., a division of Employers
California -- Doheny Eye Mutual, Inc.
Institute - Provider Services,
Incorporated
</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 members of the XCare.net
community such as American Medical Pathways, Inc., a subsidiary of American
Medical Response, Inc.
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-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 -- September 30, 1999). See table on page 30 of the Registration
Statement.
Visual Text: Title: Financial Summary. "Quarterly Results of Operations"
table.
A-8
<PAGE> 107
Script: (Peter Cheesbrough) (See "Summary -- Recent Results,"
"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.
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.
In closing, although we have not yet completed the audit for the year ended
December 31, 1999, our results of operations for the three months ended December
31, 1999 are expected to reflect approximately $2.0 million of revenue
(unaudited), an increase of 146% from $813,000 (unaudited) for the three months
ended September 30, 1999.
A-9
<PAGE> 108
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
DESCRIPTION OF ARTWORK
[Artwork on page 35]
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.40]
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> 110
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> 111
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> 112
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> 113
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> 114
LOGO
<PAGE> 115
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 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
II-1
<PAGE> 116
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 was not an accredited investor represented to XCare.net
that he or she had such knowledge and
II-2
<PAGE> 117
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 212,250 shares of common stock at exercise
prices per share ranging from $0.10 to $31.46. The exercise price of the
warrant issued on March 12, 1997 was revised from $31.46 per share to
$3.146 per share in January 2000 to settle a dispute. This warrant expires
on March 12, 2005 or upon the closing of our initial public offering if
earlier. 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.
II-3
<PAGE> 118
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.
3.3+ Bylaws of Registrant.
3.4 Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant effectuating a reverse stock
split.
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>
II-4
<PAGE> 119
<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 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.
10.34** Professional Services Agreement, dated September 9, 1999, by
and between Registrant and Asthma Management Company.
10.35 Consulting Services Agreement, dated November 29, 1999 by
and between Registrant and Decision Consultants, Inc.
10.36 Sublease dated December 17, 1999 by and between Registrant
and The Pittsburgh & Midway Coal Mining Co.
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
II-5
<PAGE> 120
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-6
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 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 11th day of January 2000.
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. 2 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 January 11, 2000
- ----------------------------------------------------- Executive Officer (Principal
Lorine R. Sweeney Executive Officer)
* Senior Vice President, January 11, 2000
- ----------------------------------------------------- Finance and Chief Financial
Peter H. Cheesbrough Officer (Principal Financial
and Accounting Officer)
* Chairman of the Board January 11, 2000
- -----------------------------------------------------
Jeffrey M. Krauss
/s/ FRED L. BROWN Director January 11, 2000
- -----------------------------------------------------
Fred L. Brown
* Director January 11, 2000
- -----------------------------------------------------
J. Andrew Cowherd
* Director January 11, 2000
- -----------------------------------------------------
James B. Hoover
/s/ L. BEN LYTLE Director January 11, 2000
- -----------------------------------------------------
L. Ben Lytle
* Director January 11, 2000
- -----------------------------------------------------
Daniel J. Mitchell
* Director January 11, 2000
- -----------------------------------------------------
William F. Reilly
* Director January 11, 2000
- -----------------------------------------------------
Robert Tsao
*By: /s/ LORINE R. SWEENEY
------------------------------------------------
Lorine R. Sweeney
Attorney-in-fact
</TABLE>
II-7
<PAGE> 122
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Lorine R. Sweeney and
Peter Cheesbrough and each one of them, his true and lawful attorney-in-fact and
agents, each with full power of substitution, for his and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and any registration
statement related to the offering contemplated by this registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933 and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done or by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ FRED L. BROWN Director January 11, 2000
- -----------------------------------------------------
Fred L. Brown
/s/ L. BEN LYTLE Director January 11,2000
- -----------------------------------------------------
L. Ben Lytle
</TABLE>
II-8
<PAGE> 123
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.
3.4 Amendment to the Amended and Restated Certificate of
Incorporation of Registrant effecting a reverse stock split.
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.
</TABLE>
<PAGE> 124
<TABLE>
<S> <C>
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.
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.
10.34** Professional Services Agreement, dated September 9, 1999, by
and between Registrant and Asthma Management Company.
10.35 Consulting Services Agreement, dated November 29, 1999, by
and between Registrant and Decision Consultants, Inc.
10.36 Sublease dated December 17, 1999 by and between Registrant
and The Pittsburgh & Midway Coal Mining Co.
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 3.1
AMENDED & RESTATED CERTIFICATE OF INCORPORATION
OF
XCARE.NET, INC.
A DELAWARE CORPORATION
Lorine Sweeney and Lawrence Dike hereby certify that:
1. They are the President and Secretary, respectively, of Xcare.Net,
Inc., a Delaware corporation (formerly "Reilly Dike Dosher"), (the
"Corporation") incorporated on March 29, 1989.
2. The Certificate of Incorporation of the Corporation, is hereby
amended and restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is XCare.Net, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, in the County of New
Castle, and the name of the Corporation's registered agent at such address is
The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock ("Common Stock") and Preferred Stock (the
"Preferred" or the "Preferred Stock"), each $.01 par value. The total number of
shares of Common Stock the Corporation shall have authority to issue is
125,000,000 and the total number of shares of Preferred Stock the Corporation
shall have authority to issue is 81,000,000 subject to the provisions herein.
The rights, preferences, privileges and restrictions granted to or imposed on
the Preferred are as set forth below.
There shall be designated a Series A Preferred Stock (the "Series A
Preferred"), and the number of shares constituting such series shall be
6,000,000. There shall be designated a Series B Preferred Stock (the "Series B
Preferred"), and the number of shares constituting such series shall be
75,000,000.
<PAGE> 2
A. Dividends. The holders of the Series A Preferred shall be entitled
to receive, when and as declared by the Board of Directors, out of any assets at
the time legally available therefor, dividends for each share of Series A
Preferred Stock in an amount equal to the equivalent dividend declared on the
number of shares of Common Stock into which each share of Series A Preferred
Stock is then convertible, payable in preference and priority to any payment of
any dividend on Common Stock of the Corporation. The holders of Series B
Preferred shall be entitled to receive non-cumulative dividends at a rate of 8%
of $.027 per share per annum (as adjusted for any stock splits, stock dividends,
recapitalizations or the like with respect to the Series B Preferred Stock)
payable in preference and priority to any payment of any dividend on Common
Stock of the Corporation. No dividends or other distributions shall be made with
respect to the Common Stock, other than dividends payable solely in Common
Stock, unless such dividends on the Preferred have been concurrently paid or set
apart. No right to such dividends shall accrue to holders of Preferred unless
declared by the Board of Directors; provided that no dividends on the Common
Stock shall be declared unless the required dividends on the Preferred are
concurrently declared. The holders of the Preferred shall be entitled to receive
all declared but unpaid dividends on the Preferred upon any automatic conversion
of the Preferred into Common Stock.
Dividends shall not be paid to holders of the Preferred unless the
Corporation is legally able to make such payment.
B. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the shareholders of the Corporation shall be made in the
following manner:
1. The holders of the Preferred shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock by reason of their
ownership of such stock, the amount of $2.86 per share for each share of Series
A Preferred then held by them, adjusted for any combinations, consolidations, or
stock distributions or dividends with respect to such shares and, in addition,
an amount equal to all declared but unpaid dividends on the Series A Preferred;
and the amount of $0.27 per share for each share of Series B Preferred then held
by them, adjusted for any combinations, consolidations, or stock distributions
or dividends with respect to such shares, and, in addition, an amount equal to
all declared but unpaid dividends on the Series B Preferred.
2. If the assets and funds thus available for distribution
among the holders of the Preferred shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amount, then the entire
amount of the assets and lands of the Corporation so available shall be
distributed among the holders of the Preferred in proportion to the number of
Common Shares into which each share of Preferred is convertible. The conversion
ratio of Series A Preferred to Common is is 1:11.44, and the conversion ratio of
Series B Preferred to Common 1:1. After payment has been made to the holders of
the Preferred of the full amount to which they shall be entitled as aforesaid,
any remaining assets shall be distributed ratably to the holders of the
corporation's stock, each share of Preferred Stock being treated for such
purpose as the number of shares of Common Stock into
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which it could then be converted, provided however that the Preferred shall stop
participating once they have achieved a total liquidation equal to five times
the original cost of the Preferred.
3. For purposes of this Section B, a merger or consolidation
of the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, in which
consolidation or merger the stockholders of the Corporation do not retain a
majority of the voting power in the surviving entity (or its parent Corporation
if the surviving entity is wholly owned by parent Corporation) as a result of
such consolidation or merger, or a sale of all or substantially all of the
assets of the corporation, shall be treated as a liquidation, dissolution or
winding up of the Corporation.
4. Notwithstanding this Section B, the Corporation may at any
time, out of funds legally available therefor, repurchase shares of Common Stock
of the Corporation issued to or held by employees, officers or consultants of
the Corporation or its subsidiaries upon termination of their employment or
services, pursuant to any agreement providing for such right of repurchase,
whether or not dividends on the Preferred shall have been declared and funds set
aside therefor, and such repurchases shall not be subject to the liquidation
preference of the Preferred.
C. Voting Rights. Except as otherwise required by law or as otherwise
provided herein, the holders of the Preferred and the holders of Common Stock
shall be entitled to notice of any shareholders' meeting and to vote as a single
class upon any matter submitted to the shareholders for a vote, as follows: (i)
except as provided for in this Restated Certificate of Incorporation each holder
of Series A Preferred Stock and Series B Preferred Stock shall have the voting
rights and powers of Common Stock into which its respective shares of Preferred
would be convertible on the record date for the vote and (ii) the holders of
Common Stock have one vote per share of Common Stock.
D. Conversion. The holders of the Preferred have conversion rights as
follows (the "Conversion Rights"):
1. Right to Convert.
(1) Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Series A Preferred, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $2.86 by the Series A
Conversion Price, determined as hereinafter provided, in effect at the time of
the conversion. The price at which shares of Common Stock shall be deliverable
upon conversion (the "Series A Conversion Price") shall initially be $0.25 per
share of Common Stock. Such initial Series A Conversion Price shall be subject
to adjustment as hereinafter provided.
(2) Each share of Series B Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
the issuance of such share at the office of the Corporation or any transfer
agent for the Series B Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $0.27 by the
Series B Conversion, determined as hereinafter provided, in effect at the time
of the conversion. The price at
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which shares of common stock shall be deliverable upon conversion (the "Series B
Conversion Price") shall initially be $0.27 per share of Common Stock. Such
initial Series B Conversion Price shall be subject to adjustment as hereinafter
provided.
2. Automatic Conversion. Each share of Preferred shall be
converted into shares of Common Stock at the then effective Conversion Price
automatically upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act") (except for an offering pursuant to Rule
145 promulgated under the Securities Act or any issuance pursuant to an employee
benefit plan of the Corporation), covering the offer and sale of Common Stock
for the account of the Corporation to the public with gross proceeds to the
Corporation of more than $15 million, and at a minimum offering price of three
and one-half (3 1/2) times the original price of the Series B Preferred. In the
event of the automatic conversion of the Preferred upon a public offering as
aforesaid, the person(s) entitled to receive the Common Stock issuable upon such
conversion of Preferred shall not be deemed to have converted such Preferred
until immediately prior to the closing of such sale of securities.
3. Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Preferred. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price. Before any holder of Preferred shall be entitled to convert the same into
shares of Common Stock and to receive certificates therefor, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same; provided, however, that in the event of an automatic
conversion pursuant to Section D.2, the outstanding shares of Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred are either delivered to the Corporation or its transfer
agent as provided above, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Preferred, a certificate or certificates for the number
of shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred to be converted, or in the case of
automatic conversion on the date of closing of the offering, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
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4. Adjustments to Conversion Price for Diluting Issues.
(1) Special Definitions. For purposes of this
subsection D.4, the following definitions shall apply:
(a) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(b) "Original Issue Date" shall mean the
date on which the first share of Series A Preferred, or Series B Preferred, as
appropriate, was issued.
(c) "Convertible Securities" shall mean
any evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock.
(d) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to subparagraph
D.4(3) deemed to be issued) by the Corporation after the Original Issue Date,
other than shares of Common Stock issued or issuable:
(i) upon conversion of shares of
Preferred Stock;
(ii) as a dividend or distribution
on Preferred Stock or any event for which adjustment
is made pursuant to subparagraph D.4(6) hereof;
(iii) pursuant to equipment lease
financing transactions approved by the Board of
Directors;
(iv) to directors and employees of,
and consultants to, the Corporation in a manner
determined by the Board of Directors pursuant to a
plan approved by the Board or Directors;
(v) upon exercise of the warrant
issued March 12, 1997, to Counterpart Capital
Corporation; or
(vi) by way of dividend or other
distribution on shares of Common Stock excluded from
the definition of Additional Shares of Common Stock
by the foregoing clause(s) (i), (ii), (iii), (iv),
(v), or this clause (vi);
(2) No Adjustment of Conversion Price. No adjustment
in the number of shares of Common Stock into which the Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price of such
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price of such series of Preferred Stock in effect on the date of, and
immediately prior to, the issue of such Additional Share of Common Stock.
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(3) Deemed Issuances of Additional Shares of
Common Stock.
(a) Options and Convertible Securities. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in the case such a record date shall
have been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued with
respect to an adjustment of the Conversion Price for the Preferred Stock unless
the consideration per share (determined pursuant to subsection D.4(5) hereof) of
such Additional Shares of Common Stock would be less than the Conversion Price
of such series of Preferred Stock in effect on the date of and immediately prior
to such issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are deemed to
be issued:
(i) no further adjustment in the
Conversion Price shall be made upon the subsequent
issue of such Convertible Securities or shares of
Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible
Securities;
(ii) if such Options or Convertible
Securities by their terms provide, with the passage
of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or
decrease or increase in the number of shares of
Common Stock issuable, upon the exercise, conversion
or exchange thereof, the Conversion Price computed
upon the original issue thereof (or upon the
occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the
rights of conversion or exchange under such
Convertible Securities;
(iii) upon the expiration of any
such Options or any rights of conversion or exchange
under such Convertible Securities which shall not
have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the
occurrence of a record date with respect thereto) and
any subsequent adjustments based thereon shall, upon
such expiration, be recomputed as if:
1. in the case of
Convertible Securities or Options for Common Stock
only the Additional Shares of Common Stock issued
were
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the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities
and the consideration received therefor was the
consideration actually received by the Corporation
for the issue of such Options, whether or not
exercised, plus the consideration actually received
by the Corporation upon such exercise or for the
issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional
consideration, if any, actually received by the
Corporation upon such conversion or exchange, and
2. in the case of Options
for Convertible Securities only the Convertible
Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue
of such Options, and the consideration received by
the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the
consideration actually received by the Corporation
for the issue of such Options, whether or not
exercised, plus the consideration deemed to have been
received by the Corporation (determined pursuant to
subsection D.4(5)) upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised;
(iv) no readjustment pursuant to
clause (ii) or (iii) above shall have the effect of
increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of
Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(v) in the case of any Options which
expire by their terms not more than 30 days after the
date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration
or exercise of all such Options issued on the same
date, whereupon such adjustment shall be made in the
same manner provided in clause (iii) above; and
(vi) if such record date shall have
been fixed and such Options or Convertible Securities
are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price
which became effective on such record date shall be
canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be
adjusted pursuant to this subsection D.4(3) as of the
actual date of their issuance.
(b) Stock Dividends, Stock Distributions
and Subdivisions. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock, or effect a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise
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<PAGE> 8
than by payment of a dividend in Common Stock), then and in any such event,
Additional Shares of Common Stock shall be deemed to have been issued:
(i) in the case of any such dividend
or distribution, immediately after the close of
business on the record date for the determination of
holders of any class of securities entitled to
receive such dividend or distribution, or
(ii) in the case of any such
subdivision, at the close of business on the date
immediately prior to the date upon which such
corporate action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been paid on the date fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and thereafter the Conversion
Price shall be adjusted pursuant to this subsection D.4(3) as of the time of
actual payment of such dividend.
(4) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
(a) Adjustment of Conversion Price. In the
event this Corporation issues Additional Shares of Common Stock (including
Additional Shares of Common deemed to be issued pursuant to Section D.4(3)) for
a consideration per share less than the Conversion Price in effect on the date
of and immediately prior to such issuance, then and in such event, the
Conversion Price of the Preferred shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) equal to the consideration
per share for which such Additional Shares are issued. If such Additional Shares
of Common Stock are issued for no consideration, then the consideration for the
purchase shall be deemed to be $0.01.
(b) Waiver of Adjustment of Conversion
Price. Notwithstanding anything herein to the contrary, the operation of, and
any adjustment of the Conversion Price pursuant to, this Section D.4(4)(a) may
be waived with respect to any specific share or shares of Preferred Stock,
either prospectively or retroactively and either generally or in a particular
instance by a writing executed by the registered holder of such share or shares.
Any waiver pursuant to this subsection D.4(4)(b) shall bind all future holders
of such shares of Preferred Stock for which such rights have been waived. In the
event that waiver of adjustment of Conversion Price under this subsection
D.4(4)(b) results in different Conversion Price for shares of Preferred Stock,
the Secretary of the Corporation shall maintain a written ledger identifying the
Conversion Price for each share of Preferred Stock; provided, that any holder of
the Preferred may request that the Corporation, at the Corporation's expense,
have verified the Conversion Price for such holder's shares by the certified
public accountants of the Corporation. Such information shall be made available
to any person upon request. For the purposes of subsection D.4, if different
shares of Preferred Stock have more than one Conversion Price as result of a
waiver of adjustment of Conversion Price under this subsection D.4(4)(b), the
Conversion Price for triggering any future adjustment of the Conversion Price of
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<PAGE> 9
shares of Preferred Stock which have not had such adjustment waived shall be the
lowest Conversion Price in effect with respect to shares of Preferred Stock.
(5) Determination of Consideration. For purposes of
this subsection D.4, the consideration received by the corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration
shall:
(i) insofar as it consists of cash,
be computed at the aggregate amount of cash received
by the corporation excluding amounts paid or payable
for accrued interest or accrued dividends;
(ii) insofar as it consists of
property other than cash, be computed at the fair
value thereof at the time of such issue, as
determined in good faith by the Board of Directors;
and
(iii) in the event Additional Shares
of Common Stock are issued together with other shares
or securities or other assets of the Corporation for
consideration which covers both, be the proportion of
such consideration so received, computed as provided
in clauses (i) and (ii) above, as determined in good
faith by the Board of Directors.
(b) Options and Convertible Securities.
The consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to subsection D.4(3)(a),
relating to Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any,
received or receivable by the Corporation as
consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in
the instruments relating thereto, without regard to
any provision contained therein for a subsequent
adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange
of such Convertible Securities, by
(ii) the maximum number of shares of
Common Stock (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities.
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(6) Adjustments for Subdivisions, Combinations or
Consolidation of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock split, or otherwise), into a greater number
of shares of Common Stock, the Conversion Price for the Preferred Stock in
effect immediately prior to such event shall, concurrently with the
effectiveness of such subdivision, be proportionately decreased. In the event
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price for the Preferred Stock in effect immediately prior to such
event shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(7) Adjustments for Other Distributions. In the
event the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock or payable in rights to receive securities of the Corporation and
other than as otherwise adjusted in this Section D.4, then and in each such
event provision shall be made so that the holders of Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which
they would have received had their Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section D.4 with
respect to the rights of the holders of the Preferred Stock.
(8) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above and other than a reorganization, merger, consolidation or
sale of assets provided for above), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the
Preferred Stock immediately before that change.
(9) Reorganization, Mergers, Consolidations, or
Sales of Assets. This Subsection D.4(9) shall not apply if Section B hereof is
applicable. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification, or exchange of shares provided for elsewhere in this Section
D) or a merger or consolidation of this Corporation with or into another
corporation, or the sale of all or substantially all of this Corporation's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation, or sale, provision shall be made so that
the holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock held by them, the number of shares of stock or
other securities or property of this Corporation, or of the
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successor corporation resulting from such merger or consolidation or sale, to
which a holder of Common Stock deliverable upon conversion would have been
entitled up on such capital reorganization, merger, consolidation, or sale. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section D with respect to the rights of the holders of the
Preferred Stock after the reorganization, merger, consolidation, or sale to the
end that the provisions of this Section D (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.
5. No Impairment. Except in accordance with Section E below,
the Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section D and in the
taking of all such action as may be necessary of appropriate in order to protect
the Conversion Rights of the holders of the Preferred against impairment.
6. Notices of Record Date. In the event that the Corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or (iii) to merge or
consolidate with or into any other corporation, or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Preferred Stock:
(1) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (ii) and (iii) above; and
(2) in the case of the matters referred to in (ii)
and (iii) above, at least twenty (20) days' prior written notice of the date
when the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
7. Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
8. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely
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for the purpose of effecting the conversion of the shares of the Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Certificate.
9. Notices. Any notice required herein to be given to the
holders of shares of Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, or if sent by facsimile or delivered
personally by hand or nationally recognized courier and addressed to each holder
of record at such holder's address or facsimile number appearing in the records
of the Corporation.
10. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section D,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred, furnish or cause to be furnished to such holder a like certificate,
verified by the Corporation's certified public accountants at the request of any
holder of Preferred with greater than 8,000,000 shares of common stock on an as
converted basis, setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Preferred.
E. Redemption.
1. Redemption Right.
(1) As of each of January 1, 2002, January 1, 2003 and
January 1, 2004, (each, a "Series A Redemption Date") each holder of the Series
A Preferred has the individual right to require the Corporation to redeem by
paying in cash therefor the Series A Redemption Price (as defined below), for up
to one-third of the total shares of Series A Preferred outstanding as adjusted
for any stock dividends, contributions or splits with respect to such shares,
such redemption (the "Series A Optional Redemption") as of the year in which a
Series A Optional Redemption is first requested (plus any shares not redeemed in
a prior year pursuant to such a request). The redemption price for the Series A
Optional Redemption shall be the cost of the Series A Preferred (subject to
adjustment as herein provided) plus declared but unpaid dividends on the Series
A Preferred (the "Series A Redemption Price").
(2) As of each of June 1, 2004, June 1, 2005, and June 1,
2006, (each a "Redemption Date") each holder of the Series B Preferred has the
individual right to require the
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corporation to redeem by paying in cash therefore the Series B Redemption Price
(as defined below), for up to one-third of the total shares of Series B
outstanding as adjusted for any stock dividends, contributions or splits with
respect to such shares, such redemption (the "Series B Optional Redemption") as
of the year in which a Series B Optional Redemption is first requested (plus any
shares not redeemed in a prior year pursuant to such a request). The redemption
price for the Series B Optional Redemption shall be the conversion price of the
Series B Preferred (subject to adjustment as herein provided) plus declared but
unpaid dividends on the Series B Preferred (the "Series B Redemption Price").
2. Sufficiency of Funds. If the Corporation does not have
sufficient funds legally available to redeem all shares to be redeemed on any
Redemption Date, the Corporation shall redeem the maximum possible number of
shares ratably among the holders of such shares to be redeemed based upon their
holdings of Series A or Series B Preferred, as appropriate. The Shares of
Preferred not redeemed for any reason whatsoever shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Preferred, such funds will immediately be used to
redeem, at the option of the holder of Preferred who has properly requested the
Optional Redemption, the balance of the shares which the Corporation has become
obligated to redeem on any Redemption Date, but which it has not redeemed.
3. Procedure for Redemption.
At least twenty (20) but no more than sixty (60) days
prior to each Redemption Date, written notice (the "Redemption Notice") shall be
mailed, first class postage prepaid, to each holder of Series A or Series B
Preferred of record, as appropriate, (at the close of business on the business
day next preceding the day on which notice is given) of the Preferred to be
redeemed, at the address last shown on the records of the Corporation for such
holder of Preferred or given by the holder to the Corporation for the purpose of
notice, or, if no such address appears or is given, at the place where the
principal executive office of the Corporation is located, notifying such holder
of the redemption to be effected, specifying the number of shares to be redeemed
from such holder, the Redemption Date, the redemption price to be paid, the
place at which payment may be obtained, the date on which such holder's rights
as a holder of such shares terminate and calling upon such holder to surrender
to the Corporation, in the manner and at the place designated, his certificate
or certificates representing the shares to be redeemed. Each holder of Preferred
seeking redemption shall surrender to the Corporation the certificate or
certificates representing the shares of Preferred to be redeemed, in the manner
and at the place designated in the Redemption Notice, and thereupon the
redemption price of such shares shall be payable in cash to the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
F. Protective Provisions. In addition to any other rights provided by
law, this Corporation shall not, unless the vote or consent of the holders of a
greater number of shares shall then be required by law, without first obtaining
the affirmative vote or written consent of the holders
-13-
<PAGE> 14
of not less than two-thirds of the issued and outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, voting as separate classes:
1. authorize, effect or validate the amendment, alteration or
repeal any provision of, or the addition of any provision to, this Corporation's
Certificate of Incorporation if such action would adversely alter or change the
rights, preferences, privileges or powers of, or the restrictions provided for
the benefit of, the Preferred Stock;
2. authorize or issue shares of any class or series of stock;
3. reclassify any shares of Common Stock or any other shares
of this Corporation into shares having any preference, priority or pari passu
rights as to dividends or upon liquidation equal or superior to any such
preference or priority of the Preferred Stock or which in any manner adversely
affects the rights of the holders of the Preferred Stock;
4. engage in a merger, consolidation, acquisition, or sale of
all or substantially all of its assets;
5. engage in a sale, lease or transfer of a substantial
portion of its assets or business (other than in the ordinary course of
business);
6. amend any provision of this Corporation's Bylaws;
7. issue any dividend on shares of Common Stock;
8. purchase, redeem, or retire any shares of the Corporation's
Common or Preferred, except as required hereunder or under the Right of First
Refusal and Co-Sale Agreement, dated as of March 12, 1997 (as the same may be
amended, supplemented or otherwise modified from time to time) among the
Corporation and the other parties named therein;
9. incur indebtedness in excess of $500,000 except for
equipment lease lines and secured lines of credit approved by the Board of
Directors;
10. participate in any transactions with any director or
officer of the Corporation; or
11. dissolve, liquidate, or wind-up the Corporation's
business; or
12. engage in any transactions with affiliates.
ARTICLE V
Subject to the provisions of the General Corporation Law of the State
of Delaware, the number of Directors of the Corporation shall be determined as
provided by the Bylaws.
-14-
<PAGE> 15
ARTICLE VI
The Corporation shall indemnify and hold harmless any director,
officer, employee or agent of the Corporation from and against any and all
expenses and liabilities that may be imposed upon or incurred by him in
connection with, or as a result of, any proceeding in which he may become
involved, as a part or otherwise, by reason of the fact that he is or was such a
director, officer, employee or agent of the Corporation, whether or not he
continues to be such at the time such expenses and liabilities shall have been
imposed or incurred, to the extent permitted by the laws of the State of
Delaware, as they may be amended from time to time.
ARTICLE VII
In furtherance and not in limitation of the general powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, alter or repeal the Bylaws of the Corporation, after
obtaining the affirmative vote or written consent of the holders of not less
than two-thirds of the issued and outstanding shares of Preferred Stock and
Common Stock, voting as separate classes, except as specifically stated therein.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of ss.291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of ss.279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE IX
Except as otherwise required by the laws of the State of Delaware, the
stockholders and Directors shall have the power to hold their meetings and to
keep the books, documents and papers of the Corporation outside of the State of
Delaware, and the Corporation shall have the power to have one or more offices
within or without the State of Delaware, at such places as may be from time to
time designated by the Bylaws or by resolution of the stockholders or Directors.
Elections of Directors need not be by ballot unless the Bylaws of the
Corporation shall so provide.
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<PAGE> 16
ARTICLE X
Subject to the provisions herein, the Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
Except as otherwise provided by the laws of the State of Delaware, as
they may be amended from time to time, a director of the Corporation shall not
have personal liability to the Corporation or to any of the Corporation's
stockholders for monetary damages for breach of fiduciary duty as a director of
the Corporation."
-16-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
XCARE.NET, INC.
A DELAWARE CORPORATION
(Incorporated on March 29, 1989)
Lorine R. Sweeney and Arthur F. Schneiderman hereby certify that:
1. They are the President and Secretary, respectively, of XCare.net,
Inc., a Delaware Corporation (the "Corporation").
2. The Certificate of Incorporation of the Corporation, filed with the
Secretary of State of the State of Delaware on December 19, 1996, is hereby
amended and restated in its entirety to read as follows:
"FIRST: The name of the corporation is XCare.net, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware, 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
designated Common Stock and Preferred Stock.
1. The Corporation is authorized to issue 100,000,000 shares of Common
Stock, par value $0.01 per share (the "Common Stock"), and 5,000,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Stock").
2. The shares of Preferred Stock may be issued from time to time in one
or more series pursuant to a resolution or resolutions providing for such issue
duly adopted by the Board of Directors. The Board of Directors of the
Corporation is expressly authorized, by filing a certificate pursuant to the
applicable law of the State of Delaware, to: (i) establish from time to time the
number of shares to be included in each such series; (ii) fix the rights,
preferences, restrictions and designations of the shares of each such series,
including but not limited to the fixing or alteration of the dividend rights,
dividend rate, conversion rights, conversion rate, voting rights, rights and
terms of redemption (including sinking fund provisions), redemption price or
prices, voting rights and liquidation preferences of any series of Preferred
Stock for which no shares have been issued and are
<PAGE> 2
outstanding; (iii) increase number of shares of any series at any time; and (iv)
decrease the number of shares of any series prior or subsequent to the issue of
shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the Corporation.
SIXTH. Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the extent
provided in the Bylaws of the Corporation. Election of directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. No action that is required or
permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders. The books of the Corporation
may be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation. The directors of
the Corporation need not be elected by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins, or
unless the Bylaws so provide
EIGHTH: At all elections of directors of the Corporation, each holder of
stock of any class or series of stock shall be entitled to as many votes as
shall equal the number of votes which such stockholder would be entitled to cast
for the election of directors with respect to his or her shares of stock
multiplied by the number of directors to be elected, and may cast all of such
votes for, or for any two or more of them as such stockholder may see fit.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
TENTH: Subject to the provisions of the General Corporation Law of the
State of Delaware, the number of Directors of the Corporation shall be
determined as provided by the Bylaws.
ELEVENTH: The Board of Directors shall be divided into three classes
consisting of as nearly equal numbers of directors as possible, and designated
Class A, Class B, and Class C. The term of office of Class A shall expire at the
first annual meeting of stockholders following the effectiveness of this
Article, and each third annual meeting of stockholders thereafter; the term of
office of Class B shall expire at the second annual meeting of stockholders
following the effectiveness of this Article, and each third annual meeting of
stockholders thereafter; and the term of office of Class C shall expire at the
third annual meeting of stockholders following the effectiveness of this
Article, and each third annual meeting of stockholders thereafter. Directors
added to the board
-2-
<PAGE> 3
of directors between annual meetings of stockholders by reason of an increase in
the authorized number of directors shall belong to the class designated by the
Board of Directors; provided however that the number of board seats designated
to belong to Class A, Class B and Class C must be as nearly equal in number as
possible. Following the effectiveness of this Article, stockholders may effect
the removal of a director only for cause. This provision shall supersede any
provision to the contrary in the Corporation's Bylaws.
TWELFTH: The Corporation shall indemnify and hold harmless any director,
officer, employee or agent of the Corporation from and against any and all
expenses and liabilities that may be imposed upon or incurred by him in
connection with, or as a result of, any proceeding in which he may become
involved, as a part or otherwise, by reason of the fact that he is or was such a
director, officer, employee or agent of the Corporation, whether or not he
continues to be such at the time such expenses and liabilities shall have been
imposed or incurred, to the extent permitted by the laws of the State of
Delaware, as they may be amended from time to time.
THIRTEENTH: The liability of the directors of the Corporation for
monetary damages shall be eliminated to the fullest extent permissible under
Delaware law.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this Thirteenth Article shall be
prospective and shall not affect the rights under this Thirteenth Article in
effect at the time of the alleged occurrence of any act or omission to act
giving rise to liability or indemnification.
FOURTEENTH: The name and mailing address of the incorporator are:
Arthur F. Schneiderman, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
3. The foregoing Restated Certificate of Incorporation has been duly
approved by the board of directors of the Corporation in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law.
-3-
<PAGE> 4
4. The foregoing Restated Certificate of Incorporation has been duly
approved by the required vote of the stockholders in accordance with the
Certificate of Incorporation and the provisions of Sections 242 and 245 of the
Delaware General Corporation Law.
The undersigned hereby acknowledges that the foregoing Restated
Certificate of Incorporation is his act and deed and that the facts stated
herein are true.
Executed at Palo Alto, CA, this ____ day of February, 2000.
- ----------------------------------- -----------------------------------
Lorine R. Sweeney, President Arthur F. Schneiderman, Secretary
-4-
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF RESTATED CERTIFICATE OF INCORPORATION OF
XCARE.NET, INC.
XCARE.NET, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY THAT:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable the following
amendment to the Restated Certificate of Incorporation of said corporation:
RESOLVED: That the following two sentences shall be inserted after the
third sentence of Article IV of the Certificate of Incorporation of this
Corporation:
"Immediately upon the filing of this Certificate of Amendment, each ten
(10) outstanding shares of the Company's Common Stock will be exchanged and
combined, automatically and without further action, into one (1) share of Common
Stock and each ten (10) outstanding shares of the Company's Preferred Stock will
be exchanged and combined, automatically and without further action, into one
(1) share of Preferred Stock. Such combination shall be effected on a
holder-by-holder basis, and any fractional shares resulting from such
combination shall be rounded up to the nearest whole share."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware, and written notice of the adoption of the amendment has been given as
provided in Section 228 of the General Corporation Law of the State of Delaware
to every stockholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, XCare.net, Inc. has caused this Certificate of
Amendment to be signed by Lorine R. Sweeney, its President and Chief Executive
Officer, this 7th day of January, 2000.
XCARE.NET, INC.
/s/ LORINE R. SWEENEY
-----------------------------------
Lorine R. Sweeney, President and
Chief Operating Officer
<PAGE> 1
EXHIBIT 10.34
PROFESSIONAL SERVICES AGREEMENT
This Professional Services Agreement (the "Agreement") is entered into as
of September 9, 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 Asthma Management Company, a corporation with offices at 645
Madison Ave, 12th Floor, New York, NY, 10022 ("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 includes the following
Asthma Management objectives: electronic medical records, workflow engines, data
warehousing, support, maintenance, hosting services, and the Internet product.
This Agreement includes the following attachments, which are incorporated
herein by this reference:
Attachment 1 XCare.net Development Services
Attachment 2 Schedule of Work Deliverables, Project Plan, Fees and Payment
Terms
Attachment 3 Maintenance Agreement
Attachment 4 Architectural Platform
Attachment 5 List of Acceptance Criteria
Attachment 6 Escrow Agreement
Attachment 7 Hosting Agreement
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 Client:
Lorine Sweeney -------------------------------------
President & CEO -------------------------------------
By: By:
---------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
- ------------------------------------- -------------------------------------
(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 to (i) modify, if necessary, existing XCare.net technology,
trade secrets and know-how to produce the XCare.net Software and
other elements of the Client Web Site, (ii) produce the client
software, (iii) produce the client web site and (iv) provide any
other consulting services rendered hereunder as identified in the
appropriate schedules ("Schedule(s)") attached hereto.
1.3. "XCare.net Software" shall mean the architectural platform described
in Attachment 3, all computer program code and other results and
proceeds of XCare.net's services hereunder (other than Content and
Client Software) that are delivered by XCare.net to Client pursuant
to this Agreement. Such XCare.net Software shall be provided in
object code form that conforms with Extensible Mark-Up Language
Standards and the parties will enter into an escrow agreement
(Attachment 6) paid for by client.
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).
1.5. "Client Software" shall mean all computer program code and other
results and proceeds of XCare.net's services, excluding the
XCare.net platform architecture and associated technical residuals,
developed specifically by XCare.net for Client hereunder and paid
for by Client. Client Software shall be provided in source code that
conforms with Extensible Mark-Up Language Standards.
2. SERVICES
2.1. Development Services. XCare.net shall render Development Services in
accordance with the requirements set forth in Schedules in the form
of mutually agreed upon Project Management Plans that will be
created for each Phase of application development. 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 commercial 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 get 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
2
<PAGE> 3
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 if available, otherwise hard
copies shall be provided 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) calendar 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 in the applicable Schedule.
XCare.net and Client shall review the objections, and XCare.net will
use commercially reasonable efforts to correct any material
nonconformities with the functional specifications and provide
Client with a revised deliverable within fifteen (15) calendar 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) calendar day period. All deliverables
pursuant to any schedule must include a 30 calendar day client beta
testing 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. XCare.net shall render maintenance services
pursuant to the terms and conditions of Attachment 3 Maintenance
Agreement. The maintenance and support phase begins after the
acceptance of the delivered product.
2.5. Hosting, Services. If Client desires to purchase hosting services
from XCare.net for the Client Web Site, the parties shall execute a
Hosting Services Agreement (Attachment 7 Hosting 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., LA, 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.
2.7. Disaster Recovery Plan. XCare.net will provide a disaster recovery
plan to the Client by July 1, 2000. This plan will include
co-location information, software recovery, data recovery, and a
plan outlining the timeframe for disaster recovery. The disaster
recovery plan will be implemented by December 31, 2000.
2.8. Performance Guarantee. Except as may otherwise be provided in the
Agreement, credit for lost Services will be issued only for periods,
calculated in fifteen (15) minute increments, in excess of two (2)
hours in any calendar month. One (8) hour services loss will be
permitted in each 6
3
<PAGE> 4
month service period to allow for potential catastrophic system
disruption. 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, (b) failure or
malfunction of any equipment or services not provided by XCare.net,
including failure of the internet transport network. Credit shall be
calculated by calculating the average hourly rate for XCare.net's
services over the prior month and multiplying it times the number of
hours of downtime.
XCare.net's latency guarantee constitutes average round-trip
transmissions of three seconds or less between the transit backbone
routers (hub routers) in the contiguous U.S. The transatlantic
latency guarantee is six seconds or less. The performance guarantees
specified do not reflect infringements upon speed as a result of the
Internet or connections of the users.
2.8.1 XCare.net Average Server Response Times. Should the response
times stipulated above not be met for a minimum of 30 minutes
per day for FIVE consecutive days, then XCare.net will make
all necessary additions/modification to the equipment
configuration over the next calendar month to bring the
response times within their stipulated levels again.
2.9 XCare.net represents and warrants that all Client Software and
XCare.net Software will process dates correctly prior to, during and
after the calendar year 2000. This shall include, but not be limited
to, century recognition, calculations that accommodate the same
century and multi-century formulas and date values, and interface
values that reflect the century. In the event that Client becomes
aware that the Client Software or XCare.net Software will not or
does not process data containing any dates subsequent to the year
1999 correctly, Client shall immediately notify XCare.net of that
fact and XCare.net agrees to correct or replace the Client Software
or XCare.net Software to eliminate such processing problem in
accordance with XCare.net's standard policies, which are available
upon request.
The foregoing is Client's sole and exclusive remedy for breach of
warranty. The warranty set forth above is made to and for Client's
benefit only. The warranty will apply only if no modification,
alteration or addition has been made to the Client Software or
XCare.net Software by persons other than XCare.net or XCare.net's
authorized representative.
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.
4
<PAGE> 5
<TABLE>
<CAPTION>
Intellectual Property Elements Ownership/Rights
- ------------------------------ ----------------
<S> <C>
Client Content, including all Client Content that Client has sole ownership.
is 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.
Client Software Client has sole ownership. Subject to exclusion
specified in Section 1.5
Server usage report data/statistics generated by Client has sole ownership of data/statistics, and
the XCare.net Software in form and substance as XCare.net has a license pursuant to Section 3.3
set forth in the applicable Schedule or as below.
mutually agreed by the parties.
Commercially available third-party software which Third-parties have ownership, and Client shall be
is incorporated into the XCare.net Software. informed of all third-party software that Client
may need to license at Client's own expense.
XCare.net Software provided and/or developed by or XCare.net has sole ownership of such XCare.net
for XCare.net in connection with this Agreement Software. Client shall be granted a license to use
for Client. the XCare.net Software as set forth in Section
3.2.
XCare.net supplied material developed generally to XCare.net has sole ownership of such developed
support XCare.net products and/or service material. Client shall be granted a license to use
offerings (e.g. httpd configuration). 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 one or
more computers in 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
nonexclusive, non-transferable license to use the XCare.net Software
on one or more computers in object code version only for Client's
internal business needs. 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 confidentiality 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
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procedures. All registered users shall be granted permission to
access the software from as many locations as are necessary.
Client is granted rights to modifications and updates to the
XCare.net internal software product updates as they apply
specifically to the application created for Client. This excludes
enhancements to products that do not directly correlate to the
application created for Client. New products created after the
delivery of the Client application are also excluded. Adaptations to
the XCare.net product(s) so that they are customized for Client
shall incur additional costs.
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, and (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.
3.7. Support of the Client and XCare.net Software. Should XCare.net, or
an organization acquiring, merging with, or succeeding XCare.net in
any way, decide to cease supporting the Client software or XCare.net
software, then client will have a twelve (12) month option to either
(i) request the source code for the software out of escrow (see
Attachment 5 Escrow Agreement) so Client can arrange for the support
of the software on their own or (ii) replace the software with a
similar or like application from XCare.net or the successor
organization at no additional license fee (a reasonable
implementation fee can be charged).
4. PAYMENT
4.1. Development Services. In consideration for the performance of the
Development Services, Client shall pay to XCare.net the rates as set
forth in Attachment 2 Schedule of Work and Fees. 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. 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 with a
budget not to be exceeded, 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
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those included in the budget XCare.net will notify Client, and the
budget will be revised with additional agreed upon hours billed at
XCare.net's standard hourly rates. All time and materials billings
will be made biweekly.
4.2. Maintenance Services. Maintenance services will be provided
according to Attachment 3 Maintenance Services.
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. Attachment 7 Hosting
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 due thirty (30) calendar days from the date of
invoice. 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.
5. LIMITED WARRANTY
5.1. Software Warranty. Subject to the limitations set forth in this
Agreement, XCare.net war-rants only to Client that the XCare.net
Software and Client Software furnished hereunder when properly
installed, properly used and unmodified by Client, will
substantially conform to the functional specifications set forth in
Attachment 5 List of Acceptance Criteria. XCare.net's warranty shall
extend for a period of one hundred five (105) calendar days from
the date that the final deliverables specified in each Schedule are
accepted by the Client ("Warranty Period"). XCare.net's sole
responsibility under this Section 5.1 shall be to take reasonable
precautions and will apply testing procedures to assure that the
Vendor Systems (EMR and other) and the Developed Systems (XCare.net)
are free from material reproducible programming errors and defects
in workmanship and materials, and that the Developed Systems will
conform in all material respect to the specifications therefore. If
material reproducible programming errors are discovered in the
Developed Systems, XCare.net shall promptly remedy them at no
additional expense to Customer. XCare.net will obtain a
substantially similar warranty from the Vendor Systems and if
material reproducible programming errors are discovered in the
Vendor Systems, XCare.net and System vendor will promptly remedy
them at no additional expense to Customer. 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 CLIENT SOFTWARE AND
THE XCARE.NET SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE OR THAT
THE SPECIFICATIONS WILL MEET ANY OF CLIENT'S REQUIREMENTS OTHER THAN
THE EXPRESS WRITTEN REQUIREMENTS SET FORTH IN ATTACHMENT 5 - LIST OF
ACCEPTANCE CRITERIA. 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
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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 or Client 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 or Client Software
if the infringement would have been avoided by uses of the
current update; (ii) modifications, adaptations or changes to
the XCare.net Software or Client 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 or
Client Software so that it is noninfringing and qualitatively
and functionally equivalent to the XCare.net Software or
Client Software; (ii) obtain for Client a license to continue
using the XCare.net Software or Client Software; or if
neither (i) nor (ii) is commercially reasonable, XCare.net
shall have the fight 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 or Client Software, pro-rated over a three
(3) year period 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
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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.
7. LIMITATIONS ON LIABILITY
THE MAXIMUM LIABILITY OF XCARE.NET OR CLIENT, 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, EXCEPT THAT NO SUCH LIMITATION SHALL APPLY TO SECTION
6.1.1, SECTION 9 OR SECTION 3.1. EXCEPT IN THE EVENT OF GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT, 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) calendar 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.
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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 either party pursuant to Section
8.2 above, then Section 3.2 and 3.3 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").
XCare.net agrees to obtain prior written consent from Asthma
Management before releasing any client-specific data/statistics,
including but not limited to the server usage reports. Asthma
Management owns all of the data that flows through the XCare.net
applications and servers.
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) calendar 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 New York 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
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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.
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. Mediation. Any Dispute that the Parties are unable to resolve through
informal discussions or negotiations will be submitted to non-binding
mediation, which will be held in New York, New York. The Parties will
mutually determine who the mediator will be from a list of mediators
obtained from the AAA office located in New York, New York. If the
Parties are unable to agree on the mediator, the mediator will be
selected by the AAA.
10.13. Arbitration. Any Dispute that the Parties are unable to resolve
through mediation pursuant to Section 10.12 will be submitted to
arbitration in accordance with the following procedures:
10.13.1. Demand for Arbitration; Location. Either Party may demand
arbitration by giving the other Party written notice to such
effect which notice will describe, in reasonable detail, the
facts and legal grounds forming the basis for the filing
Party's request for relief and will include a statement of the
total amount of damages claimed, if any, and any other remedy
sought by that Party. The arbitration will be held before one
neutral arbitrator in New York, New York.
10.13.2. Identification of Arbitrator. Within thirty (30) calendar days
after the other Party's receipt of such demand, the Parties
will mutually agree upon an arbitrator. If the parties are
unable to agree on the arbitrator within that time period, the
arbitrator will be selected by the AAA. The arbitrator
will have a background in, and knowledge of, the information
technology services. If a person with such industry experience
is not available, the arbitrator will be chosen from the large
and complex case panel or, if an appropriate person is not
available from such panel, the retired federal judges pool.
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10.13.3. Conduct of Arbitration. The arbitration will be governed by the
Commercial Arbitration Rules of the AAA, except as expressly
provided in this Section 10.13. However, the arbitration will
be administered by an organization mutually agreed to in
writing by the Parties. If the Parties are unable to agree upon
the organization to administer the arbitration, it will be
administered by the AAA under its procedures for large and
complex cases. Pending the arbitrator's determination of the
merits of the Dispute, either Party may apply to any court of
competent jurisdiction to seek injunctive or other
extraordinary relief.
10.13.4. Scope of Discovery. Discovery will be limited to the request
for and production of documents, depositions and
interrogatories. Interrogatories will be allowed only as
follows: a Party may request the other Party to identify by
name, last known address and telephone number (i) all persons
having knowledge of facts relevant to the Dispute and a brief
description of that person's knowledge, (ii) any experts who
may be called as an expert witness, the subject matter about
which the expert is expected to testify, the mental impressions
and opinions held by the expert and the facts known by the
expert (regardless of when the factual information was
acquired) which relate to or form the basis for the mental
impressions and opinions held by the expert and (iii) any
experts who have been used for consultation, but who are not
expected to be called as an expert witness, if such consulting
expert's opinions or impressions have been reviewed by an
expert witness. All discovery will be guided by the Federal
Rules of Civil Procedure. All issues concerning discovery upon
which the Parties cannot agree will be submitted to the
arbitrator for determination.
10.13.5. Authority of Arbitrator. In rendering an award, the arbitrator
will determine the rights and obligations of the Parties
according to the substantive and procedural laws of the State
of New York. The arbitrator will not have authority to award
damages in excess of the amount or other than the types allowed
by Section 5.2, except in the case of gross negligence or
willful misconduct, and may not, in any event, make any
ruling, finding or award that does not conform to the terms and
conditions of this Agreement, except in the case of gross
negligence or willful misconduct.
10.13.6. Joinder of Parties. Each of Vendor and Customer agree that it
will use commercially reasonable efforts to join (and will
allow the other Party to join) any Third Party that the Parties
have agreed is indispensable to the arbitration. If any such
Third Party does not agree to be joined, the arbitration will
proceed nonetheless.
10.13.7. Award. The decision of, and award rendered by, the arbitrator
will be final and binding on the Parties. Upon the request of a
Party, the arbitrator's award will include written finding of
fact and conclusions of law. Judgement on the award may
be entered in and enforced by any court of competent
jurisdiction. Each Party will bear its own costs and expenses
(including filing fees) with respect to the arbitration,
including one-half of the fees and expenses of the arbitrator.
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10.14. Exclusive Remedy. Other than those matters involving injunctive or other
extraordinary relief or any action necessary to enforce the award of the
arbitrator, the Parties agree that the provisions of this Article 10 are
a complete defense to any suit, action or other proceeding instituted in
any court or before any administrative tribunal with respect to any
Dispute or the provision of the Services by Vendor. Nothing in this
Article 10 prevents the Parties from exercising their rights to
terminate this Agreement in accordance with Article 8.
10.15. 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 New York, New York, and each party
irrevocably consents to such personal jurisdiction and waives all
objections thereto.
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ATTACHMENT 2
SCHEDULE OF WORK AND FEES
This Schedule describes Services to be provided by XCare.net to Client under
this Professional Services Agreement dated September 9, 1999.
1. DESCRIPTION OF WORK
1.1. Phase I - Development of Beta Website Version 1.0
In order to enable Client to test the content of the Standard of
Care document, XCare is developing a Beta website. In
conjunction with this deliverable, XCare with Client is
analyzing the functional requirements laid out in the Standard
of Care document. The project team will evaluate the feasibility
of either selecting/licensing/customizing a web-based EMR
package that meets Client's functional requirements or custom
building an application that technologically enables the
remaining functionality within the Standard of Care document.
The major activities to complete these tasks are as follows (see
attached project plan for more detail):
A. Analyze Functional Requirements
B. Database Design
C. Define the network architecture for Client and the
physician offices
D. Define hardware architecture for Client and the
physician offices
E. Questionnaire Content Development - the functionality in
release 1.0 of the Beta site includes the following
cross references from the List of Acceptance Criteria:
o Criteria Numbers: 2, 22, 32, 33, 34, 35, 36, 37, 39,
40, 44, 45, 46, 48, 49, 50, 63, 67
F. Selection of Bulletin Board (threaded discussion)
Software
G. Hosting of Interim Marketing Website
H. Implementation Plan for version 2.0 Beta Site
TOTAL ESTIMATED HOURS = [*] HOURS
TOTAL ESTIMATED COST = $[*]K - $[*]K
PAYMENT SCHEDULE
The contract is based on a not to exceed time and materials
budget based on the functionality specified above. The payment
schedule will be based on the following timeline for Phase I:
o 20% upon signing the contract
o 40% Dec. 31, 1999
o 30% Jan. 31, 2000
o 10% Feb. 15, 2000
* Confidential treatment requested
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1.2. Phase Ia - Development of Beta Website Version 2.0
In order to enable Client to test the content of the Standard of
Care document, XCare is developing a beta website. In
conjunction with this deliverable, XCare is also selecting a
web-based EMR package that meets Client's functional
requirements. The major activities to complete these tasks will
be further defined and outlined in an addendum to this document.
1.3. Phase II - Final Site Integration/Implementation
Applications/partnerships that have not been defined
specifically will be incorporated into the architecture based on
the type of service. Mutually agreed upon requirements for these
applications will be developed and implemented by March 31,
2000. The major activities to complete these tasks will be
further defined and outlined in an addendum to this document.
2. FEE SCHEDULE:
Our approach is highly structured which provides our clients with
detailed costing estimates throughout the project. For time and
materials projects, XCare.net billing rates are $150/hr and payable upon
completion of the agreed upon milestone activities. Travel expenses
associated with the project will be billed separately.
There will be no hosting charges made for XCare.net to host the interim
marketing site, the branded interim marketing site, and the beta web
site through Dec. 31, 1999.
3. XCARE.NET AND CLIENT CONTACTS ASTHMA MANAGEMENT CORPORATION
Bob Smoler CEO 203/341-0798
Anna Wong Chief Operating Officer 718/229-0821
XCARE.NET
Jon Wisda V.P. Product Development 303/488-2019 x238
Debbie Daufeldt Director, Solution Architecture 303/488-2019 x259
XCARE.NET "CLIENT"
By: By:
---------------------------------- ----------------------------------
- ------------------------------------- -------------------------------------
Printed Name Printed Name
- ------------------------------------- -------------------------------------
Title Title
- ------------------------------------- -------------------------------------
Date Date
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ATTACHMENT 3
MAINTENANCE SERVICES
In consideration of payment of the annual Maintenance Fee(s) set forth in this
Attachment, Customer agrees to purchase, and XCare.net agrees to provide
Customer on an annually renewable basis with software maintenance services for
XCare.net and Client software as follows:
A. Any and all content updates to the Client website;
B. Any and all updates to the Documentation issued by XCare.net; and
C. Remote diagnostic support (including dial-up capabilities) regarding
XCare.net and Client software to include error analysis and, where
possible, correction services, twenty-four (24) hours per day, seven (7)
days per week. Any on-site assistance which Customer may request and which
is provided by XCare.net, which, in XCare.net's reasonable opinion, is not
necessary to determine the nature and resolution of any problems Customer
may have with XCare.net shall be provided by XCare.net at its then-current
rates. If Customer notifies XCare.net that it suspects a material error in
the program logic of XCare.net or in the Documentation, XCare.net shall
make all reasonable efforts to confirm the existence of the error and
correct it. If the parties mutually determine that no such error exists,
Customer agrees to pay XCare.net for its services at XCare.net's hourly
rates then in effect and to reimburse XCare.net for any and all reasonable
travel and living expenses incurred by XCare.net in rendering such
services. XCare.net will use its Severity Designations in effect from time
to time to provide remote diagnostic support. A current copy of Severity
Designations are attached.
D. XCare.net's providing Customer with maintenance services as described in
this Attachment shall automatically continue, on an annual basis, unless
either party shall give written notice to the other that it desires not to
renew such maintenance services. The parties agree that such written notice
shall be remitted for receipt by the other no less than ninety (90) days
prior to the end of the then-current annual maintenance period.
<TABLE>
<CAPTION>
PAYMENT ESTIMATED ESTIMATED
TRIGGERING EVENT TIME FRAME PERCENTAGE DUE AMOUNT DUE
- ---------------- ---------- -------------- ----------
<S> <C> <C> <C>
Final Acceptance or February, 2000 1/12 of total payment to be made 25% of final
commencement of on a monthly basis during the application
Live Production Year of maintenance services. development fee.
Environment
("Acceptance")
First and Subsequent Annually 1/12 of Annual Maintenance 25% of Total
Anniversaries of Thereafter Fee application
Acceptance development fee
</TABLE>
<PAGE> 18
ATTACHMENT 4
ARCHITECTURAL PLATFORM
XCARE.NET OUTSOURCING SERVICES
XCare.net relies on a redundant frame network to support Extranet capabilities
with its customers. XCare.net's systems architecture is built on a multitiered
fully redundant architecture using UNIX as the base operating
XCare.net Frame Network
Asthma Management Co.
[FLOW CHART]
system. Xcare.net will commence full web outsourcing operation operations in
1999 from its main hosting facility located in Albuquerque, New Mexico. Plans to
co-locate the web services to another area in 2000 are currently underway.
Xcare.net uses virtual servers to present a single address for a group of real
servers and load-balance service requests between real servers in a site. Real
servers are actual host machines with unique IP addresses that provide TCP/IP
and WWW services to the network. This physical network design facilitates the
expansion of the network for future growth. Systems may be added to help manage
resources where required.
XCARE.NET NETWORK ARCHITECTURE DESIGN
[DIAGRAM]
<PAGE> 19
Attachment 5 -- List of Acceptance Criteria
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Functions and 2), page # 1.0, 12/9/99) Beta release 2.0
- ------------------------ -------------- ------------- ----------------
<S> <C> <C> <C>
2. Search the IT system for possible patient records 6 X
4. Enter "mini-registration" data (pt. registration
via website -- need security functions) 6
5. Lookup insurance information 7
6. Input the appointment into the scheduling system 7
7. Determine Encounter Package Code 8 X
9. Patients "pre-register" via the Internet 8
11. Assign temporary medical record number or password
or other alternative allowing patient to enter
pre-registration, intake and survey data via the internet 8
12. Pre-populate "introductory" letters 8 X
14. Create and print the "Scheduling Pull List Report" 8
15. Search for the "mini-registration" from last name
and first name 10
17. Encounter screen (need to spec) 10 X
18. Use scanning to store images 11
20. Assign tickler flag in the IT system to track
missing referrals 11
21. Trigger a notification to the patient if a valid
referral is not received within five business days 11
22. Intake screens:
22a. Demographics 13 X
22b. Communication 13 X
22c. Parental Consent 14 X
22d. Emergency Contact 14 X
22e. Appointment Preference 14
22f. Insurance Coverage 15 X
22g. Coordination of Benefit 16 X
22h. PCP 16 X
22i. Referring Physician 17 X
22j. Consult Letter 17 X
22k. Pharmacy 18 X
22l. Outreach 18 X
25. Research flag screen 20 X
26. Check the patient's record to see if flagged for
a research study or clinical trial 20 X
27.1. Research screen 20 X
27. Search the research screen using "name of study"
and "number of study" 20 X
28. Create a new "encounter package code" for modified workflow 20
29. Create a new "protocol template" for modified protocol 20
30. Scan the signed consent form into the selected IT system 20
32. Symptoms screen (includes cough, shortness of breath,
allergy, sleep apnea) 22 - 25 X
33. Trigger Factors screen (includes smoking history,
occupational history) 26 - 28 X
34. Environmental Assessment screen 28 X
</TABLE>
page 1 of 4
<PAGE> 20
ATTACHMENT 5 -- LIST OF ACCEPTANCE CRITERIA
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Functions and 2), page # 1.0, 12/9/99) Beta release 2.0
- ------------------------ -------------- ------------- ----------------
<S> <C> <C> <C>
116. Graph peak flow rate over time and to send alerts to Nurse
Educator if patient reaches critical value 72
117. Display the exact pharmacotherapy regimen based on the
patient's zone" (the "action box") 72
118. Enter information on encounter type details and interactions
with the patients 72
119. Track response time and escalation procedures 72
120. Send patient-specific asthma literature via e-mail 72
121. Link with other asthma websites 72
122. Send a Patient Satisfaction Survey either via mail or e-mail 72
126.1. Patient Assessment screen 77 - 79 X
126. Asthma education first follow up visit screen (Anna to merge
with #127 and 145) 79 - 81 X
127. Asthma education second follow up visit screen 81 - 83 included in
#126
129. Track return visits with a tickler system 84
130. Track patient's adherence against established protocols 84
131. Display longitudinally over time key clinical indicators
(Anna to design) 84 X
132. Track any deviance from the protocol 84
133. Highlight and flag missing data 84
134. List all the services rendered chronologically on a summary
screen 84
135. Triage incoming calls using an interactive voice response (IVR)
system 87
136. Transfer urgent calls to the on-call nurse 87
137. Allow patients to request / schedule their appointment via the AMC
website 87
138. Scheduling on-line-> checks appointment preference, checks
physician availability, gives appointment using time-adjusted
staggering schedule, and alerts the receptionist if the patient
needs a referral 87
139. Send reminder letters 88
145. Asthma Education All Subsequent Visit screen 89 - 91 included in
#126
146. Ability for users to customize the display of the screen
147. Datawarehouse X
148. IVR for peak flow input
149. Biometric security X
</TABLE>
page 4 of 4
<PAGE> 21
ATTACHMENT 5 - LIST OF ACCEPTANCE CRITERIA
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Function and 2), Page # 1.0, 12/9/99) Beta release 2.0
- ----------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
79. Check billing information to collect fees, co-payment, 68
deductibles, coinsurance and/or any outstanding balances
80. Scan patient's check(s) that are collected 68
81. Electronically transfer funds 68
82. Read Explanation of Benefits from insurance plan electronically 68
84. Schedule follow-up appointments 68
86. Red-line or addenda with date/time stamp for analysis (see 68 X
Cerner functionality)
88. Accept voice recording 68
89. Display educational videos 68
90. Display diagrams of major body parts 68
91. Convert progress notes to appropriate CPT codes and ICD-9 codes 68
92. Auto-populate HCFA-1500 form or superbill 68
93. Reconcile bills with completed visits on the scheduling system 69
94. Print patient statements if the patient makes such a request at 69
time of discharge
95. Generate secondary insurance claims 69
96. Select appropriate form during a print run 69
97. Automatic cycle billing 69
98. EDI 69
99. Interface with General ledger 69
100. User-defined adjustment codes 69
100.1. Multiple tax IDs, insurance plan IDs with effective dates, 69
servicing provider IDs, multiple locations
101. Add or remove patients on collections based on user-defined 69
aging parameters
102. Track all communication events (same as #17) 69
104. Patient can e-mail Nurse Educator 70
104.1. Patient's phone messages to Nurse Educator are transcribed 70
into e-mail
105. Post laboratory results in the e-mail box of their respective 70
provider for electronic sign-off - the results go to the patient's chart
106. Display e-mail messages when the user is first logged onto the 70
system - the results go to the patient's chart
107. Prioritize and color-code the incoming e-mails 70
108. Generate paging messages 70
109. Track response time 70
110. Follow escalation protocols 70
112. Distribute messages based on a pre-determined workflow 70
113. Electronic peak flow
114. Asthma diary screen 71
115. Eletronic peak flow meter hooked to computer
115.1. Different color to highlight peak flow rate, consistent with 71
patient's asthma action plan
</TABLE>
page 3 of 4
<PAGE> 22
ATTACHMENT 5 - LIST OF ACCEPTANCE CRITERIA
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Functions and 2), page # 1.0, 12/9/99 Beta release 2.0
- ------------------------ ---------------- --------------- ----------------
<C> <C> <C> <C>
35. Past Medical History screen 29 X
36. Asthma screen 35 X
37. Medication History screen (automatically display selection
choices for pharmocotherapy) 36 X
39. Quality of Life 37 X
40. Compute total patient asthma scores - data will have to be
extracted 38 X
41. Display patient asthma score history - data will have to be
extracted (pg. 32 of Beta spec document - Anna to design
report) 38 X
42. Connect a spirometer to the application 40
44. Spirometry screen 40 X
45. Prints reports summarizing patient's answers to his/her survey's/
questionnaires and spirometry measurements and graphs 41-44 X
46. Physical examination screen 45 X
48. Skin test screen 46 X
48a. Skin test reminder (prick test for first visit...) - Anna to
forward Std of Care document version 2 46
49. Program Diagnostic algorithm 51-52
49a. Diagnosis screen 50 X
50. Create a patient-specific asthma treatment plan (has pop-up
pharmacotherapy screen) 54-58 X
51. Check whether this particular patient matches the selection
criteria for any ongoing clinical trials/research studies 53 X
52. Assign the research flag to patients who match the selection
criteria for any ongoing clinical trials/research studies 53 X
53. PDR reference 58
54. Drug interactions (drug-drug, drug-food) 58
55. Multiple formularies 58
56. Therapeutic substitutes 58
63. Asthma action plan screen 59-63 X
64. Assign a Nurse Educator to each patient (field containing drop-
down with nurses' names for user to select from and populate field) 63 X
65. Provide educational materials (Anna to build template) 63
67. Asthma education initial visit screen 64-65 X
71. Print out instructions and directions to facilities to obtain
various treatments 67
72. Fax orders to the appropriate provider 67
73. Receive laboratory results electronically from laboratories 67
74. Route results to the respective physician 67
75. Prioritize/rank laboratory results 67
76. Print copies of the prescriptions 68
77. Fax prescriptions to pharmacies 68
78. Print consult letters (Anna to construct/design - letter plus
current patient report attachment) 68 X
</TABLE>
Page 2 of 4
<PAGE> 23
HOSTING SERVICES AGREEMENT
This Hosting Services Agreement (the "Agreement") is entered into as of
September 9, 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 Asthma Management Company, LLC, a Delaware limited liability
corporation with offices at 17 Pequot Trail, Westport, CT 06880 ("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:
------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
By: By:
---------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
- ------------------------------------- -------------------------------------
(Printed Name and Title) (Printed Name and Title)
1
<PAGE> 24
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 1 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 which determination shall be subject to audit by Client.
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 an 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 or developed for Client at
Client's expense; 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.
2.3 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.
2.4 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 an 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.
2.5 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
2
<PAGE> 25
security of the XCare.net network, the Web hosting facility, other customers, or
the Server.
2.6 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.
2.7 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 OTHER THAN THOSE EXPRESS WRITTEN
PERFORMANCE AGREEMENTS MUTUALLY AGREED UPON. In any instance involving
performance or nonperformance of Services and Products provided hereunder,
Client's sole remedy shall be (a) in the case of Services, refund of a
prorata portion of the price paid for Services which were not provided.
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 two (2) hours in a calendar month. One (8)
hour services loss will be permitted in each 6 month service period to
allow for potential catastrophic system disruption. 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 EXCEPT IN THE EVENT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT 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 EXCEPT
THAT XCARE.NET AND CLIENT WILL ESTABLISH A PLAN FOR SAFEGUARDING CLIENT'S DATA
AND XCARE.NET WILL BE LIABLE FOR DAMAGES FOR LOST DATA SHOULD THEY NOT FOLLOW
THIS AGREED UPON PLAN. 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 that XCare.net and Client will establish a plan for
safeguarding Client's equipment, data files, and programs and XCare.net will be
liable for damages associated with harm to Client's equipment, data files and
programs should they not follow this agreed upon plan.
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 or damages caused by gross negligence or
willful misconduct.
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 negligence or
3
<PAGE> 26
damages 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 .
4. Termination
4.1 Either party may terminate this Agreement by providing the other party with
at least sixty (60) days notice prior to the end of the then current term.
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 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 through the date of termination. 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.
4
<PAGE> 27
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.
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 New York without
reference to conflict of law principles.
5.7 Mediation. Any Dispute that the Parties are unable to resolve through
informal discussions or negotiations will be submitted to non-binding
mediation, which will be held in New York, New York. The Parties will
mutually determine who the mediator will be from a list of mediators
obtained from the AAA office located in New York, New York. If the
Parties are unable to agree on the mediator, the mediator will be
selected by the AAA.
5.8 Arbitration. Any Dispute that the Parties are unable to resolve through
mediation pursuant to Section 10.12 will be submitted to arbitration in
accordance with the following procedures:
5.8.1. Demand for Arbitration; Location. Either Party may
demand arbitration by giving the other Party written
notice to such effect, which notice will describe, in
reasonable detail, the facts and legal grounds forming
the basis for the filing Party's request for relief and
will include a statement of the total amount of damages
claimed, if any, and any other remedy sought by that
Party. The arbitration will be held before one neutral
arbitrator in New York, New York.
5.8.2. Identification of Arbitrator. Within thirty (30)
calendar days after the other Party's receipt of such
demand, the Parties will mutually agree upon an
arbitrator. If the parties are unable to agree on the
arbitrator within that time period, the arbitrator will
be selected by the AAA. The arbitrator will have a
background in, and knowledge of, the information
technology services. If a person with such industry
experience is not available, the arbitrator will be
chosen from the large and complex case panel or, if an
appropriate person is not available from such panel, the
retired federal judges pool.
5.8.3. Conduct of Arbitration. The arbitration will be governed
by the Commercial Arbitration Rules of the AAA, except
as expressly provided in this Section 10.13. However,
the arbitration will be administered by an organization
mutually agreed to in writing by the Parties. If the
Parties are unable to agree upon the organization to
administer the arbitration, it will be administered by
the AAA under its procedures for large and complex
cases. Pending the arbitrator's determination of the
merits of the Dispute, either Party may apply to any
court of competent jurisdiction to seek injunctive or
other extraordinary relief.
5.8.4. Scope of Discovery._Discovery will be limited to the
request for and production of documents, depositions and
interrogatories. Interrogatories will be allowed only as
5
<PAGE> 28
follows: a Party may request the other Party to identify
by name, last known address and telephone number (i) all
persons having knowledge of facts relevant to the
Dispute and a brief description of that person's
knowledge, (ii) any experts who may be called as an
expert witness, the subject matter about which the
expert is expected to testify, the mental impressions
and opinions held by the expert and the facts known by
the expert (regardless of when the factual information
was acquired) which relate to or form the basis for the
mental impressions and opinions held by the expert and
(iii) any experts who have been used for consultation,
but who are not expected to be called as an expert
witness, if such consulting expert's opinions or
impressions have been reviewed by an expert witness. All
discovery will be guided by the Federal Rules of Civil
Procedure. All issues concerning discovery upon which
the Parties cannot agree will be submitted to the
arbitrator for determination.
5.8.5. Authority of Arbitrator. In rendering an award, the
arbitrator will determine the rights and obligations of
the Parties according to the substantive and procedural
laws of the State of New York. The arbitrator will not
have authority to award damages in excess of the amount
or other than the types allowed by Section 5.2, except
in the case of gross negligence or willful misconduct,
and may not, in any event, make any ruling, finding or
award that does not conform to the terms and conditions
of this Agreement, except in the case of gross
negligence or willful misconduct.
5.8.6. Joinder of Parties. Each of Vendor and Customer agree
that it will use commercially reasonable efforts to join
(and will allow the other Party to join) any Third Party
that the Parties have agreed is indispensable to the
arbitration. If any such Third Party does not agree to
be joined, the arbitration will proceed nonetheless.
5.8.7. Award. The decision of, and award rendered by, the
arbitrator will be final and binding on the Parties.
Upon the request of a Party, the arbitrator's award will
include written finding of fact and conclusions of law.
Judgement on the award may be entered in and enforced by
any court of competent jurisdiction. Each Party will
bear its own costs and expenses (including filing fees)
with respect to the arbitration, including one-half of
the fees and expenses of the arbitrator.
5.8.8. Exclusive Remedy. Other than those matters involving
injunctive or other extraordinary relief or any action
necessary to enforce the award of the arbitrator, the
Parties agree that the provisions of this Article 10 are
a complete defense to any suit, action or other
proceeding instituted in any court or before any
administrative tribunal with respect to any Dispute or
the provision of the Services by Vendor. Nothing in this
Article 10 prevents the Parties from exercising their
rights to terminate this Agreement in accordance with
Article 8.
5.9 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.
5.10 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
5.11 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.
6
<PAGE> 29
5.12 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.
5.13 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.
7
<PAGE> 30
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
o Resale of XCare.net's products and services, unless specifically
permitted and documented in a separate written agreement or the
initial Client contract.
o 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.
o 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 guidelines
review the Deception Policy Statement from the FTC.
o 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.
o Violations of privacy.
SYSTEM AND NETWORK
o Introduction of malicious programs into the network or Server (e.g.
viruses, worms, Trojan horses, etc.).
o 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.
o Client may not execute any form of network monitoring (e.g. packet
sniffer) which will intercept data not intended for Client Server.
o Attempts to circumvent Client authentication or security of any host,
network, or account ("cracking").
o Attempts to interfere with or deny service to any user or any host
(e.g. Denial of Service Attacks).
o 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.
BILLING
o Furnishing false or incorrect data on the signup form, hosting
agreement, or online hosting order application.
o 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
o 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").
8
<PAGE> 31
o Harassment, whether through language, frequency, or size of messages.
o Forging of mail header information to a third party.
o 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.
o Creating or forwarding "chain letters" or other "pyramid schemes" of
any type.
USENET NEWSGROUPS
o Posting the same or similar message to large numbers of Usenet
newsgroups.
o Posting chain letters of any type.
o Posting encoded binary files to newsgroups not specifically named for
that purpose.
o Cancellation or superseding of posted messages other than your own.
o Forging of header information.
o 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)
o Use of IRC scripts or programs that will interfere with or deny
service to other clients on any Server or host.
o 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].
o Client may not change the IP address or name of the Server.
o 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.
9
<PAGE> 32
SCHEDULE 1
HOSTING SERVICES DESCRIPTION AND PRICE SCHEDULE
In accordance with this agreement, XCare.net will provide the following
services, resources and service features:
- --------------------------------------------------------------------------------
Server Configuration
- --------------------------------------------------------------------------------
Hardware
XCare.net Hosting Provided Software
- --------------------------------------------------------------------------------
Data Center
- --------------------------------------------------------------------------------
XCare.net Data Center Operations
- --------------------------------------------------------------------------------
Bandwidth & Networking
- --------------------------------------------------------------------------------
An Intranet Connecting All Physician and Asthma Management Co. Offices
To The Main Server and the Disaster Recovery Site.
- --------------------------------------------------------------------------------
Backup
- --------------------------------------------------------------------------------
Standard Data Services Back-up
- --------------------------------------------------------------------------------
Services
- --------------------------------------------------------------------------------
System Maintenance and Second Tier Support On a 24 by 7 Basis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pricing Setup Fee Monthly Fee
------- --------- -----------
<S> <C> <C>
TOTAL PRICING AS CONFIGURED ABOVE: *MINIMUM $N/A $[*]
Transaction Fee - $[*]/transaction**
Each additional 1Mbps of average bandwidth utilization N/A $N/A
Each additional 10GB of data backup N/A $N/A
</TABLE>
*Minimum monthly hosting fee will apply regardless of transaction
volume.
**Transaction fee of $[*]/transaction: Fees will be re-evaluated after
six months of usage.
* Confidential treatment requested
10
<PAGE> 33
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:
o Performance/resource monitoring and proactive problem resolution
o Daily systems administration tasks
o Applying operating system enhancements and security patches
o Adding user accounts
o Configuring DSN's and database connections
o Managing DNS services
o Adding/configuring FTP services
o Installing security certification keys
o Minor software revision changes & application patches
o Conducting automatic log rotation
o Checking disk space
o Facilitating restore requests
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.
11
<PAGE> 1
EXHIBIT 10.35
[LETTER HEAD]
November 30, 1999
Mr. Jon B. Wisda
Vice President, Software Development
XCare.net
6400 South Fiddler's Green Circle
Suite 540
Englewood, CO 80111
Dear Jon:
XCare.net hereby provides this Authorization to Proceed (ATP) with efforts
in support of the Munshee.com project. Decision Consultants, Inc., shall
perform in accordance with the Proposal for Services dated November 22,
1999 to be attached hereto as Attachment A of this ATP.
This ATP shall be effective on December 6, 1999, and shall terminate on
March 31, 2000, unless extended or terminated in writing by XCare.net.
This project will be billed on a Time & Materials basis through the end of
the Deployment Phase of this project, which is currently expected to be
completed no later than March 31, 2000. The blended hourly rate for this
project will be $120 per hour, which will increase to $180 per hour for
subsequent work. Travel expenses related to bringing DC1 resources to
Denver will not be reimbursable for this project. Decision Consultants,
Inc. is not authorized to expend any effort, including incurring any costs
or expenses, beyond that described and detailed in the Proposal for
Services without the written consent of XCare.net.
Please acknowledge acceptance of this ATP by signing this letter below and
returning a FAX copy to Brian Fulton, Business Development Manager,
303-466-4370.
If you have any questions with respect to this ATP, please call Brian
Fulton at 303-4663124.
Sincerely,
/s/ BRIAN FULTON
----------------------------
Brian Fulton
Business Development Manager
Decision Consultants, Inc.
<PAGE> 2
ACCEPTED BY:
XCare.net
By: /s/ JON B. WISDA
------------------------------------
Name: Jon B. Wisda
------------------------------------
Title: Vice President, Software Development
------------------------------------
Date: November 30, 1999
------------------------------------
<PAGE> 3
CONSULTING SERVICES AGREEMENT
This Consulting Services Agreement (this "Agreement") is made and entered
into as of the 29th day of November, 1999 by and between DECISION CONSULTANTS,
INC., a Michigan corporation ("DCI"), and XCARE.NET a Delaware corporation
("Client").
BACKGROUND OF AGREEMENT
DCI is in the business of, among other things, managing information
technology projects and providing various information technology services and
enterprise wide solutions. Client is interested in having DCI provide Client
with such services, and DCI desires to provide such services to Client, all
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Performance of Services.
1.1 The various information technology services ("Services"), and
software code, written documentation and other work product ("Work Product"), to
be provided from time to time hereunder shall be described in statements of work
(each a "Statement of Work"), to be approved by DCI and Client. Each Statement
of Work shall set forth a description of the Services and Work Product to be
provided, including the provision of service objective, deliverable(s), time for
the project commencement, project management activities, status communication
and completion (the Services and Work Product to be provided under each
individual Statement of Work are hereafter a "Project"). Each Statement of Work
shall be deemed to be an addendum to this Agreement and, except as otherwise
provided in the Statement of Work, all of the provisions hereof shall be
applicable to such Statement of Work. In the event of a specific conflict
between the Statement of Work and a provision of this Agreement, the Statement
of Work shall control.
1.2 DCI shall provide employees, contractors and approved
subcontractors (collectively, "DCI Personnel"), who shall be qualified to
perform the Services and deliver Work Product in a timely manner pursuant to the
standards set forth in this Agreement. Should the performance of any DCI
Personnel assigned to any Project not meet the standards of performance in this
Agreement, upon the mutual agreement of Client and DCI, DCI shall replace that
person as soon as reasonably practical.
1.3 DCI may utilize contractors or subcontractors to perform any
part of its obligations under this Agreement, provided that DCI shall (a) obtain
the consent of
<PAGE> 4
Client which shall not be unreasonably withheld, and (b) be responsible for the
supervision and management of its contractors or subcontractors and their
performance. All contractors shall be required to sign appropriate documentation
protecting Client's rights in this Agreement with regard to infringement of
intellectual property nights, ownership of Services and confidentiality.
1.4 DCI will appoint a project manager for each Project whose
duties shall include, without limitation, (i) management of all Services and
Work Product to be delivered under the applicable Statement of Work, (ii)
supervision of all personnel assigned to the Project, (iii) acting as a liaison
between Client and DCI, and (iv) reviewing for accuracy all invoices prior to
sending to Client.
1.5 All work performed by DCI's Personnel shall be competent and
in accordance with applicable industry standards and any specifications
pertinent to the Services and Work Product contained in any Statement of Work.
1.6 While performing Services at the Client's facilities, DCI's
Personnel shall abide by all of Client's written safety, security and office
rules and procedures which have been delivered to DCI. For Services being
performed at the Client's facilities, the Client shall provide DCI's Personnel
with necessary access to its facilities and appropriate office space, computers,
phones, printing, faxing, copying and similar office services. If required by
the Project, Client shall be responsible for providing, at its cost, a
satisfactory communications link (such as dial-up access or a dedicated
communications line) between its facilities and the applicable DCI facility.
Client shall provide DCI's Personnel with access and necessary log-in
identifications for its mainframe environment and local area network, as
applicable.
1.7 Client shall provide its own personnel and third party
contractors to work along with DCI's Personnel, as required, and otherwise shall
provide necessary cooperation so that the Client's goals and requirements in the
Statement of Work can be achieved and the Project can otherwise be completed
successfully and in accordance with the Statement of Work.
2. Term/Termination.
2.1 This Agreement shall continue in effect until terminated as
herein provided. Either party shall have the night to terminate any particular
Statement of Work or this Agreement in the event of a material breach of the
other party's obligations in this Agreement or the Statement of Work upon thirty
(30) days prior written notice thereof, unless during such thirty (30) day
period, any such breach is cured or remedied. The Client shall remain
responsible for the compensation due for all Services and Work Product provided
under the applicable Statement of Work until the effective date of termination.
<PAGE> 5
2.2 At such time that there are no Statements of Work or change
requests outstanding, this Agreement may be terminated by either party by
providing the other party with written notice thereof.
2.3 Notwithstanding the termination of this Agreement, those
obligations intended to survive termination of this Agreement shall remain in
full force and effect and all rights as pertain thereto, shall remain in force
until their expiration, if any, including but not limited to obligations
concerning payment, ownership of services, confidentiality and non-solicitation
of personnel. Further, all representations, warranties and indemnification
obligations in this Agreement and the provisions concerning intellectual
property, limitations of liability, choice of law and arbitration shall also
survive the termination of this Agreement until their expiration, if any.
3. Payment Terms. With respect to each Project, DCI shall be paid on a
time and materials basis or as set forth in the applicable Statement of Work.
DCI will invoice Client for Services performed, deliverables or materials
provided and expenses incurred in such time intervals as are provided in the
applicable Statement of Work. Client shall pay each invoice within thirty (30)
days. The Client shall be responsible for the payment of any sales or use taxes
applicable as a result of the Services and Work Product provided hereunder. In
the event invoices are not timely paid, DCI shall be entitled to collect
interest on the outstanding amounts at the rate of 1.5% per month and Client
shall be liable for DCI's cost, fees and expenses (including attorney and expert
fees and expenses), incurred in connection with DCI's efforts to collect the
amounts due.
DCI shall be reimbursed for its necessary expenses incurred in the
performance of the Services and creation of Work Product, in accordance with the
expense reimbursement policy as expressed in the applicable Statement of Work.
DCI shall, during the term of this Agreement, and for a period of
three years thereafter, maintain adequate records indicating in sufficient
detail, the work performed by DCI's Personnel under this Agreement. Client
shall have the right upon reasonable notice, to be exercised not more than two
times per year, to review and inspect such records.
4. Change Requests. Change requests to a Statement of Work may be
initiated by the Client or DCI Change requests shall be documented in a clear
and concise manner on a form to be agreed upon between the parties, and to the
extent possible, shall contain a good faith estimate of the additional expense,
schedule change and/or other impact as a result of the proposed change. No work
will be performed pursuant to a change request until it has been approved in
writing by both parties. A record of all agreed upon change requests shall be
maintained. Should there be a conflict among this Agreement, the applicable
Statement of Work or any agreed upon change requests, the change request shall
govern.
<PAGE> 6
5. Ownership of Services. DCI acknowledges that the Services and Work
Product provided for Client and all inventions and processes, products or
services held as trade secrets, inventions for which applications for patents
may be filed in any country or written data and software and any other works of
authorship that are protectable by copyright shall be considered, "works made
for hire" within the meaning of applicable United States law and shall be the
sole and exclusive property of Client. To the extent any of the foregoing are
not works made for hire, DCI hereby assigns, transfers and sets over to Client,
all ownership interest in the foregoing and agrees to execute all documents
reasonably requested by Client confirming such ownership and at the expense of
Client, take such other actions reasonably requested in connection therewith.
Notwithstanding the foregoing, any DCI tools, techniques, processes, generalized
ideas, concepts, knowhow, methods or skills, including any of the foregoing
gained or learned during the course of any Project, shall be and remain the sole
property of DCI, subject to DCI's confidentiality obligations in Section 10
hereof DCI hereby grants to Client a nonexclusive, non-transferable, world-wide
permanent paid-up license to make, have made, use, have used, reproduce and
modify such development techniques, processes, techniques, concepts and tools as
the same are incorporated into DCI's Work Product for Client, only for the
purpose of Client's internal use.
6. Standards of Performance/Warranties. Except as set forth in Section
7 hereof, all of DCI's warranties in connection with the Services and Work
Product shall be as follows:
6.1 DCI warrants that DCIs Personnel will be qualified, competent,
experienced, trained personnel as required by the Statement of Work and such
Services shall be of professional quality and conform to generally accepted
industry practices.
6.2 All DCI work shall be subject to acceptance by Client. For
purposes of this Agreement, DCI's Services and Work Product shall be "Accepted"
if such Services have been performed substantially in accordance with the
standards set forth in Section 6.1 above, are consistent with any specifications
set forth IN any applicable Statement of Work and all Work Product is
substantially free of defects and conforms to the specifications set forth in an
applicable Statement of Work. After completion of the Services or any portion of
such Services, or any Work Product, Client shall have a period of thirty (30)
days to review and test such Services or Work Product and unless such Services
or Work Product are rejected within such thirty (30) day period, such Services
shall be deemed Accepted. Each Statement of Work shall detail the timing of
testing of DCI's Services and Work Product.
6.3 Far a period of sixty (60) days after acceptance of Services
or Work Product, DCI warrants that such Services or Work Product shall be
substantially free from defects and shall operate in accordance with the
specifications set forth in the applicable Statement of Work and DCI shall,
without additional cost and expense to Client, furnish necessary labor, services
or software to cause the Services or Work Product to be substantially defect
free and to operate in accordance with the specifications
<PAGE> 7
in any applicable Statement of Work. DC1 hereby also warrants that all
date-related functions in connection with its Services and Work Product, where
applicable, will be Year 2000 Compatible. "Year 2000 Compatible" means that the
Work Product, without causing failures in software, firmware or hardware and
without leading to invalid or incorrect results during normal operating of the
Work Product, without affecting performance of the Work Product with respect to
historical data prior to the year 2000, and without changing the manner of
performance, including time of performance, (i) properly recognizes, uses and
indicates dates in the Year 2000 and beyond as both input and output, including
without limitation, in any calculation of dates or length of time in the same
century or in multiple centuries, and (ii) conforms to proper leap year
calculations for the year 2000.
6.4 DCI also warrants that no part of any Work Product due under
any Project, when delivered, shall contain any computer virus or other
contaminants, including any codes or instructions that may be used to access,
modify, delete, damage or disable Client's computer system, which shall include,
but not be limited to, security or expiration codes.
6.5 DCI's warranty obligations are subject to Client notifying DCI
in writing of any defect, in a detailed written description, within the warranty
period. DCI shall not be responsible for warranty claims arising from Client's
accident, misuse, neglect, alteration of any Services or any Work Product, or
defects arising from adjustment, support or other impact on Services or any Work
Product made by third parties, unauthorized testing, use not within
specifications or any other cause not arising out of defects in material or
workmanship. DCI shall not be responsible for any warranty with respect to
hardware and software supplied by a third party. In the event DCI is purchasing
third party hardware and software for a particular Statement of Work, DCI will
take such steps as to assign the manufacturer's warranty to Client.
7. Infringement of Intellectual Property Rights. DCI represents and
warrants that neither the Services nor any Work Product will infringe or violate
any patents, copyrights, trademarks, trade secrets or other proprietary rights
of any third party. All Services and Work Product provided by DCI shall be
original. In the event that a claim is made against Client that any of the
Services or any Work Product violate any third party intellectual property
rights, Client shall promptly notify DCI and DCI shall have the right to control
the defense or settlement of any such third party claim at its expense. Client
shall cooperate with DC1 in connection with any such claim. Should any such
Services or Work Product be found to constitute infringement of any third
party's intellectual property rights and an injunction issues prohibiting use
thereof, DC1 shall, at its option, either (a) secure for Client the right to use
such infringing item by means of license or other permission, (b) replace the
infringing aspect of the Services or Work Product with a non-infringing
substitute of substantially equivalent functionality, or (c) modify such
infringing Services or Work Product so that it becomes non-infringing. If DCI is
unable to accomplish any of the foregoing, the Services or Work Product shall be
returned to DCI and DCI shall refund to Client the full amount paid for such
Services or Work
<PAGE> 8
Product. DCI's obligation under this Section, and under the indemnity provided
in Section 11 shall not apply to any infringement arising out of Services or
Work Product utilized by Client in a manner inconsistent with the specifications
set forth in any applicable Statement of Work or any alteration, modification or
revision of the Services or Work Product.
8. WARRANTY LIMITATIONS. THE WARRANTIES SET FORTH EN SECTIONS 6 AND 7
ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESSED, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED.
9. LIMITATIONS ON LIABILITY. DCI'S LIABILITY UNDER THIS AGREEMENT SHALL
BE LIMITED TO THE AMOUNT OF FEES RECEIVED BY DCI UNDER THE APPLICABLE STATEMENT
OF WORK. IN NO EVENT SHALL DCI BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF PROFITS, REVENUE OR
DATA, EVEN IF APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
10. Confidentiality. In connection with any particular Project, DCI and
Client may provide each other with confidential information and trade secrets,
including without limitation, information on their respective organization,
business, finances, personnel, services, systems, pricing structure, proprietary
products and processes, transactions and/or business relations (collectively,
the "Information"). The term "Information" shall not include (i) information
generally available to the public through no fault of the other party, (ii)
information which the other party had already had knowledge of, (iii)
information which has become part of the public domain through no fault of a
party, and (iv) information ordered to be disclosed by subpoena, other legal
process or requirement of law. Each party agrees to retain in confidence at all
times and to require its employees, consultants, professional representatives
and agents to retain in confidence all Information disclosed to each other. The
only permitted use of any Information shall be in connection with the
performance of the Services or the creation of Work Product. Upon request by
Client, at the conclusion of the performance of any Services, DCI shall promptly
return to Client all documents, materials or written Information obtained in
connection with its Services.
11. Indemnity.
11.1 DCI agrees to indemnify, defend and hold Client harmless
against any loss, cost, damage or expense (including reasonable attorney's fees)
incurred by Client as a result of (i) DCI's infringement of any third party
intellectual property as provided in Section 7, (ii) claims against Client for
bodily injury or property damage caused by DCI's Personnel, (iii) any breach by
DCI of its obligations of confidentiality contained in Section 10, and (iv)
claims against Client from DCI's Personnel with respect
<PAGE> 9
to DCI's obligation for the payment of wages or other compensation, insurance
coverage, taxes or expenses as provided in Section 12 hereof.
11.2 Client hereby agrees to indemnify, defend and hold DCI
harmless against any loss, cost, damage or expense (including reasonable
attorney's fees), arising out of Client's breach of its obligations of
confidentiality as set forth in Section 10 hereof.
11.3 The provisions of this Section 11 shall survive termination of
this Agreement for a period of one (1) year.
12. Relationship of the Parties. It is understood and agreed that DCI
will provide the Services and Work Product to Client as an independent
contractor and neither DCI nor any of DCI's Personnel shall be considered an
agent or employee of Client. No relationship of employer/employee shall result
from the execution of this Agreement or from the performance of any Services
hereunder. DCI acknowledges and agrees that nothing herein shall entitle or
render DCI, or DCI's Personnel, eligible to participate in any benefits or
privileges provided by Client for its employees. As an independent contractor,
DCI acknowledges that it is solely responsible for providing its own insurance
coverage, including but not limited to, unemployment compensation and workers
compensation to its employees, and that such coverage shall be maintained by DCI
within the statutory limits which are presently in effect or which may be in
effect in the applicable jurisdictions. DCI acknowledges and agrees that it is
solely responsible for payment of wages and other compensation and for
compliance with all applicable federal, state and local payroll tax requirements
in connection with Services rendered by DCI's Personnel and that these are not
the responsibility of Client.
13. Insurance; Limitation of Liability for Personal Injury. DCI shall
maintain (i) comprehensive general liability and property damage insurance with
limits of $1,000,000 per each occurrence with a general aggregate of $2,000,000
and (ii) comprehensive automobile liability insurance with a combined single
limit of $1,000,000 per occurrence. Upon request of Client, DCI shall name
Client as a loss payee and/or additional insured in its policies of general
liability and property damage coverage and shall provide a certificate
evidencing such insurance. The certificate of insurance shall also provide that
DCI shall not cancel or amend such insurance coverage without Client first being
notified at least ten (10) days prior to such cancellation or amendment.
14. Force Majeure. DCI shall not be deemed to be in default of any
provision of this Agreement or any Statement of Work, nor be liable for any
delay, failure in performance or interruption of services, resulting directly or
indirectly from acts of God, embargoes, quarantines, civil or military
authority, civil disturbance, insurrection, war, other catastrophes or any such
other cause beyond its control; provided, however, that DCI shall exercise
reasonable efforts to remedy any such cause of delay or cause preventing
performance.
<PAGE> 10
15. Non-Solicitation of Personnel. Each of the parties hereto covenants
and agrees that it shall not, during the term of any applicable Statement of
Work, and for a period of eighteen (18) months after the termination of any
applicable Statement of Work, regardless of the reason for termination, directly
or indirectly, employ, engage, contract with or in any other way utilize or
solicit or make any offers for the services of any of the other party's
employees, contractors or other personnel who provides Services or Work Product
for the Project(s) described in the applicable Statement of Work during the term
of their employment or engagement with such party or within six (6) months after
such employment or engagement ends.
16. Equitable Remedies. In the event of a violation or threatened
violation of the covenants and agreements contained in Sections 5, 10 and 15
hereof, the aggrieved party, in addition to and not in limitation of any other
rights, remedies or damages available at law or in equity, shall be entitled to
equitable relief in a court of equity, including a temporary and permanent
injunction against the other, or such other equitable relief as may be
appropriate, including an order of specific performance.
17. Arbitration. The parties hereto will attempt to settle any claim or
controversy arising out of or relating to this Agreement or any Statement of
Work by consultation and negotiation in good faith and a spirit of mutual
cooperation. However, at any time before or during such negotiations, or
following any unsuccessful negotiations, either party may, by written notice to
the other, demand that the dispute be submitted to arbitration. Except as
provided in Section 16 above, any claim or controversy arising out of or
relating to this Agreement or any breach thereof shall be settled by
arbitration. The venue for any such arbitration shall be in the state of
Colorado. Except as expressly set forth herein, all proceedings under this
Section shall be undertaken in accordance with the rules of the American
Arbitration Association ("AAA"), then in force. Only individuals who are (i)
lawyers engaged full-time in the practice and (ii) on the AAA register of
arbitrators shall be selected as an arbitrator. There shall be one arbitrator
who shall be chosen in accordance with the rules of the AAA. The parties to the
arbitration shall be permitted to obtain discovery from each other in accordance
with the federal rules of civil procedure. Any disputes concerning the scope of
discovery requests or the compliance thereof shall be decided by the arbitrator.
As soon as practicable after the conclusions of the arbitration hearing, the
arbitrator shall prepare written findings of fact and conclusion of law.
Judgment upon the written award may be entered and enforced in any court of
competent jurisdiction. It is mutually agreed that the written decision of the
arbitrator shall be valid, binding, final and non-appealable and shall be a
condition precedent to any legal or equitable action that any party hereunder
may contemplate against another party hereunder except to compel arbitration
pursuant hereto (or as noted in Section 16 above). The arbitrator shall have the
power to require the non-prevailing party to pay his fees and the fees of the
arbitration and the prevailing party's legal fees and expert's fees. If in his
opinion there is no prevailing party, the arbitrator's and arbitration fees and
expenses will be borne equally by the parties thereto and each party shall pay
its own legal fees and expert's fees.
<PAGE> 11
18. Miscellaneous Provisions.
18.1 Notices. Any notice, request, consent, demand, offer,
acceptance or other communications required or permitted under this Agreement
shall be made in writing and shall be deemed to have been duly given if
personally delivered, or if mailed by registered or certified mail, postage
prepaid, return receipt requested (and shall be deemed delivered on the date
received for delivery by the Postal Service whether or not accepted), or by
telefax, telecopier, electronic mail or similar transmission on the date
received (provided there is verification of delivery), or by overnight delivery
service, charges prepaid, on the date received, addressed to the parties hereto
at their respective addresses as follows:
(a) If to DCI:
Decision Consultants, Inc.
350 Interlocken Blvd.
Suite 200
Broomfield, CO 80021
Attention: Brian R. Fulton
Fax No.: 303-466-4370
e-mail: [email protected]
(b) If to Client:
XCare.net
6400 South Fiddler's Green Circle
Suite 540
Englewood, CO 80111
Attention: Jon B. Wisda
Fax No.: 303-488-9705
e-mail: [email protected]
or to such other address or addresses and to the attention of such other person
or persons as either of the parties hereto may notify the other in accordance
with the provisions of this Agreement.
18.2 No Third-Party Beneficiaries. There are no third-party
beneficiaries of this Agreement or of the transactions contemplated hereby and
nothing contained herein shall be deemed to confer upon any one other than the
parties hereto (and their respective successors and permitted assigns), any
right to insist upon or to enforce to perform any of the obligations contained
herein.
<PAGE> 12
18.3 Supplemental Documents. The parties hereto agree to execute
any further instruments and shall perform any acts which are or may become
necessary to effectuate the terms of this Agreement.
18.4 Entire Agreement. This Agreement (together with the Statements
of Work, agreements, certificates, instruments and any other documents referred
to herein), sets forth all of the promises, covenants, agreements, conditions
and understandings between the parties hereto, with respect to the subject
matter hereof, and supersedes all prior and contemporaneous writings (including
requests for proposals and responses thereto), agreements and understandings,
inducements or conditions pertaining thereto, expressed or implied, oral or
written, except as contained herein.
18.5 Headings. The section headings in this Agreement and the
Background of this Agreement are for reference purposes only and shall not
define, limit or affect the meaning or interpretation of this Agreement.
18.6 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Notwithstanding the foregoing, this Agreement may not be assigned in
whole or in part without the prior written consent of the other party; provided,
however, this Agreement may be assigned by DCI to a purchaser of substantially
all of the assets of DCI or the survivor of a merger of DCI and another entity
or any other such successor of DCI's business.
18.7 Governing Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed in accordance with the laws of the State of Michigan,
notwithstanding any conflicts of laws, doctrines of such states or other
jurisdictions to the contrary.
18.8 Amendments. No amendment, alteration or modification of this
Agreement shall be valid unless each such instance, amendment, alteration or
modification is expressed in a written instrument duly executed by both parties
hereto.
18.9 No Waiver. The failure of any party to insist, in any one or
more instances, on performance of any of the terms and conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or of the future performance of such term, covenant or
condition, but the obligations of the parties, with respect thereto, shall
continue in full force and effect.
18.10 Unenforceable Provisions. It is the agreement of the parties
that in case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect the
other provisions of this Agreement and this
<PAGE> 13
Agreement shall be construed as such or unenforceable provisions had never been
contained herein. In case any one or more of the provisions hereof shall for any
reason be held to be excessively broad as to duration, geographical scope,
activity or subject matter, such provision shall be construed by limiting and
reducing it as determined by a court of competent jurisdiction, so as to be
enforceable only to the extent compatible with applicable law.
18.11 Counterparts. This Agreement may be executed in any
number of counterparts, which when taken together shall
constitute an original document.
IN WITNESS WHEREOF, the parties hereto have caused this Consulting
Services Agreement to be executed as of the day and year first above written.
DECISION CONSULTANTS, INC.
By: /s/ DAVE BERRY
-----------------------------------
Name: Dave Berry
Title: Managing Director
XCARE.NET
By: /s/ JON B. WISDA
-----------------------------------
Name: Jon B.Wisda
Title: Vice President, Software
Development
<PAGE> 1
EXHIBIT 10.36
SUBLEASE
THIS SUBLEASE ("Sublease") is made as of the 17th day of December 1999
by and between The Pittsburg & Midway Coal Mining Co., a Missouri corporation
("Sublessor") and XCare.net, Inc., a Delaware corporation ("Sublessee").
ARTICLE 1
GENERAL
1.1 Lease. As used herein, the term "Lease" shall mean that certain Plaza
Tower One Office Lease, dated January 1, 1995 by and between Huntington
Beach Company, a California corporation ("BBC"), and Sublessor. A copy
of the Lease is attached hereto as Exhibit A and is by this reference
incorporated herein and made a part hereof.
1.2 Landlord. Property Colorado OBJLW One Corporation, an Oregon corporation
(the "Landlord") is the current owner of the Building and is the
successor to all of the rights and obligations of HBC under the Lease.
1.3 Building Terms. As used herein, the terms Improved Area, Building,
Tower, Retail Area and Parking Garage shall have the meaning ascribed to
such terms in Paragraph 1 of the Lease.
1.4 Premises. As used herein, the term "Premises" shall mean 21,978 rentable
square feet of space located on the 14th Floor of the Tower as shown on
the floor plan attached hereto as Exhibit B and by this reference
incorporated herein and made a part hereof.
1.5 Furnishings. As used herein, the term "Furnishings" shall mean and
include all of the furnishings currently located in the Premises which
shall consist of the items identified on Exhibit C attached hereto and
by this reference made a part hereof.
1.6 Sublease Term. As used herein, the term "Sublease Term" shall mean the
term of this Sublease, which shall commence as of January 10, 2000 (the
"Commencement Date") and shall expire December 30, 2001 (the "Expiration
Date"), unless terminated sooner pursuant to any term or provision of
this Sublease.
ARTICLE 2
DEMISE OF PREMISES
2.1 Demise of Premises. Under and subject to the provisions, covenants and
agreements contained herein and in the Lease, Sublessor hereby subleases
to Sublessee, and Sublessee hereby subleases from Sublessor, the
Premises for the Sublease Term.
2.2 Demise of Furnishings. Under and subject to the provisions, covenants
and agreements contained herein and in the Lease, Sublessor hereby
leases to Sublessee, and Sublessee hereby leases from Sublessor, the
Furnishings for the Sublease Term at no additional cost.
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<PAGE> 2
The Furnishings are leased to Sublessee in their "AS IS" condition
Without any representations or warranties by Sublessor of any kind or
nature whatsoever including, without limitation, any warranties as to
the physical condition or state of repair of the Furnishings or their
fitness for any particular purpose. Sublessee shall keep, maintain and
repair all of the Furnishings in good and sightly condition during the
Sublease Term and shall surrender the Furnishings to Sublessor upon the
expiration or earlier termination of the Sublease Term in the same
condition as the Furnishings were in on the Commencement Date
(including, if necessary, by repairing any damage thereto), ordinary
wear and tear excepted.
2.3 Early Access. Sublessee shall have the right to enter and take
possession of the Premises on January 3, 2000 for the purpose of
installing leasehold improvements, telephone equipment and cabling and
generally preparing the Premises for occupancy on January 10, 2000.
ARTICLE 3
RENT
3.1 Rent Obligation. Sublessee covenants and agrees to pay the Rent as
hereinafter defined to Sublessor during the Sublease Term, without
notice and without offset, deduction or abatement. Sublessee's
obligation to pay Rent accrues and rent payments shall commence on
January 10, 2000.
3.2 Rent. As used herein, the term "Rent" shall mean annual rent in the
aggregate sum of $417,582.00 payable in monthly installments of
$34,798.50 each, which amount is based upon an annual rental rate equal
to the product of $19.00 per rentable square foot in the Premises
multiplied by 21,978 rentable square feet. The Operating Cost provisions
of the Lease shall not apply to this Sublease and Sublessee shall not
have any obligation to pay any portion of said Operating Costs.
3.3 Payment. Rent shall be payable in advance in monthly installments
commencing on the Commencement Date and continuing on the first day of
each month thereafter for the balance of the Sublease Term. Rent shall
be prorated for any partial month occurring during the Sublease Term.
Prorated Rent for the month of January 2000 in the amount of $23,573.18
shall be due and payable in full on the Commencement Date. All items of
Rent payable by Sublessee to Sublessor under this Sublease shall be paid
to Sublessor at the address for Sublessor which is set forth in Section
5.1 of this Sublease.
3.4 Rent Security and Late Payment of Rent. As security for payment of Rent
as set forth above, Sublessee shall, on or prior to the Commencement
Date, deliver to Sublessor a Irrevocable Standby Letter of Credit in a
form satisfactory to Sublessor in the aggregate amount of $208,791.00
that may be drawn upon by Sublessor in the event of Sublessee's failure
to pay Rent as required above. The Letter of Credit shall provide for
termination thereof upon the earlier of (i) December 30, 2001 or (ii)
the issuing bank's receipt from Sublessor of a written notice of
termination, which notice shall include Sublessee's written
certification that an initial public offering of registered securities
of Sublessee is fully subscribed and that the twenty-five (25) day
"quiet period" as prescribed by the Federal
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<PAGE> 3
Securities and Exchange Commission has expired. Rent payments shall be
deemed late if not received by Sublessor on or before the 5th day of the
month. Late rent payments shall include, in addition to the full amount
of rent due for the applicable month, a 5% penalty, plus accrued
interest for each day late at the rate of 1.5% per month.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1 Lease Provisions Binding On Sublessee. Except for the Retained
Obligations (as hereinafter defined), except for the Inapplicable
Provisions (as hereinafter defined), and except as otherwise
specifically set forth herein, Sublessee: shall be subject to and be
bound by all of the terms, conditions and provisions of the Lease
applicable to the "Tenant" to the extent that the same apply to the
Premises (which terms, conditions and provisions are incorporated herein
as terms, conditions and provisions of this Sublease); shall comply with
and shall be obligated to perform all of Sublessor's obligations, duties
and liabilities in, under and with respect to the Lease to the extent
that the same apply to the Premises; and shall indemnify and hold
Sublessor harmless from any failure by Sublessee to comply with its
obligations under this sentence and from all liabilities, costs and
expenses including, without limitation, reasonable attorneys' fees
asserted against or incurred by Sublessor in connection therewith;
provided, however, that for the purposes of this Sublease: (A) the first
paragraph of Paragraph 5 of the Lease shall not apply in any respect to
this Sublease and Sublessor shall not have any obligation to Sublessee
to exercise Sublessor's rights under Paragraph 5 of the Lease; and (B)
the rights reserved to the Landlord under Paragraph 28 of the Lease
shall be exclusively for the benefit of Landlord and not of Sublessor.
Sublessee shall not commit or permit to be committed any act or omission
which shall violate any term or condition of the Lease. As used herein,
the term "Retained Obligations" shall mean and include (i) the
obligation of Sublessor to pay the Base Rent to the Landlord under
Paragraph 3A of the Lease, (ii) the obligation of Sublessor to pay its
share of the Operating Costs to the Landlord under Paragraph 3B of the
Lease, and (iii) all obligations of the Sublessor under the Lease which
relate to the portion of the space leased to Sublessor under the Lease
which is not included in the Premises. As used herein, the term
"Inapplicable Provisions" shall mean Paragraph 22 of the Lease and,
generally, any provisions set forth in the Lease which are clearly by
their terms inapplicable to, inconsistent with or superseded by the
terms set forth in this Sublease. During the Sublease Term, so long as
there are no uncured defaults by Sublessee under this Sublease,
Sublessor (1) shall comply with and perform all of the Retained
Obligations, and (2) shall take any reasonable actions which may be
necessary to endeavor to cause the Landlord to comply with its
obligations under the Lease, except that in no case shall Sublessor be
obligated hereby to commence any lawsuit or other legal proceedings to
compel such performance. Sublessee shall promptly deliver to Sublessor
true and complete copies of any and all notices or other material
correspondence regarding the Lease, this Sublease, the Building or the
Premises received by Sublessee at any time during the Sublease Term.
4.2 Sublessee's Rights Under The Lease. Except as otherwise specifically
provided herein, Sublessor hereby grants to Sublessee during the
Sublease Term all of the rights, powers and privileges that Sublessor
has under the Lease with respect to the Premises. Sublessee shall
Sublease.doc
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Page 3 of 8
<PAGE> 4
be entitled during the Sublease Term to receive any and all services,
utilities, repairs and facilities to and for the Premises which the
Landlord is required to provide pursuant to the Lease on and subject to
the terms thereof, provided, however, that Sublessor does not hereby
guarantee that the same will be provided to the Premises or that the
Landlord will perform any or all of its obligations under the Lease with
respect to the Premises.
4.3 Insurance and Waiver of Claims. Without limiting the generality of the
terms of Section 4.1 above, Sublessee shall obtain and keep in full
force and effect at all times during the Sublease Term all of the
liability insurance coverages required to be maintained by Sublessor
under the Lease with regard to the Premises and casualty insurance
coverage on the Furnishings and on all of its trade fixtures, supplies,
inventory, equipment and personal property located in the Premises.
Sublessee shall cause Sublessor and Landlord to be named as additional
insureds on all such policies pertaining to liability coverage required
to be maintained by Sublessor under the terms of the Lease. Sublessee
shall cause Sublessor to be named as an additional insured on casualty
insurance coverage with respect to the Furnishings Notwithstanding any
of the foregoing, Sublessee shall have no right to selfinsure. Sublessee
hereby waives and releases Landlord and Sublessor from and against any
and all claims, damages, losses and liabilities for any bodily injury,
loss of life or property damage occurring on or about the Premises or
any part thereof, from any cause whatsoever including, without
limitation, the negligence of Sublessor or the Landlord or any of their
respective agents, employees, contractors or guests, or the negligence
of any other party leasing, occupying or otherwise using any part of the
Building. Sublessee shall indemnify and hold Sublessor harmless from and
against any and all claims asserted against Sublessor or the Landlord
arising from any such damages, injuries or losses incurred by Sublessee
or any of its agents, employees, contractors, guests or other parties
upon the Premises. Sublessee shall cause all policies of insurance
maintained by Sublessee hereunder to contain waiver of subrogation
provisions in favor of Sublessor and the Landlord, and shall cause
Sublessor and Landlord to be named as additional insureds on all such
policies.
4.4 Premises Taken "AS IS". Sublessee agrees that it is taking the Premises
in an "AS IS" condition and without any representations or warranties by
Sublessor of any kind or nature whatsoever. Sublessee agrees that
Sublessor shall have no responsibility to make, arrange for, or pay for
any tenant improvements whatsoever to the Premises. Any tenant
improvements made by Sublessee, with approval from Sublessor and
Landlord, will not be required to be restored to their original
condition at the end of the Sublease Term. Sublessee agrees that it
shall be solely responsible for obtaining and installing on the
Premises, at its own expense, all telecommunication and information
technology systems, except that Sublessee shall have the right to use,
relocate, re-route and re-install, as needed, existing telephone and
computer cabling; provided, however, that such use shall not affect
Sublessor's telephone and computer systems or otherwise interfere with
Sublessor's business systems. The Commencement Date hereunder shall not
be extended because of any failure of Sublessee or any of Sublessee's
agents to complete the installation of such systems for the Premises by
January 10, 2000.
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<PAGE> 5
4.5 No Assignment by Sublessee. Sublessee may not assign, sublease or
otherwise transfer any of its rights, duties, liabilities or obligations
under this Sublease without the prior written consent of Sublessor,
which consent shall not be unreasonably withheld.
4.6 Right of Reentry. Sublessor reserves the fight to re-enter the Premises
in the event Sublessee defaults under this Sublease or otherwise inspect
the Premises to verify Sublessee's compliance with the terms of this
Sublease.
4.7 Repair and Maintenance. Sublessee shall keep and maintain the Premises
and the Furnishings in good order and repair in a manner consistent with
the terms and conditions set forth in the Lease and this Sublease.
4.8 Right of First Refusal: 15th and 17th Floors. The Lease covers the 15th
floor (Lease Exhibit B-1) and portions of the 17th floor (Lease Exhibit
B-2), which space Sublessor may choose, in its discretion, to later
assign or sublease. In the event, during the term of this Sublease,
Sublessor decides to assign or sublease the 15th or 17th floor space,
and Sublessee is not in default under any terms of this Sublease,
Sublessee is hereby granted the right and option to take an assignment
or sublease of the 15th or 17th floor space or both upon, at a minimum,
the same terms and conditions as the best bona fide offer acceptable to
Sublessor submitted by a prospective third-party sublessee or assignee,
as the case may be. Sublessee has five (5) business days to respond to
Sublessor's offer to sublease this space. If Sublessee elects not to
exercise this right, Sublessor may only effect the Sublease or
assignment to a third party at the bona fide terms presented to
Sublessee or the substantial equivalent of those terms. Any and all
solicitations to assign or sublease the 15th or 17th floors made by
Sublessor shall be expressly made subject Sublessee's "right of first
refusal" as granted above.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. All notices, demands, consents or other instruments or
communications provided for under this Sublease or otherwise given under
or in connection with this Sublease, shall be in writing, shall be
signed by or on behalf of the party giving the same, and shall be deemed
properly given and received when the same is actually received or
refused if a copy thereof, addressed to the recipient at the address set
forth below, is delivered personally, by messenger service, by
facsimile, by a nationally-recognized commercial overnight courier
service such as Federal Express, or by certified or registered mail,
return receipt requested. All such notices shall be delivered or sent
with transmission, postage and/or delivery charges paid, to the address
of the intended recipient set forth below or such other address as such
party may designate by written notice given to the other party in
accordance with the terms set forth in this Section 5.1. All notices to
Sublessor shall be addressed to Sublessor at the following address
and/or facsimile number:
The Pittsburg & Midway Coal Mining Co.
6400 South Fiddler's Green Circle
Suite 15000
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<PAGE> 6
Englewood, CO 80111
Attention: Lavonne Hertzog
Telephone: (303)930-4006
Facsimile: (303)930-4219
All notices to Sublessee shall be addressed to Sublessee at the
following address and/or facsimile number:
XCare.net, Inc.
6400 South Fiddler's Green Circle
Suite 1400
Englewood, CO 80111
Attention: President
Telephone: (303)488-2019
Facsimile: (303)488-7095
5.2 Parking Sublessee hereby subleases from Sublessor, and Sublessor hereby
subleases and demises to Sublessee, for the Sublease Term a total of 57
non-reserved spaces in the Parking Garage located in the Improved Area.
The rental rate for the parking spaces subleased by Sublessee hereunder
shall be $10.00 per space per month from the Commencement Date through
the expiration of the Sublease Term. Sublessee's use of the Parking
Garage shall be subject to all of the rules, regulations and limitations
established from time to time by the Landlord. In no event shall
Sublessor have any liability or responsibility for any losses, damages
or injuries to person or property in connection with the use of the
Parking Garage by Sublessee or any of its agents, employees, contractors
or guests.
5.3 Remedies. In the event of any breach or default by Sublessee under this
Sublease, Sublessor shall have the right to enforce any of the remedies
provided for in Paragraphs 20 and 23 of the Lease and any other remedies
otherwise available to Sublessor for such default. For purposes of this
Section 5.3, Paragraphs 20 and 23 of the Lease are incorporated herein
and the term "Landlord" therein shall be substituted with the term
Sublessor; the term "Tenant" therein shall be substituted with the term
Sublessee; and the term "Lease" therein shall be substituted with the
term Sublease.
5.4 No Implied Waiver. No failure by Sublessor to insist upon the strict
performance of any term, covenant or agreement contained in this
Sublease, no failure by Sublessor to exercise any right or remedy under
this Sublease and no acceptance of full or partial payment during the
continuance of any default by Sublessee shall constitute a waiver of any
such term, covenant or agreement, or a waiver of any such right or
remedy, or a waiver of any such default by Sublessee.
5.5 Entire Agreement - No Representation. This Sublease and all exhibits
referred to herein, constitute the final and complete expression of the
parties' agreements with respect to the subject matter hereof. Each
party agrees that it has not relied upon or regarded as binding any
prior agreements, negotiations, representations or understandings,
whether oral or written, except as expressly set forth herein. Sublessor
and Sublessee acknowledge and
Sublease.doc
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<PAGE> 7
agree that, except as otherwise may be specifically provided for herein,
neither party has made any representations, warranties or agreements to
or on behalf of the other party as to any matter concerning the Premises
or this Sublease.
5.6 Modifications in Writing. No amendments or modifications of this
Sublease and no approvals, consents or waivers by Sublessor under this
Sublease shall be valid or binding unless in writing and executed by the
party to be bound thereby.
5.7 Severability. If any provision of this Sublease shall be invalid,
illegal or unenforceable, it shall not affect or impair the validity,
legality or enforceability of any other provision of this Sublease and
there shall be substituted for the affected provision a valid and
enforceable provision as similar as possible to the affected provision.
5.8 Binding Effect. This Sublease shall extend to and be binding upon the
heirs, personal representatives, successors and assigns of the
respective parties hereto. The terms, covenants, agreements and
conditions in this Sublease shall be construed as covenants running with
the Land.
5.9 Time of the Essence. Time is of the essence under this Sublease and all
provisions herein relating thereto shall be strictly construed.
5.10 Survival of Provisions. Notwithstanding any termination of this
Sublease, the same shall continue in force and effect as to any
provisions hereof which require observance or performance by Sublessee
subsequent to termination and as to any provisions which required
performance by Sublessee prior to such termination but which Sublessee
failed to perform at such time.
5.11 Applicable Law. This Lease shall be interpreted and enforced according
to the laws of the State of Colorado.
5.12 Brokers. Sublessor hereby represents and warrants to Sublessee that it
has not been represented by any broker in connection with this Sublease
and the transaction contemplated herein except for Staubach Company.
Sublessee hereby represents and warrants to Sublessor that it has not
been represented by any broker in connection with this Sublease and the
transaction contemplated herein except for CB Richard Ellis, Inc.
Sublessor shall pay to CB Richard Ellis, Inc. a market commission of
$43,956.00, which is equal to $2.00 per rentable square foot of the
Premises. Said market commission shall be paid 50% upon the date of
execution of this Sublease by Sublessee and 50% on the Commencement
Date. Sublessor shall pay any amounts due to Staubach Company on account
of this Sublease and the transaction contemplated herein pursuant to the
terms of a separate agreement between Sublessor and Staubach Company. In
the event Sublessee exercises its "Right of First Refusal" as set forth
in Paragraph 4.8 above on or before March 31, 2001, then Sublessor shall
pay an additional market commission at the rate of $1.00 per rentable
square foot. Such additional market commission shall be paid 50% to CB
Richard Ellis, Inc. and 50% to Staubach Company. Sublessee shall
indemnify and hold harmless Sublessor from and against any and all
claims for additional commissions, fees or other compensation payable
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Page 7 of 8
<PAGE> 8
to or claimed by any other real estate broker, agent, salesman or finder
on account of any implied or express commitment or undertaking made by
Sublessee as a result of this Sublease or the consummation of the
transaction contemplated herein.
5.13 Counterparts: Execution. This Sublease may be executed in counterparts
and when counterparts of this Sublease have been executed and delivered
by all of the parties hereto, this Sublease shall be fully binding and
effective, just as if all of the parties hereto had executed and
delivered a single counterpart hereof. Without limiting the manner in
which execution of this Sublease may otherwise be effected hereunder,
execution by any party may be effected by facsimile transmission of a
signature page hereof executed by such party. If any party effects
execution in such manner, such party shall also promptly deliver to the
other parties the counterpart physically signed by such party, but the
failure of any such party to do so shall not invalidate the execution
hereof effected by facsimile transmission.
5.14 Conflicts of Interest. Conflicts of interest relating to this Lease are
strictly prohibited. Except as otherwise expressly provided herein,
neither Sublessee nor any director, employee or agent of Sublessee,
shall give to or receive from any director, employee or agent of
Sublessor any gift, entertainment or other favor of significant value,
or any commission, fee or rebate. Likewise, neither Sublessee nor any
director, employee or agent of Sublessee shall enter into any business
relationship with any director, employee or agent of Sublessor or of any
affiliate of Sublessor, unless such person is acting for an on behalf of
Sublessor, without prior written notification thereof to Sublessor. Any
respresentative(s) authorized by Sublessor may audit any and all records
of Sublessee for the sole purpose of determining whether there has been
compliance with this paragraph.
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed the day and year first above written.
SUBLESSOR:
THE PITTSBURG & MIDWAY COAL
MINING CO., a Missouri corporation
By: /s/ PAUL V. BENNETT
-----------------------------------
Name: Paul V. Bennett
Its: VP, Finance
SUBLESSEE:
XCare.net, Inc., a Delaware corporation
By: /s/ PETER H. CHEESBROUGH
-----------------------------------
Name: Peter H. Cheesbrough
Its: Sr. VP Finance & CFO
Sublease.doc
12/13/99
Page 8 of 8
<PAGE> 9
SUBLEASE EXHIBIT A
LEASE
Between
HUNTINGTON BEACH COMPANY
(By Its Managing Agent, Chevron Real Estate Management Company)
and
THE PITTSBURG & MIDWAY COAL MINING CO.
JANUARY 1, 1995
<PAGE> 10
TABLE OF CONTENT
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS ................................................... 1
2. USES .......................................................... 3
3. RENT .......................................................... 3
4. UTILITIES ..................................................... 7
5. RIGHT TO RENEW ................................................ 8
6. SERVICES ...................................................... 8
7. INDEMNIFICATION AND INSURANCE ................................. 9
8. WAIVER OF SUBROGATION ......................................... 11
9. REPAIRS ....................................................... 12
10. TENANT'S PROPERTY ............................................. 12
11. IMPROVEMENTS AND ALTERATIONS BY TENANT ........................ 12
12. CASUALTY ...................................................... 13
13. ASSIGNMENT, LETTING AND SUBLETTING ............................ 14
14. LIENS AND INSOLVENCY .......................................... 14
15. CONDEMNATION .................................................. 14
16. RULES AND REGULATIONS ......................................... 15
17. PARKING ....................................................... 15
18. ACCESS ........................................................ 15
19. SIGNS ......................................................... 15
20. TENANT'S DEFAULT .............................................. 16
21. QUIET ENJOYMENT, INABILITY TO PERFORM ......................... 17
22. HOLDOVER TENANCY .............................................. 18
23. ATTORNEYS' FEES ............................................... 19
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C>
24. AMENDMENT, WAIVER.......................................................19
25. NOTICES.................................................................19
26. BINDING EFFECT, GENDER..................................................20
27. ADDENDA AND ATTACHMENTS.................................................20
28. LANDLORD'S RESERVED RIGHTS..............................................20
29. OFFSET STATEMENT........................................................21
30. ACCORD AND SATISFACTION.................................................21
31. SEVERABILITY............................................................22
32. SUBORDINATION...........................................................22
33. TIME....................................................................22
34. APPLICABLE LAW..........................................................23
35. BROKER'S INDEMNIFICATION................................................23
36. CONFLICTS OF INTEREST...................................................23
37. TENANT REPRESENTATIONS..................................................23
33. ESTOPPEL CERTIFICATE....................................................24
</TABLE>
- ii -
<PAGE> 12
LEASE
This Lease ("Lease") is made as of January 1, 1995 between HUNTINGTON BEACH
COMPANY, a California corporation ("Landlord"), by its managing agent, Chevron
Real Estate Management Company, a division of Chevron U.S.A. Inc., and THE
PITTSBURG & MIDWAY COAL MINING CO., a Missouri corporation ("Tenant").
WITNESSETH:
Landlord and Tenant hereby agree as follows:
1. DEFINITIONS
A. "Improved Area" shall mean the real property located in Arapahoe County,
Colorado, described and shown outlined in blue on Exhibit A, attached hereto,
including the Building (as defined below) and any and all other buildings, other
than those built for lease, existing or to be constructed thereon, all land
thereunder and all appurtenances thereto, such as entries, sidewalks, curb
areas, garage complexes, driveways and landscaped areas.
B. "Leased Premises" shall mean the right to use the interior space shown
on the floor plan of the Tower portion of the Building illustrated on Exhibits B
and B-1 and shown outlined in red on Exhibit B-2, attached hereto, containing
approximately 46,141 BOMA rentable square feet, amounting to approximately
43,307 BOMA usable square feet (computed by measuring to the finished surface of
the office side of the corridor and other permanent walls, to the center of
partitions that separate the office from adjoining usable areas, and to the
inside surface of the exterior Building glass, with no deductions made for
columns and projections necessary to the Building), plus the appurtenant right
to use, in common with others, the entries, sidewalks, curb areas, driveways,
garage complexes, and other public portions of the Improved Area. During the
Lease Term as defined below and any renewal thereof, Landlord shall provide
Tenant with 868 BOMA usable square feet of storage space in the parking garage
outlined in red as shown on Exhibits B-3 and B-4, attached hereto, and Landlord
shall provide Tenant with 827.5 usable square feet for its telephone switch room
in the basement of the Building as shown on Exhibit B-5, attached hereto.
C. "Building" shall mean the building shown outlined in red on Exhibit A,
containing the Tower and the Retail Area, and within which the Leased Premises
are located.
D. "Tower" shall mean the portion of the Building outlined in green and
shown on Exhibit A.
E. "Retail Area" shall mean the area of the Building outlined in orange and
shown on Exhibit A.
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<PAGE> 13
F. "Greenwood Plaza South" shall mean the area developed or to be developed
and shown outlined in red on Exhibit H.
G. "Lease Commencement Date" shall mean January 1, 1995.
H. "Lease Term" shall mean the period beginning on the Lease Commencement
Date and ending 84 months thereafter. Any reference in this Lease to Lease Term
or the words "during the term" shall all be deemed to include any renewal period
authorized under this Lease.
I. "Base Operating Costs" shall mean Tenant's Pro Rata Share of Operating
Costs during 1994.
J. "Rent" shall mean Base Rent, Tenant's Pro Rata Share of Operating Costs
in excess of Base Operating Costs and any other amounts payable by Tenant to
Landlord under this Lease.
K. "Base Rent" shall mean the following for the period indicated:
<TABLE>
<CAPTION>
Period $/Sq.Ft./year; $/month
------ ----------------------
<S> <C>
Years 1-7 $14.25 per rentable sq. ft. per year
($657,509.25 per year) (total of
$4,602,564.75 payable in advance and
without demand in monthly installments of
$54,792.44 per month)
</TABLE>
L. "Garage Storage Rent" shall be 868 square feet at a rate of $6.00 per
usable square foot per year (total $5,208 per year), payable in advance,
without demand, in monthly installments of $434.
M. "Telephone Switch Room Rent" shall be 827.5 square feet at a rate of
$6.00 per usable square feet per year (total $4,965 per year), payable in
advance, without demand, in monthly installments of $413.75.
N. "Tenant's Total Square Footage" (approximately 46,141 rentable square
feet) shall mean the sum of the square footage in the Leased Premises, and an
allocated portion of common area square footage on Tenant's floor and an
allocated portion of the square footage of the remaining common areas in the
Tower. Calculation of such allocated square footage will be done by Landlord on
a reasonable basis consistently applied. If such calculation is later discovered
to be in conflict with the approximate square footage stated hereinabove, this
Lease shall be amended to conform to such calculation.
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<PAGE> 14
O. "Tenant's Pro Rata Share" shall mean 10.255% calculated by dividing
Tenant's Total Square Footage by the Total Square Footage of the Tower.
P. "Permitted Purpose" shall mean use of the Leased Premises for general
office purposes and purposes incidental thereto, unless otherwise agreed to in
writing by Landlord in its full and sole discretion.
2. USES
A. Tenant agrees to continuously use and occupy the Leased Premises for the
Permitted Purpose only, and for no other purpose whatsoever. Tenant covenants to
comply with all statutes, laws, ordinances, regulations and rules and any
recorded document which are of record on the effective date of this Lease
affecting the Leased Premises and the Building. Tenant shall not do or permit
anything to be done in or about the Leased Premises or the Building which will
in any way: (i) unreasonably increase the existing rate of or affect any fire or
other insurance upon the Building or any of its contents; (ii) injure the
Building other than ordinary wear and tear; (iii) constitute waste of the Leased
Premises or the Building; or (iv) be a nuisance, public or private, to other
tenants of the Building, or anyone else.
B. Tenant agrees that it has determined to Tenant's satisfaction that the
Leased Premises can be used for the Permitted Purpose. If Landlord determines,
in its sole opinion, that the Leased Premises cannot be used for the Permitted
Purpose at any time during the Lease Term, either Landlord or Tenant shall have
the option to terminate this Lease with no further obligation. If Landlord fails
to exercise such option, Tenant shall have the right to use the Leased Premises
for any other remaining lawful purpose, for so long as the Leased Premises are
then capable of accommodating such uses.
C. By taking possession hereunder, Tenant shall have acknowledged that it
has examined the Leased Premises and accepts the same as being in the condition
called for by this Lease.
3. RENT
A. Tenant shall pay to Landlord on the first day of each calendar month
during the term of this Lease, at the mailing address as designated from time to
time by Landlord and without deduction or setoff (unless authorized by this
Lease), the Base Rent, any other charges provided for in this Lease, and
Tenant's Pro Rata Share of Operating Costs allocated to the Tower and described
in paragraph 3B below which exceed the Base Operating Costs, however, Tenant's
Pro Rata Share of Operating Costs shall not exceed 107% of Tenant's Pro Rata
Share of Operating Costs paid
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<PAGE> 15
by Tenant during the preceding year. Rent for any fractional calendar month
shall be that proportion of the Rent which the number of days during such month
bears to the total number of days in such month. Rent not paid by the 10th day
of the month shall be subject to a late charge of 3% per month of the amount
due. For purposes of this paragraph and until directed to do otherwise, Tenant
shall mail all payments required to be paid under this Lease to the following
address:
CHEVRON REAL ESTATE MANAGEMENT COMPANY
P.O. BOX 297864
HOUSTON, TEXAS 77297
B. Operating Costs shall mean all expenses, costs and disbursements made or
required to be made by Landlord because of or in connection with the
maintenance, repair and operation of the Improved Area except as set forth
below, including, but not limited to, real estate taxes and assessments; use,
sales, and any other taxes (except income taxes) based on rents; personal
property taxes on personal property used in the operation of the Improved Area;
equitable charges as may be assessed to the Improved Area for the maintenance,
repair and operation of the common property of Greenwood Plaza South except as
set forth below; the cost of all risk property insurance, including earthquake
and flood and general liability insurance, including Landlord's estimated fair
market cost, not to exceed ISO Manual Rates (Insurance Services Office), for any
of such risks against which Landlord elects to self-insure; utilities not
separately metered to individual tenants; costs of leasing or amortization of
energy reduction devices and systems, except those included in the initial
Building specifications; maintenance; repairs; janitorial service, operating
supplies, property management; Building services; snow removal; landscaping;
rubbish removal; tools and equipment used for the daily operation of the
Improved Area; air conditioning, heating and elevator repair and maintenance;
maintenance and repair of garage complex; security; property management fees;
and management and maintenance personnel's wages, payroll taxes, welfare and
disability benefits reasonably incurred in the operation of the Improved Area.
Operating Costs shall not include monies spent for income tax accounting,
expenses and costs associated with the operation of Landlord's business
organization; legal fees; space planning fees; real estate brokerage
commissions; decorating fees; advertising and marketing costs associated with
development and leasing of the Building; bad debt or rent losses of Landlord;
fines, penalties, interest or other charges paid by Landlord to any other tenant
or third party; interest, depreciation, or expenditures of a capital nature;
costs incurred by Landlord for the repair of damage to the Building to the
extent that Landlord is reimbursed by insurance proceeds; costs of items
considered capital repairs, replacements, improvements and equipment under
generally accepted accounting
-4-
<PAGE> 16
principles consistently applied or otherwise ("Capital Items") except for those
Capital Items: (i) acquired to reduce Operating Costs (amortized at an annual
rate reasonably calculated to equal the amount of Operating Costs to be saved in
each calendar year throughout the Lease Term except during the last two years of
the Lease Term, during which period no such pass-throughs shall be permitted of
the costs related to such Capital Items (as determined at the time Landlord
elected to proceed with the capital improvement or acquisition of the capital
equipment to reduce operating Costs)), together with interest at the actual
interest rate incurred by Landlord, or (ii) costs of capital tools not in excess
of $10,000 in any 12-month period; any compensation paid to clerks, attendants
or other persons in commercial concessions operated by Landlord or in the
parking garage of the Building or wherever Tenant is granted its parking
privileges and/or all fees paid to any parking facility operator (on or off
site) (provided, however, if Landlord provides such parking free of charge to
Tenant, these expenses may be included as a part of Operating Costs); tax
penalties incurred as a result of Landlord's negligence, inability or
unwillingness to make payments and/or to file any income tax or informational
returns when due; costs for which Landlord has been compensated by a management
fee; costs arising from the negligence or fault of other tenants or Landlord or
its agents, or any vendors, contractors, or providers of materials or services
selected, hired or engaged by Landlord or its agents including, without
limitation, the selection of building materials; notwithstanding any contrary
provision of this Lease, including, without limitation, any provision relating
to capital expenditures, any and all costs arising from the presence of
hazardous materials or substances (as defined by applicable laws in effect on
the date of this Lease) in or about the Building or Leased Premises including,
without limitation, hazardous substances in the groundwater or soil, not placed
in the Leased Premises or Building by Tenant; costs arising from Landlord's
charitable or political contributions; costs arising from latent defects in the
base, shell or core of the Building or improvements installed by Landlord or
repair thereof; costs for sculpture, paintings or other objects of art; and
costs (including in connection therewith all attorneys' fees and costs or
settlement judgments and payments in lieu thereof) arising from claims, disputes
or potential disputes in connection with potential or actual claims litigation '
or arbitrations pertaining to the Landlord and/or the Building and/or the Leased
Premises. Operating Costs shall be reasonably allocated between the Tower and
the Retail Area.
Also, if Landlord constructs any other buildings for lease within the
boundaries of the Improved Area, Operating Costs, exclusive of those incurred
directly for the Building hereunder and such other buildings, shall be
reasonably allocated between the Building hereunder and such other buildings.
The determination of Operating Costs and their allocation shall be in accordance
with generally accepted accounting principles applied on a consistent basis.
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<PAGE> 17
If the Building is not fully rented during all or a portion of any calendar
year, Landlord may make an appropriate adjustment of the Operating Costs for
such year, employing sound accounting and management principles, to determine
the amount of Operating Costs that would have been paid or incurred by Landlord
had all such buildings been fully rented, and the amount so determined shall be
deemed to have been the amount of Operating Costs for such year.
Operating Costs allocated to Tenant shall not reflect any type or degree of
service or duty performed by or through Landlord for any other tenant which is
not required to be performed to Tenant under this Lease which results in a cost
in excess of the services or duties required to be provided by Landlord under
this Lease.
C. During December of each calendar year or as soon thereafter as
practicable, Landlord shall give Tenant written notice of Landlord's estimate of
Tenant's Pro Rata Share of Operating Costs payable hereunder for the ensuing
calendar year.
On or before the first day of each month during the ensuing calendar year,
Tenant shall pay to Landlord 1/12 of such estimated amount, provided that if
such notice is not given in December, Tenant shall continue to pay on the basis
of the prior year's estimate until the month after such notice is given. If at
any time it appears to Landlord that Tenant's Pro Rata Share of Operating Costs
payable hereunder for the current calendar year will vary from its estimate by
more than 20%, Landlord may, by written notice to Tenant, revise its estimate
for such year, and subsequent payments by Tenant for such year shall be based
upon such revised estimate.
D. Within 90 days after the close of each calendar year or as soon
thereafter as practicable, Landlord shall deliver to Tenant a statement of
additional Rent for Operating Costs payable hereunder for such calendar year. If
such statement shows an amount owing by Tenant that is less than the estimated
payments for such calendar year previously made by Tenant, Landlord shall credit
the excess to the next succeeding monthly installment of Rent. If such statement
shows an amount owing by Tenant that is more than the estimated payments for
such calendar year previously made by Tenant, Tenant shall pay the deficiency to
Landlord within 30 days after delivery of such statement.
E. If, for any reason other than the default of Tenant, this Lease shall
terminate on a day other than the last day of a calendar year, the additional
Rent for Operating Costs payable by Tenant applicable to the calendar year in
which such termination shall occur shall be prorated on the basis which the
number of days from the commencement of such calendar year to and including such
date of termination bears to 365.
F. Notwithstanding any sections of the Lease to the contrary, in the event
of any dispute regarding the amount due as
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<PAGE> 18
Tenant's Pro Rata Share of Operating Costs and/or the amount due as Operating
Costs pursuant to Section 3 of the Lease, Tenant shall have the right, after
reasonable notice and at reasonable times, to inspect and photocopy Landlord's
accounting records at Landlord's office at the following address: Huntington
Beach Company, c/o Chevron Real Estate Management Company, 6400 South Fiddler's
Green Circle, Suite 200, Englewood, Colorado 80111-4991. If, after such
inspection and photocopying, Tenant continues to dispute the amount of its Pro
Rata Share of operating Costs, Tenant shall be entitled to retain a national,
independent, certified public accountant to audit and/or review Landlord's
records to determine the proper amount of its Pro Rata Share of Operating Costs.
If such audit or review reveals that Landlord has overcharged Tenant, then
within five days after the results of such audit are made available to Landlord,
Landlord shall reimburse Tenant the amount of such overcharge plus interest at
the prime rate of Colorado National Bank. If the audit reveals that Tenant was
undercharged, then within five days after the results of the audit are made
available to Tenant, Tenant shall reimburse Landlord the amount of such
undercharge, plus interest thereon at the prime rate of Colorado National Bank.
Tenant agrees to pay the cost of such audit, provided that, if the audit reveals
that the Landlord's determination of Tenant's Pro Rata Share of operating Costs,
as set forth in any actual statement sent to Tenant, was in error in Landlord's
favor by more than 5%, Landlord shall pay the cost of such audit. Landlord shall
be required to maintain records of all Operating Costs and other rent
adjustments for the entirety of the three-year period ("Review Period")
following Landlord's delivery to Tenant of each actual statement setting forth
Tenant's Pro Rata Share of Operating Costs. The payment by Tenant of any amounts
pursuant to Section 3 of the Lease shall not preclude Tenant from questioning
the correctness of any actual statement provided by Landlord at any time during
the Review Period, but the failure of Tenant to object thereto prior to the
expiration of the Review Period shall be conclusively deemed Tenant's approval
of the actual statement.
In the event that any other tenant audits or reviews Operating Costs and an
adjustment is made, the results of such audit or review shall be sent to Tenant
to allow Tenant to determine whether Tenant is to be permitted a corresponding
adjustment.
4. UTILITIES
Landlord shall provide to the Leased Premises the following utility
services: water, sewer and electricity. Utility charges for which separate
billings are not available shall be treated as Operating Costs. If heat, light,
water or any other utility services are supplied to and metered directly to the
Leased Premises, Tenant shall pay the cost thereof, and make any required
deposits related thereto. Separate additional charges may be made to Tenant, if
Tenant, in Landlord's reasonable judgment, makes excessive utility system
demands where such services are not separately metered. Landlord does not
warrant that any of the utility services will be free from interruption caused
by Unavoidable Delay, as defined in paragraph 21 below.
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<PAGE> 19
5. RIGHT TO RENEW
Tenant shall have the option to renew the Term of this Lease for one period
of five years by notifying Landlord in writing of Tenant's election to exercise
its option at least 12 months prior to the expiration of the then current term
of this Lease, Tenant may exercise such option provided Tenant is not then in
default in the performance of any of the terms or covenants of this Lease as of
the time of such exercise and that Tenant has satisfied all of its conditions
under this Lease. The base Rent during such five-year renewal period shall be
90% of the then Fair Market Rental Value, as hereinafter defined, and all other
terms and provisions of this Lease, including payment of additional Rent, shall
apply during such renewal period.
Fair Market Rental Value ("FMRV") as used in this Lease shall be the rent
calculated at the then prevailing rate for similar space in comparable Class A
buildings and the then prevailing parking garage rent for similar totally
enclosed parking garages located within the Denver Tech Center/Greenwood Plaza
Market Area in which the Building is located. Said FMRV shall be declared by
Landlord in writing to Tenant not less than 10 months prior to the end of the
Lease Term. Tenant shall have 30 days from the date of Landlord's declaration in
which to dispute, in writing, Landlord's finding of FMRV or to revoke the
required notice to renew. Failing such timely notice of dispute, Landlord's
declared FMRV shall be deemed to be acceptable by both parties. If Tenant gives
Landlord timely notice in dispute of Landlord's determination of the FMRV, then
Landlord and Tenant shall each designate a licensed commercial real estate
broker who shall together designate a third licensed commercial real estate
broker, all of whom shall be experienced in evaluating rental properties of the
type and in the area of the Building. Within 20 days of Tenant's notice to
Landlord, each broker shall deliver to Tenant and Landlord their written
estimate of the appropriate FMRV. The new Base Rent shall be equal to the mean
average of the three estimates of FMRV calculated by the licensed commercial
real estate brokers. Landlord and Tenant shall each pay for the cost of services
of the broker designated thereby and shall equally share the cost of the
services of the third broker.
6. SERVICES
Landlord shall maintain all parking and common areas, which maintenance
shall include lighting, gardening, cleaning, snow removal, sweeping, painting
and window cleaning, and shall provide for the Leased Premises and the Building
such other services, including, but not limited to, air-cooling, heating,
replacement of building standard lamps as needed and the interior janitorial
services listed on Exhibit C, as are necessary to maintain them in reasonably
good order and condition. Landlord shall maintain and repair the exterior of the
Building, its structural portions and
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<PAGE> 20
the roof. The cost of such services and repairs to the roof and structure shall
be considered an Operating Cost. The cost of capital expenditures shall not be
included as an Operating Cost. Any services provided to Tenant by Landlord which
are not provided to other tenants in the Building shall be provided at Tenant's
expense.
Such services, except for janitorial services, shall be furnished by
Landlord during normal working hours (from 6:00 a.m. to 6:00 p.m. weekdays, and
from 7:00 a.m. to 1:00 p.m. on Saturdays), or at such other times as requested
by Tenant, in which event, Tenant shall pay the additional cost thereof. The
level of services shall be that customarily provided by landlords of first-class
buildings in the Denver, Colorado area.
Landlord shall not be liable in any event, nor shall Rent be abated,
because of interruption of such services. The foregoing notwithstanding, if any
such interruption of services causes the Leased Premises to be untenantable for
a period of at least five consecutive business days, Rent shall be abated
proportionately.
7. INDEMNIFICATION AND INSURANCE
A. Landlord shall not be liable to Tenant, and Tenant hereby waives all
claims against Landlord for any injury to or death of any person or damage to
any property: (i) occurring in, on or about the Leased Premises by or from any
cause whatsoever; or (ii) occurring in, on or about the Improved Area by reason
of any act or omission or any active, passive or concurrent negligence or fault
of Tenant, excepting in all cases only injury, death or damage to the extent
caused by the active, passive or concurrent negligence, fault or willful
misconduct of Landlord, its employees, agents or contractors.
B. In addition to Tenant's obligations under paragraph 7E below, Tenant
agrees to indemnify, protect and hold harmless Landlord, from and against any
and all claims or liability for any injury to or death of any person (including
employees of Tenant and Landlord) or damage to any property (including property
belonging to Tenant and Landlord) whatsoever: (i) occurring in, on or about the
Leased Premises or any part thereof, from any cause whatsoever by reason of the
active, passive or concurrent negligence, fault or willful misconduct or fault
of Tenant or its employees; or (ii) occurring in, on or about the Improved Area
by reason of any act or omission or any active, passive or concurrent negligence
or fault of Tenant, excepting in all cases only injury, death or damage to the
extent caused by the active, passive or concurrent negligence, fault or willful
misconduct of Landlord, its employees, agents or contractors. The obligations of
indemnity set forth in this paragraph shall survive termination of this Lease by
expiration of the Lease Term or otherwise.
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<PAGE> 21
C. Landlord agrees to indemnify, protect and hold harmless Tenant, from and
against any and all claims or liability for any injury to or death of any person
(including employees of Landlord and Tenant) or damage to any property
(including property belonging to Landlord and Tenant) whatsoever occurring in,
on or about the Improved Area by reason of any act or omission or any active,
passive or concurrent negligence or fault of Landlord, excepting in all cases
only injury, death or damage to the extent caused by the active, passive or
concurrent negligence, fault or willful misconduct of Tenant, its employees,
agents or contractors. The obligations of indemnity set forth in this paragraph
shall survive termination of this Lease by expiration of the Lease Term or
otherwise.
D. Tenant shall, at its sole cost and expense, obtain and keep in force
during the Lease Term, fire and extended coverage insurance on Tenant's
improvements, fixtures, furnishings and equipment in and upon the Leased
Premises or Building in an amount not less than 100% of the full replacement
cost (without deduction for depreciation) thereof. All amounts received from
said insurance shall be applied to the payment of the cost of repair or
replacement of any Tenant's improvements, fixtures, furnishings and equipment
that were damaged or destroyed unless this Lease terminates prior to such repair
or replacement being made, in which case the portion of such amounts
representing improvements and fixtures which would have become Landlord's
property pursuant to paragraph 10 hereof shall be paid over to Landlord, and the
balance shall be retained by Tenant.
E. Without in any way limiting Tenant's liability pursuant to paragraph 7B
above, Tenant shall, at its sole cost and expense, obtain and keep in force
during the term of this Lease: (i) comprehensive general liability insurance
(Bodily Injury and Property Damage) with a limit of liability not less than
$1,000,000 per occurrence and with the following supplementary coverages: (a)
contractual liability to cover liability assumed under this Lease; (b) personal
injury liability with the "employee" and contractual" exclusions deleted; and
(c) broad form property damage liability; and (ii) automobile bodily injury and
property damage liability insurance with a limit of not less than $500,000 per
occurrence, extending to owned, non-owned and hired vehicles. Landlord shall
have the right, at any time or from time to time, to reasonably adjust the
amount of insurance required hereunder to reflect increases in the Consumer
Price Index as published by the U.S. Department of Commerce, and/or to modify
its form.
F. All insurance required under this paragraph 7 and all renewals thereof
shall be issued by such responsible companies qualified to do and doing business
in the State of Colorado as may be approved by Landlord. Each policy shall
expressly provide that the policy shall not be canceled or altered without 30
days, prior written notice to Landlord. All insurance under this paragraph
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<PAGE> 22
shall name Landlord as an additional insured, to the extent of Tenant's
indemnity obligations hereunder, shall be primary and noncontributing with any
insurance which may be carried by Landlord, and shall contain a standard
"cross-liability" or "severability of interest" clause.
Upon the issuance thereof, each such policy or a duplicate or
certificate thereof shall be delivered to Landlord for retention by it.
G. Notwithstanding anything to the contrary herein, Tenant shall have
the right at its election to satisfy all insurance obligations in this Lease
under a program of self-assumption of risk in lieu of purchasing an insurance
policy or policies.
H. During the Lease Term, Landlord shall insure the Building, excluding
any property which Tenant is obligated to insure, against damage by fire and
standard extended coverage perils and public liability insurance in such amounts
and with such deductibles as Landlord reasonably considers appropriate;
provided, however, that Landlord shall have the right at its election, to
maintain all such insurance under a program of self-assumption of risk in lieu
of purchasing an insurance policy or policies if it is Landlord's normal policy
to self-insure against such perils for its property. This right of
self-insurance applies only to Huntington Beach Company. If the Landlord sells
the Building, Tenant shall require the new Landlord to purchase the insurance
set forth in this section of the Lease. Landlord may, but shall not be obligated
to, take out and carry any other form or forms of insurance as it or Landlord's
mortgagees may reasonably determine advisable. Notwithstanding any contribution
by Tenant to the cost of insurance premiums, as provided herein, Tenant
acknowledges that it has no right to receive any proceeds from any such
insurance policies carried by Landlord. Landlord will not have to carry
insurance of any kind on Tenant's furniture or furnishings, or on any of
Tenant's fixtures, equipment, improvements or appurtenances under this Lease,
and Landlord shall not be obligated to repair any damage thereto or replace the
same.
8. WAIVER OF SUBROGATION
Tenant waives on behalf of its insurers (and itself to the extent Tenant
self-assumes insurable risk as permitted under this Lease) under all policies of
fire, theft, public liability, workers' compensation and other insurance now or
hereafter existing during the Lease Term and purchased by it insuring or
covering the Leased Premises, or any portion or any contents thereof, or any
operations therein, or the Building, all rights of subrogation which any
insurer might otherwise have to any claims of Tenant against Landlord. Landlord
waives on behalf of its insurers (and itself to the extent Landlord self-assumes
insurable risk as permitted under this Lease) under all policies of fire, theft,
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public liability, workers' compensation and other insurance now or hereafter
existing during the Lease Term and purchased by it insuring or covering the
Improved Area or the Building or any portion or the contents thereof, or any
operations therein, all rights of subrogation which any insurer might otherwise
have to any claims of Landlord against Tenant. Landlord and Tenant shall each,
prior to or immediately after the execution of this Lease, procure from each of
such insurers a waiver of all rights of subrogation which the insurer might
otherwise have as against the other, to the extent required by this paragraph.
This paragraph shall not be construed to require of Landlord or Tenant any
insurance coverage not otherwise required by this Lease nor to waive any rights
of recovery that either Landlord or Tenant may have directly against the other
to the extent that any loss or damage giving rise to any such right of recovery
is not actually covered by insurance.
9. REPAIRS
Except for services provided by Landlord, Tenant agrees to maintain in a
clean, orderly and sanitary condition and keep in good repair, the interior of
the Leased Premises, ordinary wear and tear excepted. Such maintenance and
repair shall be at the sole cost of Tenant and shall include but not be limited
to the maintenance and repair of floor covering, ceilings and walls, front and
rear doors, and all interior glass on the Leased Premises. If Tenant fails to
maintain or keep the Leased Premises in good repair and such failure continues
for 15 days after written notice from Landlord, Landlord may perform any such
required maintenance and repairs and the cost thereof shall be additional Rent
payable by Tenant within 10 days of receipt of any invoice therefor from
Landlord.
10. TENANT'S PROPERTY
Furnishings, trade fixtures and moveable equipment, if any, paid for and
installed by Tenant, shall be the property of Tenant. On expiration of this
Lease, if there is then no Event of Default, Tenant may remove any such property
and shall remove any such property if directed by Landlord. Tenant shall repair,
or reimburse Landlord for the cost of repairing, any damage resulting from
removal of Tenant's property in excess of ordinary wear and tear. If Tenant
fails to remove such property as required under this Lease, or in the event
Tenant abandons the Leased Premises, Tenant shall be deemed to have abandoned
all interest in any such property remaining or then in or upon the Leased
Premises and Landlord may remove the same as its own property and dispose of
such property as it desires without liability to Tenant.
11. IMPROVEMENTS AND ALTERATIONS BY TENANT
Tenant may make such additional improvements or alterations to the
Leased Premises as it deems necessary or desirable, but only
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with Landlord's prior written approval (which approval shall not be unreasonably
withheld). Any such improvements or alterations by Tenant shall be at Tenant's
expense and shall be done by a licensed contractor approved by Landlord in
conformity with plans and specifications approved by Landlord. All work
performed shall be done in a good and workmanlike manner, in accordance with
applicable law and with materials (where not specifically described in the
specifications) of the quality and appearance comparable to those in the
Building. Prior to the commencement of any work or delivery of any materials to
the Leased Premises, Tenant shall furnish Landlord, for its approval, copies of
the following:
A. plans and specifications;
B. names and addresses of contractors;
C. copies of contracts;
D. necessary permits; and
E. such other items as may be reasonably requested by Landlord to
protect itself in connection with the work.
All alterations, fixtures (except unattached, removable trade fixtures)
and improvements, including those made or installed in or upon the Leased
Premises by or for Tenant, shall immediately become Landlord's property and, at
the end of the Lease Term, shall remain on the Leased Premises without
compensation to Tenant.
12. CASUALTY
If the Leased Premises or the Building are destroyed or damaged by fire,
earthquake or other casualty to the extent that the Leased Premises are
untenantable in whole or in part, then Landlord shall, except as provided below,
proceed with reasonable diligence to rebuild and restore the Leased Premises or
such part thereof as may be destroyed or damaged, and during the period of such
rebuilding and restoration, this Lease shall remain in full force and effect,
and Rent shall be abated in the same ratio as the square footage in the portion
of the Leased Premises rendered untenantable, if any, shall bear to the total
square footage in the Leased Premises. If Landlord shall reasonably determine
that such destruction or damage cannot be rebuilt and restored within 180 days
of the occurrence, it shall so notify Tenant within 60 days after the occurrence
of such damage or destruction. In such event, either Landlord or Tenant may,
within 30 days after such notice, terminate this Lease. If neither party
terminates this Lease during such 30-day period, this Lease shall remain in
effect and Landlord shall diligently proceed to rebuild and restore the Leased
Premises, and Rent shall abate, as set forth above.
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13. ASSIGNMENT, LETTING AND SUBLETTING
A. Tenant, its legal representatives and successors in interest, shall
have the right to assign, let or sublet or permit assigning, letting or
subletting of this Lease, the Leased Premises or any part thereof, respectively.
Any such assignment or subletting, unless specifically stated therein and
consented to by Landlord, shall not relieve Tenant from its obligations under
this Lease.
B. Tenant shall provide Landlord with a copy of any assignment of this
Lease or any sublease of the Leased Premises and a copy of any document pursuant
to which any such assignment or sublease may be made.
14. LIENS AND INSOLVENCY
Tenant shall keep the Leased Premises, the Building and the Improved
Area free from any liens arising out of any work performed, materials furnished,
or obligations incurred by Tenant. If Tenant becomes insolvent or voluntarily or
involuntarily bankrupt, or if a receiver, trustee or other liquidating officer
is appointed for the business or property of Tenant, Landlord shall have the
right and option at any time thereafter to terminate this Lease by notice to
Tenant.
15. CONDEMNATION
If all or any part of the Leased Premises are taken under power of
eminent domain or like power, or sold under imminent threat thereof to any
public authority or private entity having such power, this Lease shall terminate
as to the part of the Leased Premises so taken or sold, effective as of the date
possession is required to be delivered to such authority or entity. Rent for the
remaining Lease Term shall be reduced in the proportion that the Tenant's Total
Square Footage is reduced by the taking. If a partial taking or sale of the
Building or the Leased Premises: (a) reduces the area of the Leased Premises or
results in a substantial inability of Tenant to use the Leased Premises for
Tenant's business purposes, or (b) renders the Building unviable to Landlord,
Tenant, in the case of (a), or Landlord, in the case of (b), may terminate this
Lease by notice to the other party within 30 days after the terminating party
receives a written notice of the portion to be taken or sold, such termination
to be effective 180 days thereafter, or when the portion is taken or sold,
whichever is sooner. All condemnation awards and similar payments shall be paid
and belong to Landlord, except any amounts awarded or paid specifically for
Tenant's trade fixtures and relocation costs, provided such awards, do not
reduce Landlord's award. Nothing contained herein shall diminish Tenant's right
to deal on its own behalf with the condemning authority.
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16. RULES AND REGULATIONS
Tenant covenants that Tenant and its agents, employees, invitees, or
those claiming under Tenant, will at all times observe, perform and abide by all
reasonable rules and regulations promulgated by Landlord, from time to time, as
long as such rules and regulations do not conflict with, or unreasonably modify,
any provision of this Lease. Landlord's rules and regulations in effect on the
date hereof are attached hereto as Exhibit D.
17. PARKING
Landlord shall provide parking within a seven-level structure (1-6
covered) contiguous to the Building. Such spaces include 81 short-term parking
spaces in close proximity to the elevators, which are available for use by
Tenant's visitors at no cost for up to two hours. In addition, up to 180
non-exclusive parking spaces will be provided by Landlord for use by the Tenant
at a charge of $10 per space per month throughout the Lease Term and Lease
Renewal Term. In addition to the foregoing, Landlord agrees to provide Tenant 11
reserved spots on Level 1 for company vehicles and 8 reserved spots on Level 3
for Tenant's exclusive use at a charge of $10 per space per month throughout the
Lease Term and Lease Renewal Term. The spaces designated for Tenant's exclusive
use are illustrated on Exhibit G attached hereto and made a part hereof. Subject
to Landlord's rules and regulations adopted from time to time pursuant to
paragraph 16, Tenant's employees, invitees and licensees shall be entitled to
reasonable use of such parking areas. All present and future parking shall be
within such parking areas and not within the street right-of-way. There shall be
no on-street parking.
18. ACCESS
Landlord or Landlord's employees, agents or contractors may enter the
Leased Premises at reasonable times for the purpose of inspecting, altering or
repairing the Leased Premises or other portions of the Building and for the
purpose of ascertaining compliance by Tenant with the provisions of this Lease.
Landlord may also show the Leased Premises to prospective purchasers, renters or
lenders during regular business hours and upon reasonable notice, provided that
Landlord shall not unreasonably interfere with Tenant's business operations or
with Tenant's use and occupancy of the Leased Premises. Landlord shall repair,
at Landlord's expense, any damage to the Leased Premises resulting from the
exercise of the foregoing rights by Landlord or Landlord's employees, agents or
contractors.
19. SIGNS
All signs and symbols placed on the doors or windows or elsewhere about
the Leased Premises, or upon any other part of the Building, including Building
directories, shall be subject to the
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approval of Landlord. Tenant shall have no right to place signs outside the
Building and within the Improved Area. Tenant shall be entitled to place signs
within the interior of the Leased Premises without having first obtained
Landlord's approval. Upon expiration of this Lease, all signs installed by
Tenant shall be removed and any damage resulting therefrom shall be promptly
repaired, or such removal and repair may be done by Landlord and the cost
thereof charged to Tenant as additional Rent hereunder.
20. TENANT'S DEFAULT
It shall be an "Event of Default" if: (a) Tenant fails to pay Rent or
any other charge or payment required of Tenant hereunder when due and such
failure continues for 10 days after written notice thereof to Tenant by
Landlord; (b) Tenant violates or fails to perform any of the other conditions,
covenants or agreements herein made by Tenant, and such violation or failure
continues for 30 days after written notice thereof to Tenant by Landlord; (c)
Tenant makes a general assignment for the benefit of its creditors or files a
petition for bankruptcy or other reorganization, liquidation, dissolution or
similar relief; (d) a proceeding is filed against Tenant seeking any relief
mentioned in (c) above which is not dismissed within 30 days after filing; (e) a
trustee, receiver or liquidator is appointed for Tenant or a substantial part of
its property; (f) Tenant's interest under this Lease is taken upon execution or
by other process of law directed against Tenant or shall be subject to any
attachment by or on behalf of any creditor of Tenant; (g) Tenant mortgages,
assigns (except as expressly permitted in this Lease) or otherwise encumbers
Tenant's interest under this Lease; or (h) Tenant abandons the Leased Premises.
If an Event of Default occurs, Landlord may: (a) without obligation to
do so and without releasing Tenant from any obligation under this Lease, make
any payment or take any action Landlord may deem necessary or desirable to cure
such Event of Default, and the cost thereof shall be reimbursed by Tenant to
Landlord within 10 days after demand; (b) terminate this Lease by written notice
to Tenant as of the date such notice is given or as of any other date specified
in such notice; (c) with or without terminating this Lease, reenter and take
possession of the Leased Premises by legal proceedings; (d) with or without
terminating this Lease, if Tenant has vacated or abandoned the Leased Premises,
reenter and take possession of the Leased Premises, or any part thereof, and
remove the effects therein without liability for any damages thereto and without
being deemed guilty of any manner of trespass and without prejudice to any other
remedies of Landlord hereunder; and (e) exercise any other legal remedy,
including, without limitation, equitable remedies, on account of such Event of
Default. All remedies of Landlord under this Lease shall be cumulative, and the
exercise of any of such remedies shall not prevent the concurrent or subsequent
exercise of any other remedy.
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Should Landlord elect to reenter or take possession of the Leased
Premises pursuant to legal proceedings or otherwise, Landlord may, from time to
time, without terminating this Lease, relet the Leased Premises or any part
thereof on behalf of Tenant for such term or terms and at such rent or rents,
and upon such other terms and conditions, as Landlord may deem advisable in its
sole discretion (including, without limitation, giving concessions, free rent,
and payment of concessions), with the right to make alterations and repairs to
the Leased Premises. No such reentry or taking of possession of the Leased
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease, unless a written notice of termination is given to Tenant
by Landlord, nor shall it preclude Landlord from terminating this Lease at a
later time by giving written notice to Tenant.
If Landlord elects to take possession without terminating this Lease,
then such repossession shall not relieve Tenant of its obligations and
liabilities under this Lease, all of which shall survive such repossession. In
the event of such repossession, Tenant shall pay to Landlord, as Rent, all Rent
which would be payable hereunder if such repossession had not occurred, less the
net proceeds, if any, of any reletting of the Leased Premises, after deducting
all of Landlord's expenses in connection with such reletting, and rental
concessions. Tenant shall pay such Rent to Landlord on the days on which such
Rent would have been payable hereunder if possession had not been retaken.
If, however, this Lease is terminated by Landlord, Landlord shall be
entitled to recover as damages from Tenant, in addition to all other damage
suffered by Landlord on account of any Event of Default, the present value of
all of the Rent which would have been due for the remainder of the Lease Term
had this Lease not been terminated, plus all of Landlord's costs of reletting
the Leased Premises, including repair, alteration, and preparation of the Leased
Premises for reletting, brokerage commissions, attorneys' fees and rental
concessions. Said amount shall be immediately due and payable by Tenant to
Landlord. Any amount due to Landlord hereunder may be collected after
termination.
Notwithstanding anything to the contrary herein, Landlord's remedies and
rights to damages under this Lease shall be subject to Landlord's duty to take
reasonable measure to mitigate any such damages.
21. QUIET ENJOYMENT, INABILITY TO PERFORM
A. If, and so long as, Tenant pays Rent and keeps and performs each and
every term, covenant and condition herein contained on the part and on behalf of
Tenant to be kept and performed, Tenant shall quietly enjoy the Leased Premises
without hindrance or molestation by Landlord, subject to the terms, covenants
and conditions of this Lease and the Superior Instruments, as defined and
provided in paragraph 32 below.
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B. Landlord shall pay all taxes and assessments so as not to jeopardize
Tenant's use of the Leased Premises. The foregoing notwithstanding, Landlord
shall be entitled to contest any tax or assessment which it deems to be
improperly levied against the Improved Area or any part thereof, so long as
Tenant's use of the Leased Premises is not interfered with.
C. Except as provided in this Lease, this Lease and the obligations of
Tenant to pay Rent and perform all of the terms, covenants and conditions on the
part of Tenant to be performed shall in no way be affected, impaired or excused
because Landlord, due to Unavoidable Delay, is: (i) unable to fulfill any of its
obligations under this Lease; (ii) unable to supply or is delayed in supplying
any service expressly or impliedly to be supplied; (iii) unable to make or
delayed in making any repairs, replacements, additions, alterations or
decorations; or (iv) unable to supply or is delayed in supplying any equipment
or fixtures. Landlord shall in each instance exercise reasonable diligence to
effect performance when and as soon as possible.
"Unavoidable Delay" shall mean any and all delays of up to 10 days which
are beyond Landlord's reasonable control, including without limitation, delay
caused by Tenant, governmental restrictions, governmental regulations or
controls, undue delays by governmental authorities, order of civil, military or
naval authority, governmental preemption, strikes, labor disputes, lockouts,
shortage of labor or materials, inability to obtain materials or reasonable
substitutes therefor, default of any contractor or subcontractor, acts of God,
fire, earthquake, floods, explosions, actions of the elements, extreme weather
conditions, enemy action, civil commotion, riot or insurrection, delays in
obtaining governmental permits or approvals and any other cause beyond
Landlord's reasonable control. After 10 days of Unavoidable Delay, Rent shall be
abated until such Unavoidable Delay ceases. If Unavoidable Delay continues for
30 days or more, Tenant shall have the option to terminate this Lease upon seven
days' prior written notice to Landlord.
22. HOLDOVER TENANCY
If (without execution of a new lease or written extension) Tenant shall
hold over after the expiration of the Lease Term, Tenant may, at Landlord's
election, be deemed to be occupying the Leased Premises as a tenant from month
to month, which tenancy may be terminated as provided by law. During such
tenancy, Tenant agrees to pay to Landlord Tenant's Pro Rata Share of Operating
Costs and 120% of the then current Base Rent, as set forth herein, unless a
different rate is agreed upon, and to be bound by all of the terms, covenants
and conditions as herein specified, so far as applicable. The foregoing
notwithstanding, in the event Landlord and Tenant are negotiating in good faith
over the extension of the Lease Term, Tenant, for a period not to exceed 90 days
following the expiration of the Lease Term, shall pay Rent at the same rate
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as was in effect immediately prior to such expiration. At the end of such 90-day
period, Tenant agrees to pay to Landlord Tenant's Pro Rata Share of Operating
Costs, all other charges provided for in this Lease, and 200% of the then
current Base Rent until Tenant's occupancy is terminated.
23. ATTORNEYS' FEES
In the event either party requires the services of any attorney in
connection with enforcing the terms of this Lease, or in the event suit is
brought for the recovery of any Rent due under this Lease, or for the breach of
any covenant or condition of this Lease, or for the restitution of the Leased
Premises to Landlord and/or eviction of Tenant during the Lease Term, or after
the expiration thereof, the party prevailing in any such legal action shall be
entitled to an award of all legal costs and expenses, including, but not limited
to, a reasonable sum for attorneys' fees.
24. AMENDMENT, WAIVER
This Lease constitutes the entire agreement between the parties. This
Lease shall not be amended or modified except in writing by both parties. No
covenant or term of this Lease shall be waived except with the express written
consent of the waiving party whose forbearance or indulgence in any regard shall
not constitute a waiver of such covenant or term. Failure to exercise any right
in one or more instances shall not be construed as a waiver of the right to
strict performance or as an amendment to this Lease.
25. NOTICES
All notices required by this Lease shall be in writing, sealed in an
envelope and delivered in person, or mailed by U.S. registered or certified
mail, return receipt requested, postage prepaid to the address specified below:
If intended for Landlord:
HUNTINGTON BEACH COMPANY
c/o Chevron Real Estate Management Company
6400 South Fiddler's Green Circle, Suite 200
Englewood, Colorado
80111-4991
with a copy to:
Leasing Manager
Chevron Real Estate Management Company
1301 McKinney, Room 654
Houston, Texas 77010
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If intended for Tenant:
The Pittsburg & Midway Coal Mining Co.
6400 South Fiddler's Green Circle, Suite 15000
Englewood, Colorado 80111-4991
or to such other addresses as either party designates by notice, as provided in
this paragraph, to the other party, from time to time. Notice shall be effective
as of the date delivered in person or the date postmarked, whichever is sooner.
26. BINDING EFFECT, GENDER
Subject to the provisions in paragraph 13, this Lease shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
It is understood and agreed that the terms "Landlord" and "Tenant" and verbs and
pronouns in the singular number are uniformly used throughout this Lease
regardless of gender, number or fact of incorporation of the parties hereto.
27. ADDENDA AND ATTACHMENTS
The typewritten addenda, exhibits or supplemental provisions, if any,
attached or added hereto, are made a part of this Lease by reference and the
terms thereof shall control over any inconsistent provisions in the paragraphs
of this Lease.
28. LANDLORD'S RESERVED RIGHTS
Without notice and without liability to Tenant, Landlord shall have the
right to:
A. change: (i) the name of the Building except to another coal
company, and (ii) the street address of the Building, if
required to do so by an appropriate authority;
B. install and maintain reasonable signs on the exterior of the
Building;
C. make reasonable rules and regulations as, in the judgment of
Landlord, may from time to time be needed for the safety of the
tenants, and the care and cleanliness of the Building and the
preservation of good order therein. Tenant shall be notified in
writing when each such rule and regulation is promulgated;
D. grant utility easements or other easements to such parties, or
replat, subdivide or make such other changes in the legal status
of the land underlying the Improved Area, as Landlord deems
necessary, provided such grant or changes do not substantially
or materially interfere with
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Tenant's use of the Leased Premises, as intended under this
Lease; and
E. sell the Building and assign this Lease to the purchaser (and
upon such assignment be released from all of its obligations
under this Lease which accrue after such assignment). Tenant
agrees to attorn to such purchaser, or any other successor or
assign of Landlord through foreclosure or deed in lieu of
foreclosure or otherwise and to recognize such person as
Landlord under this Lease, as provided more fully in paragraph
32 below.
29. OFFSET STATEMENT
Within 20 days after request therefor by Landlord, its agents,
successors or assigns, Tenant shall deliver, in recordable form, a certificate
to any proposed mortgagee or purchaser, or to Landlord, together with a true and
correct copy of this Lease, certifying, if applicable: (a) this Lease is in full
force and effect, without modification; (b) the amount, if any, of prepaid Rent
and security deposit paid by Tenant to Landlord; (c) that Landlord, as of the
date of the certificate, has performed all of its obligations due to be
performed under this Lease and that there are no defenses, counterclaims,
deductions or offsets outstanding, or other excuses for Tenant's performance
under this Lease, or stating those claimed by Tenant; and (d) any other fact
reasonably requested by Landlord or such proposed mortgagee or purchaser, which
does not modify or conflict with Tenant's rights under this Lease. Tenant's
failure to deliver said statement in time shall be conclusive upon Tenant: (a)
that this Lease is in full force and effect, without modification except as may
be represented by Landlord; (b) that there are no uncured defaults in Landlord's
performance and Tenant has no right of offset, counterclaim defenses or
deduction against Rent or Landlord hereunder; and (c) that no more than one
month's Rent has been paid in advance.
30. ACCORD AND SATISFACTION
No receipt and retention by Landlord of any payment tendered by Tenant
in connection with this Lease will give rise to, or support, or constitute an
accord and satisfaction, notwithstanding any accompanying statement, instruction
or other assertion to the contrary (whether by notation on a check or in a
transmittal letter or otherwise), unless Landlord expressly agrees to an accord
and satisfaction in a separate writing duly executed by the appropriate persons.
Landlord may receive and retain, absolutely and for itself, any and all payments
so tendered, notwithstanding any accompanying instructions by Tenant to the
contrary. Landlord will be entitled to treat any such payments as being received
on account of any item or items or Rent, interest, expenses or damage due in
connection herewith in such amounts and in such order as Landlord may determine
at its sole option.
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31. SEVERABILITY
The parties intend this Lease to be legally valid and enforceable in
accordance with all of its terms to the fullest extent permitted by law. If any
term hereof shall be finally held to be invalid or unenforceable, the parties
agree that such term shall be stricken from this Lease, the same as if it never
had been contained herein. Such invalidity or unenforceability shall not extend
to or otherwise affect any other term of this Lease, and the unaffected terms
hereof shall remain in full force and effect to the fullest extent permitted by
law, the same as if such stricken term never had been contained herein. The
above notwithstanding, if any provision of this Lease shall be finally held to
be invalid or unenforceable, and such term substantially and adversely affects
the amount of the Rent to be received by Landlord, or the nature of its
obligations to Tenant, or otherwise affects the economic bargain agreed to by
Landlord in this Lease, Landlord shall have the additional option of terminating
this Lease. Such right shall be exercised, if at all, by delivering notice to
Tenant within 30 days after the date of any final judgment declaring a provision
of this Lease invalid or unenforceable, stating a date of termination no sooner
than 90 days from such notice.
32. SUBORDINATION
The rights of Tenant hereunder are, and shall be, at the election of any
mortgagee, subject and subordinate to the lien of any deeds of trust, mortgages,
the encumbrance of any leasehold financing, or the lien resulting from any other
method of financing or refinancing, now or hereafter in force against the
Improved Area or the Building, and to all advances made, or hereafter to be made
upon the security thereof ("Superior Instruments"). The foregoing
notwithstanding, for any liens or Superior Instruments filed of record after the
execution of this Lease, the rights of Tenant under this Lease shall not be
subject or subordinated to such liens or Superior Instruments unless the holders
thereof execute an agreement in form and substance similar to the Attornment and
Nondisturbance Agreement attached hereto as Exhibit E. If requested, Tenant
agrees to execute whatever reasonable documentation may be required to further
effectuate the provisions of this paragraph.
Tenant agrees to attorn to any purchaser of the Building, or any other
successor or assign of Landlord through foreclosure or deed in lieu of
foreclosure, in return for and upon delivery to Tenant by such purchaser or
mortgagee, as the case may be, of an agreement substantially in the form of the
Attornment and Nondisturbance Agreement.
33. TIME
Time is of the essence hereof.
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34. APPLICABLE LAW
This Lease shall be construed according to the local laws of the State
of Colorado, without regard to the principles of conflicts of law, and venue
shall be in Arapahoe County, Colorado.
35. BROKER'S INDEMNIFICATION
As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that no broker or agent negotiated or was
instrumental in the negotiation or consummation of this Lease except the Brokers
of Record, and Tenant agrees to indemnify Landlord against any loss, expense,
cost or liability incurred by Landlord as a result of any claims by Tenant's
Broker of Record and any other broker or finder claiming through Tenant.
36. CONFLICTS OF INTEREST
Conflicts of interest relating to this Lease are strictly prohibited.
Except as otherwise expressly provided herein, neither Tenant nor any director,
employee or agent of Tenant, shall give to or receive from any director,
employee or agent of Landlord any gift, entertainment or other favor of
significant value, or any commission, fee or rebate. Likewise, neither Tenant
nor any director, employee or agent of Tenant shall enter into any business
relationship with any director, employee or agent of Landlord or of any
affiliate of Landlord, unless such person is acting for and on behalf of
Landlord, without prior written notification thereof to Landlord. Any
representatives authorized by Landlord may audit any and all records of Tenant
for the sole purpose of determining whether there has been compliance with this
paragraph.
37. TENANT REPRESENTATIONS
If Tenant is a legal entity, Tenant hereby represents and warrants to
Landlord that: (a) such entity is duly organized and validly existing under the
laws of the state of its formation and is qualified to do business in, and is in
good standing under, the laws of the State of Colorado; and (b) this Lease and
all documents executed or to be executed by Tenant in connection herewith and
which are to be delivered to Landlord will be duly authorized, executed and
delivered and will be legal, valid and binding obligations of Tenant, and do not
violate any provisions of any agreement or currently existing judicial order to
which Tenant is a party or to which it is subject. Further, if requested by
Landlord, either prior to or after Landlord's execution of this Lease, Tenant
shall provide Landlord with certified evidence of the foregoing.
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<PAGE> 35
38. ESTOPPEL CERTIFICATE
At any time that Landlord may so request, if the matters to which Tenant
is requested to certify are true and correct in all respects, Tenant shall
execute and deliver to Landlord a Tenants estoppel certificate in the form
attached hereto as Exhibit F.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first hereinabove written.
LANDLORD: HUNTINGTON BEACH COMPANY,
a California corporation,
by its managing agent, Chevron Real
Estate Management Company, a division
of Chevron U.S.A. Inc.
By: /s/ [SIGNATURE]
Its: Vice President
TENANT: THE PITTSBURG & MIDWAY COAL MINING
Co., a Missouri corporation
By: [SIGNATURE]
Its:
-24-
<PAGE> 36
EXHIBIT A
IMPROVED AREA
Description: Lot 4, Block 3, GREENWOOD PLAZA SOUTH, Filing No. 1, County of
Arapahoe, State of Colorado (see map and Schedule attached hereto and made a
part hereof).
<PAGE> 37
[MAP OF PLAZA TOWER ONE SITE PLAN]
<PAGE> 38
EXHIBIT B
LEASED PREMISES
(See plan attached hereto and incorporated herein by reference.)
<PAGE> 39
SCHEDULE I
PLAZA TOWER ONE IMPROVEMENTS
ITEMS
I. TENANT PARTITIONS:
A. Corridor Partition (1 hour):
o 3-5/8" 25 ga. steel studs to structure above, 16" on center with
5/8" type "X" gypsum wall board, hung vertically each side,
taped, sanded and ready to receive paint. Deflection channel
attached to metal decking at top of wall to allow 1" vertical
movement of slab. Firesafing in channels of metal deck above
wall system.
o 2-1/2" sound attenuation batt insulation in wall cavity.
Caulking each side at floor. Pricing shall include acoustical
ceiling cuts and all trim necessary.
B. Demising Partition:
o 2-1/2" 25 ga. steel studs to structure above, 24" on center with
5/8" type "XI" gypsum wall board, hung vertically each side, to
grid, taped, sanded and ready to receive paint. Wall height is
from slab to deck above. Deflection channel attached to metal
decking at top of wall to allow ill vertical movement of slab.
Expanded metal security barrier fastened to outside face of
studs above ceiling grid to underside of deck above. Firesafing
in channels of metal deck above wall system. Sound attenuation
batt insulation in wall cavity between metals studs from slab to
deck above. Caulking each side at floor. Pricing shall include
acoustical ceiling cuts and all trim necessary.
C. Interior Partition:
o 2-1/2" 25 ga. metal studs @ 24 o.c. with 5/8" type "X" gypsum
wall board, hung vertically each side, using "L" metal at
ceiling grid, taped, sanded and ready to receive paint. Wall
height = from floor to acoustical grid. Pricing shall include
all trim necessary.
Page 1 of 3
<PAGE> 40
D. Partition to Mullion Termination:
o Metal closure where partition terminates at exterior wall.
E. Base:
o 4" straight rubber base in building standard color on each side
of partition.
II. TENANT DOORS:
A. Doors (20 min.):
o 1-3/4" x 3' x 0" x 8'-10" (full height) solid core, plain sliced
white oak light stained both sides with 3/4" vertical edge
strips to match face.
B. Frames (20 min.):
o 16 ga. hollow metal fully welded wrapped frame with adjustable
floor clips, painted in an enamel finish. Diagonal bracing to
structure above acoustical ceiling, where required.
C. Sidelight @ Entrance/Exit Door (20 min.):
o 1"-6" x full height with frame to match door jamb.
D. Entrance Hardware:
o One (1) cylindrical lockset, two (2) pair ball bearing butts,
one (1) wall stop, three (3) silencers, smoke seal and one (1)
door closer. Brushed chrome finish.
E. Interior Hardware:
o One (1) cylindrical lockset, two (2) pair nonbearing butts, one
(1) wall stop and three (3) silencers. Brushed chrome finish.
Page 2 of 3
<PAGE> 41
III. PAINT:
A. Paint gyp. bd. walls two coats pastel eggshell latex paint,
including columns within space and perimeter walls. Color selected
by Landlord, approved by Architect.
B. Paint hollow metal door frames and sidelight frames two coats
semi-gloss alkyd enamel paint. Color selected by Landlord, approved
by Architect.
IV. TENANT CARPETING:
A. Designweave, Tempest II, 32 oz. continuous filament nylon with
polypropylene back, glued direct in Tenant's choice of
manufacturer's standard colors.
V. TENANT CEILING:
o Installation of Armstrong fissured Travertone ceiling tile into
existing 2' x 5' regular ceiling grid provided under base
building.
VI. WINDOW TREATMENT:
o Graber "Lucia" light filtering vertical blinds, fabric
composition, chrome #822.
VII. ELECTRICAL/TELEPHONE:
A. 110v duplex wall receptacle.
B. 277v wall switch.
C. Wall-mounted telephone outlet.
D. Install 2 x 4, 18 cell parabolic, three tube fluorescent light
fixtures, one per 80 square feet.
E. Furnish and install exit light and fire speaker.
VIII. HVAC EQUIPMENT:
A. Furnish and install air troffer boot, flex duct and spin-ins.
B. Install thermostats.
C. Furnish and install dampers in ducts at rated partitions as
required.
Page 3 of 3
<PAGE> 42
Susan Stanfield
- --------------------------------------------------------------------------------
From: Anne Staunton @ wellpoint.com
Sent: Friday, December 03, 1999 11:07 AM
To: Susan Stanfield
Subject: RE:Thought you might be interested.
Susan,
thanks for your follow up messages. I've been swamped. But I will be organizing
some demos/visits for January and your company is definitely on the list. Thanks
again
Anne Staunton, Ph.d., M.P.H.
Manager, Strategic Projects
HealthCare Management Group
T2-1B6
(805) 557- 6018
- ------------------ ( Forwarded letter 1 follows ---------------------
Date: Thu, 2 Dec 1999 08:14:46 -0700
To: anne.staunton
From: [email protected]
Subject: Thought you might be interested...
Hi Anne,
I thought you might be interested in the "kudos" being received by XCare.net. I
look forward to speaking with you when you get some time!
http://biz.yahoo.com/bw/991130/co_xcare_n_l.html
<PAGE> 43
EXHIBIT B
THE 14TH FLOOR IS OCCUPIED
ENTIRELY BY P&M
[PLAZA TOWER 14TH FLOORPLAN DIAGRAM]
<PAGE> 44
EXHIBIT B-1
THE 15TH FLOOR IS OCCUPIED
ENTIRELY BY P&M
[PLAZA TOWER 15TH FLOOR DIAGRAM]
<PAGE> 45
[P&M COAL
TRAINING ROOM 1717 DIAGRAM]
[P&M COAL
CONFERENCE ROOM 1701 DIAGRAM]
[P&M
TELEPHONE
CLOSET
1702]
<PAGE> 46
EXHIBIT B-3
PARKING LEVEL 3
<PAGE> 47
EXHIBIT B-4
PARKING LEVEL 4
<PAGE> 48
EXHIBIT B-5
[BUILDING BASEMENT DIAGRAM]
<PAGE> 49
EXHIBIT C
JANITORIAL SERVICES
OFFICES: - Empty all waste receptacles.
- Empty and damp-wipe ashtrays.
- Dust all horizontal surfaces. Dust high and low areas
(pictures, clocks, partition tops, etc.).
- Vacuum all obvious dirt and dust. Remove all visible soil.
Vacuum corners, edges and chairs and spot-vacuum all carpet
areas.
- Collect and remove all trash from building.
LOBBY: - Dust mop all hard surface floors.
- Mop all stains and spills, especially coffee and drip
spills.
- Spot-clean all walls, light switches and doors.
- Empty and damp-wipe ashtrays.
- Buff all tile areas.
CORRIDORS: - Spot-clean all walls, light switches and doors.
- Clean and polish all drinking fountains.
- Empty and damp-wipe ashtrays.
- Vacuum all carpets.
- Spot-clean carpeted areas.
RESTROOMS: - Clean and sanitize all restroom units including toilets,
urinals and sinks; damp-wipe mirrors, polish chrome, wipe
counters and dispensers, and empty trash.
GLASS: - Clean both sides of all interior glass.
ELEVATOR CARPET: - Clean and vacuum carpeted elevators.
STAIRS, CARPET: - Police stairs for litter.
- Vacuum and clean stairs.
<PAGE> 50
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, entrances, halls, corridors, elevators and stairways of the
Building shall not be obstructed or used as a waiting or lounging place by
Tenant, or its agents, servants, employees, invitees, licensees and
visitors.
2. Landlord reserves the right to refuse admittance to the Building at any
time other than between the hours of 6:00 a.m. and 6:00 p.m. weekdays, or
7:00 a.m. and 1:00 p.m. on Saturdays, to any person not producing either a
key to the Leased Premises or a pass issued by Landlord. In case of
invasion, riot, public excitement or other commotion, Landlord also
reserves the right to prevent access to the Building during the
continuance of same. Landlord shall in no case be liable for damages for
the admission or exclusion of any person to or from the Building.
3. Landlord will furnish each Tenant with two keys to each door lock in the
Leased Premises, and Landlord may make a reasonable charge for any
additional keys requested by Tenant. No Tenant shall have any keys made
for the Leased Premises; nor shall any Tenant alter any lock, or install
new or additional locks or bolts, on any door without the prior written
approval of Landlord. If a lock alteration or installation is made, the
new lock must accept the master key for the Building. Each Tenant, upon
the expiration or termination of its tenancy, shall deliver to Landlord
all keys in such Tenant's possession for all locks and bolts in the
Building.
4. In order that the Building may be kept in a state of cleanliness, each
Tenant shall, during the term of its Lease, permit Landlord's employees
(or Landlord's agent's employees) to take care of and clean the Leased
Premises, and Tenant shall not employ any person(s) other than Landlord's
employees (or Landlord's agent's employees) for such purpose. No Tenant
shall cause any unnecessary labor by reason of such Tenant's carelessness
or indifference in the preservation of good order and cleanliness of the
Leased Premises. Tenant will ensure that before leaving the Leased
Premises each day:
(a) the doors are securely locked and
Page 1 of 5
<PAGE> 51
(b) all water faucets and other utilities are shut off (so as to prevent
waste or damage).
If Tenant must dispose of crates, boxes, etc., which will not fit into
office wastepaper baskets, it will be the responsibility of Tenant to
dispose of same by removing them from the building or by placing them in
designated waste collection receptacles at the delivery dock. In no event
shall Tenant place such items for disposal in the public hallways or other
common areas of the Building or Improved Area.
5. Landlord reserves the right to prescribe the date, time, method and
conditions that any personal property, equipment, trade fixtures,
merchandise and other similar items shall be delivered to or removed from
the Building. NO steel safe or other heavy or bulky object shall be
delivered to or removed from the Building except by experienced safe men,
movers or riggers approved in writing by Landlord. All damage done to the
Building by the delivery or removal of such items, or by reason of their
presence in the Building, shall be paid by Tenant to Landlord, immediately
upon demand therefor. For the delivery or receipt of merchandise, only
hand-trucks equipped with rubber tires shall be used by Tenant, jobbers or
others.
6. The walls, partitions, skylights, windows, doors and transoms that reflect
or admit light into passageways or into any other part of the Building
shall not be covered or obstructed nor have signs or advertisements posted
on them by any Tenant.
7. The toilet rooms, toilets, urinals, wash bowls and water apparatus shall
not be used for any purpose other than for those for which they were
constructed or installed, and no sweepings, rubbish, chemicals or other
unsuitable substances shall be thrown or placed therein. The expense of
any breakage, stoppage or damage resulting from violations of this rule by
Tenant or by Tenant's agents, servants, employees, invitees, licensees or
visitors, shall be borne by Tenant.
8. No sign, name, placard, advertisement or notice visible from the exterior
of any Leased Premises shall be inscribed, painted or affixed by any
Tenant on any window or other part of the Building or Improved Area
without the prior written approval of Landlord. A directory containing the
names of all tenants of the Building shall be provided by Landlord at an
appropriate place on the first floor of the Building.
Page 2 of 5
<PAGE> 52
9. No electronic signaling, telegraphic or telephonic instruments or devices,
or other wires, instruments or devices, shall be installed in connection
with any Leased Premises without the prior written approval of Landlord,
which approval shall not be unreasonably withheld. Such installations,
and the boring or cutting of wires, shall be made at the sole cost and
expense of Tenant and under the control and direction of Landlord.
Landlord retains, in all cases, the right to require:
(a) the installation and use of such electrical protecting devices that
prevent the transmission of excessive currents of electricity into
or through the Building;
(b) the changing of wires and of their installation and arrangement
underground or otherwise as Landlord may direct; and
(c) compliance on the part such wires with such relating thereto. All
clearly tagged at the boxes and elsewhere in of the Leased Premises
of all using or seeking access to rules as Landlord may establish
such wires used by Tenant must be distribution boards and junction
the Building, with (x) the number to which said wires lead, (y) the
purpose for which said wires are used, and (z) the name of the
company operating same.
10. Tenant, its agents, servants and employees shall not:
(a) go upon the roof of the Building;
(b) use any additional method not approved in writing by the Landlord of
heating or air conditioning the Leased Premises;
(c) sweep or throw any dirt or other substance from the Leased Premises
into any of the halls, corridors, elevators or stairways of the
Building, or onto any part of the Improved Area;
(d) bring in or keep in or about the Leased Premises any vehicles or
animals of any kind;
(e) install any radio or television antenna or any other device or item
on the roof, exterior walls, windows or window sills of the Building
or anywhere in the Improved Area;
Page 3 of 5
<PAGE> 53
(f) place objects against glass partitions, doors or windows which would
be unsightly from the interior or exterior of the Building;
(g) place pictures, plants or any other items on window sills which
would interfere with closing of window blinds by the janitors at
night;
(h) use any portion of the Leased Premises: (i) for lodging or sleeping;
(ii) for cooking (except that the use by any Tenant of Underwriter
Is Laboratory-approved equipment for brewing coffee, tea and similar
beverages or the use by Tenant of a similarly-approved microwave
oven shall be permitted, provided that such use is in compliance
with law); and (iii) for any purpose other than the Permitted
Purpose provided for in the Lease; or
(i) permit the operation of any musical or other soundproducing
instruments or devices which may be heard outside the Tenant's
Leased Premises, or which may emit signals which will impair radio
or television broadcast or reception from or into the Building.
11. Tenant shall not store, carry into or use within Plaza Tower One or in any
Leased Premises or permit others to do so:
(a) any ether, naphtha, phosphorous, benzol, gasoline, benzine,
petroleum, crude or refined earth or coal oils, kerosene or
camphene;
(b) any other flammable, combustible, explosive or illuminating fluid,
gas or material of any kind; or
(c) any other fluid, gas or material of any kind having an offensive
odor; or
(d) any firearm (loaded or unloaded) or any other weapon or ammunition
for a weapon.
12. No canvassing, soliciting, distribution of handbills or other written
material, or peddling shall be permitted in the Building or the Improved
Area, and Tenant shall cooperate with Landlord in prevention and
elimination of same.
13. Tenant shall give Landlord prompt notice of all accidents to, or defects
in, air conditioning equipment, plumbing, electrical facilities, or any
part or appurtenances of the Leased Premises.
Page 4 of 5
<PAGE> 54
14. The Improved Area outside the Building may be used for the enjoyment of
Tenant, its agents, servants and employees without restriction so long as
such parties conduct themselves in a manner so as not to disturb others or
disturb, destroy or litter the Improved Area. All parties using the
Improved Area shall comply with all applicable governmental laws,
ordinances, rules and regulations and all rules and regulations of
Arapahoe County.
15. Tenant personnel and their guests shall observe "No Smoking" signs where
posted in Plaza Tower One and refrain from smoking in elevator lobbies,
elevators, public corridors, building stairwells and restrooms. Smoking is
permitted in the terrace area outside the east end of Level Two.
Page 5 of 5
<PAGE> 55
EXHIBIT E
ATTORNMENT AND NONDISTURBANCE AGREEMENT
THIS AGREEMENT, made as of __________________ between ___________________
("Interest Holder") and __________________ ("Tenant").
WITNESSETH:
THAT, WHEREAS, HUNTINGTON BEACH COMPANY, a California Corporation
("Landlord"), has by Lease executed on _______________ leased to Tenant for a
term of years, commencing on _______________, and ending on _______________, or
upon such postponed date as shall be designated by written endorsement to the
Lease, certain portions of the building located in the County of Arapahoe, State
of Colorado ("Leased Premises"), and the building more particularly described as
follows:
WHEREAS, Interest Holder is the holder of a lien or other interest in the
form of a _______________ and recorded at _______________ and any amendments,
supplements or extensions thereto ("Encumbrance"); and
WHEREAS, the encumbered premises under the foregoing Encumbrance are the
same premises as, or include the Leased Premises set forth in, the legal
description above;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. Tenant agrees that in the event of any foreclosure or the exercising
of any other rights under the Encumbrance, whereby Interest Holder shall cause
Landlord to be ousted from possession or assert any right of ownership
inconsistent with Tenant's right under the Lease, at any time and from time to
time after commencement of the term of the Lease and prior to the expiration,
cancellation or other termination thereof, for any reason, Tenant shall be bound
to Interest Holder, the purchaser at a foreclosure sale, any receiver appointed
under the Encumbrance, assignment of rents, or court order, or any assignee or
successor in interest (all of which are hereinafter referred to as "Transferee")
under all of the terms, covenants and conditions of the Lease during the
remaining term thereof, including any extensions or renewals which may be
effected in accordance with any option in the Lease, with the same force and
effect as if Transferee were Landlord under the Lease, and Tenant does hereby
attorn to Transferee as its Landlord.
Page 1 of 3
<PAGE> 56
2. The parties hereto do hereby covenant and agree that the Lease and any
modifications, and amendments thereto subsequently approved by Interest Holder,
and all rights, options, liens or other charges created thereby, are, and shall
continue to be, subject and subordinate in all respects to the Encumbrance and
the lien created thereby, to any advance made thereunder, to any consolidations,
extensions, modifications or renewals thereof, and to any other mortgage on the
Leased Premises held by Interest: Holder.
3. So long as no default exists and no event has occurred which would
entitle Landlord to terminate the Lease, Interest Holder agrees that in the
event of any foreclosure or the exercising of any other rights under said
Encumbrance whereby any such Transferee shall oust Landlord of possession or
assert any right of ownership which would, in the absence of this Agreement, be
inconsistent with Tenant's rights under the Lease and prior to the expiration or
termination thereof, the Lease shall, in accordance with its terms, remain in
full force and effect as a direct Lease between Transferee and Tenant and the
possession of Tenant under the Lease shall not be disturbed by any such event.
The Transferee shall be entitled to all of the rights and benefits and subject
to all of the obligations of the immediately prior landlord under the Lease. If
successive rights should be asserted by any or several Transferees separately or
in any combination, Tenant shall have the same rights to continue the Lease in
effect in each such instance.
4. In order to effect the provisions of the preceding paragraphs, Interest
Holder does hereby grant and demise to Tenant the Leased Premises for a term of
years to commence upon the exercise of any right described in the preceding
paragraphs. Such term of years shall be upon the terms and conditions of the
Lease as though the Lease were between Transferee and Tenant.
5. The provisions of the preceding paragraphs are to be effective and
self-operating without the execution of any further instruments upon
Transferee's succeeding to the interest of Landlord under the Lease.
6. This Agreement shall inure to the benefit of and be binding upon
Tenant, Interest Holder, Transferee, their successors and assigns.
7. The effective date of this Agreement is _______________, and the
covenants and conditions hereof shall apply from and after said date.
Page 2 of 3
<PAGE> 57
8. This Agreement shall remain in full force and effect and shall pertain
to said Lease now or as hereafter amended or extended.
9. Neither Interest Holder nor Transferee shall in any way or to any
extent (a) be obligated or liable to Tenant for any prior act, omission or
default on the part of Landlord under the Lease, or (b) be obligated or liable
to Tenant for any security deposit or other sums deposited with Landlord not
physically delivered to Interest Holder or Transferee, or (c) be bound by any
previous prepayment of rent for a period greater than one month, unless such
modification, amendment or prepayment shall have been expressly authorized in
writing by Interest Holder, and Tenant shall have no right to set off assets or
counterclaim against Interest Holder or the Transferee for any of the acts or
omissions of Landlord referred to in (a), (b) or (c) above.
10. In the event of any act or omission by Landlord under the Lease which
would give Tenant the right to terminate the Lease or claim a partial or total
eviction, Tenant shall not exercise any such right until (a) it has given notice
thereof to Interest Holder, and (b) Interest Holder, following the giving of
such notice, shall have failed to commence or pursue action to remedy such act
or omission in the manner set forth in the Lease.
11. All notices hereunder shall be given in the manner prescribed in the
Lease.
TENANT: By: ____________________________________
Its: ___________________________________
INTEREST HOLDER: By: ____________________________________
Its: ___________________________________
Page 3 of 3
<PAGE> 58
EXHIBIT F
ESTOPPEL CERTIFICATE
The undersigned, a duly authorized _______________ of _______________ ,
hereby certifies unto _______________ as follows:
1. _______________ is the Tenant ("Tenant") and _______________ is the
Landlord ("Landlord") under that certain Lease ("Lease") dated _______________ ,
relative to _______________ (____) square feet of space in the Plaza Tower One
building located at 6400 South Fiddler's Green Circle, Englewood, Arapahoe
County, Colorado, and the following improvements:
_________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
2. Attached hereto as Exhibit "A" is a complete and accurate copy of the
Lease and, except as set forth in such attachment, there are no other amendments
thereto or agreements relating to the subject matter thereof.
3. The Lease is in full force and effect and Landlord is not in default
thereunder, except as may be indicated on any attached addendum. Tenant has
received no notice from Landlord that Tenant is in default under the Lease and
Tenant has no present knowledge of any facts which would give rise to or
constitute a breach or default by either party thereunder.
4. There is no claim of offset or other claim presently existing in favor
of Tenant against Landlord arising out of or relating to the Lease, except as
may be indicated on the attached addendum.
5. The Lease is for a term of _______________, having commenced on
_______________ , with the present term expiring on _______________, subject to
renewal options as therein provided.
6. Rent under the Lease has been paid through _____________, subject to
adjustment as therein provided.
Page 1 of 2
<PAGE> 59
7. Tenant has performed all tenant finish work with regard to the Leased
Premises and Tenant has accepted possession and is in occupancy of such Leased
Premises.
8. Tenant has no option or right of first refusal to purchase the Leased
Premises.
The undersigned understands that this Certificate may be relied upon by a
purchaser of the Leased Premises.
Dated at _______________, _______________, 19___.
TENANT:
By: ________________________________
Its: _______________________________
Page 2 of 2
<PAGE> 60
EXHIBIT G
(Page 1 of 2)
PLAZA TOWER GARAGE PARKING SPACES
Level 3 - 8 Executive Parking Spaces
[DIAGRAM]
<PAGE> 61
EXHIBIT G
(Page 2 of 2)
PLAZA TOWER GARAGE PARKING SPACES
Level 1 - 11 Tenant Company
Vehicle Parking Spaces
[DIAGRAM]
<PAGE> 62
GREENWOOD PLAZA SOUTH FILING NO. 1
A DESUBDIVISION OF A PORTION OF
ARAPAHOE COUNTY, COLORADO
SHEET 2 OF 2
[DIAGRAM]
NOTE: Property owned by other than Greenwood Plaza South, a Colorado Partnership
is not included as Greenwood Plaza South common Property.
EXHIBIT II
<PAGE> 63
FIRST AMENDMENT TO PLAZA TOWER ONE OFFICE LEASE
THIS FIRST AMENDMENT TO PLAZA TOWER ONE OFFICE LEASE is entered into this
day of , 1996, by and between HUNTINGTON BEACH COMPANY, a
California corporation ("Landlord"), by its managing agent, Chevron Real Estate
Management Company, a division of Chevron U.S.A. Inc., and THE PITTSBURG &
MIDWAY COAL MINING CO., a Missouri corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into an Office Lease agreement dated
January 1, 1995 (the "Lease"), pursuant to which Landlord agreed to lease and
Tenant agreed to hire certain office space located in the Plaza Tower One office
building located in Arapahoe County, Colorado; and WHEREAS, Landlord and Tenant
wish to amend the Lease as set forth below.
NOW, THEREFORE, in consideration of the foregoing premises, the terms and
conditions provided herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
17. PARKING
Landlord shall provide parking within a seven-level structure (1-6
covered) contiguous to the Building. Such spaces include 81 short-term
parking spaces in close proximity to the elevators, which are available
for use by Tenant's visitors at no cost for up to two hours. In addition,
up to 100 non-exclusive parking spaces will be provided by Landlord for
use by the Tenant at a charge of $10 per space per month throughout the
Lease Term and Lease Renewal Term. In addition to the foregoing, Landlord
agrees to provide Tenant 11 reserved spots on Level 1 for company vehicles
and 8 reserved spots on Level 3 for Tenant's exclusive use at a charge of
$10 per space per month throughout the Lease Term and Lease Renewal Term.
The spaces designated for Tenant's exclusive use are illustrated on
Exhibit G attached hereto and made a part hereof. Subject to Landlord's
rules and regulations adopted from time to time pursuant to paragraph 16,
Tenant's employees, invitees and licensees shall be entitled to reasonable
use of such parking areas. All present and future parking shall be within
such parking areas and not within the street right-of-way. There shall be
no on-street parking.
2. Rent: Paragraph 3A is hereby deleted and the following is substituted
therefor:
A. Tenant shall pay to Landlord on the first day of each calendar
month during the term of this Lease, at
<PAGE> 64
the mailing address as designated from time to time by Landlord and
without deduction or setoff (unless authorized by this Lease), the Base
Rent, and other charges provided for in this Lease, and Tenant's Pro Rata
Share of Operating Costs allocated to the Tower and described in paragraph
3B below which exceed the Base Operating Costs. Notwithstanding the
foregoing, Operating Costs for calendar year 1995 and beyond shall not
exceed 107% of Operating Costs for the immediately preceding calendar
year. Rent for any fractional calendar month shall be that proportion of
the Rent which the number of days during such month bears to the total
number of days in such month. Rent not paid by the 10th day of the month
shall be subject to a late charge of 3% per month of the amount due. For
purposes of this paragraph and until directed to do otherwise, Tenant
shall mail all payments required to be paid under this Lease to the
following address:
CHEVRON REAL ESTATE MANAGEMENT COMPANY
P.O. BOX 297864
HOUSTON, TEXAS 77297
3. Except as specifically amended hereby, the Lease shall remain in full
force and effect and the parties hereby reaffirm each and all of its terms and
provisions, as amended.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first written above.
LANDLORD
HUNTINGTON BEACH COMPANY, a
California corporation, by its
managing agent, Chevron Real Estate
Management Company, a division of
Chevron U.S.A. Inc.
By:
-----------------------------------
TENANT
THE PITTSBURG & MIDWAY COAL
MINING CO., a Missouri
corporation
By: /s/ [Signature Illegible]
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-2-
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[FLOOR PLAN]
SUBLEASE
EXHIBIT B
FLOOR PLAN OF 14TH FLOOR
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Sublease
EXHIBIT C
The Pittsburg & Midway Coal Mining Co.
Inventory of Surplus Furniture
Retained by Xcare.Net
Room # 14013
1 2 Drawer Steel File Cabinet
Room # 14017
1 6 Shelf File Stand Large Tan Metal in Center
1 Medium Book Case
Room # 14022
1 Small Refrigerator
Room # 14025
1 Small Printer Stand/Table
Room # 14031
1 Large Conference Table
1 2 Door Drop End Table
7 Black Leather Chairs
Room # 14033
1 Small Roller Table
Room # 14041
2 Metal Book Shelves
Room # 14048
1 File Cabinet
Room # 14050
1 Desk Chair
Room # 14053
7 5 Drawer File Cabinets
Room # 14066
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1 Computer Table
Room # 14067
1 Large Black Horizontal Filing Cabinet (Metal)
1 Table (Metal)
Room # 14075
3 5 Drawer File Cabinets (Black)
1 2 Drawer File Cabinet (Black)
Room # 14080
2 Side Chairs
Room # 14089
1 Side Chair
Room # 14091
1 Desk Chair
Room # 14097
1 File Cabinet (Brown)
1 Tall File Cabinet (Black)
Room # 14104
1 Desk Chair
Room # 14107
2 5 Drawer Lateral File Cabinets
Room # 14108
1 2 Drawer Lateral File Cabinet
Room # 14110
4 Cafeteria Tables
Room # 15008
1 2 Drawer Lateral File Cabinet
Room # 15013
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1 White 5 Drawer Lateral File Cabinet
4 2 Drawer Lateral File Cabinets
Room # 15020
1 Bench Stool
1 Pedestal Computer Table
Room # 15036
1 Desk Chair
Room # 15040
1 White Board
1 Drafting Table
1 High Swivel (Drafting) Chair
Room # 15052
1 Drafting Table
2 File Cabinet, 3 Drawer
Room # 15058
1 Chair
2 Straight Chairs, Cloth (matched)
Room # 15062
2 Chairs, Cloth Swivel
1 White Board, Small
Room # 15065
3 Storage Cabinets, metal
Room # 15069
2 White Boards, 1 on Wheels
Room # 15077
1 White Board
Room # 15078
2 Folding Tables
Room # 15083
1 Large White Board
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Room # 15086
1 Desk Chair
Room # 15090
2 Maroon Desk Chairs
Room # 15092
1 Desk Chair
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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
January 11, 2000
